Profitable Martek looks to new applications

Related tags Martek Docosahexaenoic acid

Fatty acids producer Martek Biosciences continued its recent
profit-making run during the second quarter, which should help its
plans to expand further into new markets and new applications,
writes Philippa Nuttall.

Martek​ has continued the trends it showed in the first quarter of this year. The company again cited infant formula licensees as a significant reason for the 59 per cent rise in its second quarter revenue and once again margins were still impacted by problems with its ARA supply.

For the second quarter of 2004, the company's total revenue was $41.9 million, up from $26.4 million for the same period last year. Martek earned a net income of $3.4 million or $0.11 per diluted share compared to $3.1 million and $0.12 respectively in 2003.

As Scott Van Winkle, managing director of US analysts Adams, Harkness & Hill said, these results offered nothing out of the ordinary. "The guidance notes for this year and next are what is important,"​ he said, "as they show ARA supply difficulties should be solved within the next six months, taking pressure off their gross profit margins."

Pete Buzy, Martek's chief financial officer, explained that going forward, the company is looking to work more with Mead Johnson for pregnancy and lactation products.

"We will then be doing studies in the cardiovascular area and when we have got the science we need we will be looking for a pharma partner to brand and market the new product in 2005,"​ said Buzy.

"We already have 90 per cent penetration of the US market for DHA and ARA and expect over the next few years to have 100 per cent penetration in the United States and over 50 per cent in the rest of the world,"​ he added.

Martek currently distributes its DHA to European dietary supplement makers through an agreement with Dutch firm Vegetable Seed Oil Products (VSP).

But Van Winkle saw Martek's two real opportunities over time as selling DHA and ARA in supplements for pregnant women and as food ingredients.

"We have had extremely good feedback from food companies and external suppliers about Martek's products,"​ said Van Winkle. "The company now needs the FDA to make a health claim for omega-3 and DHA or to introduce a recommended daily intake, so that food manufacturers will be encouraged to add what is still a fairly expensive ingredient,"​ he concluded.

As in the first three months, approximately 90 per cent of Martek's second quarter nutritional product sales were generated from sales of docosahexaenoic acid (DHA) and arachidonic acid (ARA) to four of the company's infant formula licencees, namely Mead Johnson, Wyeth, Abbott Laboratories and Nestle.

Research and development expenses increased by 67 per cent ($1.8 million) over the same period, which Martek attributed primarily to the additional resources directed towards improving its medium- to long-term DHA production costs and its efforts in developing different forms of DHA products for the food and beverage industry.

Martek's difficulties with ARA supply were increased last month by a fire at supplier DSM's Belvidere manufacturing plant, which led to the temporary suspension of the production of the fatty acid.

Martek was also hit by production shortages at DSM's ARA plant in Italy last year, after a national power outage affected its facility in Capua.

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