COLUMBIA, Md., March 2, 2010 /PRNewswire via COMTEX/ -- Martek Biosciences Corporation today announced its financial results for the first quarter of fiscal 2010. Revenues for the first quarter were $89.8 million, up 3% from $87.4 million in the first quarter of fiscal 2009. GAAP net income was $9.6 million, or $0.29 per diluted share, for the first quarter of fiscal 2010, consistent with the earnings levels in last year's first quarter. The first quarter of fiscal 2010 included expenses associated with the acquisition of Amerifit Brands ("Amerifit") of $1.2 million. Excluding these amounts, net of tax, the fiscal 2010 first quarter earnings would have been $10.4 million, or $0.31 per diluted share, an increase of 8% over the first quarter of fiscal 2009 (see "Reconciliation of GAAP to Non-GAAP Net Income Measure" below).
Commenting on the quarter, Chief Executive Officer Steve Dubin said, "Fiscal 2010 is off to a good start as a result of continued strong growth in Martek's DHA sales for markets outside of infant formula. DHA sales outside of formula increased by 40% over Q1 2009, including a 60% increase in sales of DHA for food and beverage applications as a number of projects that were stalled in the pipeline during the economic downturn are now beginning to come to market. Sales of DHA and ARA for infant formula were down slightly from Q1 2009 levels, but I am encouraged by what appears to be a bottoming of that market and the prospect that we may be returning to growth in the second quarter, a quarter ahead of what we forecasted in our Q4 2009 guidance."
Mr. Dubin continued, "I believe that Martek is well-positioned for growth in 2010 thanks to the combination of a positive outlook for our nutritional ingredients business and the recent completion of our acquisition of Amerifit. Beyond 2010, the Amerifit platform should enable Martek to develop consumer brands for some of the exciting new products in our research and development pipeline, resulting in an acceleration of products to the marketplace and increased gross profit opportunities as we move up the value chain by getting closer to the consumer."
In addition, contract manufacturing and services revenues in the first quarter totaled $5.7 million, compared with $3.3 million a year ago. Of the $5.7 million in first quarter of fiscal 2009, approximately $4.6 million relates to contract manufacturing activities which the Company anticipates exiting, in large measure, over the course of fiscal 2010. The remaining $1.1 million relates to revenues associated with Martek's joint development agreement with a subsidiary of BP p.l.c. ("BP") for work on microbial oils for use as biofuels, which began in late fiscal 2009. These development services with BP are expected to continue through at least 2011.
Gross Margin and Operating Expenses
Overall gross margin for the first quarter of fiscal 2010 was 43.0%, a slight increase over the 42.4% gross margin realized in the first quarter of fiscal 2009, but a slight decrease from the 43.8% gross margin in Martek's fiscal 2009 fourth quarter. Compared to the fourth quarter, gross profit margins from product sales in the first quarter were up slightly; however, the increase was offset by a decline in contract manufacturing margins. See "Financial Guidance" for the gross margins projected for the Company's second quarter.
Research and development expenses in the first quarter of fiscal 2010 were $7.1 million, or 7.9% of revenue, consistent with the corresponding quarter of last year. Martek's research and development focuses on both broadening the market applications for the Company's life'sDHA(TM) as well as leveraging the Company's microbial technology platform to develop new high-value product offerings. The Company continues to expect quarter-to-quarter fluctuations in research and development expenses mainly due to the timing of outside services, including third-party clinical trial services.
During the first quarter of fiscal 2010, selling, general and administrative expenses ("SG&A") were $13.3 million, or 14.8% of revenue, a slight increase from $13.1 million, or 15.0% of revenue, in the first quarter of fiscal 2009.
Acquisition of Amerifit and Financial Position
On February 12, 2010, Martek completed its previously announced acquisition of Amerifit, a consumer health and wellness company. Amerifit develops, markets and distributes branded consumer health and wellness products and holds leading brand positions in all of its key product categories. Amerifit products are sold in most major mass, club, drug, grocery and specialty stores and include: Culturelle(R), a leading probiotic supplement; AZO(R), the leading OTC brand addressing symptom relief, detection and prevention of urinary tract infections; and ESTROVEN(R), the leading all-natural nutritional supplement brand addressing the symptoms of menopause. At closing, Martek paid total, all-cash consideration for Amerifit of approximately $200 million.
To finance the Amerifit acquisition, Martek utilized existing cash of approximately $115 million along with the proceeds from a new term debt facility totaling $75 million and $11 million drawn from a new revolving credit facility. Martek's new revolving credit facility has a total borrowing capacity of $50 million and replaces Martek's former credit facility of $135 million which was due to expire in September 2010.
Significant Recent Events
Non-Infant Formula Product Launches - Products with Martek's life'sDHA(TM) were recently launched in the United States including Natelle(R)One (Azur Pharma Ltd) prescription prenatal vitamin with 250 mg life'sDHA(TM), Algal-900 DHA Softgels (CVS/Pharmacy(R)) with 900 mg life'sDHA(TM), Spring Valley(R) Algal-900 DHA (Wal-Mart) with 900 mg life'sDHA(TM), Horizon(TM) Organic Lowfat Chocolate Milk Plus DHA Omega-3 (WhiteWave Foods) and Sara Lee(R) Soft & Smooth Plus Bread (Sara Lee).
New Scientific Data Published on DHA and ARA - The benefits of DHA and ARA supplementation were recently discussed in the following publications:
The American Journal of Clinical Nutrition (online, February 2010) published results of a study investigating DHA supplementation on brain function. Thirty-three healthy boys, 8-10 years of age, were supplemented with 400 or 1200 mg/day DHA or placebo for 8 weeks and tested during an activity of continuous performance. The results showed that the DHA level in red blood cells was positively correlated with brain function and inversely correlated with reaction time during the activity. These results demonstrate the important role that DHA plays in regulation of brain activity. Martek provided financial support and life'sDHA(TM) for this study.
The American Journal of Clinical Nutrition (online, February 2010) published the results of a study in which 343 term infants were fed formula containing no long-chain polyunsaturated fats or formula supplemented with 0.32% DHA, 0.64% DHA, or 0.96% DHA throughout the first year of life. All DHA-supplemented formula also contained 0.64% ARA. Visual evoked potential (VEP) was measured at 1.5, 4, 9, and 12 months. At 12 months, all DHA-supplemented infants scored significantly better in VEP visual acuity than those given an unsupplemented formula. There were also no significant differences in VEP visual acuity between the three DHA-supplemented groups. The authors state that these subtle changes in vision are important "because they suggest diet-related modifications in the developmental course of structure and function in the brain and/or retina" and that "dietary supply of DHA during infancy may have long-lasting effects on brain function." Martek's life'sDHA(TM) and life'sARA(TM) were used in the study.