Martek Announces Fourth Quarter and FY 2005 Financial Results

COLUMBIA, Md., Dec 13, 2005 /PRNewswire-FirstCall via COMTEX/ -- Martek Biosciences Corporation (MATK) today announced its financial results for the fourth quarter and fiscal year ended October 31, 2005. For the fourth quarter of fiscal 2005 (4th Qtr 05), revenues of $56.0 million were achieved compared to $59.7 million for the fourth quarter of fiscal 2004 (4th Qtr 04). Revenues increased 18% to approximately $218 million for the full 2005 fiscal year. For the 4th Qtr 05, Martek generated income before income taxes of $7.7 million compared to income before income taxes of $10.1 million in the 4th Qtr 04. For fiscal 2005, Martek generated income before income taxes of $24.1 million compared to $21.9 million generated during fiscal 2004.

"Martek's fourth quarter revenue increase of more than 40% over the third quarter indicated that earlier customer inventory stockpiles appear to have been largely used up. Now that production is in place, the Company is ready for further sales growth in 2006. I continue to be encouraged by market interest for DHA in food," stated Henry "Pete" Linsert, Jr., Chief Executive Officer of Martek.

4th Qtr Consolidated Financial Results

Management believes that revenues for the 4th Qtr 05 indicate that the previously disclosed build-up of inventory by certain customers has been largely liquidated. Total revenues for the 4th Qtr 05 were $56.0 million compared to $59.7 million for the 4th Qtr 04.

Gross profit margin on product sales increased to 43% in the 4th Qtr 05 from 40% in the 4th Qtr 04 mostly because of DHA productivity improvements and the discontinuation of overseas air freighting of ARA.

Research and development expenses in the 4th Qtr 05 totaled $5.0 million and remained relatively flat as compared to the 4th Qtr 04. Martek's research and development efforts continue to focus on new DHA clinical studies and additional efforts in the development of new food and beverage applications for DHA.

Selling, general and administrative expenses increased by $2.3 million during the 4th Qtr 05 over the 4th Qtr 04. The increase was mainly due to initial year Sarbanes-Oxley Act implementation costs as well as additional personnel, legal and non-recurring patent and employee relocation expenses. External Sarbanes-Oxley Act implementation costs totaled nearly $400,000 in the 4th Qtr 05.

Other operating expenses totaled $900,000 in the 4th Qtr 05, a decrease from the $1.3 million incurred in 4th Qtr 04. These costs in the 4th Qtr 05 were comprised largely of certain start-up costs related to internal ARA production.

Income before income taxes was $7.7 million in the 4th Qtr 05 compared to income before income taxes of $10.1 million in the 4th Qtr 04. Net income of $4.9 million, or $0.15 per diluted share, was realized in the 4th Qtr 05, after recognition of the Company's provision for income taxes which totaled $2.8 million. Net income of $35.3 million, or $1.16 per share on a diluted basis, for the 4th Qtr 04 includes the impact of a non-recurring, non-cash income tax gain resulting from the reversal of a portion of Martek's deferred tax asset valuation allowance. On a pro forma basis, after eliminating the effect on 4th Qtr 04 earnings of this non-recurring tax gain which was $28.9 million, or $0.95 per diluted share, net income for the 4th Qtr 04 would have been $6.4 million, or $0.21 per diluted share.

Fiscal Year 2005 Consolidated Financial Results

Total revenues for the year ended October 31, 2005 (FY 05) were $217.9 million, an increase of $33.4 million or 18% over $184.5 million for the year ended October 31, 2004 (FY 04), due mainly to higher sales of nutritional products to the Company's infant formula licensees. Gross profit margin on product sales increased to 41% for FY 05 from 39% for FY 04, mostly due to DHA productivity improvements. Research and development expenses increased by $1.9 million or 10% in FY 05 compared to FY 04 due to additional efforts in DHA, ARA and food DHA production improvements as well as DHA clinical studies. Selling, general and administrative expenses increased by $7.6 million or 29% in FY 05 over FY 04 because of increased personnel, legal, insurance and patent-related expenses as well as cost increases related to Sarbanes-Oxley Act compliance totaling approximately $1 million. Other operating expenses of $7.7 million and $4.0 million were incurred in FY 05 and FY 04, respectively, and relate primarily to certain production start-up costs. Income before income taxes increased by $2.2 million or 10% in FY 05 compared to FY 04. Net income of $15.3 million, or $0.48 per diluted share, was realized in FY 05, compared to net income of $47.0 million, or $1.55 per diluted share, in FY 04. Net income in FY 04 included a non-recurring tax gain, as described above. On a pro forma basis, after eliminating the effect on FY 04 earnings of this non- recurring tax gain which was $33.2 million, or $1.09 per diluted share, net income for FY 04 would have been $13.9 million, or $0.46 per diluted share.

The Company used cash in operations of $17.1 million in FY 05. This was mainly the result of planned increases in Martek's DHA and ARA inventory which are now at adequate levels and no longer constrain revenue growth. The majority of the inventory increase during the quarter related to ARA purchases from a third party.

Capital expenditures for FY 05 were $57.2 million, the majority of which occurred during the first half of FY 05 and related to the expansion of the Kingstree facility, which is now substantially complete. The Company generated cash flow from financing activities of $65.7 million, primarily due to the issuance of common stock under the Company's shelf registration which generated net proceeds of $81.4 million, offset by the net repayment of $30 million of borrowings under the Company's revolving credit facility. As of October 31, 2005, Martek had approximately $33.3 million in cash and had maximum available borrowings under the revolving credit facility of $80 million.

Recent Highlights

* Production and Inventory of Nutritional Oils -- The Company has
substantially completed its extensive expansion in Kingstree for the
fermentation and downstream processing of the Company's nutritional
oils. Additionally, DSM has substantially completed its expansion in
Belvidere, New Jersey and has significantly increased its output at
that plant. When combining Martek's and DSM's production capabilities,
the Company now has production capacity adequate to fulfill the
expected needs of the infant formula market and to meet the potential
short- to mid-term demand estimated for food and beverage DHA

* New and Improved Martek DHA(TM) Now Available -- In November 2005, the
Company announced the availability of a new and improved Martek
DHA(TM) for use in food and beverage applications. The new and
improved Martek DHA(TM) has enhanced food formulation capabilities,
including better stability and easier formulation in some
applications. Martek has also developed a more efficient
manufacturing process that produces high levels of DHA at a
significantly lower cost, which is now cost competitive with certain
forms of fish oil, on a price per DHA unit basis, thereby opening new

* Study Results Support Benefits of DHA -- Study results published
recently in the Journal of Pediatric Psychiatry revealed a positive
correlation between DHA levels in breast milk and newborn
neurobehavioral function, as measured by the Brazelton Neonatal
Behavioral Assessment Scale. These findings support numerous studies
showing that DHA plays an important role in infant mental and visual
development. They also underscore the importance of DHA
supplementation during pregnancy and breastfeeding and the importance
of adding high levels of DHA to infant formula.

* Additional Data Published on Neurological Benefits of DHA -- Three
recently published reports further support the neurological benefits
of DHA.

-- A scientific review on DHA published in the Annual Review of
Cell and Developmental Biology emphasized the significant role
that DHA plays in the maintenance of normal neurological

-- The results of a study published in The Journal of Clinical
Investigation suggests that DHA intake could benefit people
with Alzheimer's disease by lowering the accumulation of
amyloid-B peptides, which are associated with brain aging and

-- The results of an in vitro study published in The Journal of
Neurochemistry notes that DHA enrichment likely induces changes
in neuronal membrane properties which may assist in the
prevention of Alzheimer's disease and other neurodegenerative

* Patent Application Regarding New Family of Anti-Inflammatory Compounds
Filed -- Martek recently filed for a patent regarding the use of
certain algal-based, natural compounds as anti-inflammatories. This
potential new commercial use was discovered in connection with
Martek's internal research and is supported by preliminary data
derived from an animal study. The Company is actively pursuing this
area to further develop new applications for its products.

* European Low Chloride DHA Patent Upheld -- In November 2005, the
Opposition Division of the European Patent Office upheld the validity
of a modified Martek patent covering lower-cost processes for
fermenting specified DHA-producing microorganisms under low chloride
conditions and the resulting products. The patent was opposed by
Nutrinova Nutrition Specialties and Food Ingredients GmbH, a
subsidiary of Celanese Corporation, against whom Martek is maintaining
two separate patent infringement actions. Nutrinova may appeal the
recent decision of the Opposition Division.

* Products to Include Martek DHA(TM) Logo -- Certain products sold by
both PBM Products and Galaxy Foods will soon include the Martek
DHA(TM) logo. PBM Products will include this logo on its fortified
Bright Beginnings(TM) infant formulas offered at Albertsons, Kroger,
Giant, Walgreen's and other leading retailers in the United States.
PBM Products will also include the logo on the GlucoBurst(TM) Diabetic
Drink that will be available in stores beginning in 2006. Galaxy
Foods will include the logo on its Veggie(R) Butter Alternative
product available in major supermarket chains throughout the U.S.,
including Publix and Kroger.

* Amended and Restated Revolving Credit Facility -- In September 2005,
the Company amended its revolving credit facility. The amended
facility matures in September 2010 and maximum borrowing capacity has
been increased from $100 million to $135 million.

Management Changes

Mr. Henry "Pete" Linsert, Jr. will retire on June 30, 2006 as Chief Executive Officer. Mr. Linsert has been the Chief Executive Officer of Martek since 1989. He will continue as Chairman of the Company's Board of Directors. Mr. Steve Dubin, Martek's President, will become Chief Executive Officer upon Mr. Linsert's retirement. Mr. Dubin has served in a variety of positions with Martek including President, Chief Financial Officer, General Counsel and Senior VP of Business Development since 1992.


Sections of this release contain forward-looking statements concerning, among other things: (1) expectations regarding production issues, Company inventory levels, growth in the food and beverage market, customer stocking and destocking of inventory, customer demand, future revenue and profit trends, capacity for annualized sales of our infant formula and food DHA products, product introductions, margin and productivity improvements, applications and potential collaborations; (2) expectations regarding future efficiencies in manufacturing processes and the costs of production of nutritional oils and purchase of third-party manufactured oils; (3) expectations regarding production capacity and timing of production capacity growth; and (4) expectations regarding changes in Martek's senior management. These statements are based upon numerous assumptions which Martek cannot control and involve risks and uncertainties that could cause actual results to differ. These statements should be understood in light of the risk factors set forth in the Company's filings with the Securities and Exchange Commission, including, but not limited to, Exhibit 99.01 to the Company's Form 10-Q for the fiscal quarter ended July 31, 2005 and other filed reports on Form 10-K, Form 10-Q and Form 8-K.

About Martek

Martek Biosciences Corporation develops, manufactures and sells naturally produced products from microalgae and fungi. The Company's products include: (1) specialty, nutritional oils for infant formula that aid in the development of the eyes and central nervous system in newborns; (2) nutritional supplements and food ingredients that may play a beneficial role in promoting mental and cardiovascular health throughout life; and (3) powerful fluorescent markers for diagnostics, rapid miniaturized screening, and gene and protein detection.

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