Martek Announces Q4 and FY 02 Results

Q4 Profit; FY 02 Revenues of $46 Million

COLUMBIA, Md., Dec. 12 /PRNewswire-FirstCall/ -- Martek Biosciences Corporation (Nasdaq: MATK) today announced its financial results for the fourth quarter and year ended October 31, 2002. For the quarter ended October 31, 2002 (4th Qtr FY 02) revenues of $15,117,000 were achieved, up from $5,750,000 for the 4th Qtr FY 01, and for the year ended October 31, 2002 revenues of $46,055,000 were attained, up from $18,824,000 for the same period in 2001. For the 4th Qtr FY 02, Martek earned net income of $375,000, or $.02 per share, compared to a net loss of ($3,575,000) or ($.18) per share for the 4th Qtr FY 01. For the year ended October 31, 2002, the Company recognized a net loss of ($24,233,000) or ($1.10) per share compared to a net loss of ($13,702,000) or ($.73) per share for FY 01. Included in the FY 02 results are one-time non-cash charges totaling $17,054,000 taken in the 2nd and 3rd Qtr FY 02 relating to the expensing of a portion of the purchase price of OmegaTech, Inc., a Boulder, Colorado producer of DHA ("OmegaTech" or "Martek Boulder") under applicable accounting rules, and the restructuring of the Company's food and beverage sales efforts.

"Martek came of age in FY 02," stated Henry "Pete" Linsert, Jr., Chief Executive Officer of Martek. "The Company finally joined the biotech profit club in Q4, and I expect both revenues and profits should increase significantly next year."

4th Qtr 2002 Consolidated Financial Results

Nutritional product sales and royalties increased by $9,628,000 or 185% in the 4th Qtr FY 02 over the 4th Qtr FY 01 (For a history of the Company's sales of nutritional products see a chart at (http://www.martekbio.com/images/corporatePages/4Q-Sales-Product.gif) The growth in nutritional product sales is primarily due to increased sales of Martek's oils to the Company's infant formula licensees. Over 80% of Martek's 4th quarter revenue was generated by sales of docosahexaenoic acid (DHA) and arachidonic acid (ARA) to three of the Company's infant formula licensees: Mead Johnson, Wyeth and Abbott. Supplemented term infant formulas manufactured by these companies are collectively being marketed in over 25 countries around the world, including the U.S. Sales of other products decreased $250,000 or 54% in the 4th Qtr FY 02 due to the sale of the stable isotope product line in November 2001.

As a result of the above, total revenues increased by $9,367,000 or 163% during the 4th Qtr FY 02 over the 4th Qtr FY 01.

Gross margins improved to 42% during the 4th Qtr FY 02, up from 30% for the same period last year, primarily due to lower costs from DSM Gist B.V. (DSM), Martek's third party manufacturer of ARA oil. ARA oil represents approximately two-thirds of all sales to infant formula licensees. Management expects continued decreases in the future costs of ARA from DSM as Martek's sales volumes continue to increase. Management also anticipates reductions in DHA production costs as: (1) economies of scale are realized from increased output from the fermentation expansion which is currently in the start-up phase of production at the Company's Winchester, KY production plant, and (2) yield improvements from the Company's past R&D efforts are realized.

Research and development expenses decreased by $975,000 or 28% in the 4th Qtr FY 02 compared to the 4th Qtr FY 01 as large-scale development projects were completed and put into production in FY 02.

Selling, general and administrative expenses increased by $1,600,000 or 79% during the 4th Qtr FY 02 over the 4th Qtr FY 01, due primarily to operating costs associated with OmegaTech, which was acquired on April 25, 2002, and reflected in Martek's Consolidated Statement of Operations in the 4th Qtr FY 02, but not in the 4th Qtr FY 01.

Other income, net, of $205,000, which consists primarily of interest earned on the Company's investments, decreased $69,000 or 25% in the 4th Qtr FY 02 compared to the 4th Qtr FY 01, due to lower interest rates.

As a result of the foregoing, Martek achieved net income of $375,000, or $.02 per share in the 4th Qtr FY 02, compared to a net loss of ($3,575,000), or ($.18) per share for the 4th Qtr FY 01.

FY 2002 Consolidated Financial Results

Nutritional product sales and royalties increased by $28,313,000 or 169% in FY 02 over FY 01 primarily due to increased sales of Martek's oils to the Company's infant formula licensees. Over 80% of Martek's FY 02 revenue was generated by sales of DHA and ARA to Mead Johnson, Wyeth and Abbott. Sales of other products decreased $985,000 or 56% in FY 02 due to the sale of the stable isotope product line in November 2001.

As a result of the above, total revenues increased by $27,231,000 or 145% in FY 02 over FY 01.

Gross margins improved to 35% in FY 02, up from 32% in FY 01 due to lower costs of ARA oil from DSM. Martek began selling lower cost ARA in May of 2002, resulting in approximately five months of improved ARA margin in FY 02.

Research and development expenses decreased by $1,057,000 or 8% in FY 02 compared to FY 01 as large-scale development projects were completed and put into production during FY 02.

Selling, general and administrative expenses increased by $4,375,000 or 55% in FY 02 over FY 01, due primarily to operating costs associated with Martek Boulder and reflected in Martek's Consolidated Statement of Operations in the 3rd and 4th Qtr FY 02, but not in the 3rd and 4th Qtr FY 01.

On April 25, 2002, Martek completed the acquisition of OmegaTech. The Company allocated $15,788,000 of the purchase price of OmegaTech to in-process research and development, resulting in a one-time charge under applicable accounting rules in the 2nd Qtr FY 02.

On July 29, 2002 the Company announced a restructuring of its food and beverage sales efforts, which included the termination of approximately 10 employees and consultants at Martek Boulder. The Company recorded a one-time charge of $1,266,000 during the 3rd Qtr FY 02 to account for severance and other costs associated with this restructuring.

As a result of the foregoing, Martek recognized a net loss of ($24,233,000), or ($1.10) per share for FY 02, compared to a net loss of ($13,702,000) or ($0.73) per share for FY 01.

Recent Highlights

Recent events impacting Martek include:

* The expansion of supplemented formula lines in the U.S. Mead Johnson
recently extended its DHA and ARA supplemented Enfamil LIPIL(R) line to
include soy, lactose-free and premature formulas. The Ross Products
division of Abbott also recently expanded its supplemented Similac
Advance(R) line to include a soy-based formula and several products for
premature infants. Additionally, a supplemented product manufactured
for PBM Products, Inc. by Wyeth was recently launched in the U.S., and
is now available in Wal-Mart.

* The October 2002 announcement by Health Canada (the Canadian equivalent
of the US FDA) that it had completed a favorable review of Martek's
application to use the Company's DHA and ARA in Canadian infant
formulas. Health Canada's action pertained solely to Martek's oils, and
allows only Martek's DHA and ARA to be used in supplemented infant
formulas sold in Canada.

* The recent statements issued by the American Heart Association, which
recommend increased consumption of Omega-3 fats, specifically DHA, for
improved cardiovascular health. Also, a recently published report in
The New England Journal of Medicine found that contaminants found in
many fish may lead to an increased risk of heart attack. Martek's
Neuromins(R) provides a vegetarian-based source of DHA that solves the
problem of how to reap the benefits of Omega-3 fatty acids without
eating fish.

* In October 2001, the Company began construction to significantly
increase its fermentation capacity and add a new shipping, packaging,
cold storage and office building at its Winchester, KY plant. The
start-up phase of production has recently begun for this expansion.
Martek is also receiving DHA under a manufacturing agreement with
FermPro, a South Carolina toll manufacturing facility. The additional
production from the expansion at the Winchester plant, in conjunction
with the DHA production from FermPro, should more than double the
Company's total DHA manufacturing capacity.

Executive Retirement

Dr. Richard Radmer, Martek's President and Chief Scientific Officer and a member of the Company's Board of Directors, has announced plans to retire in the Spring of 2003. As a founder of Martek in 1985, Dr. Radmer has overseen the Company's extensive microalgal research program, including the development of Martek's lead product, DHA. He has also been instrumental in creating and maintaining Martek's intellectual property portfolio and has directed the Company's quality assurance and pilot-scale research efforts. For the past several years, Dr. Radmer has worked on a part-time basis. His R&D responsibilities are being transferred to Dr. James Flatt, Martek's Senior Vice President of Research and Development.

Management's Outlook

Management believes that while quarterly results may show fluctuations in product sales, the outlook for future revenue growth remains positive and that, in the next 12 months, sales of nutritional oils into the infant formula and adult food and supplement market will continue to grow. To date, five of the Company's infant formula licensees have completed the regulatory process, where required, to sell term infant formula supplemented with Martek's oils in over 25 countries around the world. Supplemented term infant formulas manufactured by three of these licensees are currently being marketed in the United States.

Investor Conference Call Webcast

Investors may listen to Martek's Senior Management discuss the Company's quarterly earnings and other current business issues on Thursday, December 12, 2002 at 4:45 p.m. EST by accessing Martek's website at http://www.martekbio.com , selecting the "Investors" tab, choosing "Live Webcast" and following the related instructions.

General

Management's Outlook and other sections of this release contain forward- looking statements concerning, among other things: (1) expectations regarding future revenue growth, product introductions, growth in nutritional product sales, production expansion, margin and productivity improvements, applications and potential collaborations and acquisitions; (2) expectations regarding sales and royalties by and from infant formula licensees; (3) expectations regarding future efficiencies in manufacturing processes and the costs of production of nutritional oils and purchase of third-party manufactured oils; (4) expectations regarding the potential acquisition of and production from the FermPro facility; (5) future research and development costs; (6) expectations regarding the integration with OmegaTech; and (7) production capacity. 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 above and in the Company's filings with the Securities and Exchange Commission, including, but not limited to our Form 10-K for the fiscal year ended October 31, 2001 and other filed reports on Form 10-Q and Form 8-K.

About Martek

Martek Biosciences Corporation develops, manufactures and sells products from microalgae. 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) new, powerful fluorescent markers for diagnostics, rapid miniaturized screening, and gene and protein detection.

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