Martek Announces Second Quarter 2002 Results - Nutritional Product Sales Increase Over Three-Fold

Losses Down Before One-Time Acquisition Charge

COLUMBIA, Md., June 5 /PRNewswire-FirstCall/ -- Martek Biosciences Corporation (Nasdaq: MATK) today announced its financial results for the second quarter and the six months ended April 30, 2002. For the quarter ended April 30, 2002 (2nd Qtr FY 02) revenues of $11,423,000 were recognized, up from $4,013,000 for the 2nd Qtr FY 01, and for the six months ended April 30, 2002 revenues of $17,393,000 were recognized, up from $7,508,000 for the same period in 2001. Before taking into account a one-time charge of $15,788,000 relating to the acquisition of OmegaTech, Inc., the net loss for the 2nd Qtr would have been $2,129,000, or $.10 per share, and the net loss for the six months ended April 30, 2002 would have been $5,076,000, or $.25 per share. Approximately one-third of the OmegaTech purchase price was allocated to research projects in which technical feasibility had not yet been established, resulting in a one-time charge of $15,788,000 under applicable accounting rules. Including the one-time charge, Martek's net loss for the 2nd Qtr FY 02 was $17,917,000, or $.84 per share, and the net loss for the six months ended April 30, 2002 was $20,864,000, or $1.01 per share.

"I am pleased that nutritional oil sales are continuing their rapid growth in infant formula," stated Henry Linsert, Jr., Chief Executive Officer of Martek. "With the recent OmegaTech transaction, they now are poised for introduction into more general food and beverage products as well."

Review of 2nd Qtr Financial Results
Sales of nutritional products increased by $8,002,000 or 255% for the 2nd Qtr FY 02 over the 2nd Qtr FY 01 and increased $11,099,000 or 196% for the first six months of FY 02 when compared to the same period in 2001. (For a history of the Company's sales of nutritional products see a chart at http://www.martekbio.com/images/corporatepages/ProductSalesQ2.asp.) Sales of fluorescent marker products increased $60,000 or 53% in the 2nd Qtr FY 02 over the 2nd Qtr FY 01, and increased $263,000 or 219% for the first six months of FY 02 when compared to the same period in 2001, primarily the result of increased sales from a distribution agreement with PerkinElmer Life Sciences, which was entered into in early 2001. Due to the sale of the stable isotope product line in November 2001, overall sales of other products decreased 57% for the 2nd Qtr FY 02 compared to the 2nd Qtr FY 01, and decreased 56% for the first six months of FY 02 when compared to the same period in 2001.

As a result of the above, total revenues increased by almost three-fold during the 2nd Qtr FY 02 over the 2nd Qtr FY 01, from $4,013,000 to $11,423,000, and increased by $9,885,000 or 132% for the six month period ended April 30, 2002 over the same period in 2001.

Cost of product sales and royalties increased to 73% of revenues from product sales and royalties for the 2nd Qtr FY 02, up from 60% for the 2nd Qtr FY 01. For the six-month period ended April 30, 2002, cost of product sales and royalties increased to 72% of revenues from product sales and royalties, up from 64% for the six-month period ended April 30, 2001. Martek's cost of sales includes costs associated with both ARA and DHA production. Martek's gross profit margins are most significantly impacted by the cost of ARA oil (as compared to DHA oil), which is currently manufactured by a third party, DSM Gist B.V. ARA typically represents approximately two-thirds of Martek's product sales to infant formula licensees. Management believes that, with the complete amortization of the start up costs of DSM (currently included in the cost of ARA) and increased volume purchases, the cost of Martek's ARA oil will decrease significantly during the third quarter of FY 02, resulting in improved gross profit margins. DHA production costs were high during the quarter due primarily to equipment problems which caused a delay in the return to normal operations following a planned major maintenance overhaul and production shutdown early in the quarter at Martek's Winchester, KY production plant.

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 plant. Upon completion, which is expected in the Fall of 2002, production capacity at the plant should more than double. Also, in December, 2001 Martek announced that it had signed a letter of intent (LOI) to acquire the assets of FermPro Manufacturing, L.P. (FermPro) of Kingstree, S.C. Martek has recently signed a manufacturing agreement with FermPro for DHA production while the due diligence relating to this potential acquisition is being performed. Management expects this due diligence to be completed in the next several months, and expects to begin receiving DHA under the manufacturing agreement with FermPro in late June. Management believes that with the expansion at the Company's Winchester, KY plant, in conjunction with the DHA production from FermPro, Martek should have the capacity needed to meet FY 03 market demand and realize improved economies of scale.

Research and development costs increased by $264,000 or 9%, in the 2nd Qtr FY 02 as compared to the 2nd Qtr FY 01. For the six-month period ended April 30, 2002, research and development costs increased by $168,000 or 3% when compared to the same period in 2001. Over one-half of the Company's current R&D expenditures relate to large-scale development efforts at the Winchester, KY plant. Management believes that these costs will decline as these development projects are implemented into production. Future output should also increase as yields are increased.

On April 25, 2002, Martek completed the acquisition of OmegaTech, Inc., a Boulder, Colorado producer of DHA. 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.

Selling, general and administrative expenses increased by $74,000, or 3%, during the 2nd Qtr FY 02 and increased by $310,000, or 8%, in the six months ended April 30, 2002 over the second quarter and six months ended April 30, 2001, respectively. These increases are primarily the result of increased corporate health insurance and legal costs.

Other operating expenses decreased by $41,000 in the 2nd Qtr FY 02 compared to the 2nd Qtr FY 01, and decreased by $201,000 or 68% for the six months ended April 30, 2002 compared to the same period in 2001. These expenses consist of costs associated with obtaining additional production capacity, and may fluctuate as Management evaluates and tests new technologies and equipment to manufacture Martek's nutritional oils.

Other income, net, decreased $105,000 or 29%, during the 2nd Qtr FY 02 compared to the 2nd Qtr FY 01, and decreased $127,000, or 20% during the six months ended April 30, 2002 compared to the six months ended April 30, 2001. These decreases are primarily due to lower interest earned on investments.

As a result of the foregoing, net loss for the 2nd Qtr FY 02 was $17,917,000, or $.84 per share, compared to a net loss of $3,240,000, or $.17 per share for the 2nd Qtr FY 01. Net loss for the six months ended April 30, 2002, was $20,864,000 or $1.01 per share, compared to a net loss of $6,816,000 or $.37 per share for the same period in 2001. The net loss for the 2nd Qtr and six months ended April 30, 2002 includes a one-time charge of $15,788,000 related to the write-off of in-process research and development in connection with the purchase of OmegaTech, Inc., which was completed in April, 2002.

Without taking into account this one-time charge, the net loss for the 2nd Qtr FY 02 would have been $2,129,000, or $.10 per share, and the net loss for the six months ended April 30, 2002 would have been $5,076,000, or $.25 per share.

Recent Developments
On April 25, 2002, Martek completed the acquisition of OmegaTech, Inc., a privately held DHA producer located in Boulder, Colorado. The Company issued approximately 1.8 million shares of Martek common stock worth approximately $50 million in the stock for stock transaction. (Of this 1.8 million shares, approximately 140,000 shares worth $4 million were issued on May 20, 2002). An additional maximum stock consideration of approximately $40 million will be issued over the next two years if certain milestones related to sales, regulatory and labeling approvals are met.

In early May, Hutchison Healthcare Limited, a joint venture of the Hutchison Whampoa Limited group, initiated test marketing of a pregnant and nursing supplement in China. The product contains Martek's proprietary source of DHA and is available in grocery stores and pharmacies in Guangzhou, China, which has a population of approximately 5 million.

Martek also recently announced the signing of a non-exclusive license agreement by a subsidiary of the H.J. Heinz Company to market infant formula supplemented with the Company's nutritional oils in Australia, New Zealand and certain Pacific Islands. The Company received an initial cash payment and will receive ongoing royalties upon Heinz's introduction of products using Martek's oils.

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 fiscal 2002, 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 infant formula supplemented with Martek's oils in over 60 countries around the world for term or pre-term infant formula products. Two of these licensees have completed the regulatory process to market these products in the United States. Although OmegaTech's historical sales into the adult food and supplement market have been minimal, Management anticipates that over the next few years this business will expand and represent a larger potential market than infant formula.

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 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 production from the FermPro facility; (5) future research and development costs; (6) expectations regarding the integration with OmegaTech, Inc.; 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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