Martek Announces Third Quarter 2002 Results - Nutritional Product Sales Increase 167 Percent

Losses Down 25% Before Restructuring Charge

COLUMBIA, Md., Sept. 10 /PRNewswire-FirstCall/ -- Martek Biosciences Corporation (Nasdaq: MATK) today announced its financial results for the third quarter and nine months ended July 31, 2002. For the quarter ended July 31, 2002 (3rd Qtr FY 02) revenues of $13,544,000 were realized, up from $5,565,000 for the 3rd Qtr FY 01, and for the nine months ended July 31, 2002 revenues of $30,937,000 were recognized, up from $13,073,000 for the same period in 2001. Martek's net loss for the 3rd Qtr FY 02 was $3,744,000, or $.16 per share.

Before taking into account a charge of $1,266,000 relating to the restructuring of the Company's food and beverage sales efforts, the net loss for the 3rd Qtr would have been $2,478,000, or $.11 per share. The net loss for the nine months ended July 31, 2002 was $24,608,000, or $1.14 per share. Included in this amount is a charge of $15,788,000 taken in the 2nd Qtr FY 02 relating to the write-off of a portion of the purchase price of OmegaTech, Inc. under applicable accounting rules.

"These numbers mean a lot more babies are getting the right formula," stated Henry Linsert, Jr., Chief Executive Officer of Martek. "Because of this, Martek should be in the black in its 4th quarter."

Review of 3rd Qtr 2002 Consolidated Financial Results Sales of nutritional products increased by $8,268,000 or 167% for the 3rd Qtr FY 02 over the 3rd Qtr FY 01 and increased $19,369,000 or 183% for the first nine 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/3rd2002Sales1.gif .) This 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 3rd 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. Mead Johnson and Abbott are both marketing supplemented infant formulas in the U.S., and Mead, Abbott and Wyeth are collectively marketing supplemented term infant formula in over 25 countries around the world. Sales of other products decreased by $241,000 during the 3rd Qtr FY 02 and $734,000 during the nine month period ended July 31, 2002 compared to the corresponding periods in 2001 due to the sale of the stable isotope product line in November 2001.

As a result of the above, total revenues increased by $7,979,000 or 143% during the 3rd Qtr FY 02 over the 3rd Qtr FY 01, and increased by $17,864,000 or 137% for the nine month period ended July 31, 2002 over the same period in 2001.

Martek's overall cost of sales improved during the 3rd Qtr FY 02 primarily due to lower costs from DSM Gist B.V. (DSM), its third party supplier of ARA oil. Specifically, Martek's cost of product sales and royalties decreased to 63% of revenues from product sales and royalties for the 3rd Qtr FY 02, down from 71% for the 3rd Qtr FY 01. For the nine-month period ended July 31, 2002, cost of product sales and royalties increased to 68% of revenues from product sales and royalties, up from 67% for the nine-month period ended July 31, 2001. Martek's gross profit margins are most significantly impacted by the cost of ARA oil (as compared to DHA oil), which represents approximately two- thirds of all sales to infant formula licensees and is currently manufactured by a third party, DSM. The improved gross profit margin in the 3rd Qtr FY 02 is primarily due to lower ARA costs as a result of the complete amortization of the start up costs of DSM (previously included in the cost of ARA) and increased purchase volumes. Management expects continued decreases in the future costs of ARA from DSM as Martek's sales volumes continue to increase.

Management also anticipates significant reductions in DHA production costs as: (1) economies of scale are realized from increased output from the fermentation expansion which is currently underway at the Company's Winchester, KY production plant, and (2) yield improvements from the Company's past R&D efforts are realized.

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. Upon completion, production capacity at the plant should more than double. Martek has also signed a manufacturing agreement with FermPro for DHA production while the due diligence relating to a potential acquisition is being performed. The Company began receiving DHA under this 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.

Selling, general and administrative expenses increased by $2,465,000 or 120% during the 3rd Qtr FY 02 and increased by $2,776,000 or 47% in the nine months ended July 31, 2002 over the third quarter and nine months ended July 31, 2001, respectively. The majority of the increase in the 3rd Qtr FY 02 relates to operating costs associated with Martek Boulder which was acquired on April 25, 2002, and consolidated with Martek's operations for the first time in the 3rd Qtr FY 02. Management expects these costs to decrease in the 4th Qtr FY 02 as a result of the restructuring of the food and beverage sales efforts that occurred in the 3rd quarter as discussed above.

Other operating expenses increased by $167,000 or 190% in the 3rd Qtr FY 02 compared to the 3rd Qtr FY 01, and decreased by $36,000 or 9% for the nine months ended July 31, 2002 compared to the same period in 2001. The increase in these expenses in the 3rd Qtr FY 02 as compared to the 3rd Qtr FY 01 is primarily due to costs associated with the evaluation of potential third party production facilities.

Other income decreased $113,000 or 33%, during the 3rd Qtr FY 02 compared to the 3rd Qtr FY 01, and decreased $240,000 or 24% during the nine months ended July 31, 2002 compared to the nine months ended July 31, 2001. These decreases were primarily due to lower interest earned on investments.

Acquisition and Restructuring
On April 25, 2002, Martek completed the acquisition of OmegaTech, Inc., a Boulder, Colorado producer of DHA ("OmegaTech" or "Martek Boulder"). 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, net loss for the 3rd Qtr FY 02 was $3,744,000, or $.16 per share, compared to a net loss of $3,311,000, or $.17 per share for the 3rd Qtr FY 01. Net loss for the nine months ended July 31, 2002, was $24,608,000 or $1.14 per share, compared to a net loss of $10,127,000 or $.54 per share for the same period in 2001. The net loss for the 3rd Qtr FY 02 includes a charge of $1,266,000 related to restructuring of the food and beverage sales effort at Martek Boulder. Without taking into account this one-time charge, the net loss for the 3rd Qtr FY 02 would have been $2,478,000, or $.11 per share. The net loss for the nine months ended July 31, 2002 includes a charge of $15,788,000 taken in the 2nd Qtr FY 02 relating to the write-off of a portion of the purchase price of OmegaTech, Inc. under applicable accounting rules.

Recent Developments
In July 2002, Bristol-Myers Squibb announced in their 2nd quarter earnings release that their Mead Johnson division sales of Enfamil(R) increased 18% over the same period in 2001, and attributed this increase to the recent introduction of Enfamil(R) LIPIL(TM), an infant formula supplemented with Martek's DHA and ARA.

Mead Johnson also announced in August 2002 that it was adding two additional products to the Enfamil(R) LIPIL(TM) line of infant formulas. All of Mead Johnson's LIPIL products contain a blend of Martek's DHA and ARA oils.

The new products, Enfamil Premature LIPIL for premature infants still in the hospital, and Enfamil EnfaCare LIPIL for premature infants who have left the hospital, will soon be available to give all premature infants access to DHA and ARA supplementation.

In early July 2002 a European Patent Office ruled in favor of Martek's DHA patent by overturning a prior negative finding which had revoked one of Martek's European DHA patents. The decision was consistent with decisions of other patent offices around the world, keeping solid Martek's portfolio of over 350 granted and pending patents in the field of microalgae biotechnology.

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 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 are marketing supplemented 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 for Martek's nutritional oils than the infant formula market.

Investor Conference Call Webcast
Investors may listen to Martek's Senior Management discuss the Company's quarterly earnings and other current business issues on Tuesday, September 10, 2002 at 4:45 p.m. EDT 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, 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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