[MATK is a company I’ve been watching for years, especially since the share-price implosion in 2005 made it closer to being a “value” stock. They’ve had a new CEO since June, but it’s still early to tell if he’ll be able to get the business back on a growth track. The stock was up about 4% in AH trading on this report.]
COLUMBIA, Md., Dec. 12 /PRNewswire-FirstCall/ -- Martek Biosciences Corporation (Nasdaq: MATK ) today announced its financial results for the fourth quarter and fiscal year ended October 31, 2006. For the fourth quarter of fiscal 2006 (4th Qtr 06), revenues of $67.2 million were achieved, a 20% increase compared to $56.0 million for the fourth quarter of fiscal 2005 (4th Qtr 05). During the 4th Qtr 06, the Company recorded a charge of $4.7 million ($3.0 million, net of income taxes or $0.09 per diluted share) which resulted from a restructuring of Martek's plant operations (See "Recent Highlights" below). For the 4th Qtr 06, including the effects of the restructuring charge, Martek generated net income of approximately $600,000, or $0.02 per diluted share, compared to net income of $4.9 million, or $0.15 per diluted share, for the 4th Qtr 05. For fiscal 2006 (FY 06), revenues of $270.7 million were achieved, a 24% increase over revenues of $217.9 million for fiscal 2005 (FY 05). For FY 06, Martek earned net income of $17.8 million, or $0.55 per diluted share compared to net income of $15.3 million or $0.48 per diluted share for FY 05.
Excluding the impact of the restructuring charge noted above and stock- option-based compensation expenses of approximately $600,000 and $3.3 million for the 4th Qtr 06 and FY 06 periods, respectively, the Company's net income on a non-GAAP basis would have been $4.0 million, or $0.12 per diluted share, for the 4th Qtr 06 and $22.9 million, or $0.71 per diluted share, for FY 06 (see "Reconciliation of GAAP to Non-GAAP Net Income Measure" below).
"While I am pleased with Martek's revenue growth this year of nearly 25% and our progress in growing our revenue base beyond the infant formula business, I recognize the need to continue to work to improve our gross margins. At year-end 2006, we took steps to improve our future manufacturing margins with the restructure of Martek's plant operations. Our attention is now focused on reducing our cost of ARA production. I am optimistic that we will continue to make progress in diversifying our customer base beyond the infant formula industry in 2007. We have begun to see the early stages of launches of new food and supplement products containing life'sDHA(TM). I believe that the current level of business development activities in the food and supplement areas will lead to even more and larger launches in 2007 and look forward to seeing a variety of products enriched with life'sDHA(TM) being made available to consumers of all ages," stated Steve Dubin, Chief Executive Officer of Martek.
4th Qtr Consolidated Financial Results
Total revenues for the 4th Qtr 06 were $67.2 million, an increase from $56.0 million for the 4th Qtr 05. Contributing to the Company's revenue growth in the 4th Qtr 06 were continued sales increases in both the U.S. and international infant formula markets.
Gross profit margin percentage for the 4th Qtr 06 was 35% compared to 40% for the 4th Qtr 05 largely due to the Company's idle capacity at its Kingstree plant which resulted in $3.3 million of direct period costs. In addition, the Company's contract manufacturing activities for the 4th Qtr 06 operated at a slightly negative margin due, in part, to the low volume at Kingstree and the production mix. The Company's restructuring of plant operations in late October 2006 will significantly reduce idle capacity costs and increase contract manufacturing margins in fiscal 2007. These gross profit margin improvements in fiscal 2007 should serve to offset a portion of the previously disclosed negative margin effects of ARA unit price increases that are expected to be incurred in the first half of fiscal 2007.
Research and development expenses in the 4th Qtr 06 were $6.9 million, an increase of $1.8 million from the 4th Qtr 05. The increase was due mainly to additional costs incurred by the Company on clinical studies focusing on the cognitive benefits of DHA. Research and development expenses in the 4th Qtr 06 also include non-cash stock-option-based compensation charges of $200,000.
Selling, general and administrative expenses increased to $10.1 million in the 4th Qtr 06 compared to $9.3 million in the 4th Qtr 05. The increase is partially due to non-cash stock-option-based compensation charges of $400,000.
As noted above, the Company recognized a charge of $4.7 million in the 4th Qtr 06 resulting from the plant restructuring announced in October 2006 (see "Recent Highlights" below). This charge primarily includes employee separation costs and a write-down of certain assets supporting production in Winchester. The Company anticipates incurring approximately $500,000 of additional outplacement-related restructuring costs in fiscal 2007 with the large majority of such costs being recorded during the first quarter of fiscal 2007.
Income before income taxes was $1.0 million in the 4th Qtr 06 compared to income before income taxes of $7.7 million in the 4th Qtr 05. Net income of $600,000, or $0.02 per diluted share, was realized in the 4th Qtr 06 compared to net income of $4.9 million, or $0.15 per diluted share, realized in the 4th Qtr 05. If the restructuring charge and non-cash compensation expenses resulting from the Company's adoption of SFAS 123R were excluded, net of their income tax benefits, the Company's net income on a non-GAAP basis would have been $4.0 million, or $0.12 per diluted share, for the 4th Qtr 06 (see "Reconciliation of GAAP to Non-GAAP Net Income Measure" below).
FY 06 Consolidated Financial Results
Total revenues for FY 06 were $270.7 million, an increase of $52.8 million or 24% over $217.9 million for FY 05, due mainly to higher sales of nutritional products to the Company's infant formula licensees. Gross profit margin was 38% and 39% for FY 06 and FY 05, respectively, with FY 06 including $9.6 million of idle capacity costs. Research and development expenses increased by $4.4 million or 21% in FY 06 compared to FY 05 primarily due to additional DHA clinical study costs and stock-option-based compensation charges of $1.2 million. Selling, general and administrative expenses increased by $8.2 million or 25% in FY 06 over FY 05 largely because of higher personnel and legal costs and stock-option-based compensation charges of $2.1 million. As noted above, the Company recognized a restructuring charge of $4.7 million in FY 06. Other operating expenses of $1.2 million and $7.7 million were incurred in FY 06 and FY 05, respectively, and relate primarily to certain production start-up costs. Income before income taxes increased by $4.0 million or 17% in FY 06 compared to FY 05. Net income of $17.8 million, or $0.55 per diluted share, was realized in FY 06, an increase of 17% compared to net income of $15.3 million, or $0.48 per diluted share, in FY 05.
If the restructuring charge and non-cash compensation expenses resulting from the Company's adoption of SFAS 123R were excluded, net of their income tax benefits, the Company's net income on a non-GAAP basis would have been $22.9 million, or $0.71 per diluted share, for FY 06 (see "Reconciliation of GAAP to Non-GAAP Net Income Measure" below).
The Company generated cash flows from operations of $37.2 million in FY 06 and $14.1 million during the 4th Qtr 06. As of October 31, 2006, Martek had approximately $26.8 million in cash. During FY 06, the Company was able to repay $22 million of its long-term debt.
Recent Highlights
* Plant Restructuring -- In October 2006, Martek announced plans for the restructuring of plant operations following a review of its current production and cost structure. Under the restructuring, a substantial portion of production previously taking place at the Winchester manufacturing facility was transferred to the Kingstree manufacturing facility. The restructuring is expected to reduce manufacturing costs and operating expenses due to improved overall manufacturing efficiency and a reduction in Martek's workforce at its Winchester, Kentucky site.
Martek will maintain the essential redundancy of dual-plant manufacturing capacity in order to mitigate production risk and to meet future customer demand from the infant formula, food and beverage and other markets. The Company believes that it can bring Winchester's assets back to full production in a matter of months as required by customer demand.
* Favorable Verdict in Nutrinova/Lonza Patent Litigation -- In October 2006, a jury in the United States District Court for the District of Delaware returned a verdict favorable to Martek in its patent infringement suit against Lonza Ltd., Nutrinova Inc. and Nutrinova Nutrition Specialties & Food Ingredients GmbH. The jury found that certain of Martek's patents had been infringed and that those patents were valid. While the decision may be appealed, Martek has asked the Court for permanent injunctive relief to prohibit continuing infringement of the patents.
* National Institutes of Health Selects life'sDHA(TM) for Study -- In October 2006, Martek's vegetarian source of DHA was selected for use in an upcoming multi-million dollar National Institutes of Health (NIH)-funded study on the effects of DHA in slowing the progression of Alzheimer's disease. Sponsored by the National Institute on Aging (NIA), one of the 27 Institutes and Centers of NIH, the study will determine whether DHA supplementation slows the progression of cognitive and functional decline in patients with mild to moderate Alzheimer's disease. Approximately $10.5 million is earmarked to fund the DHA study. The study is a multi-center, double-blind, placebo-controlled study of 400 subjects with mild to moderate Alzheimer's disease. As part of the study, the lead investigator has filed and now has an active investigational new drug application (IND) with the U.S. Food & Drug Administration (FDA) for Martek's DHA for the treatment of patients with mild to moderate Alzheimer's disease. The study will take approximately three years to complete.
* Multi-Year Exclusive License and Supply Agreement with WhiteWave Foods
-- In October 2006, Martek and WhiteWave Foods entered into a 15-year license and supply agreement. WhiteWave is planning to develop certain soy beverages containing life'sDHA(TM). WhiteWave has agreed to purchase, subject to certain circumstances, all of its DHA omega-3 needs from Martek for these products in the United States and designated territories. WhiteWave intends to launch a product containing life'sDHA(TM) in 2007. All products containing life'sDHA(TM) will display the life'sDHA(TM) logo on the packaging, as well as in related promotional materials.
* New Food Products Launched Containing life'sDHA(TM) and Co-Branded with the life'sDHA(TM) logo -- Odwalla Launches Second Product -- In October 2006, Odwalla, Inc. launched the Soy Smart(TM) Chai Soymilk drink containing life'sDHA(TM). This joins a line of soymilks containing life'sDHA(TM) which Odwalla launched in April 2006.
-- Dynamic Confections Announces Botticelli Choco-Omeg® Bars -- In November 2006, the Botticelli Choco-Omeg® line of nutritional bars was re-formulated to include life'sDHA(TM). The bars are available at Canadian retailers.
-- Flora, Inc. Launches Udo's Choice® DHA Oil Blend -- In November 2006, Udo's Choice® DHA Oil Blend, a flaxseed oil blend, was launched containing life'sDHA(TM). Flora's Udo's Choice brand is a line of vegetarian, organic and sustainable health oils.
-- Latteria Merano/Milchhof Meran Launches Mente Viva(TM) Drinkable Yogurt -- In November 2006, Italian dairy company Latteria Merano/Milchhof Meran launched Mente Viva(TM) fortified drinkable yogurt with life'sDHA(TM). This product is available in supermarkets throughout Italy.
-- Centrale Del Latte Di Brescia Launches Sprintissimo(TM) Drinkable Yogurt -- In November 2006, Italian company Centrale Del Latte Di Brescia launched Sprintissimo(TM) fortified drinkable yogurt with life'sDHA(TM). This product is available in supermarkets throughout Italy.
* Supply Agreement with Mission Pharmacal -- In October 2006, Mission Pharmacal, maker of Citracal® dietary supplements, entered into a five-year license and supply agreement with Martek. Under the agreement, Mission Pharmacal has agreed to purchase all of its DHA needs from Martek for prescription pregnancy and nursing products in the United States and other designated territories. There are no minimum purchase requirements or other financial commitments to Martek. Mission Pharmacal will continue to display the life'sDHA(TM) logo on product packaging, as well as include the life'sDHA(TM) logo in related marketing, advertising and promotional materials.
* New Data Published on Benefits of DHA -- Recently published reports further discuss the benefits of DHA supplementation.
-- A study conducted by Dr. Nitida Pastor and others published in November 2006 in Clinical Pediatrics found that infants fed a formula containing 17 mg DHA and 34 mg ARA per 100 kcal (Enfalac Premium®, Mead Johnson) had fewer episodes of bronchiolitis and bronchitis at ages 5, 7, and 9 months compared to infants receiving control formula not containing these added long-chain polyunsaturated fatty acids.
-- A study published by Dr. Arja Erkkila and others in the Journal of Lipid Research in September 2006 noted an important relationship between plasma DHA levels and the reduced progression of cardiac disease. Specifically, women whose DHA levels were above the median at enrollment had slower progression of coronary artery stenosis over a three-year period. This effect was not seen with the other omega-3 fatty acids, ALA or EPA.
-- A study published by Dr. Ernst Schaefer and others in the Archives of Neurology in November 2006 investigated the relationship of blood DHA levels and the development of dementia in a prospective follow-up study of the participants in the Framingham Heart Study. The results of the study noted that subjects with the highest levels of plasma DHA (top 20%) had a significant reduction in the risk of developing dementia from all causes. The study was partially funded by Martek.
Management Outlook
For the first quarter of fiscal 2007 (1st Qtr 07), we expect total revenues to be between $66 million and $69 million, net income to be between $3.5 million and $4.4 million, and diluted earnings per share to be between $0.11 and $0.14. If costs associated with the October 2006 plant restructuring (approximately $500,000 in the 1st Qtr 07) are excluded, net of their income tax benefits, the Company's net income for the 1st Qtr 07, on a non-GAAP basis, would be between $3.8 million and $4.8 million, and diluted earnings per share would be between $0.12 and $0.15.
In September 2006, the Company announced that higher ARA costs would result in decreases to gross margin of between 400 and 500 basis points starting in the 4th Qtr 06 with such negative margin effects gradually diminishing beginning in the third quarter of fiscal 2007. The Company expects the recently completed restructuring of its plant operations to improve its overall manufacturing costs. When fully realized in the second quarter of fiscal 2007, the cost savings related to the Company's plant restructuring will offset approximately 300 basis points of the effects of higher ARA prices. During fiscal 2007, Martek will continue to work with its third-party ARA supplier and pursue other strategies in efforts to improve future margins.
For fiscal 2007, the Company expects growth in revenues and improvement in overall profitability as compared with fiscal 2006. We expect to grow our core infant formula business and expand our penetration into the pregnancy and nursing, nutritional supplements and food and beverage markets.
Martek Biosciences Corporation (Nasdaq: MATK - News) is a leader in the innovation and development of omega-3 DHA products that promote health and wellness through every stage of life. The Company produces life'sDHA(TM), a vegetarian source of the omega-3 fatty acid DHA (docosahexaenoic acid), for use in foods, infant formula and supplements, and ARA (arachidonic acid), an omega-6 fatty acid, for use in infant formula. For more information on Martek Biosciences, visit http://www.martek.com. <<
[This story from Sunday’s NY Times is the best profile of MATK I’ve seen yet. MATK is still reeling from its disastrous earnings shortfall in April 2005 (#msg-6171835). Since then, the old CEO retired and the new one is seeking to restore credibility on Wall Street. It won’t be easy, however.]
COLUMBIA, Md. It is not easy working inside Martek Biosciences, which has been trying for years to persuade food makers to add an omega-3 fat found in algae to everything from cheese puffs to cornflakes.
“There have been a lot of days where we ask ourselves if we’re crazy,” said Steve Dubin, the company’s chief executive. “You look at yourself in the mirror and have to ask, ‘Is the rest of the world not getting it, or are we the ones out of touch with reality?’ ”
Of course, Martek has concluded that the rest of the world doesn’t get it.
The company, which is based here, between Baltimore and Washington, says it has made that most magical of food discoveries: an essential nutrient that can be added invisibly to the diet without any appreciable impact on taste or eating habits.
Martek has had considerable success adding an omega-3 fatty acid called docosahexaenoic acid, or DHA, to infant formula. And, on paper at least, DHA also sounds like the perfect supplement for Americans, who seem to grow more obsessed with healthy eating the more poorly they eat.
If food makers would only sprinkle some DHA into everything from the milk people put in their coffee each morning to the chocolate bars they snack on at night, Martek’s scientists say, consumers would end up with healthier hearts, sharper minds and better vision.
But the country’s big food companies have not exactly embraced DHA the way that Martek executives figured they would — or should. For several years, the company has spent hundreds of millions of dollars increasing its production capacity in anticipation of a deluge of orders that have yet to materialize.
Makers of infant formula are buying DHA in bulk, but last year Martek booked barely $500,000 in sales to food companies. The company’s stock closed at $24.17 a share on Friday, down 66 percent from its high of $70.99 in May 2004.
Competition is one reason that Martek’s DHA has not emerged as the new calcium, which food makers have long sprinkled into various products from orange juice to cereal. (As a result, the average American consumes more calcium, crucial to bone strength, than in the past.) Fish oil companies also sell omega-3 fatty acids, as a food additive or in gel capsules (Martek sells gel cap versions of its product as well). They promote their products as cheaper, more magical elixirs that are superior to DHA because they also have a second important omega-3 called eicosapentaenoic acid, or EPA.
There are questions about the supposed benefits of DHA, whether it is derived from algae or anchovies. The Food and Drug Administration has declared DHA safe, but some nutritionists question the sweeping health claims promoted by Martek and others that sell omega-3s.
“A lot of the claims made for DHA are in the realm of hypotheses,” said David Schardt, senior nutritionist at the Center for Science in the Public Interest, an advocacy organization based in Washington. “They are certainly worth pursuing, but there’s not yet enough proof to warrant telling people to go out of their way to take DHA.”
The exceptions, Mr. Schardt said, are people with a history of heart disease and premature infants, who need an extra boost of DHA for proper brain and eye development to compensate for their early exit from the womb.
Martek’s scientists, when pressed, generally agreed with Mr. Schardt. The data showing any health benefits of DHA beyond those related to the heart or premature infants, while encouraging, is not quite conclusive, they say.
Research has suggested that DHA may reduce the risks of Alzheimer’s, for instance, but years more study is needed, they say, before any definitive claims can be made.
Yet that has not stopped the company’s top executives from promoting DHA’s potential health benefits more broadly. “If you have a product that reduces your chance of Alzheimer’s,” Mr. Dubin said, “if it improves your cardiovascular, if it improves your eyesight, if it improves the health of your baby, then I have to think consumers will say that’s worth an extra 25 or 50 cents a day for these benefits.”
He may be right. After all, this is a country where people concerned about their cholesterol will cut their egg intake in half but then consume four times as many servings of a fat-rich superpremium ice cream. Our tortured relationship to food might just help Martek’s cause.
“My experience in nutrition is that single nutrients rarely produce miracles,” said Marion Nestle, a professor in the department of nutrition, food studies and public health at New York University and the author of “What to Eat,” published last year. “But it’s also been my experience that companies will put anything in their food if they think the extra marketing hype will help them sell more of it.”
For a long time, the typical American diet contained plenty of omega-3, DHA included. But that was when cattle were not trapped in pens and actually roamed the prairies and grazed on grass, which is a good source of omega-3s, rather than eating feed-lot corn and soy, which are not. Eggs, too, used to be a strong source, but chickens have undergone a similar lifestyle change.
Wild salmon is still a terrific source of omega-3s, as are fatty fish generally, but most Americans eat farm-raised salmon, which may not be nearly as rich a source of DHA and EPA, depending on what they are fed.[Wild salmon is much the better product, IMO, but some shops cheat and call the farmed product “wild.”] Americans also tend to consume processed foods rather than green leafy vegetables, nuts and other products that provide a third omega-3, alpha-linolenic acid (ALA).
The selling of DHA, then, offers a vehicle for understanding an irony of the modern food industry. The industrialization of food has reduced the presence of omega-3s in the food chain, creating a moneymaking opportunity to any company that can find a way to make up for its absence.
The preoccupation with omega-3s dates back to a mystery of the early 1970s: Why, a pair of Danish researchers asked, was the incidence of heart disease so low among the Inuit of Greenland when they consumed a generally fatty diet? One obvious factor was the fatty fish that the Inuit regularly ate. Subsequent studies demonstrated a link between omega-3 fatty acids and a lower incidence of heart disease.
“People can function without adequate amounts of DHA but not as ideally or optimally,” said James H. Flatt, the head of research at Martek. “We also believe it can help a person avoid diseases later in life.”
Health food stores have long carried fish oil capsules, but what Martek’s scientists call “the burp factor” — the pills caused some to emit fishy after-burps — prompted researchers to look at the algae eaten by fish as an alternative DHA source. Concern over possible effects of mercury and other toxins in some fish was another motivator. (When distilled and treated, fish oil producers say, their product is free of contaminants.)
Martek was founded in 1985, after it was spun off from Martin Marietta, the military contractor that is now part of Lockheed Martin. A few years earlier, NASA had asked Martin Marietta to explore algae as a potential source of fresh food and oxygen on long space missions. The space agency dropped the idea, but the half-dozen or so scientists behind the project believed that they might be on to something, and they sought venture capital so they could continue their research.
When it was founded, the company saw ocean-born algae as a potential source for industrial-strength lubricants and diagnostic markers. But it did not take researchers long to discover what Henry Linsert Jr., then the company’s chief executive, described in a 1990 newspaper interview as “our first blockbuster product” — a form of DHA, which is naturally present in mother’s milk, that could be safely added to infant formula (along with arachidonic acid, or ARA, another nutrient found in breast milk that Martek buys from a third party). The company signed its first infant-formula licensing agreement in 1992 and went public the next year.
When Martek executives are confronted with skepticism about the potential of DHA as a food additive, they invariably talk about the how the company needed more than 10 years to build its infant-formula business.
At first, infant-formula makers, dubious about the benefits and the extra costs involved, proved to be one challenge; the Food and Drug Administration was another. The agency did not approve the use of DHA in infant formula until 2001. In the meantime, the company burned through roughly $500 million, said Peter L. Buzy, Martek’s chief financial officer, before earning enough on DHA sales to infant formula makers to turn profitable in 2003.
“It took a lot longer than people anticipated to make it in the infant formula market,” Mr. Buzy said.
Today, all the big formula makers offer a DHA-enhanced version of their products, and there is no longer any question whether parents are more willing to feed it to newborns. DHA-enhanced formula costs roughly 15 percent more than the regular product, but accounts for nearly 90 percent of the formula sold in the United States, Mr. Buzy said, and 35 percent of the formula sold overseas.
Indeed, once the F.D.A. approved DHA’s use in formula, Martek could not keep up with the demand. In April 2005, Martek announced that it would book around $60 million less in revenue than projected for the year, roughly a 20 percent drop. That caused the stock to fall 46 percent in a single day, to $32.49 from $60.08[#msg-6171835].
“We had a problem with customers hoarding our product,” thereby giving the company a skewed view of its success, Mr. Buzy said.
Shareholders filed a class-action suit shortly after the stock plunge. They contend that the company knew, or at least should have known, that it was artificially pumping up its revenue figures, given that almost all its revenues were from a few major customers. Martek officials declined comment on the suit, which is now in the discovery phase.
And whether DHA’s use will spread to many other food products remains to be seen.
Those skeptical of DHA as a wonder nutrient include Mr. Schardt of the Center for Science in the Public Interest and Ms. Nestle of N.Y.U. The two caution against reading too much into Martek’s success selling DHA to new parents. The calculus of decisions that new parents go through, they said, is so freighted with emotions that drawing wider conclusions could be a mistake.
“My kids were too old by then, but I probably would’ve paid the extra money for fortified formula — just in case,” Mr. Schardt said, even though he described the evidence of DHA’s benefits for newborns as “mixed.”
Yet inside Martek, the formula battle is seen as a template for success in the food industry. “We were in a very similar period then with infant formula as we are now,” Mr. Dubin said. “People said, ‘It’s never going to happen.’ Then they said, ‘It’s only going to comprise 5 percent of the infant formula business. No one is going to pay that extra money.’
“This won’t be easy, just like it wasn’t easy with infant formula,” he continued. “It’s not going to happen overnight — but it will be a lot faster than infant formula, I guarantee that, because consumers have already shown they’re willing to pay for these benefits.”
That’s a guarantee Martek backed up with cash. In 2005, the company completed a second manufacturing plant, in South Carolina, at a cost of $200 million, in anticipation of a rise in DHA orders. But last October, the company temporarily suspended DHA production in its original plant, in Kentucky, laying off 100 employees. Martek sells around $280 million a year of its product but can produce roughly three times that amount.
Mr. Dubin acknowledged some regret over Martek’s decision to aggressively expand its production capabilities. But that, it seems, was another lesson from the infant-formula struggle. “I guess we got burnt so bad not having not enough capacity a few years back that I’d rather have a little too much capacity right now and take the bet that the market will come,” he said.
Timothy S. Ramey wants to believe in Martek. A food and beverage analyst at D. A. Davidson & Company, an investment firm based in Portland, Ore., Mr. Ramey keeps a ready supply of omega-3 gel caps on his desk. “I’m a true believer,” he declared during a phone interview — but where once he encouraged clients to buy shares in Martek, no longer. In September 2005, he dropped his “buy” on Martek and now carries an “underperform,” or sell, recommendation on the stock.
“What they’re doing wrong is they structured their business for extreme levels of growth that just haven’t happened,” he said. “This is a company that has gotten into trouble time and again because it has believed its own hype.”
When reporting quarterly earnings last month, Martek said it had nine months of inventory on hand. Mr. Ramey described such large inventory levels as “risky,” but Mr. Buzy dismissed them as a temporary glitch. “It’s difficult,” Mr. Buzy said, “ to balance market demand, inventory and production all at the same time in a growing market.”
But to Mr. Ramey, a company with that much inventory is a company that has not gotten much traction in a market — foods and beverages — that it has been trying to capture since at least 2002. “What you often see happen with companies feeling financial stresses is they overproduce,” Mr. Ramey said.
Early in 2005, Martek announced a deal with Kellogg, saying it anticipated that the cereal company would release its first DHA product in 2006. Kellogg, though, has yet to release such a product, and a spokeswoman for the company, Jill Saletta, would confirm only that it was experimenting with DHA. Last June, Martek announced a similar deal with the food giant General Mills, and on Thursday released the news that the company would include DHA in Yoplait Kids, a yogurt it makes for children.
Other products enhanced with Martek’s DHA include Oh Mama! nutrition bars, for pregnant and nursing women, and soy milk produced by Odwalla, which is owned by Coca-Cola.
“The food and drink industry does not adapt quickly,” said Martek’s president, David M. Abramson. The industry average for testing a product before releasing it on the market, he said, is 2.1 years. Mr. Abramson said he expects more product releases over the coming year by food companies large and small.
Mr. Dubin said that food “will not be a big number on our books in 2007, but we’ll know by the end of the year how fast this will grow.”
But EPA, one of the other omega-3s, may give a competitive edge to fish oil companies like Ocean Nutrition Canada, based in Dartmouth, Nova Scotia. Vegetarians could wince at the idea that a fatty acid derived from anchovies and sardines might be added to their soy milk or yogurt, but fish oil costs half the price of Martek’s DHA, if not less. Both are rendered tasteless before they are put into food, though either can take on a smell if exposed too long to air.
Martek points to studies demonstrating that DHA is a far more crucial fatty acid than EPA in heart and brain development. Meanwhile, Robert Orr, chief executive of Ocean Nutrition Canada, cited studies that say EPA is potentially an effective anti-inflammatory and crucial in fighting depression and other mood disorders.
Ocean Nutrition’s fish oil is in several lines of yogurt made by Group Danone, the makers of the Dannon and Stonyfield Farm brands. And this month, Tropicana will start selling a version of its orange juice that includes Mr. Orr’s product. “There’ll be times where Martek’s oil works well,” Mr. Orr said, “but other than the fact it’s vegetarian, it has no technical superiority.”
Mr. Dubin of Martek allows that a food maker will sometimes choose fish oil over his product. But he is confident that Martek will have its share of big victories. “Let’s revisit this at the end of 2007 and see,” he said. <<
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