Ruling sparks 22% rise in Martek stock

FDA clears way for use of firm's oils in infant formulas

May 19, 2001|By Julie Bell | Julie Bell,SUN STAFF

Shares of Martek Biosciences Corp. gained nearly 22.5 percent yesterday after the Food and Drug Administration cleared the way for the company's nutritional oil blend to be included in infant formulas sold in the United States.

Shares of Martek gained $3.85 to close at $21. Since its 52-week low of $12 on Dec. 20, Martek shares have gained 75 percent. The stock's 52-week high was $24 in June.

Infant formula companies still must alert the FDA if they are including the Martek oil blend in any products sold domestically. A number of companies already are selling formula containing the Martek product overseas.

The notification must be made 90 days before the newly constituted formula is marketed, sparking what in essence is a label review by the agency, said Henry "Pete" Linsert Jr., Martek's chairman and chief executive officer.

But the FDA's decision not to question the company's conclusion that the oil blend is generally recognized as safe - or GRAS, in industry terms - "is the most significant step in the U.S.," said Scott Van Winkle, an analyst for Adams, Harkness & Hill.

Van Winkle said he expects formula companies to begin selling products containing the Martek oil blend about six months from now, after marketing campaigns to consumers and doctors.

Already, Martek has turned its attention to how to manufacture more of the nutritional oils than it currently is capable of doing.

"We are very gratified of this finding," Linsert said in a conference call with investors and analysts yesterday. "We believe we had built a very strong case for the safety of these oils."

The Columbia company, which posted a loss of $15.7 million last fiscal year on $9.7 million in revenue, projects product sales of about $18 million for the fiscal year ending in October, some 85 percent of which will come from the infant-formula supplement, Linsert said.

Next fiscal year, Van Winkle estimates the company will post $50 million in sales, thanks to the GRAS designation and other factors.

Currently, Martek's plant in Winchester, Ky., and a contract manufacturer have the ability to make $40 million to $60 million in product, Chief Financial Officer Pete Buzy said. The company estimates the total world market for its infant-formula supplement at $300 million to $350 million.

Martek describes its product as a blend of polyunsaturated fats found in the cell membranes of the human central nervous system.

Docosahexaenoic acid (DHA) and arachidonic acid (ARA), both provided naturally by mothers to their children via the placenta and breast milk, have been shown to promote the development of mental and cardiovascular health, and of the eyes and central nervous system in newborns, the company's literature says.

Martek's product is a blend of DHA and ARA.

The company estimates that more than 1.5 million babies already have consumed formula containing the oils. The company said it has licenses with seven manufacturers.

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