Oh baby, formula for success nears

Additive: A Columbia company that makes a nutritional supplement for infant formula expects its product to be available in the United States in a few months.

November 22, 2001|By Julie Bell | Julie Bell,SUN STAFF

Wall Street analysts have been predicting for years that Martek Biosciences Corp. would crack open the U.S. market and turn a profit. Finally, it appears the Columbia-based maker of a nutritional supplement for baby formulas may be about to succeed.

Wyeth-Ayerst Laboratories, which already sells formula containing Martek's blend of nutritional oils in more than 60 overseas markets, is in discussions with the Food and Drug Administration about marketing the enriched formula in the United States, Wyeth spokeswoman Audrey Ashby said. Other companies also might be working with the FDA, though the agency would not comment other than to say it has yet to give approval to any formula company.

Martek cleared a major hurdle to getting on the U.S. market in May, when the FDA agreed that Martek's supplement is "generally recognized as safe." That designation, granted five years after a U.S. panel of experts recommended that Martek be given the designation, cleared the way for formula companies to seek FDA approval to put the oil blend in their U.S.-sold products.

Now, Henry Linsert Jr., chief executive officer of Martek, said he expects the blend to be in baby formulas on U.S. store shelves "in the next few months."

Scott Van Winkle, an analyst with Adams, Harkness & Hill, expects it to happen by the end of the first quarter, thrusting Martek into a country that accounts for one-third of the world's $6 billion to $8 billion formula market and positioning it to achieve another long-promised goal: profitability.

Such promises will sound familiar to investors burned by previous, inaccurate predictions made by analysts. But this time, Van Winkle says, "It's going to happen."

With overseas sales also growing, he predicts that Martek's blended supplement will be in more than 75 percent of baby formula sold around the world within five years.

"We may touch more people than any other biotechnology company," Linsert said.

The road to the U.S. market has been a long one for Martek. Initially, Linsert was treated with outright derision by the formula companies he was trying to interest in the supplement. He would tell them the specially blended nutritional oil, made from microalgae and fungus, could aid an infant's development and improve intelligence.

"They'd look at me like I was a snake oil salesman," Linsert recalled. None would buy it.

Now, 13 years after Linsert left banking to join Martek, a company in which his bank's venture arm had invested, formula containing the company's oil is sold in more than 70 countries. He expects Martek to achieve profitability by the end of October.

For a number of reasons, the company may finally be poised to meet old expectations. The FDA designation is in hand, Martek's patents limit competition, and a growing number of experts - including a World Health Organization panel on human nutrition - are recommending that baby formula include the nutrients found in Martek's oils. In addition, J.P. Morgan Securities analyst Corey Davis wrote in a recent report, all formula companies may feel compelled to include the oil blend in U.S.-sold products if one or two do so, fearing they otherwise will lose market share.

Martek has licenses with seven formula manufacturers accounting for 60 percent of worldwide formula sales. It is working to add Nestle SA.

The Martek supplement is a blend of two nutrients, known as DHA and ARA, that are found in breast milk. Both are fatty acids found in the brain and, in DHA's case, the eye's retina.

A recently reported clinical trial found that infants fed formula supplemented with DHA and ARA scored seven points higher on an index of mental development than those who drank formula without it.

Another study showed that babies on the supplements had better vision, the equivalent of gaining one line on an eye chart, results similar to those of breast-fed infants.

Martek manufactures DHA from microalgae at a Winchester, Ky., plant, and purchases ARA produced at a contract manufacturer, then blends the two. It sells the blend to formula makers, who price their formulas about 15 percent higher than baby formulas without the blend. Martek keeps 5 percent of the markup; the formula makers, 10 percent.

Linsert said the 15 percent markup amounts to about $150 per child in extra costs to parents.

Five years from now, the company that currently brings in annualized revenue of $22.4 million (It lost $3.3 million in its fiscal third quarter on revenue of $5.6 million) could derive $200 to $300 million from sales of the oil blend alone, Linsert said. The company also sells a DHA dietary supplement for adults known as Neuromins, as well as algae-derived laboratory tools for scientists.

But to hit $300 million in revenue from the formula supplement, Martek will have to be able to make enough of its product to meet demand. And how profitable it can become depends in part on its effort to bring manufacturing costs down.

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.