U.S. debut boosts Martek's shares 25%

2 firms to use its oils in baby formula

January 11, 2002|By Gus G. Sentementes | Gus G. Sentementes,SUN STAFF

Shares of Martek Biosciences Corp. soared 25 percent yesterday on news that two major manufacturers will soon start selling infant formula with its nutritional oils for the first time in the United States.

The manufacturers control about 85 percent of the U.S. infant formula market, the Columbia company said.

One of the makers, Mead Johnson Nutritionals, plans to have infant formula with Martek's nutritional oils on store shelves by next month.

The other maker, Abbott Laboratories' Ross Products Division, has plans for a launch early in the year.

For Martek, the announcements capped a 17-year effort to gain the interest of infant-formula makers in its nutritional supplements and win Food and Drug Administration approval through a lengthy regulatory process.

Martek shares rose $5.66 to $28.34 on the Nasdaq stock market yesterday.

Martek already licenses the sale of its two nutritional oils, DHA and RHA, to seven companies that account for 65 percent of the world infant formula market, said Pete Buzy, Martek's chief financial officer.

The U.S. market, which accounts for roughly a third of the $6 billion to $8 billion worldwide market, is a lucrative opportunity, Buzy said.

"It is very much a me-too industry," he said."Getting these two leaders moving, we think, will accelerate everything [in the United States]."

Buzy said Mead Johnson and Abbott have about 85 percent of the U.S. infant formula market.

He declined to release specific revenue figures relating to sales with Abbott and Mead Johnson, a subsidiary of Bristol-Myers Squibb Co., both multibillion-dollar, worldwide companies.

Buzy expects this year to be a strong one for Martek, with revenue expected to "at least double."

In fiscal year 2001, which ended Oct. 31, Martek had revenue of $18.8 million and a net loss of $13.7 million. Analysts expect the company's gross margins to improve over the next year as it refines a complicated manufacturing process.

Buzy projects that Martek will break even for the first time late this year.

The scientific community has conducted several studies and trials that show DHA and RHA have beneficial effects on an infant's brain and visual development.

As more companies add Martek's oils to their formulas, other companies will be compelled to add them to stay competitive in the marketplace, analysts said.

Eileen E. Birch, a senior research scientist with the Retina Foundation of the Southwest, based in Dallas, said breast milk is the gold standard that infant formula makers try to follow. DHA and RHA occur naturally in breast milk.

"I'm very excited that it's finally coming out after all these years in the U.S.," Birch said.

She has conducted studies since the early 1990s that showed the supplements improved infant mental development.

"It's been available in England for about seven years, but we haven't had it here. It's a big day for us."

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