Martek to pay up to $90 million for OmegaTech Inc.

Adult market for DHA will now be pursued

March 27, 2002|By Julie Bell | Julie Bell,SUN STAFF

Martek Biosciences Corp., known for its algae-derived supplement for baby formula, said yesterday that it plans to pay up to $90 million in stock for a Colorado company that markets the same nutrient for use in foods and drinks consumed by adults.

The Columbia company said the acquisition of privately held OmegaTech Inc. will ready it for a future in which the supplement, DHA, could be a standard added nutrient in everything from cheese to nutrition bars.

The naturally occurring nutrient has been shown to aid infant eye and brain development, while an increasing number of studies by the National Institutes of Health, Martek and others show it also may boost the health of adults.

DHA already is part of a Martek nutritional oil that Mead Johnson Nutritionals recently began offering in some of its baby formula sold in the United States.

Martek hopes to expand sales in the DHA market for infant formula, which it estimates at up to $400 million a year. It estimates that annual sales of DHA in the much larger food-and-beverage market could exceed $1 billion.

"The combined company, we think, is going to be facing a great future as we expand into the foods and beverages business," Martek Chief Executive Officer Henry Linsert Jr. said in a conference call yesterday with analysts.

Martek's is the only DHA-enhanced nutritional supplement approved for inclusion in infant formula sold in the United States.

OmegaTech's supplement is made similarly - by fermenting a microalgae - but its patented process uses a slightly different organism and can make DHA more cheaply than Martek, said Peter L. Buzy, the Columbia company's chief financial officer.

OmegaTech's DHA product also already has U.S. approval for inclusion in foods and beverages consumed by adults.

Martek initially will pay 1.8 million shares of common stock, with a market value of about $50 million. An additional 1.4 million shares would be payable over the next two years if goals tied to sales, gross margin, regulatory and labeling requirements are met, bringing the total potential price of the deal to about $90 million.

Wall Street reacted tepidly yesterday, with Martek's shares falling as low as $28.65 before gaining 55 cents, or nearly 2 percent, to close at $29.55 on the Nasdaq stock market.

Part of the reason, Offutt Securities analyst Vandana K. Bapna said, is that Martek has a long way to go to prove its DHA can become a standard food supplement like vitamins A or E.

OmegaTech, of Boulder, Colo., has just begun marketing its DHA product for use in food and beverages in the United States after getting back the rights to do so in June 2000 from Pharmacia Corp.

Its products include a DHA animal-food supplement that results in DHA-enriched eggs now on the U.S. market under the Gold Circle Farms label; DHA additives marketed in cheese and spreads overseas; and DHA supplements sold in gel-capsule form in U.S. GNC, Rite Aid and Kroger stores.

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