COLUMBIA, Md., June 3 /PRNewswire-FirstCall/ -- Martek
Biosciences Corporation (Nasdaq: MATK) today announced its
financial results for the second quarter of fiscal 2010. Revenues
for the second quarter were $124
million, up 34% from $92.4
million in the second quarter of fiscal 2009. GAAP net
income was $12.5 million, or
$0.37 per diluted share, for the
second quarter of fiscal 2010, compared to $11.0 million, or $0.33 per diluted share, for the second quarter
of fiscal 2009. These revenues and earnings include the
results of Amerifit Brands ("Amerifit" or "branded consumer health
products"), the acquisition of which was completed by Martek on
February 12, 2010.
The second quarter of fiscal 2010 included charges related to
the acquisition of Amerifit of $3.5
million. Excluding these amounts, net of tax, the
fiscal 2010 second quarter earnings would have been $15.0 million, or $0.45 per diluted share, an increase of 37% over
the second quarter of fiscal 2009 (see Table II
"Reconciliation of GAAP to Non-GAAP Net Income Measure" below).
Commenting on the quarter, Chief Executive Officer Steve Dubin said, "The improving economy, new
launches of products with Martek's life'sDHA, growing
international markets for Martek's products and sales of Amerifit's
branded consumer health products all contributed to Martek's record
quarterly results. This year as a whole is looking strong
from a revenue perspective, although revenues for the balance of
2010 are projected to be somewhat uneven on a quarter-to-quarter
basis due to customer plant shutdowns for maintenance and other
timing matters. Martek's strong run rate coming out of fiscal 2010
should provide an excellent platform from which to grow as some of
Martek's new products currently in development begin to hit the
market over the next eighteen months as additional consumer brands
launched through Amerifit's marketing and distribution
channels."
Revenue Summary
Product sales in the second quarter of fiscal 2010 increased
$30.9 million to $119.1 million from
$88.2 million in the second quarter
of fiscal 2009. This increase was partially attributable to the
branded consumer health product sales of the newly-acquired
Amerifit which totaled $18 million
for the period from acquisition date (February 12, 2010) through April 30, 2010. The remainder of the
increase, or $12.9 million, was
almost entirely the result of sales of our nutritional ingredients
in both the infant formula and non-infant formula markets. Demand
increases outside the United
States, particularly in Asia, were a key driver of this growth. We
believe that a portion of the nutritional ingredient revenue
increase, estimated to be in the range of $4
million to $8 million, was associated with inventory
stocking by our customers following depletion of inventories in
2009 as well as their production timing and related product
ordering patterns.
A breakdown of product sales for the second quarter and fiscal
year to date periods (in thousands) follows:
|
|
|
Three months ended
April 30,
|
|
Six months ended
April 30,
|
|
|
|
2010
|
2009
|
%
incr
(decr)
|
2010
|
2009
|
%
incr
(decr)
|
|
|
|
Nutritional
ingredients:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Infant formula
|
$
|
86,318
|
|
$
|
77,383
|
12%
|
$
|
157,859
|
|
$
|
151,974
|
4%
|
|
Food
and beverage
|
|
4,519
|
|
|
2,979
|
52%
|
|
8,712
|
|
|
5,597
|
56%
|
|
Pregnancy and nursing, nutritional supplements and animal
nutrition
|
|
8,831
|
|
|
6,801
|
30%
|
|
16,201
|
|
|
12,465
|
30%
|
|
Total nutritional ingredients
|
|
99,668
|
|
|
87,163
|
14%
|
|
182,772
|
|
|
170,036
|
7%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Branded consumer
health
|
|
18,009
|
|
|
—
|
n/a
|
|
18,009
|
|
|
—
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-nutritional
products
|
|
1,405
|
|
|
989
|
42%
|
|
2,387
|
|
|
2,138
|
12%
|
|
Total product sales
|
$
|
119,082
|
|
$
|
88,152
|
35%
|
$
|
203,168
|
|
$
|
172,174
|
18%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In addition, contract manufacturing and collaborations revenues
in the second quarter totaled $4.9
million, compared with $4.3
million a year ago. Of the $4.9
million in second quarter of fiscal 2010, approximately
$3.9 million relates to contract
manufacturing activities, which the Company continues to anticipate
exiting, in large measure, in the third quarter of fiscal 2010. The
remaining $1 million relates to
revenues associated with Martek's joint development agreement with
a subsidiary of BP p.l.c. ("BP") for work on microbial oils for use
as biofuels, which began in late fiscal 2009. These development
services with BP are expected to continue through at least 2011.
Gross Margin and Operating Expenses
Overall gross margin for the second quarter of fiscal 2010 was
46%, an increase over the 42% gross margin realized in the second
quarter of fiscal 2009. This improvement was largely due to
ARA cost reductions in the 2010 period and the positive impact on
gross margins of branded consumer health product sales. Included in
the second quarter's gross margin is the negative effect of
approximately $1.7 million (gross
margin impact of 1.4%) related to one-time inventory step-up costs
resulting from the Amerifit acquisition. Excluding these step-up
costs, gross margin would have been 48%.
Research and development expenses in the second quarter of
fiscal 2010 were $8.8 million (with
no amounts related to Amerifit), consistent with previously stated
guidance and up from $7.2 million in
last year's second quarter. The increase was due to the Company's
expanded clinical and pre-clinical research activities during the
current quarter along with higher personnel costs. Martek's
research and development focuses on both broadening the market
applications for the Company's life'sDHA™ as well as
leveraging the Company's microbial technology platform to develop
new high-value product offerings. The Company continues to expect
quarter-to-quarter fluctuations in research and development
expenses mainly due to the timing of outside services, including
third-party clinical trial services.
During the second quarter of fiscal 2010, selling, general and
administrative expenses ("SG&A") were $17.9 million, or 14% of revenue, a slight
increase compared to 13% of revenue in last year's second
quarter.
Given their significance to the Amerifit business, Martek will
now separately disclose expenses incurred associated with
advertising and promotion. Such costs during the second quarter
totaled $4.0 million, or 3% of
revenue. Going forward, we anticipate significant advertising and
promotion expenses each quarter as a result of our
recently-acquired branded consumer health products business, with
such costs fluctuating from quarter to quarter due to the timing of
particular advertising and promotional campaigns.
Financial Position
As noted above, on February 12,
2010, Martek completed its acquisition of Amerifit. To
finance the Amerifit acquisition, Martek utilized existing cash of
approximately $115 million along with
the proceeds from a new term debt facility totaling $75 million and $11
million drawn from a new revolving credit facility. Martek's
new revolving credit facility has a total borrowing capacity of
$100 million and replaces Martek's
former credit facility of $135
million which was due to expire in September 2010.
During the second quarter of fiscal 2010, Martek generated
approximately $47 million of cash
from its operations. This cash generation enabled a full repayment
of the $11 million credit facility
draw as well as a paydown of $35
million on the term debt during the second quarter.
The Company expects to repay the remaining balance on its
term debt by October 31, 2010.
Significant Recent Events
- MIDAS Study Published Which Shows Martek's Algal DHA Improved
Memory and Learning In Healthy Adults with Memory Complaints - The
Memory Improvement with Docosahexaenoic Acid (DHA) Study (MIDAS)
published in May 2010 in Alzheimer's
& Dementia: The Journal of the Alzheimer's Association showed
that Martek's algal DHA improved memory function in healthy aging
adults. MIDAS is the first large, randomized,
placebo-controlled study to demonstrate the benefits of DHA in
maintaining and improving brain health in older adults. MIDAS found
that healthy people with memory complaints who took 900mg of
Martek's algal DHA capsules for six months had almost double the
reduction in errors on a test that measures learning and memory
performance versus those who took a placebo, a benefit roughly
equivalent to having the learning and memory skills of someone
three years younger. The DHA was well-tolerated and subjects taking
the DHA also experienced a lower heart rate, providing a
significant cardiovascular benefit. The study was funded by
Martek.
- Non-Infant Formula Product Launches with life'sDHA–
- Foods and Beverages - Fortune Natural Grains Blended Cooking
Oil (COFCO – China), Future Star
Kid Milk (Mengniu – China),
Quiznos® salad dressings (U.S.) Milkana® Golden Baby Cheese (BSI (Tianjin)® Food Company – China), dha Omega3™ Eggs (M. Lasser –
Israel), Earth's Best® Organic
Nutritional Mommy Bars (Hain Celestial – U.S.), H-E-B® Reduced Fat
Milk (2%) with DHA Omega-3 and H-E-B® Whole Milk with DHA Omega-3
(Morningstar – U.S.), Rice Milk with Omega3 DHA™ (Freedom Foods –
Australia).
- Pregnancy and nursing and nutritional supplements -
Pharmaceutical LLC PreferaOB One™ (Alaven® – US), Algal-900 DHA
Softgels (Walgreens – U.S.), Natural Omega-3 Vegetarian DHA 100 mg
Softgels (Bluebonnet® – U.S.), Natural Omega-3 Vegetarian DHA 200
mg Softgels (Bluebonnet® – U.S.) and Merck Kidabion™ DHA Powder
Drink for Children (China).
- New Scientific Data/Recommendations Published on DHA and ARA –
In addition to the MIDAS study noted above, the benefits of DHA and
ARA supplementation were recently discussed in the following
publications:
- The Journal of Nutrition (April
2010) published the results of a study examining the
association between omega-3 fatty acids in serum and cognitive
function in mid-life adults. Levels of serum
phospholipid ALA, EPA, and DHA and performance in five major
dimensions of cognitive function were determined in 280 healthy
volunteers, ages 35 to 54. Using regression analysis, higher levels
of DHA were associated with better performance on the tests of
nonverbal reasoning and mental flexibility, working memory and
vocabulary. Neither ALA nor EPA showed a significant
relationship to cognitive function.
- In the EFSA Journal (March
2010), the European Food Safety Authority's ("EFSA") Panel
on Dietetic Products, Nutrition, and Allergies ("NDA") officially
adopted and published an Opinion on Dietary Reference Values for
fats, including polyunsaturated fatty acids. The NDA Panel
concluded that a daily intake of 250 mg of long-chain omega-3 fatty
acids for adults may reduce the risk of heart disease. The NDA
Panel set an Adequate Intake ("AI") of 250 mg/day EPA+DHA for
adults and an AI of 100 mg DHA/day for infants (>6 months) and
young children