50 Hottest Companies in Bioenergy candidate profile: Martek

Martek
Based in: Maryland
2008-09 ranking: Unranked

Business: Martek has developed and patented two fermentable strains of microalgae which produce oils rich in docosahexaenoic acid, DHA. A similar patented process was developed for a fungus that produces an oil rich in arachidonic acid, ARA. Both DHA and ARA are important nutrients for optimal infant development, while DHA has health benefits that extend throughout life. Martek, whose DHA patents begin to expire next year, has signed a researh partnership with BP to explore improvements to microalgae that may result in enhanced pharma and fuel options.

Model: Owner-operator.

Past milestones:

1. Martek has entered into license agreements with over 30 infant formula manufacturers, who collectively represent approximately 75% of the estimated $15 billion worldwide retail market for infant formula and nearly 100% of the estimated $4.5 billion U.S. retail market for infant formula, including the retail value of Women, Infants & Children program (“WIC”) rebates.

2. Licensees include infant formula market leaders Mead Johnson Nutritionals, Nestle, Abbott Laboratories, Wyeth and Danone (formerly Numico), each of whom is selling infant formula supplemented with our nutritional oils.

3. To date, over 100 domestic and international companies have launched non-infant formula products that contain life’sDHA™ , most of which remain on the market and are believed to be meeting customer expectations. Certain of our DHA license and supply agreements with major consumer food products companies establish Martek, subject to certain exceptions, as their exclusive supplier of DHA for minimum periods of time. We, along with our customers and certain third parties, are developing other DHA delivery methods, including powders and emulsions, to facilitate further entry into the non-infant formula markets. Management believes that over the next few years, the non-infant formula markets will continue to expand and could ultimately represent a larger opportunity than infant formula.

4. In July, BP and Martek Biosciences Corporation  announced the signing of a Joint Development Agreement (JDA) to work on the production of microbial oils for biofuels applications. The partnership combines a broad technology platform and operational capabilities to advance the development of a step-change technology for the conversion of sugars into biodiesel.
Under the terms of the multi-year agreement, Martek and BP will work together to establish proof of concept for large-scale, cost effective microbial biodiesel production through fermentation.

Future milestones:

1. As a result of inventory de-stocking, Martek’s infant formula revenue is expected to be negatively impacted during the Company’s third and fourth fiscal quarters by a combined total of $10 million to $15 million.

2. Martek expects total revenues for the third quarter of fiscal 2009 to be between $77 million and $85 million with third quarter infant formula revenue projected to be between $63 million and $70 million and third quarter non-infant formula nutritional revenue projected to be between $8.5 million and $10.5 million. Third quarter gross margin is expected to be approximately 43%. Net income for the third quarter is projected to be between $7.7 million and $9.3 million, and diluted earnings per share are projected to be between $0.23 and $0.28. For the full fiscal year 2009, Martek expects total revenues to be between $350 million and $355 million. Net income for the full fiscal year 2009 is projected to be between $40 million and $42 million, and diluted earnings per share are projected to be between $1.20 and $1.25, a pre-tax earnings increase of between 10% and 15% over fiscal 2008.

3. BP has agreed to contribute up to $10 million to this initial phase of the collaboration which leverages Martek’s significant expertise in microbial oil production and BP’s production and commercialization experience in biofuels as the platform for the joint development effort.

Metrics: Recorded $88 million in sales for three months ended April 30th. Income from operations was $16.9 million. The company has $259 million in plants and equipment.

Martek quotable quotes: “Martek is pleased to partner with BP’s Alternative Energy team, to combine our unique algae-based technologies and intellectual property for the creation of sustainable and affordable technology for microbial biofuel production. BP’s global leadership and commitment to alternative energy solutions complements Martek’s own commitment to responsible and sustainable products and production.”

“The technology has been demonstrated in Martek’s field for more than 20 years and the challenge is to adapt this technology to the needs of the biofuels market, in terms of product profile and economics.

“Martek will perform the biotechnology research and development associated with this initial phase, whilst BP will contribute to its integration within the biofuels value chain. All intellectual property owned prior to the execution of the JDA will be retained by each respective company, and all intellectual property developed during the JDA will be owned by BP, with an exclusive licence to Martek for application and commercialization in nutrition, cosmetic and pharmaceutical applications. Additionally, each party is entitled to certain commercial payments from technology commercialized in the other party’s field.”

“Other advantages of this sugar to biodiesel pathway over conventional biodiesel made from vegetable oils include: Access to a wide variety of biomass feedstocks such as sugar cane, sugar cane waste (bagasse), energy grass and woodchips, which can be produced at scale and in high yield; Use of sustainable, non-food, plant biomass as its feedstock; Ability to tailor the product for a variety of diesel and jet-fuel needs; Reduced exposure to vegetable oil price.”

The Hot 50 for 2009-10 will be released Tuesday, 12/1. Between now and then, you’ll see profiles of potential candidates in the Digest, and you’ll have a chance to vote for your favorites. Reader response will count for 50 percent of a company’s overall score in the preparation of the rankings. The remaining 50 percent is voted by a panel of experts.

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