Columbia, Md., biotechnology company Martek Biosciences Corp. is increasing production and reviving its stock after reporting solid financial results last month.
Martek, which makes infant formula and other products from lab-grown microalgae, said yesterday that it will increase the supply of arachidonic acid, a long-chain fatty acid, from DSM Food Specialties BV, a Netherlands biotechnology and chemical company.
Arachidonic acid and docosahexaenoic acid, a fatty acid known as DHA, make up the majority of sales for Martek, which has nearly 500 employees. The company plans to expand its product in dietary supplements while entering the food and beverage industry.
But the problem for the past year has been Martek’s production capability, said Tom Feeley, director for operational analysis and management.
“We have no inventory because we’re selling all that DSM is providing. It’s a good problem to have, but little blips in production end up affecting the bottom line,” Mr. Feeley said.
The most recent “blip” was a power outage in Italy that cost the company about $4.2 million in lost sales, he said.
The new arrangement with DSM Food and expansions at Martek’s plant in Kingstree, S.C., will increase annual sales capacity to $300 million by the end of the year and $500 million by mid-2005, Mr. Feeley said.
The company expects to sell $190 million to $210 million in fiscal 2004, which ends in October.
Analysts said they expected the DSM Food agreement. But future sales growth is projected to come from DHA, which Martek makes in plants in Kingstree and Winchester, Ky.
“DHA is going to be the big winner,” said Kyle Stults, a research analyst with Wm Smith & Co., a Denver independent research company. Mr. Stults does not rate the stock, but he did give it an $80 target price. Shares are trading in the $60 range on the Nasdaq Stock Market.
“It certainly could be a good buy,” Mr. Stults said, adding that he does not own any stock and that Wm Smith has no business with Martek.
Martek stock closed yesterday at $62.42, up 3 percent from a week earlier at $60.86. Shares rose to a one-year high of $69.20 last month before slipping while the company posted first-quarter gains.
Martek’s sales in its first fiscal quarter ended Jan. 31 jumped 73 percent to $35.5 million from $20.5 million a year earlier.
Profits also climbed 63 percent to $3.35 million (11 cents per diluted share) from $2.06 million (8 cents) in the prior year. Diluted earnings per share include the value of convertible warrants and stock options.
Martek’s sales could double in a year and a half once the company has a fully-operational production setup, said Timothy Ramey, a senior research analyst with D.A. Davidson & Co., an investment bank and subsidiary of D.A. Davidson Cos.
Mr. Ramey, who rated Martek a “buy,” does not own any company stock, and D.A. Davidson has no banking relationship with Martek.
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