March 24, 2008 - Martek Biosciences Corp.'s (MATK-NASDAQ) nutritional and pharmaceutical products promote the popularity of pond scum. The firm has developed nutritional oils from microalgae and fungi for use in baby formula (the oils provide fatty acids naturally present in human milk). Its oils, branded life'sDHA, are made primarily from the omega-3 fatty acid DHA. The company licenses the oils to manufacturers of formula and nutritional products for infants. Martek also licenses its patented oils for use in dietary supplements, nutritional drinks, breakfast cereals, and some dairy products. Additionally, it provides contract manufacturing of specialty chemicals, vitamins, and agricultural products.

Earnings are starting to gain momentum, having gone from 48 cents a share in 2005, then to 55 cents a share in 2006, followed by 65 cents last year. This year analysts think $1.00 a share is possible and $1.20 next year. That's on revenues of $340 million this year and $375 million next.

In the first quarter of the new fiscal year of 2008 (ended on Oct 31), earnings were up 225%, reaching 26 cents a share compared to 8 cents a share in the previous year. Revenues were up 18% in the same time period compared to last year's first quarter.

Good results are flowing from increased demand for MATK's oil, particularly DHA and ARA. International sales are beginning to show marked improvement. Also, new applications for the oils in food and beverages, pregnancy/lactating and nutritional supplements, and animal feed areas show real promise. New products this year include 3 food and beverage applications and 1 pregnancy and nursing supplement. There are more behind these.

There are studies showing the benefits of these oils, with data demonstrating their efficacy for the mental and visual development of infants as well as cardiovascular health and reduction of risk of Alzheimer's disease. As societies become more health conscious, demand for these oils should grow.

On March 13, the company announced a leading juice company in Australia launched a new juice blend with Martek's life'sDHA. On March 18, the company announced the launch of Oroweat 9 Grain bread, the first bread with Martek's Life'sDHA, the first and only bread with vegetarian DHA. On March 21, Martek announced that life'sDHA is available in Protein-free Powder. Expect more new products using the oils in new ways.

More numbers: Current assets are 5 times current liabilities. Market cap is $950 million on 32.862 million shares. Return on Equity is 6%. Net Profit Margin is 9.7%. The P/E is 31 using this year's earnings estimates, 26 using next year's. Analysts predict sales will grow 13% a year, on average, over the next 5 years while earnings improve by 18% a year, on average, in the same time frame.

This company has products that show health benefits for infants. It's expanding into the adult markets, and as consumers demand more healthful foods, more of MATK's oils will be used. But this message has been known for quite some time. That's why the stock got well ahead of earnings in 2003 and 2004. 2005 earnings went down to 48 cents a share from 72 cents a share, and the stock price followed. So if the story appeals to you, be aware that volatility also comes with the stock. If management keeps delivering good results, however, this stock does have a good chance of reaching new highs.

- Company Web site: www.martekbio.com

- Ted Allrich