Martek Biosciences Corp. said yesterday that it has placed its first consumer product on the market, as one of Maryland's brightest biotechnology hopes announced that a Dutch baby formula company has begun using a Martek-invented nutritional supplement.
The product, a combination of two fatty acids that Columbia-based Martek derived from algae and fungi, is called Formulaid. A number of studies, including one last month in the prestigious British medical journal the Lancet, have said the two acids promote faster visual and mental development in infants, especially those born prematurely.
"It's a major milestone for the company," said Meirav Chovav, who follows Martek for Salomon Inc. in New York. "I think this is a stock that could explode. It's a very low-risk biotech story."
The two acids occur naturally in breast milk, but have not been used in commercially available baby formulas. The company's pitch to investors has been that Formulaid may help close gaps researchers have found between the development of breast-fed and bottle-fed infants, differences that the Lancet study found persist in 9-year-old children.
The news also highlights Martek's status as a company for which Maryland economic development officials have high hopes. The administration of outgoing Gov. William Donald Schaefer has hoped that the company will develop into a linchpin of the life sciences sector the governor has tried to foster.
"Martek is precisely the type of firm that is showing us the path toward growth and profitability in the life sciences," said Mark L. Wasserman, secretary of economic and employment development. "International markets have a real appetite for American and Maryland biotechnology."
Biotechnology companies traditionally have long development cycles for major products; in the meantime, they raise money by selling stock and by selling small volumes of simpler products with less commercial potential. Yesterday's news was a sign that Martek's five years of developing Formulaid are nearing fruition.
Alex Zisson, an analyst for Hambrecht & Quist Inc. in New York, said he expected Martek to turn its first profit in fiscal 1997. The investment banking company was the lead underwriter of Martek's initial public offering last December.
However, yesterday's news will have little immediate impact, Martek Chief Executive Henry "Pete" Linsert said. The company's stock closed yesterday at $8.375, down 37.5 cents a share. Martek went public at $7 a share and traded as high as $15 earlier this year, Mr. Zisson said.
Mr. Linsert said Formulaid so far was only on the market in Belgium, as an additive in baby formulas made for prematurely born babies and sold by Nutricia, the second-leading formula maker in Europe. He said Nutricia began selling the Formulaid-based product in early fall.
Ms. Chovav said she expected Martek to have the supplement available to all formula-fed babies in major European markets by late 1995.
Mr. Linsert and Mr. Zisson said Martek has licensing deals with companies representing about 40 percent of the U.S. baby formula market to use Formulaid once clinical trials are completed in the United States. The company has deals with companies controlling more than 20 percent of European formula sales.
Mr. Zisson said the worldwide baby formula market was about $5 billion annually, most of it in Europe and the United States.
Mr. Linsert said Martek was still talking to Nestle, the baby formula market leader in Europe, and to Ross Laboratories Inc., the maker of U.S. formula market leader Similac. "No one has said 'No,' " he said.
Mr. Zisson said he does not believe Ross and Nestle were hostile to using Formulaid. "They are the market leaders," the analyst said. "They may be a little slow to embrace change."
Officials with Ross and Nestle could not be reached yesterday.
In addition to a flat fee that should cover production costs, Martek is expected to receive a royalty of about 3 percent of the sales of formula containing Formulaid, he said.
The royalty "should go straight to pretax income," Mr. Zisson added. The company also could boost Formulaid sales by marketing it as a nutrition supplement for pregnant and breast-feeding women, he said.
Mr. Linsert said Martek was doing clinical trials in Australia on a fatty acid known as DHA, and plans trials in Texas. The goal of the studies was to find the optimal level of DHA in a pregnant or nursing woman's body. Armed with that knowledge, formula or supplement makers can know how much DHA they should put in their products.
Mr. Linsert said the answer was likely to be different around the world. Women tend to have more of the acids used in Formulaid in their bodies in cultures such as Japan, where fish is a bigger part of the diet.