Scientists at Columbia's Martek Biosciences Corp. have been researching microalgae for 10 years with no profits to show for it. But some Wall Street analysts now believe that's about to change.
Led by demand for an infant formula additive that the company has developed, Martek's balance sheet should shift from a $10 million loss in 1996 to a $25 million profit in 1998, according to analysts with the Wall Street companies Salomon Bros. and Hambrecht & Quist who follow Martek.
That would be no small accomplishment. Of the more than 1,400 public and private biotech companies in the United States. only five turn a profit, said Alex Zisson, a biotech stock expert in Hambrecht & Quist's New York office.
And Martek is in the same boat for now. For the most recent business quarter, which ended Jan. 31, the company reported a net loss of $2.2 million because of a big increase in its research and development costs.
So Martek officials see analysts' predictions of big profits within a few years as testament to their endurance.
"The difficulty with the bioscience business is that it takes many years of work before there's a payoff. It's an endurance contest," xTC says Henry "Pete" Linsert, Martek's chief executive officer.
Martek was launched in 1985 by five former Martin Marietta Corp. scientists, all of whom worked in the aerospace and defense giant's biosciences division.
They had been tinkering with using microalgae -- which are among the world's most common marine plants and found virtually anywhere moisture is present -- in cleaning the air aboard the space shuttle and the planned U.S. space station. The project was scrapped in the mid-1980s.
But the scientists believed that microalgae held substantial promise for medicine and nutrition. Led by Dr. Richard Radmer, they made a successful pitch for start-up funds to the venture capital group that Mr. Linsert was working for at the time.
By 1988, Mr. Linsert had decided to ditch his venture capital career for the CEO's post at Martek. He brought on Steve Dubin, another member of the venture group, as chief financial officer.
Since 1985, Martek has drummed up $25 million through venture capital investments, grants and a stock offering to pursue medical advances from microalgae.
While Martek's scientists have learned much about microalgae's properties and how they might be used in developing new drugs and nutritional products, profiting from those discoveries has been elusive. Since 1990 Martek has lost more than $1 million annually.
Stock analysts credit Martek's survival, in part, to Mr. Linsert and Mr. Dubin and their expertise in the venture capital business. A well-timed public stock offering of 2 million shares in 1993 helped, too, by raising about $14 million.
Those efforts gave the company's scientists time and money to conduct the research on microalgae to determine their potential for developing marketable products.
According to stock analysts, key among Martek's expected revenue generators in the next three to five years are:
* Formulaid. This infant formula additive is expected to be the company's leading revenue source, bringing in $63 million by 1998, predict Salomon Bros. and H&Q.;
Formulaid is a fatty acid mixture that makes infant formula much more like mother's milk. It must still pass safety tests before infant formula manufacturers will include it in their products.
But three of the world's largest infant formula producers, including Mead Johnson, have signed agreements to use the additive. Martek would receive royalties from the sale of infant formulas with Formulaid.
Mr. Linsert said the company also hopes to market Formulaid as an additive for baby food and as a nutritional supplement for pregnant women and senior citizens.
* Stable isotopes. These structures help drug researchers determine the shapes and structures of molecules in the human body. Understanding them is considered critical by some researchers for designing new drugs. The company says its sales of these chemicals increased dramatically in 1992.
* Breath test diagnostics. The company is perfecting breath tests that could replace procedures now used for liver biopsies and testing for intestinal afflictions.
* Pharmaceuticals. The company believes microalgae may prove useful as ingredients in new medicines that would fight some of the new drug-resistant bacteria. If that proves to be true, the potential revenue could be significant, stock analysts say.
Today, Martek's research laboratories in the Columbia Business Center, an unassuming modern office park off Dobbin Road, have one of the largest collections of microalgae in the world -- 2,000 kinds.
Despite the riskiness of the biotechnology business, Mr. Linsert is convinced the company is on the right track. Significant biological discoveries lie ahead in the tubes of green, blue and red algae in Martek's labs, he predicts.
"I'll admit it's no laundry or doughnut shop," said Mr. Linsert. "But the ultimate output could be that you save lives or make a major contribution to medicine. That's really why we're here."