Revenues of $35.6 Million; Earnings of $3.4 Million

COLUMBIA, Md., Mar 10, 2004 /PRNewswire-FirstCall via COMTEX/ -- Martek Biosciences Corporation (Nasdaq: MATK) today announced its financial results for its first fiscal quarter of 2004 (1st Qtr 04), which ended January 31, 2004. For the 1st Qtr 04, revenues of $35.6 million were achieved, up from $20.5 million for the 1st Qtr 03. For the 1st Qtr 04, Martek earned net income of $3.4 million, or $0.11 per diluted share, compared to net income of $2.1 million or $0.08 per diluted share in the 1st Qtr 03.

"The numbers came in as expected and reflect last September's Italian power outage. Otherwise, everything is going into place for an expected good year," stated Henry "Pete" Linsert, Jr., Chief Executive Officer of Martek.

1st Qtr 2004 Consolidated Financial Results

Total revenues for the 1st Qtr 04 were $35.6 million, an increase of $15.0 million or 73% over the 1st Qtr 03. A significant portion of this increase is due to higher sales of nutritional products to the Company's infant formula licensees (For a history of the Company's nutritional product sales by quarter see the chart at (http://www.martekbio.com/images/corporatePages/P2AQ9.gif). Nutritional product sales for the 1st Qtr 04 totaling $31.7 million, decreased by approximately $4.2 million on a sequential quarter basis primarily due to the previously disclosed nationwide power failure in Italy in late September 2003, which affected the production of arachidonic acid (ARA) by Martek's third party manufacturer. Approximately 90% of Martek's 1st quarter nutritional product sales were generated from sales of docosahexaenoic acid (DHA) and ARA to four of the Company's infant formula licensees: Mead Johnson, Wyeth, Abbott Laboratories and Nestle. Supplemented term infant formulas manufactured by three of these companies were introduced in the U.S. in 2002, and Nestle launched a supplemented formula in the U.S. in 2003. Supplemented term formulas are now collectively being marketed by these four companies in over 30 countries around the world. Included in Martek's 1st quarter revenues was $3.3 million related to contract manufacturing revenues generated by the former FermPro business in Kingstree, SC, which was acquired in September 2003.

During the quarter, the Company made a decision that customer demand requirements would be met to the fullest extent possible despite the potential negative effects on gross profit margin caused by production inefficiencies or high freight costs. As such, gross profit margin decreased to 38% during the 1st Qtr 04, down from 40% for the same period in 03. Gross profit margin was impacted by higher ARA costs from DSM Food Specialties B.V. (DSM), Martek's third party manufacturer of ARA oil in Capua, Italy due to the nationwide power outage noted above, as well as DSM's use of certain less efficient fermenters to make ARA. These increased production costs were partially offset by approximately $1 million of insurance proceeds that the Company received related to the power outage. Furthermore, to meet demand during the quarter, the Company used air freight for ARA delivery which also resulted in higher product costs. DSM is expected to begin ARA production in the U.S. in the Spring of 2004, which should improve gross profit margins beginning in the 3rd Qtr 04 and mitigate factors that could impact the production at any one plant. Gross profit margin for the 1st Qtr 04 compared to the 1st Qtr 03 also includes $3.3 million of lower margin contract manufacturing revenues related to the former FermPro business.

Research and development expenses increased by $1.0 million or 35% in the 1st Qtr 04 compared to the 1st Qtr 03. This increase was primarily the result of additional researchers hired and development work performed to improve production efficiencies and evaluate new processes as well as costs incurred in the development of DHA products for the food and beverage industry and the commencement of work on certain collaborative agreements.

Selling, general and administrative expenses increased by $2.3 million or 61% during the 1st Qtr 04 over the 1st Qtr 03, primarily due to the hiring of additional personnel, increases in legal fees and insurance and the addition of costs related to the Company's new Kingstree facility, acquired from FermPro in the 4th Qtr 03.

Other operating expenses of $450,000 were incurred in the 1st Qtr 04. This amount consisted of start-up costs relating to the expansion of DHA production underway at the Kingstree facility and costs related to production trials of DHA for use in food and beverage products.

Net income of $3.4 million, or $0.11 per share on a diluted basis, was realized in the 1st Qtr 04, compared to net income of $2.1 million, or $0.08 per share for the 1st Qtr 03.

The Company used cash flow from operations of $7.7 million in the 1st Qtr 04. This use of cash was the result of an increase in DHA inventory due to production improvements by the Company. This additional DHA inventory could not be blended with ARA for sales to infant formula manufacturers because of the ARA shortage noted above. In addition, the ARA shortage caused a significant portion of the 1st Qtr 04 product sales to occur in January 2004 thereby creating an increase in accounts receivable from year end. Capital expenditures for the quarter were $56.0 million, the majority of which were related to equipment purchased for the expansion underway at the newly acquired Kingstree facility to increase output of the Company's nutritional oils. The Company generated cash flow from financing activities of $33.2 million primarily due to borrowings under the Company's revolving credit facility and proceeds from the exercise of stock options. At the end of the quarter, Martek had approximately $64.6 million in cash, cash equivalents and short-term investments, a decrease of $32.4 million from October 31, 2003.

Recent Highlights

    Recent events impacting Martek include:
    * Expansion of production facilities -- Martek has initiated an extensive
      expansion at its recently acquired Kingstree location for the
      fermentation and processing of the Company's nutritional oils. This
      expansion is expected to cost $150 -- $160 million when complete. The
      estimated total project cost has recently increased by approximately $20
      million due to accelerated timing and a revised scope to allow for
      expanded throughput of downstream processing. The first phase of the
      expansion is expected to begin production in mid fiscal 2004 and once
      all phases are complete, Martek's production capacity should more than
      triple over the next 12-18 months.

    * New Credit Facility -- During the quarter, the Company entered into a
      new $85 million revolving credit facility, replacing its $10 million
      revolving line of credit. Funds borrowed under the new credit facility
      are secured by inventory and receivables and the Company has agreed not
      to encumber its other assets, except for certain permitted liens. The
      new credit facility is scheduled to expire on February 1, 2007. The
      Company plans to use the proceeds from any borrowings under the credit
      facility to finance the expansion of Martek's manufacturing capacity.

    * Sale of Remaining Shares in Shelf Registration Statement -- The Company
      offered and sold approximately 177,000 shares of its common stock in an
      underwritten public offering. Net proceeds to the Company of
      approximately $11.2 million were generated from the offering and
      received by the Company subsequent to the end of the first quarter.
      These proceeds are expected to assist in financing the expansion of
      Martek's manufacturing capacity as well as be used for general corporate
      purposes.

    * Favorable FDA Review -- The Food and Drug Administration completed a
      favorable review of the Company's generally recognized as safe (GRAS)
      notification for use of the former OmegaTech DHA in food applications.
      The agency has issued a letter informing the Company that the FDA has no
      questions regarding the Company's notification that the Martek DHA under
      review is safe for use in food products.  The FDA review was not
      required but was undertaken by Martek because it believes the extra
      review provides further indication of future food safety.

General

Sections of this release contain forward-looking statements concerning, among other things: (1) expectations regarding future revenue growth, product introductions, growth in nutritional product sales, production expansion, margin and productivity improvements, applications and potential collaborations; (2) expectations regarding sales to infant formula licensees; (3) expectations regarding future efficiencies in manufacturing processes and the costs of production of nutritional oils and purchase of third-party manufactured oils; (4) expectations regarding future research and development costs; and (5) expectations regarding production capacity and the cost of expansion. These statements are based upon numerous assumptions which Martek cannot control and involve risks and uncertainties that could cause actual results to differ. These statements should be understood in light of the risk factors set forth above and in the Company's filings with the Securities and Exchange Commission, including, but not limited to our Form 10-K for the fiscal year ended October 31, 2003 and other filed reports on Form 10-Q and Form 8-K.

About Martek

Martek Biosciences Corporation develops, manufactures and sells products from microalgae. The Company's products include: (1) specialty, nutritional oils for infant formula that aid in the development of the eyes and central nervous system in newborns; (2) nutritional supplements and food ingredients that may play a beneficial role in promoting mental and cardiovascular health throughout life; and (3) new, powerful fluorescent markers for diagnostics, rapid miniaturized screening, and gene and protein detection.