Quite a week for nutritional oils supplier Martek Biosciences. In the past seven days, the European Commission gave the green light for the use of DHA/ARA in novel foods, paving the way for a range of foodstuffs fortified with these long-chain polyunsaturated fatty acids. And on Friday, the world's leading infant formula supplier, Nestlé, announced that it has signed a licence agreement to use Martek Biosciences' oils in its infant formula.
This last news sparked favourable comments from analysts, who estimate that in the US alone, the annual opportunity for the oils company could reach $15 -$16 million of revenue.
"The announcement is significant for threeprimary reasons," stated food and nutrition analyst Scott Van Winkle at Adams, Harkness & Hill . "First, there is a $15 to $16 million near-termannual US opportunity with Nestlé; second, Nestlé owns the largest worldwide infant formula share; and third, Nestlé's adoption is a significant confirmation of our belief that essentially all US infant formula will ultimately include DHA/ARA from Martek."
Martek has developed a form of docosahexaenoic acid (DHA) from algae that, alongwith arachidonic acid (ARA), is believed to improve the mental and visual development of infants fedformula fortified with the ingredients. "Today, penetration of these ingredients in infant formula isgrowing rapidly worldwide," continued the analyst.
Nestlé is the last of the 'big' customers to sign up for Martek's DHA/ARA, following Mead Johnson, Ross Products and Wyeth, to whom the Swiss giant has lost market share. "Nestlé's hesitance in adding DHA/ARA to formula has reportedly been dueto the high costs of the ingredient," said van Winkle. The fact that Nestlé is now on board confirms DHA/ARA's importance as a formula ingredient and that Nestlé could not develop a lower-cost alternative, he added.
In the near future, van Winkle predicts that new market development, additional clinical research and rapidly rising revenue and earnings should drive shares in Martek Biosciences higher.