##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended April 30, 2009
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
 For the Transition Period From  to
 COMMISSION FILE NUMBER 0-22354
 MARTEK BIOSCIENCES CORPORATION
  Delaware
    
    52-1399362(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification Number)
 6480 Dobbin Road, Columbia, Maryland 21045
 (410) 740-0081
 
 
 þ o
 o o
  Large accelerated filer þ
    
    Accelerated filer o
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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##### 



PART I FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    24Item 4. Controls and Procedures
    
    
    24PART II OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    25Item 1A. Risk Factors
    
    
    27Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    29Item 3. Defaults Upon Senior Securities
    
    
    29Item 4. Submission of Matters to a Vote of Security Holders
    
    
    29Item 5. Other Information
    
    
    29Item 6. Exhibits
    
    
    29Signatures
    
    
    30Exhibit 10.1Exhibit 31.01Exhibit 31.02Exhibit 32.01Exhibit 32.02
   2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 MARTEK BIOSCIENCES CORPORATION
  April 30,
    
    
    October 31,In thousands, except share and per share data
    
    2009
    
    
    2008(unaudited)AssetsCurrent assetsCash and cash equivalents
    
    $
    117,944
    
    
    $
    102,495Accounts receivable, net
    
    
    52,898
    
    
    
    40,438Inventories, net
    
    
    109,603
    
    
    
    99,553Deferred tax asset
    
    
    22,152
    
    
    
    24,821Other current assets
    
    
    3,905
    
    
    
    4,866Total current assets
    
    
    306,502
    
    
    
    272,173Property, plant and equipment, net
    
    
    259,747
    
    
    
    265,900Deferred tax asset
    
    
    3,667
    
    
    
    13,535Long-term investments
    
    
    11,615
    
    
    
    11,336Goodwill
    
    
    51,592
    
    
    
    51,592Other intangible assets, net
    
    
    32,069
    
    
    
    30,997Other assets, net
    
    
    368
    
    
    
    448Total assets
    
    $
    665,560
    
    
    $
    645,981Liabilities and stockholders equityCurrent liabilitiesAccounts payable
    
    $
    21,424
    
    
    $
    17,105Accrued liabilities
    
    
    20,382
    
    
    
    28,819Current portion of notes payable and other long-term obligations
    
    
    416
    
    
    
    374Current portion of deferred revenue
    
    
    1,198
    
    
    
    1,044Total current liabilities
    
    
    43,420
    
    
    
    47,342Notes payable and other long-term obligations
    
    
    603
    
    
    
    793Long-term portion of deferred revenue
    
    
    8,698
    
    
    
    9,263Total liabilities
    
    
    52,721
    
    
    
    57,398CommitmentsStockholders equityPreferred stock, $.01 par value, 4,700,000 shares authorized; none issued or outstanding
    
    
    
    
    
    
    Series B junior participating preferred stock, $.01 par value; 300,000 shares authorized; none issued or outstanding
    
    
    
    
    
    
    Common stock, $.10 par value; 100,000,000 shares authorized; 33,226,584 and 33,147,360 shares issued and
outstanding, respectively
    
    
    3,323
    
    
    
    3,315Additional paid-in capital
    
    
    555,043
    
    
    
    553,871Accumulated other comprehensive loss
    
    
    (1,532
    )
    
    
    (3,985
    )Retained earnings
    
    
    56,005
    
    
    
    35,382Total stockholders equity
    
    
    612,839
    
    
    
    588,583Total liabilities and stockholders equity
    
    $
    665,560
    
    
    $
    645,981
 See accompanying notes.
  3




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##### Table of Contents



MARTEK BIOSCIENCES CORPORATION
  Three months ended April 30,
    
    
    Six months ended April 30,Unaudited  In thousands, except per share data
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Revenues:Product sales
    
    $
    88,152
    
    
    $
    87,875
    
    
    $
    172,174
    
    
    $
    166,484Contract manufacturing sales
    
    
    4,259
    
    
    
    2,851
    
    
    
    7,600
    
    
    
    7,123Total revenues
    
    
    92,411
    
    
    
    90,726
    
    
    
    179,774
    
    
    
    173,607Cost of revenues:Cost of product sales
    
    
    49,299
    
    
    
    50,579
    
    
    
    96,208
    
    
    
    95,676Cost of contract manufacturing sales
    
    
    4,017
    
    
    
    2,764
    
    
    
    7,426
    
    
    
    6,452Total cost of revenues
    
    
    53,316
    
    
    
    53,343
    
    
    
    103,634
    
    
    
    102,128Gross margin
    
    
    39,095
    
    
    
    37,383
    
    
    
    76,140
    
    
    
    71,479Operating expenses:Research and development
    
    
    7,157
    
    
    
    6,819
    
    
    
    13,906
    
    
    
    12,800Selling, general and administrative
    
    
    12,875
    
    
    
    14,234
    
    
    
    25,972
    
    
    
    27,215Amortization of intangible assets
    
    
    1,595
    
    
    
    1,877
    
    
    
    3,376
    
    
    
    3,556Other operating expenses
    
    
    569
    
    
    
    96
    
    
    
    722
    
    
    
    249Total operating expenses
    
    
    22,196
    
    
    
    23,026
    
    
    
    43,976
    
    
    
    43,820Income from operations
    
    
    16,899
    
    
    
    14,357
    
    
    
    32,164
    
    
    
    27,659Interest and other income, net
    
    
    280
    
    
    
    458
    
    
    
    535
    
    
    
    831Interest expense
    
    
    (94
    )
    
    
    (149
    )
    
    
    (189
    )
    
    
    (305
    )Income before income tax provision
    
    
    17,085
    
    
    
    14,666
    
    
    
    32,510
    
    
    
    28,185Income tax provision
    
    
    6,068
    
    
    
    5,464
    
    
    
    11,887
    
    
    
    10,314Net income
    
    $
    11,017
    
    
    $
    9,202
    
    
    $
    20,623
    
    
    $
    17,871Net income per shareBasic
    
    $
    0.33
    
    
    $
    0.28
    
    
    $
    0.62
    
    
    $
    0.54Diluted
    
    $
    0.33
    
    
    $
    0.28
    
    
    $
    0.62
    
    
    $
    0.54Weighted average common shares outstandingBasic
    
    
    33,190
    
    
    
    32,916
    
    
    
    33,170
    
    
    
    32,830Diluted
    
    
    33,310
    
    
    
    33,231
    
    
    
    33,349
    
    
    
    33,151
 See accompanying notes.
  4




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MARTEK BIOSCIENCES CORPORATION
  AccumulatedAdditional
    
    
    OtherCommon Stock
    
    
    Paid-in
    
    
    Comprehensive
    
    
    RetainedUnaudited  In thousands, except share data
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Income(Loss)
    
    
    Earnings
    
    
    TotalBalance at October 31, 2008
    
    
    33,147,360
    
    
    $
    3,315
    
    
    $
    553,871
    
    
    $
    (3,985
    )
    
    $
    35,382
    
    
    $
    588,583Issuance of common stock under employee stock plans
    
    
    79,224
    
    
    
    8
    
    
    
    103
    
    
    
    
    
    
    
    
    
    
    
    111Shares withheld for tax payments upon vesting of
restricted stock units
    
    
    
    
    
    
    
    
    
    
    (536
    )
    
    
    
    
    
    
    
    
    
    
    (536
    )Equity-based compensation
    
    
    
    
    
    
    
    
    
    
    1,958
    
    
    
    
    
    
    
    
    
    
    
    1,958Tax impact of exercise of non-qualified stock options and vesting of restricted stock units, net
    
    
    
    
    
    
    
    
    
    
    (353
    )
    
    
    
    
    
    
    
    
    
    
    (353
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,623
    
    
    
    20,623Other comprehensive income (loss):Reclassification of available-for-sale securities,
net of tax of $383
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    646
    
    
    
    
    
    
    
    646Unrealized loss on available-for-sale securities,
net of tax of $(249)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (420
    )
    
    
    
    
    
    
    (420
    )Realized loss on exchange rate forward
contracts, net of tax of $920
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,553
    
    
    
    
    
    
    
    1,553Unrealized gain on exchange rate forward
contracts, net of tax of $372
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    674
    
    
    
    
    
    
    
    674Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,076Balance at April 30, 2009
    
    
    33,226,584
    
    
    $
    3,323
    
    
    $
    555,043
    
    
    $
    (1,532
    )
    
    $
    56,005
    
    
    $
    612,839
 See accompanying notes.
  5




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MARTEK BIOSCIENCES CORPORATION
  Six months ended April 30,Unaudited  In thousands
    
    2009
    
    
    2008Operating activitiesNet income
    
    $
    20,623
    
    
    $
    17,871Adjustments to reconcile net income to net cash provided by operating activities:Depreciation and amortization
    
    
    14,115
    
    
    
    14,197Deferred tax provision
    
    
    11,244
    
    
    
    9,579Equity-based compensation expense
    
    
    1,924
    
    
    
    1,465Incremental tax benefit from exercise of non-qualified stock options and vesting of restricted
stock units
    
    
    
    
    
    
    (950
    )Loss on asset disposals and long-term investments, net
    
    
    388
    
    
    
    320Changes in operating assets and liabilities:Accounts receivable
    
    
    (12,460
    )
    
    
    (2,949
    )Inventories
    
    
    (10,016
    )
    
    
    (3,098
    )Other assets
    
    
    1,198
    
    
    
    2,815Accounts payable
    
    
    4,687
    
    
    
    (2,762
    )Accrued liabilities
    
    
    (5,571
    )
    
    
    2,291Deferred revenue and other liabilities
    
    
    (501
    )
    
    
    (23
    )Net cash provided by operating activities
    
    
    25,631
    
    
    
    38,756Investing activitiesPurchases of investments, marketable securities and long-term investments
    
    
    
    
    
    
    (16,925
    )Sales and maturities of investments, marketable securities and long-term investments
    
    
    
    
    
    
    6,075Expenditures for property, plant and equipment
    
    
    (5,263
    )
    
    
    (3,576
    )Capitalization of intangible assets
    
    
    (4,435
    )
    
    
    (2,165
    )Net cash used in investing activities
    
    
    (9,698
    )
    
    
    (16,591
    )Financing activitiesRepayments of notes payable and other long-term obligations
    
    
    (59
    )
    
    
    (426
    )Issuance of common stock under employee stock plans
    
    
    111
    
    
    
    5,515Tax payments from shares withheld upon vesting of restricted stock units
    
    
    (536
    )
    
    
    (521
    )Incremental tax benefit from exercise of non-qualified stock options and vesting of restricted
stock units
    
    
    
    
    
    
    950Net cash (used in) provided by financing activities
    
    
    (484
    )
    
    
    5,518Net increase in cash and cash equivalents
    
    
    15,449
    
    
    
    27,683Cash and cash equivalents, beginning of period
    
    
    102,495
    
    
    
    16,973Cash and cash equivalents, end of period
    
    $
    117,944
    
    
    $
    44,656Supplemental cash flow disclosures:Interest paid
    
    $
    101
    
    
    $
    316Income taxes paid
    
    $
    734
    
    
    $
    735Issuance of shares related to OmegaTech contingent purchase price
    
    $
    
    
    
    $
    10,164
 See accompanying notes.
  6




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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
 Consolidation
 Use of Estimates
 Segment Information
 Revenue Recognition
   Shipping Income and Costs
 Foreign Currency Transactions and Hedging Activities
  7




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Advertising
 Comprehensive Income
 Investments and Marketable Securities
    Fair Value of Financial Instruments
 Patent Costs
 Goodwill and Other Intangible Assets
  8




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##### Table of Contents



Recently Issued Accounting Pronouncements
 2. DSM SUPPLY AND LICENSE AGREEMENT
   3. INVESTMENTS
    9




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4. FAIR VALUE MEASUREMENTS
        10




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##### Table of Contents



As of April 30, 2009Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    BalanceAssetsAvailable-for-sale securities (1)
    
    $
    
    
    
    $
    
    
    
    $
    4,145
    
    
    $
    4,145Trading securities (1)
    
    
    
    
    
    
    
    
    
    
    5,663
    
    
    
    5,663Put Agreement(1)
    
    
    
    
    
    
    
    
    
    
    1,807
    
    
    
    1,807Investments in money market funds (2)
    
    
    98,587
    
    
    
    
    
    
    
    
    
    
    
    98,587Total Assets
    
    $
    98,587
    
    
    $
    
    
    
    $
    11,615
    
    
    $
    110,202LiabilitiesExchange rate forward contracts (3)
    
    
    
    
    
    
    1,103
    
    
    
    
    
    
    
    1,103Total Liabilities
    
    $
    
    
    
    $
    1,103
    
    
    $
    
    
    
    $
    1,103
 (1)
    
    Included in long-term investments in the accompanying consolidated balance sheets.(2)
    
    Included in cash and cash equivalents in the accompanying consolidated balance sheets.(3)
    
    Included in accrued liabilities in the accompanying consolidated balance sheets.  Auction RateSecurities
    
    
    Put Agreement
    
    
    TotalBalance on January 31, 2009
    
    $
    9,722
    
    
    $
    1,588
    
    
    $
    11,310Transfers to/(from) Level 3
    
    
    
    
    
    
    
    
    
    
    Total gains (losses) (realized or unrealized): (1)Included in earnings
    
    
    (170
    )
    
    
    219
    
    
    
    49Included in other comprehensive income
    
    
    256
    
    
    
    
    
    
    
    256Purchases, sales, issuances and settlements, net
    
    
    
    
    
    
    
    
    
    
    Balance on April 30, 2009
    
    $
    9,808
    
    
    $
    1,807
    
    
    $
    11,615
 (1)
    
    See Note 3 for discussion of Auction Rate Securities and related Put Agreement.  Auction RateSecurities
    
    
    Put Agreement
    
    
    TotalBalance on November 1, 2008
    
    $
    11,336
    
    
    $
    
    
    
    $
    11,336Transfers to/(from) Level 3
    
    
    
    
    
    
    
    
    
    
    Total gains (losses) (realized or unrealized): (1)Included in earnings
    
    
    (1,887
    )
    
    
    1,807
    
    
    
    (80
    )Included in other comprehensive income
    
    
    359
    
    
    
    
    
    
    
    359Purchases, sales, issuances and settlements, net
    
    
    
    
    
    
    
    
    
    
    Balance on April 30, 2009
    
    $
    9,808
    
    
    $
    1,807
    
    
    $
    11,615
 (1)
    
    See Note 3 for discussion of Auction Rate Securities and related Put Agreement.  11




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5. INVENTORIES
  April 30,
    
    
    October 31,2009
    
    
    2008Finished goods
    
    $
    56,132
    
    
    $
    45,871Work in process
    
    
    49,127
    
    
    
    49,042Raw materials
    
    
    4,344
    
    
    
    4,640Inventories, net
    
    $
    109,603
    
    
    $
    99,553
  6. PROPERTY, PLANT AND EQUIPMENT
  April 30,
    
    
    October 31,2009
    
    
    2008Land
    
    $
    2,320
    
    
    $
    2,320Building and improvements
    
    
    66,375
    
    
    
    64,731Machinery and equipment
    
    
    264,161
    
    
    
    262,831Furniture and fixtures
    
    
    3,058
    
    
    
    2,963Computer hardware and software
    
    
    16,912
    
    
    
    16,119352,826
    
    
    
    348,964Less: accumulated depreciation and amortization
    
    
    (102,312
    )
    
    
    (91,268
    )250,514
    
    
    
    257,696Construction in progress
    
    
    9,233
    
    
    
    8,204Property, plant and equipment, net
    
    $
    259,747
    
    
    $
    265,900
   12




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7. GOODWILL AND OTHER INTANGIBLE ASSETS
  April 30, 2009
    
    
    October 31, 2008Accumulated
    
    
    
    
    
    
    
    
    
    
    AccumulatedIntangible Asset
    
    Gross
    
    
    Amortization
    
    
    Net
    
    
    Gross
    
    
    Amortization
    
    
    NetTrademarks
    
    $
    2,164
    
    
    $
    (930
    )
    
    $
    1,234
    
    
    $
    2,153
    
    
    $
    (850
    )
    
    $
    1,303Patents
    
    
    25,231
    
    
    
    (9,446
    )
    
    
    15,785
    
    
    
    22,533
    
    
    
    (7,795
    )
    
    
    14,738Core technology
    
    
    1,708
    
    
    
    (740
    )
    
    
    968
    
    
    
    1,708
    
    
    
    (683
    )
    
    
    1,025Current products
    
    
    10,676
    
    
    
    (5,007
    )
    
    
    5,669
    
    
    
    10,676
    
    
    
    (4,652
    )
    
    
    6,024Licenses
    
    
    12,146
    
    
    
    (3,733
    )
    
    
    8,413
    
    
    
    11,968
    
    
    
    (4,061
    )
    
    
    7,90751,925
    
    
    
    (19,856
    )
    
    
    32,069
    
    
    
    49,038
    
    
    
    (18,041
    )
    
    
    30,997Goodwill
    
    
    51,592
    
    
    
    
    
    
    
    51,592
    
    
    
    51,592
    
    
    
    
    
    
    
    51,592$
    103,517
    
    
    $
    (19,856
    )
    
    $
    83,661
    
    
    $
    100,630
    
    
    $
    (18,041
    )
    
    $
    82,589
  lifesDHA.
  8. NOTES PAYABLE AND LONG-TERM DEBT
    13




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9. COMMITMENTS AND CONTINGENCIES
 Scientific Research Collaborations
  Patent Infringement Litigation
    Other
 10. STOCKHOLDERS EQUITY
      14




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11. NET INCOME PER SHARE
   Three months ended April 30,
    
    
    Six months ended April 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net income
    
    $
    11,017
    
    
    $
    9,202
    
    
    $
    20,623
    
    
    $
    17,871Weighted average shares outstanding, basic
    
    
    33,190
    
    
    
    32,916
    
    
    
    33,170
    
    
    
    32,830Effect of dilutive potential common shares:Stock options
    
    
    66
    
    
    
    246
    
    
    
    105
    
    
    
    245Restricted stock units
    
    
    54
    
    
    
    69
    
    
    
    74
    
    
    
    76Total dilutive potential common shares
    
    
    120
    
    
    
    315
    
    
    
    179
    
    
    
    321Weighted average shares outstanding, diluted
    
    
    33,310
    
    
    
    33,231
    
    
    
    33,349
    
    
    
    33,151Net income per share, basic
    
    $
    0.33
    
    
    $
    0.28
    
    
    $
    0.62
    
    
    $
    0.54Net income per share, diluted
    
    $
    0.33
    
    
    $
    0.28
    
    
    $
    0.62
    
    
    $
    0.54
  12. COMPREHENSIVE INCOME
  Three months ended April 30,
    
    
    Six months ended April 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Net income, as reported
    
    $
    11,017
    
    
    $
    9,202
    
    
    $
    20,623
    
    
    $
    17,871Other comprehensive income (loss):Reclassification of available-for-sale securities,
net of tax of $, $, $383 and $, respectively
    
    
    
    
    
    
    
    
    
    
    646
    
    
    
    Unrealized gain (loss) on available-for-sale securities,
net of tax of $95, $(298), $(249) and $(298), respectively
    
    
    162
    
    
    
    (526
    )
    
    
    (420
    )
    
    
    (526
    )Realized loss (gain) on exchange rate forward contracts,
net of tax of $484, $(33), $920 and $(149), respectively
    
    
    818
    
    
    
    (59
    )
    
    
    1,553
    
    
    
    (262
    )Unrealized gain (loss) on exchange rate forward contracts,
net of tax of $324, $(5), $372 and $28, respectively
    
    
    466
    
    
    
    (8
    )
    
    
    674
    
    
    
    51Comprehensive income
    
    $
    12,463
    
    
    $
    8,609
    
    
    $
    23,076
    
    
    $
    17,134
  15




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
 This Managements Discussion and Analysis of Financial Condition and Results of Operations contains
forward-looking statements concerning our business and operations, including, among other things,
statements concerning the following:
 
    
    expectations regarding future revenue, revenue growth, gross margin, operating cash
flow and profitability;
 
    
    expectations regarding product introductions and growth in nutritional product sales;
 
    
    expectations regarding potential collaborations and acquisitions;
 
    
    expectations regarding demand for products with our nutritional oils;
 
    
    expectations regarding sales to and by our infant formula licensees and supplemented
infant formula market penetration levels;
 
    
    expectations regarding marketing of our oils by our infant formula licensees;
 
    
    expectations regarding future agreements with, and revenues from, companies in the
food and beverage, pregnancy and nursing, nutritional supplement, and animal feed
markets;
 
    
    expectations regarding future revenues from contract manufacturing customers;
 
    
    expectations regarding growing consumer recognition of the key health benefits of DHA
and ARA;
 
    
    expectations regarding competitive products;
 
    
    expectations regarding future efficiencies and improvements in manufacturing
processes and the cost of production of our nutritional oils;
 
    
    expectations regarding future purchase volumes and costs of third-party manufactured
oils;
 
    
    expectations regarding the amount of production capacity and our ability to meet
future demands for our nutritional oils;
 
    
    expectations regarding the amount of inventory held by us or our customers;
 
    
    expectations regarding production capacity utilization and the effects of excess
production capacity;
 
    
    expectations regarding future selling, general and administrative and research and
development costs;
 
    
    expectations regarding future capital expenditures;
 
    
    expectations regarding levels of consumption through governmental programs of infant
formula products containing our nutritional oils; and
 
    
    expectations regarding our ability to maintain and protect our intellectual property.
 Forward-looking statements include those statements containing words such as the following:
 
    
    will,
 
    
    should,
 
    
    could,
 
    
    anticipate,
 
    
    believe,
 
    
    plan,
 
    
    estimate,
 
    
    expect,
 
    
    intend, and other similar expressions.
 All of these forward-looking statements involve risks and uncertainties. They and other
forward-looking statements in this Form 10-Q are all made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. We wish to caution you that our actual
results may differ significantly from the results we discuss in our forward-looking statements. We
discuss some of the risks that could cause such differences in Part II, Item 1A. Risk Factors in
this report on Form 10-Q and in our various other filings with the Securities and Exchange
Commission. Our forward-looking statements speak only as of the date of this document, and we do
not intend to update these statements to reflect events or circumstances that occur after that
date.
  16




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##### Table of Contents



GENERAL
 lifesDHA lifesARA lifesDHA ® ® ® lifesARA
  lifesDHA
   
    
    the timing of international infant formula market introductions by our customers;
 
    
    the timing of our customers ordering patterns;
 
    
    the timing and extent of stocking and destocking of inventory by our customers;
 
    
    the timing and extent of our customers production campaigns and plant maintenance
shutdowns;
 
    
    the timing and extent of introductions of DHA into various child and/or adult
applications and the marketplace success of such applications;
 
    
    the levels of inclusion of our oils in infant formula;
 
    
    the continued acceptance, and extent thereof, of products containing our oils under WIC
and other regulatory programs in the U.S.;
 
    
    the continued acceptance of these products by consumers and continued demand by our
customers;
 
    
    the ability of our customers to incorporate our oils into various foods and beverages;
 
    
    our ability to protect against competitive products through our patents;
 
    
    competition from alternative sources of DHA and ARA; and
 
    
    agreements with other future third-party collaborators to market our products or develop
new products.
   17




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##### Table of Contents



RECENT HIGHLIGHTS
 
    
    Non-Infant Formula Product Launches Several non-infant formula nutritional products with
Marteks lifesDHA were launched by Marteks customers, including Walmart Spring Valley DHA
dietary supplements and The Coca Cola Companys Minute Maid Blueberry Pom single serve
beverage, an extension of Minute Maids current Pomegranate Blueberry juice with lifesDHA.
 
    
    Multi-Year Sole-Source Infant Formula Supply Agreements Martek entered into multi-year,
sole-source infant formula supply agreements with Rice Field Corporation (Rice Field) and
Lactalis Nutrition Sante (Lactalis). Under the Rice Field agreement, Martek will supply its
DHA and ARA blend for all infant formula products manufactured by Rice Field under the
Prodigy brand. Rice Field will also be using
Marteks lifesDHA and lifesARA in its growing-up milks and will be using lifesDHAin its
products for pregnant and nursing women, all of which will be sold under the Prodigy brand in
China. Under the Lactalis agreement, Martek will supply its lifesARA for use in infant
formula and growing-up milks produced by Lactalis and sold in France and Algeria.
 
    
    Multi-Year Exclusive Food and Beverage Supply Agreement Martek entered into a multi-year
supply agreement with Ragasa, one of Mexicos largest providers of raw and refined oil
products and maker of Mexicos leading consumer cooking oil brand, Nutrioli, under which
Ragasa has agreed to purchase all of its DHA omega-3 needs from Martek. Ragasa plans to
launch a product featuring lifesDHA in 2009 and will display the lifesDHA logo on the
product packaging and in all related promotional materials.
 
    
    Arrangement for the Production of Influenza Drug Precursor Consistent with the services
provided by Martek in 2006, Martek has been re-engaged to manufacture shikimic acid, the
starting material used to produce an anti-viral drug for the treatment of influenza. Sales
for such services are expected to approximate $4.5 million, with one-half of this total
anticipated to occur in Marteks fourth quarter of fiscal 2009 and the remainder anticipated
to occur during the first half of fiscal 2010.
 
    
    New Scientific Data Published on DHA A summary document for the International Society
for the Study of Fatty Acids and Lipids published in Prostaglandins, Leukotrienes and
Essential Fatty Acids(February 2009) discussed obtaining adequate DHA intake in light of
current western diets. The authors concluded that with no other changes in diet, improvement of
blood DHA status can be achieved with dietary supplements of preformed DHA (such as Marteks
lifesDHA), but not with supplementation of ALA, EPA, or other precursors.
 MANAGEMENT OUTLOOK
     PRODUCTION
    18




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CRITICAL ACCOUNTING POLICIES AND
THE USE OF ESTIMATES
  Fair Value Measurements
  19




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##### Table of Contents



RESULTS OF OPERATIONS
 Revenues
 Three months ended April 30,
    
    
    Six months ended April 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Product sales
    
    $
    88,152
    
    
    $
    87,875
    
    
    $
    172,174
    
    
    $
    166,484Contract manufacturing sales
    
    
    4,259
    
    
    
    2,851
    
    
    
    7,600
    
    
    
    7,123Total revenues
    
    $
    92,411
    
    
    $
    90,726
    
    
    $
    179,774
    
    
    $
    173,607
  Three months ended April 30,
    
    
    Six months ended April 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Infant formula market
    
    $
    77,383
    
    
    $
    78,390
    
    
    $
    151,974
    
    
    $
    148,668Food and beverage market
    
    
    2,979
    
    
    
    3,172
    
    
    
    5,597
    
    
    
    5,267Pregnancy and nursing, nutritional
supplements and animal feeds
    
    
    6,801
    
    
    
    5,113
    
    
    
    12,465
    
    
    
    10,405Non-nutritional products
    
    
    989
    
    
    
    1,200
    
    
    
    2,138
    
    
    
    2,144Total product sales
    
    $
    88,152
    
    
    $
    87,875
    
    
    $
    172,174
    
    
    $
    166,484
 lifesDHA
      20




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##### Table of Contents



Cost of Revenues
  Three months ended April 30,
    
    
    Six months ended April 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Cost of product sales
    
    $
    49,299
    
    
    $
    50,579
    
    
    $
    96,208
    
    
    $
    95,676Cost of contract manufacturing sales
    
    
    4,017
    
    
    
    2,764
    
    
    
    7,426
    
    
    
    6,452Total cost of revenues
    
    $
    53,316
    
    
    $
    53,343
    
    
    $
    103,634
    
    
    $
    102,128
    Operating Expenses
  Three months ended April 30,
    
    
    Six months ended April 30,2009
    
    
    2008
    
    
    2009
    
    
    2008Research and development
    
    $
    7,157
    
    
    $
    6,819
    
    
    $
    13,906
    
    
    $
    12,800Selling, general and administrative
    
    
    12,875
    
    
    
    14,234
    
    
    
    25,972
    
    
    
    27,215Amortization of intangible assets
    
    
    1,595
    
    
    
    1,877
    
    
    
    3,376
    
    
    
    3,556Other operating expenses
    
    
    569
    
    
    
    96
    
    
    
    722
    
    
    
    249Total operating expenses
    
    $
    22,196
    
    
    $
    23,026
    
    
    $
    43,976
    
    
    $
    43,820
 Research and Development lifesDHA
 Selling, General and Administrative
 Amortization of Intangible Assets
 Other Operating Expenses
  21




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##### Table of Contents



Interest and Other Income, Net
  Interest Expense
  Income Tax Provision
   Net Income
  RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
  LIQUIDITY AND CAPITAL RESOURCES
  
    
    cash generated from operations;
 
    
    cash received from the exercise of stock options; and
 
    
    debt financing.
  22




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##### Table of Contents




    
    our ability to operate profitably and generate positive cash flow;
 
    
    growth in our infant formula, food and beverage and other nutritional product sales;
 
    
    the extent and progress of our research and development programs;
 
    
    the progress of pre-clinical and clinical studies;
 
    
    the time and costs of obtaining and maintaining regulatory clearances for our products
that are subject to such clearances;
 
    
    the costs involved in filing, protecting and enforcing patent claims;
 
    
    competing technological and market developments;
 
    
    the development or acquisition of new products;
 
    
    the cost of acquiring additional and/or operating and expanding existing manufacturing
facilities for our various products and potential products (depending on which products we
decide to manufacture and continue to manufacture ourselves);
 
    
    the costs associated with our internal build-up of inventory levels;
 
    
    the costs associated with litigation to which we are a party;
 
    
    the costs of, and any capital requirements related to, merger and acquisition activity;
and
 
    
    the costs of marketing and commercializing our products.
   23




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures about Market Risk.
     
 Item 4. Controls and Procedures.
 a)
    
    Evaluation of Disclosure Controls and Procedures.We, under the supervision and with
the participation of our management, including our Chief Executive Officer and Chief
Financial Officer, have evaluated the effectiveness of our disclosure controls and
procedures pursuant to Exchange Act rules 13a-15(e) and 15d-15(e) and based on this
evaluation our Chief Executive Officer and Chief Financial Officer have concluded that, as
of the end of the period covered by this report, the disclosure controls and procedures
were effective.
 b)
    
    Internal Control Over Financial Reporting.There was no change in our internal control
over financial reporting in connection with the evaluation required by paragraph (d) of
Rules 13a-15 or 15d-15 under the Exchange Act that occurred during Marteks quarter ended
April 30, 2009 that materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
  24




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##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings.
       25




---



##### Table of Contents



26




---



##### Table of Contents



Item 1A. Risk Factors.
   If we are unable to obtain or maintain patent protection or if our patents do not provide
protection or we are unable to obtain comparable protection after patent expiration against
competitive products, our results of operations may be adversely affected.
       27




---



##### Table of Contents



If our non-infant formula customers do not introduce products containing our nutritional oils on
a broad scale into the marketplace and consumers do not purchase such products, our sales to
these markets will be limited.
  If clinical trials do not continue to yield positive results on the benefits of DHA on cognitive
function, cardiovascular health or other health applications, our future revenues may be limited
in the food and beverage and the dietary supplement markets.
  lifesDHA
 If we are unable to gain broad regulatory approvals for the incorporation of our oils into foods
and beverages worldwide, our future revenues in the food and beverage market may be limited.
  If we or our customers fail to secure authorized nutrition and health claims within the European
Union, future revenues from sales within the European Union could be adversely affected.
   28




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
    Votes For
    
    
    Votes Against
    
    
    AbstainHarry J. DAndrea
    
    
    30,474,990
    
    
    
    247,378
    
    
    
    117,785James R. Beery
    
    
    28,646,274
    
    
    
    2,081,321
    
    
    
    112,558Michael G. Devine
    
    
    30,464,821
    
    
    
    249,659
    
    
    
    125,673Steve Dubin
    
    
    30,135,122
    
    
    
    591,404
    
    
    
    113,627Robert J. Flanagan
    
    
    30,550,611
    
    
    
    172,829
    
    
    
    116,713Polly B. Kawalek
    
    
    30,621,173
    
    
    
    106,924
    
    
    
    112,056Jerome C. Keller
    
    
    30,008,545
    
    
    
    714,874
    
    
    
    116,734Douglas J. MacMaster, Jr.
    
    
    30,067,821
    
    
    
    659,060
    
    
    
    113,272Robert H. Mayer
    
    
    30,604,719
    
    
    
    106,612
    
    
    
    128,822Eugene H. Rotberg
    
    
    30,042,035
    
    
    
    681,781
    
    
    
    116,337
 Proposal 2: Ratification of the appointment of Ernst & Young LLP as the Companys independent
registered public accounting firm for the fiscal year 2009 :
  Votes For
    
    Votes Against
    
    Abstain30,151,407
    
    643,603
    
    45,143
 
 Item 5. Other Information.
  
 Item 6. Exhibits.
 10.01
    
    

Form
of Indemnification Agreement for directors and officers.*31.01
    
    
    Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a).*31.02
    
    
    Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a).*32.01
    
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.02
    
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
 *
    
    Filed or furnished herewith.  29




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##### Table of Contents



SIGNATURES
  MARTEK BIOSCIENCES CORPORATION(Registrant)Date: June 9, 2009
    /s/ Peter L. BuzyPeter L. BuzyChief Financial Officer, Treasurer andExecutive Vice President for Finance and Administration
(Principal Financial and Accounting Officer)  30




---



##### Table of Contents



EXHIBIT INDEX
 Exhibits No.
    
    Description10.01
    
    

Form
of Indemnification Agreement for directors and officers.*31.01
    
    
    Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a).*31.02
    
    
    Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a).*32.01
    
    
    Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. *32.02
    
    
    Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*
 *
    
    Filed or furnished herewith.  31