Martek Biosciences Corporation (Nasdaq: MATK) announced today that it has extended its sole-source supply agreement with Mead Johnson & Company, LLC, for DHA (docosahexaenoic acid) and ARA (arachidonic acid) for infant formula products. Under the terms of the amendment, Martek will remain Mead Johnson's global sole-source supplier of DHA and ARA for all of its infant formula products through December 31, 2015, an extension of four years beyond the earliest possible termination date of the current agreement.
"This agreement solidifies a significant additional portion of Martek's base infant formula business and continues Martek's strong relationship with Mead Johnson, a global leader in pediatric nutrition that has been a leading innovator and proponent of the clinical importance and demonstrated benefits of DHA and ARA in infant development," said Steve Dubin, Martek CEO. "This agreement is further evidence that Martek's trusted, high quality nutritional products, patent position, production capacity, strong research and science base, and long history of experience in DHA and ARA manufacturing and technology will continue to provide us a meaningful competitive advantage in the marketplace."
Martek has been supplying DHA and ARA to Mead Johnson for use in infant formula under a global 25-year license agreement executed in 1992. In May 2006, Martek and Mead Johnson entered into a supply agreement that established Martek as Mead Johnson's global sole-source supplier of DHA and ARA for use in its infant formula products. Mead Johnson first launched infant formulas containing Martek's DHA and ARA in international markets in 2000. Mead Johnson launched Enfamil LIPIL®, the first infant formula in the U.S. to feature DHA and ARA, in 2002.
Under the terms of the amendment, Martek will continue to be Mead Johnson's global sole-source supplier of DHA and ARA for all of its infant formula products through December 31, 2015, an incremental four years beyond the terms of the prior agreement. In addition, Mead Johnson has the option to further extend the term of the agreement for an additional four years beyond 2015. The amendment also provides graduated price reductions to Mead Johnson over the term of the extension, beginning in 2010. The financial terms of this amendment were factored into the company's recent financial guidance provided during its second quarter conference call on June 3, 2010. Martek's strategy is to offset a significant portion of price reductions that result from its infant formula contract extensions by implementing manufacturing cost savings and product innovation initiatives, and by growing its non-infant formula business.
Naturally present in human breast milk, DHA and ARA are fatty acids important to infant development and growth. Clinical studies have demonstrated numerous benefits for infants receiving DHA and ARA supplemented formula, including improved mental and visual development. Martek's blend of DHA and ARA, life'sDHA™ & life'sARA™, is the only source of these nutrients currently used in U.S. infant formula, and is present in more than 99 percent of infant formula sold in the U.S. Additionally, Martek is a leading global supplier of DHA and ARA, and infant formulas containing Martek's nutritional oils are available in more than 75 countries worldwide.
Martek Biosciences Corporation