EXHIBIT 99.1
CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
We desire to take advantage of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. Many of the following important
factors discussed below have been discussed in our prior SEC filings.
You should be cautioned that the following important factors have affected, and
in the future could affect, our actual results. There may also be additional
factors not discussed in this report that could also affect future results.
These factors could cause our future financial results to differ materially from
those expressed in any forward-looking statements made by us. Forward-looking
statements may relate to such matters as:
o our ability to generate future revenues;
o the potential commercialization of our products;
o the optimization of production costs; and
o our ability to enter into future business collaborations and marketing
partnerships.
Forward-looking statements may include words such as "will," "should," "could,"
"anticipate," "believe," "plan," "estimate," "expect," "intend," and other
similar expressions. This list does not constitute all factors which you should
consider prior to making an investment decision in our securities. You should
also not assume that the information contained herein is complete or accurate in
all respects after the date of this filing. We disclaim any duty to update the
statements contained herein.
History of Operating Losses; Uncertainty of Future Financial Results.
We have experienced net operating losses since our inception. We expect such
losses to continue until significant sales of our nutritional oils occur and/or
until significant royalties from sales of infant formula products containing our
oils are recognized. We expect to have quarter-to-quarter and year-to-year
fluctuations in revenues, expenses and losses, some of which could be
significant. Future financial results will be affected by, among other things,
the following factors:
o our ability to complete successfully the commercialization and cost
optimization of our products;
o the willingness and ability of infant formula licensees to incorporate
our product into their infant formula products;
o the willingness of potential strategic partners to market our products;
o growth in revenues from our nutritional oils;
o growth in revenues from sales of our products for use in molecular
structure research and structure-based drug design;
o the progress of our research and development programs;
o the progress of our preclinical and clinical product studies;
o the time, costs and ability of obtaining regulatory approvals for those
products subject to such approval;
o our ability to protect our proprietary rights;
o the costs of protecting our patent claims;
o competing technological and market developments;
o manufacturing costs associated with our various products and potential
products; and
o the costs of commercializing and marketing our products.
Early Stage of the Company and its Products. Martek was founded in
1985. Certain of our products require substantial additional research and
development. Some require laboratory and clinical testing and regulatory
approval. In addition, although we anticipate the introduction of new products
over the next several years, some of our potential products, especially in the
area of pharmaceuticals, are not expected to become commercially available for
many years, if at all. There is no assurance that:
o we will successfully complete our product development efforts;
o we will obtain required regulatory approvals on a timely basis or at
all;
o we will be capable of manufacturing our products in commercial
quantities at a reasonable cost; or
o any new products, if introduced, will achieve market acceptance.
We expect to receive most of our future revenues from sales of products, royalty
income and licensing fees. A portion of our revenues to date has come from
research and development contracts (primarily from the federal government) and
federal government grants. We first realized revenues from our products for use
in molecular structure research and structure-based drug design in 1989. We
recognized revenues from license fees and sales of sample quantities of
nutritional and diagnostic products in 1992. In 1995, we recognized our first
product and royalty revenues from sales of infant formula containing our DHA and
ARA. In 1996, we began to realize revenues from the sale of Neuromins(R), a DHA
dietary supplement.
Need for Additional Capital. Additional funds will be required to:
o enable us to continue our research and development activities;
o conduct preclinical and clinical studies; and
o manufacture and market our products.
Management is likely to pursue various financing alternatives to obtain these
funds, including:
o asset-based borrowing;
o equity issuances;
o additional lease financing; and/or
o collaborative arrangements with partners.
The level of expenditures required for these activities will depend in part on
the extent to which we develop, manufacture and market our products
independently or with other companies through collaborative arrangements. Our
future capital requirements will also depend, among other things, on one or more
of the following factors:
o growth in our infant formula and nutritional product sales;
o the extent and progress of our research and development programs;
o the progress of preclinical and clinical studies;
o the time and costs of obtaining regulatory clearances for those
products subject to such clearances;
o the costs involved in filing, protecting and enforcing patent
claims;
o competing technological and market developments;
o the cost of capital expenditures at our manufacturing facilities;
o the cost of acquiring additional and/or operating existing
manufacturing facilities for our various products and potential
products (depending on which products we decide to manufacture and
continue to manufacture ourselves);
o the costs of marketing and commercializing our products; and
o our ability to attract partners to help market and/or
manufacture our products.
There is no assurance that funding to carry on these activities will be
available at all or on favorable terms to permit successful commercialization of
our products. We have only limited debt financing arrangements. These
arrangements require us to meet certain financial covenants related to our
outstanding term loans. There is no assurance that we will be able to:
o continue such arrangements;
o continue to comply with debt covenants; and/or
o establish additional debt financing arrangements on satisfactory terms,
if at all.
If adequate funds are not available, we may be required to:
o curtail one or more of our research and development programs;
o curtail manufacturing and commercialization programs; and/or
o obtain funds through arrangements with collaborative partners or
others, if possible.
These arrangements may require us to relinquish certain technology or product
rights including patent and other intellectual property rights.
Dependence on Third Parties; Reliance on Future Collaborations. Future
revenues from our nutritional oils are largely dependent on factors over which
we will have no control. To date, a portion of our revenues has consisted of
license fees and anniversary payments received from infant formula manufacturers
which have licensed our nutritional oils. Under these agreements, we are
entitled to receive royalty payments based on the licensees' sales of products
including our nutritional oils. These licensees will be responsible for
performing all clinical testing on, obtaining regulatory approvals for and
marketing products containing our nutritional oils. These licensees are not
required to use our nutritional oils in any of their products. They are also not
restricted under the licensing agreements from obtaining docosahexaenoic acid
("DHA") or arachidonic acid ("ARA") from other sources for use in their infant
formula products. Although some of our licensees have introduced infant formula
products containing our nutritional oils overseas, we cannot predict whether any
licensee will introduce products containing our oils in the U.S., or will
broaden its use of our oils overseas or whether our oils will be used by any of
our other licensees in their infant formula products.
Our strategy for the development, clinical testing,
manufacturing and commercialization of certain of our products includes entering
into various collaborations with corporate partners, licensors, licensees and
others. In 1997, we entered into a supply agreement with a third party
manufacturer for its ARA-containing oil. Although we are able to produce ARA oil
in our Kentucky manufacturing plant, a halt in supply from this third party ARA
oil manufacturer could adversely impact our ability to meet product demand in
the short-run. It could also adversely impact our ability to meet product demand
in the long-run if this source of ARA oil could not be replaced. There is no
assurance that we will negotiate other collaborative arrangements in the future
on acceptable terms, if at all, or that such collaborative arrangements will be
beneficial to our operations. If we cannot establish such arrangements, we may
face increased capital requirements to undertake such activities at our own
expense. As a result, we could encounter significant delays in introducing our
products into certain markets. This could also adversely affect the development,
manufacture, marketing and sale of products in such markets. For example, our
continuing ability to generate nutritional oil-related revenues depends on our
ability to enter into agreements with additional licensees and/or marketing
partners. Some of our nutritional oil licensing agreements contain provisions
which will not allow us to enter into future agreements containing payment terms
more favorable than those granted to current licensees. Such provisions may
restrict our ability to negotiate with potential infant formula licensees.
Dependence on Major Customers. Our dependence on sizable product orders
from infant formula licensees and other marketing partners will make the
relationship with each customer critically important to our business. While we
have detailed contracts with each of our major customers, changes to product
pricing, royalty rates and delivery timetables may be required to meet their
demands and expectations. There is no assurance that we will be able to manage
our licensees and other customer relationships successfully. Our major customers
are large and complex and the launch cycles of new products are typically long
and unpredictable. This requires us to make considerable early investments in
account management and other efforts without the assurance of future revenues.
There is no assurance that we will be able to convert these investments into
significant revenue generating relationships.
Significant Technological Change and Competition. We operate in rapidly
evolving fields. Competition from larger, more experienced and better
capitalized companies has been and will continue to be intense. There is no
assurance that developments by others will not render our products or
technologies obsolete or noncompetitive, or that we will keep pace with new
technological developments. Currently, DHA-containing fish oils provide
alternative sources of DHA, and we are aware of another company which produces
DHA from fungal sources. In addition, DHA and ARA have been derived from egg
yolk lipids, and we are currently aware of several European infant formula
manufacturers that are adding DHA derived from egg yolk lipids and/or fish oil
to their infant formula. We have obtained seven U.S. patents and a number of
patents outside the U.S. covering certain aspects of our nutritional oils to
date. We have also recently been awarded a European patent relating to our
ARA-containing oils. We have additional patent applications pending covering
certain aspects of these DHA- and ARA-containing oils. Generally, competitors
are prohibited from manufacturing, using or selling materials where patents have
been issued. Competitors may be able to produce, sell and use DHA- and/or
ARA-containing oils in countries where we have not applied for patent
protection. In addition, competitors may produce certain DHA- and ARA-containing
oils that are not covered by our patents. We are aware of several other
companies offering ARA-containing oils for sale. In addition, there is no
assurance that other sources of DHA and ARA, the two primary components of our
nutritional oils, will not become commercially viable.
Uncertainty Regarding Patents and Proprietary Technology. Our success
depends on our ability to:
o obtain patent protection for our products;
o maintain trade secret protection; and
o operate without infringing the proprietary rights of others.
Our policy is to aggressively protect our proprietary technology through patents
and, in some cases, trade secrets. Additionally, in certain cases we rely on the
licenses of patents and technology of third parties. We have obtained
approximately 25 U.S. patents covering various aspects of our technology. These
patents will expire on various dates between 2007 and 2015. We have filed, and
intend to continue to file, applications for additional patents covering both
products and processes as appropriate. There is no assurance that:
o the relevant authorities will grant any patent applications filed by,
assigned to, or licensed to, us;
o we will develop additional products that are patentable; and
o any patents issued to or licensed by us will provide us with any
competitive advantages or adequate protection for inventions.
Moreover, there is no assurance that any patents issued to or licensed by us
will not be challenged, invalidated or circumvented by others.
There is no assurance that issued patents, or patents that may issue,
will provide protection against competitive products or otherwise be
commercially valuable. Furthermore, since patent laws relating to the scope of
claims in the fields of health care and biosciences are still evolving, our
patent rights are subject to this uncertainty. Our patent rights on our products
therefore might conflict with the patent rights of others, whether existing now
or in the future. Alternatively, the products of others could infringe our
patent rights. The defense and prosecution of patent claims is both costly and
time consuming, even if the outcome were favorable to us. An adverse outcome
could:
o subject us to significant liabilities to third parties;
o require disputed rights to be licensed from third parties; and/or
o require us to cease selling our products.
We have obtained seven U.S. patents covering certain aspects of our DHA
and/or ARA oils. We have applied for other patents in the United States covering
certain other aspects of our nutritional oils. We have also filed patent
applications on a selective basis in other industrialized countries, some of
which are pending and some of which have been granted. We are unable to predict,
however, whether these patents will be challenged, invalidated or circumvented
by others. We are aware of several companies in Europe and Asia that currently
are challenging the patents covering our DHA-containing oils. Although we are
confident in the strength of our patents covering our DHA and ARA containing
oils, there can be no assurance that these patents will successfully protect our
proprietary technology in these areas or that we will be able to successfully
defend against challenges to our patents. Failure to obtain adequate patent
protection or successfully defend against challenges to our patents for our
nutritional oils would have a material adverse affect on our results of
operations. This could particularly affect:
o future sales of our nutritional oils;
o future royalties on sales of infant formula containing our oils; and
o future license fees related to our oils.
In particular, failure to maintain patent protection or successfully defend our
patents could permit our competitors to produce products which could directly
compete with our nutritional oils using similar or identical processes. It is
also possible that the infant formula manufacturers currently under license by
us or potential future licensees may choose formula ingredients from these
competitors if they choose to include the ingredients in their formulas at all.
Other patents that we have cover:
o our photobioreactor system which is used for culturing microalgae;
o our Celtone and Celtone M technology; and
o our combinatorial library technology.
We also rely on trade secrets and proprietary know-how, which we
protect in part by confidentiality agreements with our collaborators, employees
and consultants. There is no assurance that:
o other parties to these agreements will not breach them;
o we will have adequate remedies for any such breach; or
o competitors will not otherwise learn of or independently develop our
trade secrets.
Risks Associated with Infant Formula and Nutritional Products
Industries. To the extent that our nutritional oils are included in infant
formula or in nutritional products for consumer use, we are subject to the risks
generally associated with these industries. These risks include, among others:
o product tampering or production defects which may require a recall
or may reduce the demand for such products;
o the risk that authorities may ban an ingredient used in such
products, including our nutritional oils, limit its use or declare it
unhealthful; and/or
o sales of infant formula may decline or authorities may limit or
discontinue use of our nutritional oils due to perceived health
concerns, adverse publicity or other reasons beyond our control.
Potential Difficulty in Obtaining FDA and other Government Approvals. A
number of government authorities in the United States and other countries
regulate our products and our manufacturing and research activities. This
includes the FDA pursuant to the Federal Food, Drug and Cosmetic Act (the "FDC
Act"). The FDA regulates, to varying degrees and sometimes in very different
ways, infant formulas, dietary supplements, medical foods, enteral and
parenteral nutritional products and diagnostic and pharmaceutical products.
Their regulatory authority includes the manufacture and labeling of such
products. Generally, authorities regulate prescription pharmaceuticals and
certain types of diagnostic products more rigorously than foods, such as dietary
supplements. Infant formulas are special types of food that are regulated more
rigorously than most other types of foods. Federal and state laws, regulations
and policies are always subject to change and depend heavily on administrative
policies and interpretations. There is no assurance that any changes to federal
and state laws will not have a material adverse effect on the company.
Our infant formula licensees are responsible for obtaining the
requisite regulatory clearances to market their products containing our oils. To
date, none of our infant formula licensees have obtained the necessary approval
to sell an infant formula product containing our oils in the United States.
Sales of our products outside the United States are subject to foreign
regulatory requirements that may vary widely from country to country. Term
infant formula products containing our nutritional oils are currently being
marketed outside the U.S. in seven countries. Pre-term infant formula products
containing our oils are currently being marketed outside the U.S. in over 60
countries. We understand that our licensees have received appropriate regulatory
clearances as needed to market products containing our oils in those countries.
The time required to obtain clearances from additional foreign
countries may vary. It may be longer or shorter than that required by the FDA.
There is no assurance that additional foreign clearances can be obtained or met
on a timely basis, if at all.
We are responding, with the help of our licensees, to certain
questions raised by the FDA in connection with evaluating our oils for inclusion
in U.S. infant formula. We feel that the process of obtaining FDA approval will
take at least another three to six months. There is no assurance that:
o we will be able to, with the assistance of our licensees, adequately
respond to the FDA's questions;
o our licensees will continue to press forward;
o the FDA will in fact grant clearances;
o the process will not involve significant delays;
o potential delays will not materially and adversely affect the timing
and extent of potential future introductions of our products; or
o once and if approval is obtained, a licensee will actually market a
U.S. infant formula product containing our oils.
There is no assurance that the FDC Act will not impose food additive
regulation on DHA and ARA used in medical foods, infant formulas or enteral
nutritional products. Use of DHA and ARA in medical foods may also require
additional supportive data.
The process of obtaining FDA clearances can be time-consuming and
expensive. There is no assurance that the FDA will grant such clearances. The
FDA review process may involve delays that may materially and adversely affect
the testing, marketing and sale of our products. Moreover, regulatory clearances
for products such as medical devices, new drugs, or new food additives, even if
granted, may include significant limitations on their uses. Additionally, the
FDA could withdraw product clearances for failure to comply with regulatory
standards. There is no assurance that any clearances that are required, once
obtained, will not be withdrawn or that compliance with other regulatory
requirements can be maintained.
Many of our products are in research and development phases. We cannot
predict all regulatory requirements or issues that may apply to or arise in
connection with our products. Changes in existing laws, regulations or policies
or the adoption of new laws, regulations or policies could prevent us or our
licensees or collaborators from achieving compliance with regulatory
requirements. Such changes could also affect the timing of achieving such
clearances.
Since the FDA regulatory process may be costly and time consuming, we
will decide on a product-by-product basis whether to handle their requirements
independently or to assign such responsibilities to our licensees or future
collaborative partners. There is no assurance that we will be able to obtain
such regulatory clearances, if required, on a timely basis or at all. If such
clearances are delayed or not achieved at all, it may adversely effect our
business, financial condition and results of operations. If we lose previously
received approvals or clearances, or fail to comply with existing or future
regulatory requirements, it would have a similar adverse effect.
We are currently required to meet FDA Good Manufacturing Practices
("GMP") requirements as applicable to infant formula and dietary supplements.
GMP regulations specify component and product testing standards, control quality
assurance requirements, and records and other documentation controls. Depending
upon the type of FDA application that is submitted, compliance with relevant GMP
requirements can be difficult and time consuming. If we continue to manufacture
our own products we will continue to fall under the GMP requirements of the FDA.
It may even be necessary in the future to meet more stringent drug GMP
requirements. There is no assurance that we can meet relevant FDA manufacturing
requirements, particularly for scale-up operations involving product marketing
applications. Further, we have only limited experience in the area of regulatory
compliance with respect to our products. There is no assurance that we will be
able to continue to manufacture our nutritional oils in accordance with relevant
infant formula and dietary supplement requirements for commercial use. State and
federal agencies, including the FDA and comparable agencies in other countries,
conduct periodic inspections to monitor ongoing compliance with GMP and other
applicable regulatory requirements. A determination that we are in violation of
such GMP and other regulations could lead to the imposition of civil penalties,
including fines, product recalls or product seizures. In situations where
serious violations are noted, criminal sanctions may be imposed.
Each line of products that is or may be marketed by us or our
collaborators can present unique regulatory problems and risks, depending on the
product type, uses and method of manufacture.
The Federal Dietary Supplement Health and Education Act of 1994
("DSHEA") regulates the use and marketing of dietary supplements. The DSHEA:
o sets forth standards for adulteration of dietary supplements or
ingredients;
o prescribes detailed requirements for labeling dietary
supplements; and
o establishes GMP requirements for dietary supplements.
We are currently marketing a line of DHA dietary supplements, Neuromins(R) and
Neuromins(R)PL. In addition, we are researching and developing new applications
for our DHA and ARA oils. There is no assurance that we will be able to comply
with the requirements of the DSHEA or any other regulations that the FDA may
promulgate regarding DHA or ARA use as a dietary supplement.
Our fluorescent detection and other products derived from microalgae
are subject to potential regulation by the FDA as either medical devices or as a
combination medical device/drug product to the extent that they are used in the
diagnosis, mitigation, treatment, cure or prevention of diseases. This
classification subjects these products to premarket clearances and/or regulatory
approvals. There is no assurances that:
o we or our collaborators will be able to develop the extensive safety
and efficacy data needed to support FDA premarket clearances and/or
regulatory approvals for these products; or
o the FDA ultimately would authorize the marketing of such products on a
timely basis, if at all.
For pharmaceutical uses of products derived from microalgae, there is
no assurance that required clinical testing of our products will be completed
successfully within any specified time period, if at all. Additionally, there is
no assurance that:
o we will be able to develop the extensive data needed to establish the
safety and efficacy of our products for approval for drug uses; and
o authorities will not begin to regulate these drug products as
biological products or as controlled substances, which would affect
marketing and other requirements.
Limited Manufacturing and Sales and Marketing Experience and
Capabilities. We have limited experience operating our manufacturing facility.
In 1995, we acquired a fermentation plant in Winchester, Kentucky to manufacture
our nutritional oils. During 1996, we completed the construction of an oil
extraction and refining facility in this plant. There is no assurance that we
will be able to scale-up or successfully optimize production of our nutritional
oils. There is also no assurance that these production facilities will be
sufficient to meet future demand for our products. If we do not develop adequate
manufacturing capability or contract for manufacturing on acceptable terms, we
may not be able to commercialize some of our current or planned products. Or, if
we are able to adequately manufacture them, commercialization of the products
may be significantly delayed. In addition, we have only limited experience
managing operations at a remote geographic location. Managing a remote
manufacturing plant may place a substantial strain on our managerial resources.
We believe that our Winchester, Kentucky plant will be able to produce
our nutritional DHA oil in sufficient quantity to meet near-term demand.
Nevertheless, because demand for our nutritional DHA oil is based on factors
beyond our control, we are unable to predict whether we have sufficient
manufacturing capacity to meet any such future demand. During 1997, we entered
into a supply agreement with one of the world's largest fermentation companies
to provide ARA oil. In addition, we have conducted DHA production trials with
third-party manufacturers to prepare for future DHA oil demand in excess of our
current plant capacity. Although we believe that we will be able to use third
party manufacturing for our DHA oil if demand requires, there is no assurance
that we will be able to do so successfully. The failure to meet demand for our
nutritional oils could encourage our infant formula licensees and other
nutritional product customers to look for alternative manufacturing sources.
We currently do not have the capability to manufacture therapeutic and
diagnostic products in accordance with GMP requirements. Should we decide to
manufacture and scale-up the production of future diagnostic and pharmaceutical
products, we would incur substantial start-up expenses, we would need to expand
our facilities, and we would have to hire additional personnel.
We market infant formula oils and nutritional supplements primarily
through distributors, and to a lesser extent, directly to consumers. We market
our products for use in molecular structure research and structure-based drug
design, and fluorescent detection both directly to end users and through
distributors. Other nutritional products and products that we develop in the
diagnostic and pharmaceutical areas will require us to form corporate alliances
with companies capable of marketing such products and/or develop our own sales
and marketing force. We are currently pursuing long-term marketing partnerships
with large nutritional products and/or pharmaceutical companies to promote our
non-infant formula nutritional oil products. There is no assurance that we will
be able to establish an effective sales or marketing force, establish additional
third-party sales and marketing arrangements, or close a large-scale marketing
partnership. Even if we are able to achieve any of the above, the cost may be
prohibitive.
No Clinical and Limited Regulatory Compliance Capabilities. We have
limited experience and capabilities in the area of product testing. We have
limited experience and capabilities in the area of regulatory compliance with
respect to our products. We will have to expend significant sums of money to
acquire and expand such capabilities. We may need to reach collaborative
arrangements with third parties to provide these capabilities or contract with
third parties to provide these capabilities. These capabilities will be
important to us for the successful commercialization of our existing and
potential future nutritional, human diagnostic and pharmaceutical products.
We will depend on our current licensees to obtain any required
regulatory clearances for our nutritional oils which they will use as infant
formula ingredients. Although we believe that our infant formula licensees will
perform required testing and obtain any required regulatory clearances, we
cannot control the timing or the resources that they will devote to these
activities. We may, in the future, decide to seek FDA clearances ourselves for
our nutritional oils or other nutritional products, if such clearances are
required. In the area of human diagnostics, we have not yet decided whether to
develop in-house capability, contract with third parties, seek collaborative
arrangements with partners or use a combination of the three to test our product
candidates and obtain any required regulatory clearances. If we were to
manufacture these diagnostic products for certain uses, it would be subject to
applicable regulatory requirements. For potential pharmaceutical products, we
will likely contract with third parties and seek collaborative arrangements. In
any case, these activities may require the devotion of substantial resources and
a significant portion of our time. There is no assurance that we can effectively
test and obtain regulatory clearances for our products. Delays in testing or
obtaining such regulatory clearances may result in delay in or the inability to
commercialize the affected product. See "--Dependence on Third Parties; Reliance
on Future Collaborations."
Exposure to Product Liability Claims. We face an inherent business risk
of exposure to product liability claims alleging that the use of our technology
or products resulted in adverse effects. Such risk exists in the conduct of
clinical studies and even with respect to those products, if any, that receive
regulatory clearances for commercial sale. There is no assurance that our
current level of product and clinical study liability insurance together with
indemnification rights under our infant formula license agreements and other
collaborative arrangements will be adequate to protect us from this exposure. It
is uncertain whether we will be able to obtain increased levels of insurance as
we grow. There is no assurance that this level of insurance would be
economically practical or that we would be able to renew our current or future
policies. A product liability claim or recall in excess of insured amounts or
amounts recoverable under applicable contractual arrangements could adversely
affect our business, financial condition and future prospects.
Dependence Upon Key Personnel. We are highly dependent on the principal
members of our management, production, sales and marketing and scientific staff.
The loss of certain key management and scientific employees could have a
material adverse effect on our operations. In addition, we believe that our
future success will depend in large part upon our ability to attract and retain
highly skilled scientific, managerial and marketing personnel. We face
competition for such personnel from other companies, research and academic
institutions, government entities and other organizations. There is no assurance
that we will be successful in hiring or retaining the personnel we require for
continued growth.
Limited Availability of Certain Supplies. The availability of carbon-13
and nitrogen-15 is critical for production of our products for use in drug
design. Although the current supplies of these items are adequate for our
near-term needs, they may not be adequate if the demand for our products for use
in drug design and/or breath test diagnosis were to grow significantly.
Possible Volatility of Stock Price; Limited Liquidity; Absence of
Dividends. The market price of our common stock may experience a high level of
volatility, as frequently occurs with publicly traded emerging growth companies
and biosciences companies. The market price of our stock may be significantly
impacted, among other things, by:
o announcements of technological innovations or new commercial products
by us or our competitors;
o developments or disputes concerning patent or proprietary rights;
o publicity regarding actual or potential medical results relating to
products under development by us or our competitors;
o general regulatory developments affecting our products in both the
United States and foreign countries;
o market conditions for emerging growth companies and biosciences
companies and economic and other internal and external factors;
o period-to-period fluctuations in financial results; and
o our ability to enter into collaborations with third parties to market
our products.
Since our initial public offering of common stock on November 23, 1993, the
average daily trading volume in the common stock as reported on the Nasdaq
National Market has been relatively low. There is no assurance that a more
active trading market will develop in the future. We have never declared or paid
any cash dividends on our common stock and do not intend to do so for the
foreseeable future.
Risks Relative to Anti-Takeover Devices. Our Board of Directors is
divided into three classes with each class of directors being elected to
three-year terms on a rotating basis. As such, only one-third of the members of
the Board of Directors stand for election every year. We have adopted a
stockholder rights plan which may have the effect of deterring hostile or
coercive attempts to acquire the company. The plan does this through the
distribution of rights to stockholders enabling those stockholders to acquire
shares of our common stock, or that of an acquiror, at a substantial discount to
the public market price should any person or group acquire more than 20% of the
common stock without approval of the Board of Directors under certain
circumstances. We have reserved 300,000 shares of Series A Junior Participating
Preferred Stock for issuance in connection with the Stockholder Rights Plan. We
are authorized to issue an additional 4,700,000 shares of preferred stock in one
or more series, having terms fixed by the Board of Directors, without a
stockholder vote. While the Board of Directors has no current intentions or
plans to issue any preferred stock, issuance of these shares could also be used
as an anti-takeover device.
Shares Eligible for Future Sale; Registration Rights (To the extent
that the outstanding stock options and warrants described below are exercised,
the percentage ownership of certain of our stockholders will be diluted). As of
September 6, 2000, we had 17,800,059 outstanding shares of common stock,
substantially all of which are available for sale in the public marketplace. As
of September 6, 2000, there were also outstanding stock options to purchase an
aggregate of 2,861,330 shares of common stock at various exercise prices ranging
from $6.25 to $34.25 per share. There are also outstanding warrants issued in
connection with the Common Stock and Warrant Purchase Agreements dated April 27,
1998, May 28, 1999, and February 8, 2000 totalling 734,391 shares at exercise
prices between $7.51 and $18.76 per share. Shares of common stock which may be
issued under outstanding options and warrants will be available for sale in the
public markets. In addition, certain holders of the common stock have certain
demand and piggyback registration rights pursuant to a registration rights
agreement between Martek and these holders. No prediction can be made as to the
effect, if any, that sales of shares of common stock or the availability of such
shares for sale will have on the market prices of the common stock prevailing
from time to time. The possibility that substantial amounts of common stock may
be sold in the public market may adversely affect prevailing market prices for
the common stock. This could impair our ability to raise capital through the
sale of equity securities. Further, if we were required to include shares,
through exercise of the outstanding piggyback registration rights, in a
company-initiated registration, the sale of such shares could have a material
adverse effect on our ability to raise additional capital.
