Martek Biosciences Corp. said yesterday that the European patent on a blend of nutritional oils used in baby formula has been revoked by the European Patent Office in Munich.
Martek has previously predicted major growth in European sales of the nutritional supplement, the Columbia company's major product. Shares of Martek closed yesterday at $43.71, down $3.87, or 8.1 percent.
In a statement on the patent revocation, Martek said that "in the long term the Company could experience increased competition that may result in decreased sales in Europe."
But the company described that result as unlikely.
Martek said it would appeal the European ruling, an action it said would reinstate the patent during an appeal process that could last more than two years. Martek executives also called the patent that was revoked redundant because European patents on the two key ingredients in its nutritional mix remain in effect.
"Competitors are still precluded from getting into the market because of the two individual patents," said Peter L. Buzy, Martek's chief financial officer. "There is a suite of patents, and for this to have long-term impact, we'd have to lose additional patents."
The company sells its products to infant formula manufacturers like Mead Johnson & Co. and Nestle SA. The oils, produced from micro-algae, have been found to have cardiovascular, mental and other health benefits for newborns.
Martek said two potential competitors challenged the validity of its European patent in a hearing this week. The company went through a similar situation four years ago, Buzy said, when a European patent on one of the oils was challenged. In that instance, he said, the company lost the initial hearing but won an appeal upholding the patent two years later.
Martek received the patent that is now being challenged in 2001. The company also has U.S. patents on its two oils and on certain combinations of two, as well as patents in other areas of the world. The U.S. market currently makes up about 70 percent of its sales, Buzy said, while Europe represents less than 10 percent.
Investors reacted negatively to the patent challenge because Martek's business relies so heavily on its intellectual property, said Scott Van Winkle, an analyst with Adams Harkness Inc. Without patent protection, the company is basically a manufacturer, he said, but he agreed with the company's contention that the patents that remain provide protection.
"It is a big deal, but if this was a vital patent, the shareholder reaction would be much more severe," Van Winkle said.
The company's nutritional product sales accounted for $111.1 million of the $114.7 million in revenue it recorded for 2003. Martek earned $16 million (58 cents a share) last year, up from a loss of $24.2 million ($1.10) the previous year.