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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

COMMISSION FILE NUMBER: 0-22354

MARTEK BIOSCIENCES CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

6480 DOBBIN ROAD, COLUMBIA, MARYLAND 21045
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (410) 740-0081

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

         Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ý    NO o

         Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES o    NO ý

         Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ý Yes     o No

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

         Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes    o No

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer", "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

         Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o Yes    ý No

         The aggregate market value of Common Stock held by non-affiliates of the registrant as of April 30, 2009 was $595,521,109, based on the closing price of the Common Stock on The NASDAQ Global Select Market on April 30, 2009.

         The number of shares of Common Stock outstanding as of December 17, 2009 was 33,270,252.

DOCUMENTS INCORPORATED BY REFERENCE

         Certain portions of the Registrant's Definitive Proxy Statement for its 2010 Annual Meeting of Stockholders (which will be filed with the Commission within 120 days after the end of the Registrant's 2009 fiscal year) are incorporated by reference into Part III of this Report.

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MARTEK BIOSCIENCES CORPORATION
FORM 10-K

For The Fiscal Year Ended October 31, 2009

INDEX

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PART I

        The information in this Form 10-K for Martek Biosciences Corporation ("Martek", "we", or the "Company") contains certain forward-looking statements, including statements related to markets for the Company's products and trends in its business that involve risks and uncertainties. The Company's actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause such a difference include those discussed in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Item 1. "Business" as well as those discussed elsewhere in this Form 10-K, including in Item 1A. "Risk Factors."

ITEM 1.    BUSINESS.

OVERVIEW

        Martek Biosciences Corporation is a leader in the innovation and development of high value nutritional products from microbial sources, including algae, fungi and other microbes, that promote health and wellness. The Company's innovation and development is based on its core expertise, broad experience and proprietary technology in areas such as microbial biology, algal genomics, fermentation and oil processing. We refer to this set of complementary abilities as Martek's "research engine." Through this research engine, the Company has developed and commercialized life'sDHA™, a vegetarian source of the omega-3 fatty acid DHA (docosahexaenoic acid), for use in infant formula, pregnancy and nursing products, foods and beverages, dietary supplements and animal feed. Martek also produces life'sARA™, a vegetarian source of the omega-6 fatty acid ARA (arachidonic acid), for use in infant formula.

NUTRITIONAL PRODUCTS

        We have developed production methods and intellectual property for two important fatty acids, DHA and ARA. We sell oils containing these fatty acids as life'sDHA™, DHASCO®, Neuromins®, ARASCO® and life'sARA™. We derive DHA from microalgae and ARA from fungi, using proprietary processes. Cell membranes throughout the body contain these fatty acids, and they are particularly concentrated in the brain, central nervous system, retina and heart. Research has shown that DHA and ARA may enhance mental and visual development in infants. In addition, research has shown that DHA may play a pivotal role in brain function throughout life and may reduce the risk of cardiovascular disease. Low levels of DHA in adults have been linked to a variety of health risks, including Alzheimer's disease, dementia, cardiovascular problems and various other neurological and visual disorders. Further research is underway to assess the role of supplementation with our DHA on mitigating a variety of health risks.

        Adults may obtain DHA via a limited number of foods such as fish, eggs or organ meats. ARA may be obtained from foods such as red meats, fish and eggs. Pregnant women transfer DHA and ARA through the placenta to the fetus and lactating mothers pass DHA and ARA to infants through breast milk. While there are currently no universally recognized guidelines for daily consumption of DHA, several international scientific and health agencies have made recommendations for DHA and ARA consumption for infants and for DHA intake for pregnant and nursing women. A workshop in 1999 sponsored by the International Society for the Study of Fatty Acids and Lipids as well as others recommended that adults consume at least 220 mg of DHA daily. U.S. Department of Health and Human Services data indicate that dietary consumption of DHA is well below this level. We believe that greater recognition of this possible dietary deficiency will result in an increase in demand for DHA-supplemented products. Recommendations for ARA consumption by adults have not been put forth and may not be necessary as adequate amounts of ARA are likely consumed in the typical adult diet.

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        Investigators at a number of research institutions, including the National Institutes of Health ("NIH"), have observed a relationship between low levels of DHA and a variety of health risks, including Alzheimer's disease, dementia, cardiovascular problems and various other neurological and visual disorders. We sponsor and participate with others in research to determine the benefit of DHA supplementation in addressing these health concerns. Additionally, Martek continues to support and provide oils for multiple ongoing clinical trials designed to further explore the benefits of DHA supplementation during pregnancy and nursing to assess the outcomes on both mother and child.

        In May 2001, the Food and Drug Administration ("FDA") completed a favorable review of our generally recognized as safe ("GRAS") notification for the use of our DHASCO® and ARASCO® oil blend in specified ratios in infant formulas. Since the first United States infant formula product introduction in February 2002, infant formulas supplemented with Martek's DHA and ARA manufactured by six of our customers have been sold in the United States: Mead Johnson Nutritionals under the Enfamil®LIPIL® brand; Abbott Nutrition under its Similac® ADVANCE® brand; Nestle under its Good Start® Supreme DHA & ARA brand; PBM Products Inc. under the brands Bright Beginnings™, Vermont Organics™ and under private label brands, including Wal-Mart Parent's Choice™; Hain Celestial under the brand Earth's Best®; and Nutricia North America under the brand Neocate®. These supplemented infant formulas include term, preterm, soy-based, specialty and toddler products. As of October 31, 2009, we estimate that formula supplemented with our oils had penetrated almost all of the U.S. infant formula market.

        We are supplying over 35 infant formula customers with our nutritional oils. These companies collectively represent approximately 75% of the estimated $15 billion worldwide retail market for infant formula and nearly 100% of the estimated $4.5 billion U.S. retail market for infant formula, including the retail value of Women, Infants and Children program ("WIC") rebates. WIC is a federal grant program administered by the states for the benefit of low-income, nutritionally at-risk women, infants and children. Our customers include infant formula market leaders Mead Johnson Nutritionals, Nestle, Abbott Nutrition, Pfizer (formerly Wyeth) and Danone (formerly Numico), each of whom is selling infant formula supplemented with our nutritional oils. Our customers are now selling infant formula products containing our oils collectively in over 75 countries. In addition, certain infant formula customers are selling products that contain our nutritional oils and target the markets for children ages nine months to seven years of age and older.

        In addition to the DHA we sell for use in infant formula, Martek has developed certain separate and distinct DHA technology, which we refer to as DHA-S, that is derived from a different algal strain than our DHA authorized for addition to infant formula. We have received a favorable review by the FDA of our GRAS notification for the use of DHA-S in food and beverage applications in the U.S. and have received similar approvals in Canada. We have also received authorization from the Ministry of Health in China (subject to certain conditions) and the Australia New Zealand Food Authority for the use of DHA-S oil in all foods and authorization from the European Commission and Israel for the use of our DHA-S oil as a novel food ingredient. This novel food designation authorizes the use of our DHA-S as an ingredient in certain foods such as certain dairy products, including cheese and yogurt, spreads and dressings, breakfast cereals, food supplements and dietary foods for special medical purposes in the European Community and Israel. In July 2009, the Standing Committee of the European Commission and the 27 Member States approved the expanded use of our DHA-S algal oil in beverages, bakery products and nutrition bars. DHA algal oil is also regarded as a traditional food in Japan and, as such, is acceptable for use in foods and beverages and dietary supplements.

        We are currently selling DHA-S products into the dietary supplement, food and beverage, pregnancy and nursing and animal feed markets domestically and internationally. To date, over 200 domestic and international companies have launched non-infant formula products that contain DHA-S, most of which remain on the market. Our DHA-S and our infant formula DHA are each marketed under the brand life'sDHA™.

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COLLABORATIONS

        In addition to selling microbial-based nutritional products, we also perform work in connection with technical collaborations with corporate partners. This work utilizes our core expertise in microbial biology, algal genomics, fermentation and oil processing to collaborate with these corporate partners in the development of new products and technologies. It is our intent to enter into such collaborations only when, in addition to potential research payments, economic benefits can be derived through such means as future royalty arrangements, milestone payments or commercialization rights. One of Martek's initial partners for these collaborations is a subsidiary of BP p.l.c. ("BP"), for whom we are performing work on microbial oils for the development of biofuels. All intellectual property developed by Martek will be owned by BP, with an exclusive license to Martek for commercialization in nutrition, cosmetic and pharmaceutical applications. Additionally, each party is entitled to certain commercial payments from the counterparty for commercialization of the technology in the other party's fields of use.

CONTRACT MANUFACTURING

        We have been providing certain contract manufacturing services at our Kingstree, South Carolina facility. We began offering these services following our September 2003 acquisition of FermPro Manufacturing, LP, which had been providing third-party manufacturing services since the mid-1960's. The facility's large fermentation capacity and numerous types of recovery equipment allow us to customize production processes for our customers and produce at significant volumes. Our facilities are particularly well-suited for the production of enzymes, specialty chemicals, vitamins and agricultural specialty products. During fiscal 2009, while revenues remained at approximately the same level as fiscal 2008, we reduced the scope of our contract manufacturing activities, and we anticipate further limiting our contract manufacturing activities over the course of fiscal 2010 in order to focus resources on our higher margin nutritional oils business. Other than the reductions to revenue and associated gross margin, we do not expect that the cessation of contract manufacturing activities will have any material impact on our results of operations.

PRODUCTS

NUTRITIONAL OILS—INFANT FORMULA APPLICATIONS

        Certain microalgae and fungi produce large quantities of oils and fats containing long-chain polyunsaturated fatty acids, known as LCPUFAs, that are important to human nutrition and health. We have identified strains of microalgae that produce oils rich in DHA and have developed the means to grow them by fermentation. In addition, we have isolated and cultured a strain of fungus that produces large amounts of ARA.

        DHA is the predominant omega-3 fatty acid in the brain and retina of the eye and is a key component of heart tissue in humans and other mammals. Both DHA and ARA are important for infant brain and eye development, which occurs primarily in the last trimester in utero, and continues throughout the first few years of life. During pregnancy, DHA and ARA are actively transported from the mother to the fetus via the placenta. Following birth, the infant receives these fatty acids from either breast milk (which always contains DHA and ARA) or infant formula supplemented with DHA and ARA. Studies have shown that with DHA-supplemented infant formula, formula-fed infants have blood and tissue levels of DHA that are similar to those of breastfed infants. DHA and ARA supplementation is especially important for premature infants who failed to complete the last trimester of pregnancy in utero. DHA and ARA were added to U.S. infant formulas beginning in 2002, and Martek's DHA and ARA continue to be the only DHA and ARA included in infant formula in the U.S.

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        Fish oils can also be used for DHA supplementation in infant formula. However, we believe that for a number of reasons our DHA oil is more desirable for infant formula applications than fish oil or other sources of DHA. Our oils are derived from a vegetarian source and are grown under tightly controlled conditions. As a result, Martek oils do not contain contaminants such as methylmercury, polychlorinated biphenyls ("PCBs") and dioxins that may be found in certain fish oils. Our oils do not contain significant quantities of eicosapentaenoic acid ("EPA"), an omega-3 fatty acid found in fish oil which certain studies indicate is not appropriate for consumption by infants in high levels. Both algal and fish DHA oils contain DHA that is in the form of easily digestible triglycerides similar to the major form found in breast milk. Martek oils have the further benefit, however, of higher oxidative stability and longer shelf life than certain fish oils. A study testing the benefits of DHA supplemented infant formula in premature infants conducted by Dr. M. T. Clandinin and others published in April 2005 in The Journal of Pediatrics directly compared infant formula supplemented with DHA from Martek oils to a formula supplemented with DHA from fish oil as well as unsupplemented formula. Both supplemented formulas also contained Martek ARA. The study demonstrated that infants fed algal DHA supplemented formula for twelve months "achieved body weights and lengths comparable to breastfed infants by 18 months after term, whereas infants fed unsupplemented formulas or formulas with DHA from fish oil did not."

        Although not all experts agree on the essentiality, benefits or importance of DHA and ARA for infants, the following studies show the benefits of including DHA and ARA in the infant diet:

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A study by Dr. J. Drover and others published in September/October 2009 in Child Development reported new data on the effects of DHA and ARA supplementation on cognition in 9-month old infants. Participants included 229 infants enrolled in three separate randomized clinical trials. In the trials, infants received infant formula supplemented with DHA and ARA or non-supplemented infant formula beginning at days 1-5 of life or following 6 weeks or 4 to 6 months of breastfeeding. Results showed that infants fed supplemented formula beginning at day 1-5, or after 6 weeks of breastfeeding, scored significantly higher in the cognitive evaluation than infants fed non-supplemented infant formula. The authors state that "these results suggest that LCPUFA supplementation improves means-ends problem solving." Martek's oils were used in all of the supplemented formulas.



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A report by Dr. R. Pivik and others published in June 2009 in Developmental Neuropsychology evaluated resting heart rate during the first six months of life in healthy, full-term infants. The newborns were either breastfed or given cow's milk-based or soy-based commercial infant formula containing different levels of DHA and ARA throughout the study period. Results showed that infants fed higher levels of DHA and ARA from either breast milk or infant formula had lower heart rates and higher values for heart rate variability measures compared to infants fed lower levels of DHA and ARA. According to the authors, these results indicate that adequate DHA is important for parasympathetic tone during this important period in development of cardiovascular regulation.



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A study reported by Dr. M. Makrides and others published in January 2009 in the Journal of the American Medical Association evaluated the effects of providing a higher than usual level of DHA to 657 very premature infants (33 weeks or less) during the early weeks of life in order to achieve the DHA levels equal to those of a term infant. The results of a preplanned analysis by gender found that premature girls on the high DHA diet scored five points higher on the Bayley Mental Development Index than did the girls receiving the standard DHA diet. This resulted in a 55% reduction in mild mental delay and an 80% reduction in significant mental delay. These were statistically significant improvements versus the control. The benefits were not significant in males. Martek's oils as well as DHA derived from fish oil were used in the study.

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An independent study reported by Dr. E. Birch and others published in May 2007 in Early Human Development reported the results of a comparison between children who were breastfed as infants to both children who as infants used DHA and ARA supplemented formula and children who as infants used formula not supplemented with DHA and ARA. The results indicated that children who received the supplemented formula had visual and verbal IQ scores that did not differ significantly from children who had been breastfed and such scores were better than children who received unsupplemented formula. Martek's oils were used in the study. This was a follow up to a study by Dr. E. Birch and others published in 2000 in Developmental Medicine & Child Neurology, which noted the results of an NIH-sponsored study that showed a significant improvement in mental development in term infants given a commercially available infant formula supplemented with Martek DHA™ and ARA compared to infants fed the same formula, but without DHA and ARA. In the double-blind study, infants fed the diet supplemented with our oils showed, at 18 months of age, a mean increase of 7 points on the Mental Development Index ("MDI") of the Bayley Scales of Infant Development II. Researchers reported that "these data support a long-term cognitive advantage of infant dietary DHA supply during the first 4 months of life. The significant correlations...support the hypothesis that early dietary supply of DHA was a significant determinant of improved performance on the MDI."



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A study reported by Dr. N. Pastor and others published in November 2006 in Clinical Pediatrics found that infants fed a formula containing 17 mg DHA and 34 mg ARA per 100 Kcal had fewer episodes of bronchiolitis and bronchitis at ages 5, 7, and 9 months compared to infants receiving control formula not containing these added LCPUFAs. This study used Martek's oils.



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A study reported by Dr. E. Birch and others published in April 2005 in the American Journal of Clinical Nutrition found that DHA and ARA supplementation of term infant formula during the first year of life resulted in improved visual function in 12-month old infants compared to those without supplementation. This study used Martek's oils.



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A study reported by Dr. D. Hoffman and others published in the June 2003 issue of The Journal of Pediatrics reported that infants who were breastfed from birth to between four and six months of age and then weaned onto formula supplemented with DHA and ARA experienced significantly improved visual development at one year of age compared to infants who were breastfed and then weaned onto formula without DHA and ARA. This study used Martek's oils.



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A study reported by Dr. E. Birch and others published in March 2002 in the American Journal of Clinical Nutrition found that infants who were breastfed for six weeks and then weaned to DHA and ARA supplemented infant formula had significantly better visual acuity at 17, 26 and 52 weeks of age and significantly better stereoacuity at 17 weeks of age than infants who were weaned to non-supplemented formula. This study used Martek's oils.

        DHA and ARA have been recognized as important in the infant diet and recommended for inclusion in infant formula by several expert panels, including: the United Nations Food and Agricultural Organization and the World Health Organization ("FAO/WHO"); International Society for the Study of Fatty Acids and Lipids ("ISSFAL") sponsored workshop panel; an expert panel sponsored by the Child Health Foundation; and the British Nutrition Foundation ("BNF"). Other expert groups making recommendations regarding the addition of DHA and ARA to infant formula include:

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Enteral Nutrient Supply for Preterm Infants: A Comment of the ESPGHAN [European Society for Paediatric Gastroenterology, Hepatology and Nutrition] Committee on Nutrition, authored by Dr. C. Agostoni and others published in Journal of Pediatric Gastroenterology and Nutrition online in October 2009, in which the ESPGHAN Committee on Nutrition updated their 1987 guidelines regarding the nutrient requirements of preterm infants. These new guidelines now include significant information regarding the importance of both DHA and ARA for the preterm infant.

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The Committee recommended that along with the other nutrients required for optimal development, DHA and ARA should be included in preterm infant formula to provide 11-27 mg/100 Kcal DHA and 16-39 mg/100 Kcal ARA. Any EPA present should not exceed 30% of DHA supply. These recommended inclusion levels are equal to or greater than the inclusion levels generally found in preterm infant formulas currently marketed in the United States.

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Feeding Preterm Infants After Hospital Discharge: A Commentary by the ESPGHAN Committee on Nutrition, authored by Dr. P. Aggett and others published in Journal of Pediatric Gastroenterology and Nutrition in May 2006, in which the ESPGHAN Committee on Nutrition reviewed available evidence and established recommendations for feeding preterm infants after hospital discharge. The Committee recommended that formula-fed infants born prematurely should receive infant formula that provides LCPUFAs for optimal growth and development. Martek DHA and ARA are LCPUFAs added to preterm and term infant formula in the U.S. and worldwide.



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Global Standard for the Composition of Infant Formula: Recommendations of an ESPGHAN Coordinated International Expert Group, authored by Dr. B. Koletzko and others published in Journal of Pediatric Gastroenterology and Nutrition in November 2005, in which the International Expert Group, in view of beneficial effects, supported the optional addition of LCPUFAs to infant formula. Their guidelines specify that the optional addition of DHA should not exceed 0.5% of total fat; ARA contents should be at least the same concentration as DHA; and the EPA content should not exceed that of DHA.

        Our sales of nutritional oils for infant formula were approximately $285.7 million, $300.7 million and $265.6 million in fiscal 2009, 2008 and 2007, respectively, which represents 87%, 89% and 91% of total product sales, respectively. Mead Johnson Nutritionals accounted for approximately 30%, 36% and 42% of our total product sales in fiscal 2009, 2008 and 2007, respectively. Abbott Nutrition accounted for approximately 20%, 19% and 18% of our total product sales in fiscal 2009, 2008 and 2007, respectively. Nestle accounted for approximately 12%, 12% and 11% of our total product sales in fiscal 2009, 2008 and 2007, respectively. Pfizer (formerly Wyeth) accounted for approximately 8%, 9% and 9% of our total product sales in fiscal 2009, 2008 and 2007, respectively. Danone (formerly Numico) accounted for approximately 7%, 5% and 4% of our total product sales in fiscal 2009, 2008 and 2007, respectively.

NUTRITIONAL OILS—NON-INFANT FORMULA APPLICATIONS

Applications for Pregnant and Nursing Women

        DHA is transferred from the mother to the fetus during pregnancy and particularly during the last trimester. Following birth, the mother transfers DHA to her newborn through breast milk. Therefore, an adequate intake of DHA during pregnancy and nursing is thought to be important and many public health agencies such as the World Health Organization ("WHO") and ISSFAL have made recommendations for DHA intake during the perinatal period. In addition, other experts have specified certain minimum levels of LCPUFA intake during pregnancy as follows:

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A consensus report by Dr. B. Koletzko and others published in January 2008 in the Journal of Perinatal Medicine recorded the recommendations of international experts in maternal and pediatric nutrition regarding the importance of LCPUFAs. The committee recommended that "pregnant and lactating women should aim to achieve an average daily intake of at least 200 mg DHA." When breastfeeding is not possible for a term infant, the committee recommended use of "an infant formula providing DHA at levels between 0.2 and 0.5 weight percent of total fat, and with the minimum amount of ARA equivalent to the contents of DHA."



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The September 2007 issue of the Journal of the American Dietetic Association included a position statement from the American Dietetic Association and Dietitians of Canada regarding dietary

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fatty acids. The groups emphasized the importance of DHA during pregnancy, lactation, and infancy and its particular importance for neural development and function. The groups also reviewed the importance of long-chain omega-3 fatty acids for health and recommend that adults consume 500 mg of long-chain omega-3 fatty acids daily.

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During the PeriLip meeting, a European Union supported Consensus Conference on "Dietary Fat Intake During the Perinatal Period" (September 2005, Germany), the following recommendation was made regarding DHA consumption: "Pregnant and lactating women should aim to achieve a dietary intake of n-3 LCPUFA [omega-3 long-chain polyunsaturated fatty acid] that supplies a DHA intake of at least 200 mg/day." These recommendations and overall results of the PeriLip project were published in the British Journal of Nutrition (November 2007).

        Supplementation of breastfeeding mothers with DHA has shown to increase the level of DHA found in breast milk. Studies have shown a benefit for breastfed infants of DHA-supplemented mothers as indicated below:

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A study reported by Dr. C. Henriksen and others published in June 2008 in the journal Pediatrics evaluated the effect of enriching human milk with DHA and ARA to be fed to premature infants. The results showed that infants receiving the DHA/ARA enriched human milk demonstrated better recognition memory and had higher problem solving scores at six months than the non-enriched milk group. Martek's oils were used in this study.



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A study reported by Dr. S. Innis and Dr. R. Friesen published in March 2008 in the American Journal of Clinical Nutrition examined visual acuity in infants whose mothers received DHA supplementation during pregnancy. The results of the study showed that infants from mothers who received DHA supplementation exhibited a better visual response than those from mothers who received placebo. Martek's oils were used in this study.



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A study published by Dr. J. Cohen and others in November 2005 in the American Journal of Preventive Medicine provided a statistical analysis of many studies which had examined maternal fatty acid intake and effect on infant development. The results of the analysis showed that increases in maternal DHA intake are associated with modest improvements in child IQ.



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A study reported by Dr. S. Hart and others published in August 2005 in the Journal of Pediatric Psychology revealed a positive correlation between DHA levels in breast milk and newborn neurobehavioral function. The study analyzed the DHA content of breast milk collected from 20 breastfeeding mothers nine days after delivery. At the same time, their infants were tested for neurobehavioral functioning using the Brazelton Neonatal Behavioral Assessment Scale ("NBAS"), a commonly used behavioral test. An analysis of this test revealed a positive correlation between DHA levels in the mother's breast milk and the child's NBAS score.



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A study reported by Dr. C. Jensen and others published in July 2005 in the American Journal of Clinical Nutrition noted that infants of mothers who supplemented with life'sDHA™ while breastfeeding had improved psychomotor skills at 2¹/2 years of age. The study revealed that children of DHA-supplemented mothers scored significantly higher on the Bayley Psychomotor Development Index (PDI), when compared to the children of the non-supplemented breastfeeding mothers. The study also confirmed that DHA supplementation while breastfeeding effectively increases DHA levels in the mother's milk as it noted that the mothers supplemented with DHA had 75% more DHA in their breast milk than the control group and their infants had 35% higher DHA blood levels than the control group infants. This study was partially funded by Martek.

        Additional research is underway to further evaluate DHA supplementation during pregnancy and nursing. We are currently providing DHA oils to researchers who are evaluating potential benefits of

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maternal DHA supplementation during pregnancy and nursing on pregnancy outcomes and infant development.

Other Human Applications

        Investigators at universities around the world and at other research centers, such as NIH, have observed a relationship between low levels of DHA and a variety of health risks, including Alzheimer's disease, dementia, cardiovascular problems and various other neurological and visual disorders. We are currently trying to establish what contribution, if any, supplementation with our oils will make in addressing a number of these problems. We, as well as others, are supporting studies to further investigate the potential benefit of DHA supplementation on cardiovascular health, and we, as well as others, are conducting research regarding the impact of DHA supplementation on certain visual and neurological disorders.

Cognitive Function

        DHA and cognitive function in adults—Discussed below are the findings of several published studies and papers that highlight potential benefits of DHA on neurological health as well as on the risk of Alzheimer's disease and age-related dementia.

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A pre-clinical study reported by Dr. Q. Ma and others published in December 2007 in the Journal of Neuroscience reported that DHA was found to decrease an important risk factor for late-onset Alzheimer's disease. Using a mouse model, a diabetic rat model and cultured human cells, the study found that DHA increases the production of LR11, a protein vital to clearing the brain of the enzymes that make the beta amyloid plaques that are thought to cause Alzheimer's disease. The investigators used Martek's oils for a portion of the research.



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An independent study reported by Dr. R. McNamara and others published in July 2007 in the Society of Biological Psychiatry found a deficit in the total fatty acid composition of the orbitofrontal cortex and found a selective deficit in the level of DHA compared with controls in brain examinations of postmortem patients who had been diagnosed with major depression compared with controls. These findings show a correlation between low tissue levels of DHA and neuropsychiatric diseases such as depression.



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A study published by Dr. K. Green and others in April 2007 in The Journal of Neuroscience used a transgenic mouse model of Alzheimer's disease to show that supplementation with DHA reduced the accumulation of both amyloid-beta and tau, two indicators of the disease in humans. This study used Martek's DHA oils and funding for the study was provided by Martek.



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A study published by Dr. E. Schaefer and others in November 2006 in the Archives of Neurology investigated the relationship of blood DHA levels and the development of dementia in a prospective follow-up study of the participants in the Framingham Heart Study. The results of the study noted that subjects with the highest levels of plasma DHA (top 20%) had a significant reduction in the risk of developing dementia from all causes. The study was partially funded by Martek.



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The results of an in vitro study conducted by Dr. S. Florent and others published in November 2005 in the Journal of Neurochemistry notes that DHA enrichment likely induces changes in neuronal membrane properties that may assist in the prevention of Alzheimer's disease and other neurodegenerative diseases.



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The results of an in vitro study conducted by Dr. W. Lukiw and others published in October 2005 in the Journal of Clinical Investigation suggest that DHA intake could benefit people with Alzheimer's disease by lowering the accumulation of amyloid-B peptides, which are associated with brain aging and Alzheimer's.

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In vitro research conducted by Dr. N. Bazan and published in August 2005 in Molecular Neurobiology reported on a metabolite of DHA that appears to have a protective role in neural cell survival and Alzheimer's disease.



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A scientific review on DHA performed by Dr. J. Marszalek and Dr. H. Lodish published in June 2005 in Annual Review of Cell and Developmental Biology suggests the significant role that DHA plays in the maintenance of normal neurological function.



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The Agency for Healthcare Research and Quality ("AHRQ") of the United States Department of Health and Human Services issued in February 2005 a report on the effects of omega-3 fatty acids on cognitive function with respect to persons experiencing aging, dementia and neurological diseases. They stated: "Total omega3 FA [omega-3 fatty acid] consumption and consumption of DHA (but not ALA [alpha-linolenic acid] or EPA) were associated with a significant reduction in the incidence of Alzheimer's."



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In September 2004, Dr. F. Calon and others at the UCLA School of Medicine published the results of an animal study in the journal Neuron noting the effects of Martek's DHA on the advancement of Alzheimer's disease. The study found that a diet rich in DHA significantly lessened the memory loss and cell damage associated with Alzheimer's disease in laboratory mice. In 2005, this laboratory extended their findings using DHA in the European Journal of Neuroscience. The authors reported how dietary essential fatty acids may influence cognition and Alzheimer's disease risk.

        Additional research is needed to evaluate the role, if any, of DHA supplementation in reducing the risk of developing these diseases.

        DHA and cognitive function in children—Discussed below are the findings of a published study that highlights the benefits of DHA on cognitive development in children.

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A study reported by Dr. A. Ryan and Dr. E. Nelson, both employees of Martek, was published in the May 2008 issue of Clinical Pediatrics and showed that while primary endpoints were not achieved, a preplanned regression analysis yielded a statistically significant positive association between a higher DHA level in the blood and higher scores on the Peabody Picture Vocabulary Test, a cognitive test designed to measure listening comprehension and vocabulary skills. Performance on the test is an indicator of school readiness. The study was funded by Martek and used Martek's oils.

        In addition, during the November 2008 annual meeting of the Society for Neuroscience, Dr. R. McNamara and others reported findings from functional magnetic resonance imaging in healthy eight to ten year old boys. In this study, 33 subjects were randomly assigned to receive placebo, DHA (400 mg/day), or DHA (1,200 mg/day) for eight weeks. These data demonstrated that higher dietary DHA intake increased erythrocyte membrane DHA content and enhanced functional cortical activity in a region of the brain which is implicated in sustained attention and executive function. Martek's oils were used and Martek funded portions of this study.

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Cardiovascular Health

        Discussed below are recommendations from expert groups and the findings of several published studies and papers that highlight the benefits of long-chain omega-3 fatty acids, including DHA, on cardiovascular health. In some cases, the authors caution people of the potential risks associated with the intake of certain fish.

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A study reported by Dr. J Virtanen and others in an electronic publication ahead of print in December 2009 in Circulation reported a study in which, from 1984 to 1989, the serum fatty acids of 2,174 healthy men, age 42 to 60 years, were measured. At the average follow-up period of 17.7 years, information regarding any previous diagnosis of atrial fibrillation, a common cardiac arrhythmia, was compared to baseline fatty acid status. Results showed that DHA, and only DHA, and not EPA or ALA, was associated with a reduced risk for developing atrial fibrillation. Compared to the reference group, subjects in the highest DHA quartile had a 38% lower risk for developing atrial fibrillation.



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A study reported by Dr. A. Ryan, an employee of Martek, and others published in March-April 2009 in the American Journal of Therapeutics reported the combined data from 16 published clinical trials examining the effects of DHA triglyceride ("TG") oil derived from algae on serum TG levels and other related parameters. The study populations included subjects with both normal and elevated TG levels including those with persistent hypertriglyceridemia receiving statin therapy. At doses of 1-2 g/d, algal-DHA with or without statins significantly lowered plasma TG levels up to 26%. Regression analysis showed a linear relationship between baseline TG and magnitude of TG reduction. All of the studies in the review used Martek's oils.



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A study reported by Dr. D. Kelley and others published in January 2008 in The Journal of Nutrition demonstrated the effects of DHA supplementation on remnant-like particle-cholesterol ("RLP-C") and red blood cell omega-3 content in plasma, two potential risk factors for cardiovascular disease. Results showed that the study participants (hypertriglyceridemic men) experienced a decrease in atherogenic RLP-C and an increase in the cardio-protective omega-3 index, both of which are associated with improved cardiovascular health. The study used Martek's oils.



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A study published by Dr. D. Kelley and others in August 2007 in the American Journal of Clinical Nutrition found that DHA is effective in reducing the level of triglycerides in male hypertriglyceridemic patients. In this study, DHA alone was effective without EPA, the other omega-3 commonly found in fish oil, in reducing triglycerides. Hypertriglyceridemia (high triglyceride levels) in men is associated with an increased risk of cardiovascular disease and metabolic syndrome. Martek contributed the DHA supplements and funding for this study.



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An independent study reported by Dr. H. Theobald and others published in April 2007 in The Journal of Nutrition assessed the effects of low-dose DHA on blood pressure in healthy men and women in the United Kingdom. Compared with placebo, supplementation with Martek's oils significantly reduced diastolic blood pressure by 3.3 mm Hg.



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The results of a study reported by Dr. L. Keilson and others, which were presented in March 2007 at the American College of Cardiology 56th Annual Scientific Session, showed that supplementation with life'sDHA™ reduced triglycerides by nearly 20%, reduced pulse rate by 5 beats per minute and reduced diastolic blood pressure by 4 mm Hg. The DHA-supplemented group also showed an 8% reduction in total cholesterol and a 5% increase in HDL (good) cholesterol level. The study was conducted in men and women with hypertriglyceridemia who were already taking statin medications for the reduction of cholesterol. This study used Martek oils and funding for this study was provided by Martek.

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An independent study reported by Dr. L. Schwellenbach and others published in December 2006 in the Journal of the American College of Nutrition compared Martek's oils (algal oil) to DHA plus EPA (fish oil) for their ability to lower triglycerides in subjects with coronary artery disease and elevated triglycerides, most of whom were undergoing statin therapy. Both supplements significantly lowered triglycerides, but only life'sDHA™ increased high density ("good") cholesterol. The authors concluded that there was no added benefit provided by EPA for lowering triglycerides at this level. The authors of the study also indicated that life'sDHA™ was better tolerated by the study participants than fish oil, noting that a greater proportion of subjects in the fish oil group reported fishy taste as a problem with their treatment.



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A study published by Dr. A. Erkkilä and others in September 2006 in the Journal of Lipid Research noted an important relationship between plasma DHA levels and the reduced progression of cardiac disease. Specifically, women whose DHA levels were above the median at enrollment had slower progression of coronary artery stenosis over a three-year period. This effect was not seen with the other omega-3 fatty acids, ALA or EPA.



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The results of a study conducted by Dr. K. Maki and others and published in the Journal of the American College of Nutrition in June 2005 demonstrated that life'sDHA™ supplementation lowered triglycerides by approximately 21%. This study was sponsored by Martek.



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In May 2002, in the publication Circulation, the American Heart Association ("AHA") issued a Scientific Statement entitled "Fish Consumption, Fish Oil, Omega-3 Fatty Acids, and Cardiovascular Disease." The Scientific Statement outlines the findings of a comprehensive report that examined the cardiovascular health benefit of omega-3 fatty acids, specifically DHA and EPA, from fish sources. The report concluded that consumption of such omega-3 fatty acids, either through diet or supplements, reduces the incidence of cardiovascular disease. The statement refers to studies that have indicated the following to be associated with the intake of omega-3 fatty acids: decreased risk of sudden death and arrhythmia; decreased thrombosis (blood clot); decreased triglyceride levels; decreased growth of atherosclerotic plaque; improved arterial health; and lower blood pressure.

The Scientific Statement concluded that omega-3 fatty acids have been shown in epidemiological and clinical trials to reduce the incidence of heart disease and recommends that healthy individuals eat a variety of fish (preferably oily) at least twice a week. The statement cautioned, however, that fish intake "must be balanced with concerns about environmental pollutants" because some species of fish may contain significant levels of methylmercury, polychlorinated biphenyls ("PCBs"), dioxins, and other contaminants. Both the FDA and the Environmental Protection Agency have advised children, pregnant women, women who may become pregnant and nursing mothers to limit their intake of certain fish. In consideration of the health risks posed by such contaminants, the authors of the statement conclude by stating, "The availability of high-quality omega-3 fatty acid supplements, free of contaminants, is an important prerequisite to their extensive use." Martek's DHA oil is derived from a vegetarian source and is free of contaminants that may be found in certain fish oils.

        A Scientific Statement entitled "Diet and Lifestyle Recommendations Revision 2006" published by Dr. A. Lichtenstein and other members of the American Heart Association Nutrition Committee published in July 2006 in Circulation included a recommendation that people with documented heart disease consume approximately one gram of DHA plus EPA per day. They affirm that with appropriate medical advice, use of supplements may be substituted for fish.

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        In September 2004, the FDA announced that it would allow conventional foods and beverages and dietary supplements containing DHA and EPA to make a qualified health claim for reduced risk of coronary heart disease on their product packaging. A qualified health claim must be supported by credible scientific evidence. Upon review of this scientific evidence, the FDA concluded that supportive but not conclusive research shows that consumption of DHA and EPA may reduce the risk of coronary heart disease. This qualified health claim supports the benefit of Martek's DHA-S oil, as it contains both DHA and small amounts of EPA.

        While there is not yet a scientific consensus on the subject, a number of clinical studies, including several listed above, have indicated that DHA provides the main cardioprotective benefits traditionally ascribed to fish consumption or to the combination of DHA plus EPA. Such research has indicated that DHA, in the absence of EPA, may have the following effects on cardiovascular risk factors:

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reduces triglycerides and raises the HDL or "good" cholesterol;



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reduces blood pressure;



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reduces heart rate; and



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increases LDL and HDL cholesterol particle size.

Other

        Discussed below are the findings of some studies that highlight the benefits of DHA on other human health conditions.

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The American Journal of Clinical Nutrition (December 2009) reported 12-year follow-up data from over 1,800 people who had participated in the Age-Related Eye Disease Study evaluating the development of Age Related Macular Degeneration ("AMD"). At the end of the 12-year period, information was graded to determine each individual's AMD status and comparisons were made with the intake of DHA, EPA, and the combination of DHA and EPA. Results showed that individuals who consumed the highest amounts of DHA alone or in combination with EPA had the lowest level of progression to AMD. EPA alone did not show a benefit.



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A study by Dr. C. Chiu and others published in September 2009 in the British Journal of Ophthalmology reported findings from a multi-year study of the effects of diet on the progression of age-related macular degeneration. This large clinical trial supplemented over 2,000 people with 5, 6, and 18 times the Recommended Dietary Allowance levels of vitamins C, E and/or zinc and other minerals. In this report, the investigators quantified the dietary intake of DHA and EPA in the study groups as well. Results showed that consuming a diet rich in DHA slowed the progression of early age-related macular degeneration and that the DHA benefit occurred independently from EPA and the usual study supplements.



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A study reported by Dr. D. Kelley and others published in March 2009 in The Journal of Nutrition evaluated the effect of DHA on several indicators of inflammation in 34 hypertriglyceridemic men. As a result of DHA supplementation, several indicators of inflammation were improved, including: the number of circulating neutrophils; the concentrations of C-reactive protein ("CRP"); interleukin-6; and granulocyte monocyte-colony stimulating factor. There was a corresponding increase in the concentration of anti-inflammatory matrix metalloproteinase. The authors noted that the reduction of CRP was similar to that seen with statins. Overall, the authors concluded that supplemental DHA may lessen the inflammatory response. Martek's oils were used in this study.



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An independent observational study by Dr. J.M. Norris and others published in September 2007 in the Journal of the American Medical Association was designed to determine whether the intake of omega-3 and omega-6 fatty acids is associated with the development of Type 1 diabetes in

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children. This study was conducted with children known to be at genetic risk for developing Type 1 diabetes. Results showed that the omega-3 fatty acid levels were inversely correlated with the risk for developing diabetes in this group of at-risk children. These investigators are further investigating this relationship in an ongoing clinical trial to determine whether DHA, specifically, has a role in Type 1 diabetes prevention.

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A study by Dr. K. Connor and others published in July 2007 in Nature Medicine reported that increasing consumption of long-chain omega-3 fatty acids, including DHA, reduces destructive vascularization in the retina. In this animal study of retinopathy associated with prematurity, the authors summarize a series of experiments demonstrating that long-chain omega-3 fatty acids, and selected metabolites, are effective in reducing retinal vascular disease, which is a leading cause of blindness. A portion of these studies included Martek oils as the source of long-chain fatty acids.

        Life'sDHA™ is sold by Martek as an ingredient to food and beverage and supplement manufacturers and is also the brand name of Martek's consumer supplement product. Martek's Neuromins® brand, which contains life'sDHA™, is distributed by the Company and sold under license by several supplement manufacturers and can be found nationwide. In addition, life'sDHA™ can now be found in multiple supplement products, including private label products sold in Wal-Mart, CVS/pharmacy and Walgreen's.

        We are continuing to aggressively pursue further penetration of our DHA oils, both domestically and internationally, in the food and beverage, pregnancy and nursing, nutritional supplement and animal feed (collectively, "non-infant formula") markets. We are in discussions with many companies to sell products containing our DHA oils for cognitive function, cardiovascular health and other applications. To date, over 200 domestic and international companies have launched non-infant formula products that contain life'sDHA™, most of which remain on the market and are believed to be meeting customer expectations (see "Sales and Marketing" below). Certain of our DHA license and supply agreements with major consumer food products companies establish Martek, subject to certain exceptions, as their exclusive supplier of DHA for minimum periods of time. We, along with our customers and certain third parties, are developing other DHA delivery methods, including powders and emulsions, to facilitate further entry into the non-infant formula markets. Management believes that over the next few years, the non-infant formula markets will continue to expand and could ultimately represent a larger opportunity than infant formula.

        Our sales of nutritional oils for products outside of infant formula uses were $39.3 million, $31.3 million and $22.9 million in fiscal 2009, 2008 and 2007, respectively.

TECHNOLOGY

        Martek is a leading innovator in the development of microbial-based nutritional products that promote health and wellness. We leverage our knowledge of microalgae and other microorganisms and expertise in fermentation sciences and natural product isolation to develop commercially attractive, proprietary and environmentally sustainable sources of nutrients which have proven or emerging health benefits. These processes and use of the products derived from these processes form the basis of our intellectual property estate. Product development involves four major activities: discovery, process development and product formulation, product safety and efficacy evaluation, and scale-up and commercial production.

        Physiology/ Discovery—Having established an appropriate nutritional product target, Martek screens its large database of live and preserved, genetically diverse microalgal species to identify candidate microalgal producers. Martek's culture collection consists of microalgal strains that have been isolated from nature by Martek's scientists and those that have been obtained from both public and private culture collections. Martek's culture collection also includes non-microalgal microbial species, which we

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believe may be increasingly important in the development of future products. Martek's microorganisms have a range of physiological and biochemical characteristics which naturally produce many different lipids, carbohydrates and proteins. Promising candidates are further developed and screened for their ability to meet desired product requirements within the desired cost structure.

        Process Development and Product Formulation—Commercial processes for production of candidate products are developed by Martek's scientists and engineers. Martek's processes consist of several basic steps including microbial culture inoculum germination and expansion, fermentation, and product isolation and purification. Martek's scientists utilize a broad range of technical skills and equipment of progressively larger scale to develop reproducible and economical processes. We apply standard industrial microbiological techniques to microorganisms, including classical strain development and culture condition (growth medium composition, temperature, pH) manipulation to optimize product yield and productivity. Martek's expertise in oil processing is broadly applicable to a number of nutrients which are lipid soluble. Finally, Martek develops suitable liquid and dry powder product forms to enable our customers to utilize our products in a broad range of desired consumer products. Martek has invested in extensive lab- and large pilot-scale fermentation and product recovery equipment to enable efficient and cost-effective product development and to support on-going product cost reduction efforts.

        While we do not utilize genetically-engineered microorganisms in the production of current commercial products, in the future we may use genetic engineering technology for the production of products at lower-cost or with improved functionality. For example, Martek successfully isolated the genes responsible for producing DHA in one commercial strain of microalgae, and is developing, with a corporate collaborator, the use of these genes to produce low-cost seed oil DHA and LCPUFA products in transgenic terrestrial oilseed crops.

        Product Safety and Efficacy Evaluation—In the course of product development, products undergo thorough safety testing and evaluation to assure our ability to reproducibly produce products that are safe and compliant with worldwide regulatory requirements. All commercial products are produced utilizing good manufacturing practices ("GMP") conditions appropriate for the intended food and beverage, supplement, or pharmaceutical market. The health benefits and efficacy of our products are tested and demonstrated utilizing appropriate preclinical animal models and human clinical studies. These studies are conducted by Martek, academic researchers and/or corporate partners affiliated with Martek and currently focus on the areas of brain development, cognitive function, cardiovascular health, immune system health, inflammation, eye development and eye health. Results from these studies are used to establish and support product claims for market development.

        Scale-up and Commercial Production—Successful exploitation of the unique characteristics of microalgae and certain other microorganisms is in large measure dependent upon the availability of large-scale culturing technology. We have successfully scaled-up several strains of microalgae capable of producing large amounts of DHA heterotrophically using common organic nutrients and salts. Heterotrophic culturing of these DHA-producing microalgae at commercially viable levels enables significantly lower production costs to be achieved, which were not possible prior to our achievements.

        Aspects of our technology are the subject of many U.S. and international patents and patent applications. Martek employs a systematic process to identify, develop, prosecute and defend commercially-valuable intellectual property.

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LICENSE AND SUPPLY AGREEMENTS AND COLLABORATIONS

Customer Agreements

        We are supplying over 35 infant formula customers with our nutritional oils through license and supply agreements. These companies collectively represent approximately 75% of the estimated $15 billion worldwide retail market for infant formula and nearly 100% of the estimated $4.5 billion U.S. retail market for infant formula, including the retail value of Women, Infants and Children program ("WIC") rebates. WIC is a federal grant program administered by the states for the benefit of low-income, nutritionally at-risk women, infants and children. Our customers include infant formula market leaders Mead Johnson Nutritionals, Nestle, Abbott Nutrition, Pfizer (formerly Wyeth) and Danone (formerly Numico), each of whom is selling infant formula supplemented with our nutritional oils. Our pricing for these customers generally follows two models. For the large majority of these agreements, we receive a transfer price per kilogram upon the sale of our oils to our customers. For a limited number of such agreements, we receive a lower transfer price on sales of our oils to our customers plus ongoing royalties based on our customers' sales of infant formula products containing our oils. The most significant license agreements have remaining terms ranging from approximately eight to 19 years, contain no future purchase commitments from our customers, and, generally, may be terminated by our customers upon proper notification, which, in certain cases, only requires short notice periods. In many agreements, our customers have the right to buy other sources of DHA and/or ARA oils. However, in these cases, customers would typically pay us greater amounts for the DHA or ARA that they purchase from us.

        Since 2006, we have entered into long-term supply agreements with four of our significant infant formula customers- Mead Johnson Nutritionals, Abbott Nutrition, Danone (formerly Numico) and Pfizer (formerly Wyeth). In general, these supply agreements establish, with limited exceptions, Martek as the exclusive supplier of all DHA and ARA for the respective customer's infant formula products. These agreements have terms of either ten or 15 years with certain rights for either party to terminate the arrangement as of January 1, 2012 provided that the requisite prior written notice is given. With the exception of Danone, whose agreement established a new license arrangement with Martek with a 15-year term, the original license agreements remain in effect and have been incorporated into the new supply agreements. Along with other exclusive DHA and/or ARA supply agreements entered into over the last three years with other infant formula customers, Martek now has sole source commitments, subject to limited exceptions, through at least December 31, 2011 with customers that comprise nearly 80% of Martek's current infant formula revenues.

        Under the terms of the infant formula license and supply agreements, our customers are responsible for obtaining all necessary regulatory approvals with respect to the use of these nutritional oils in infant formula products and our customers are generally obligated to indemnify us against product liability claims relating to our nutritional oils unless our nutritional oils do not meet agreed-upon specifications. Under the terms of several of our agreements, we are prohibited from supplying DHA and/or ARA to any party for the inclusion into infant formula with commercial terms that are more favorable to such customer than those provided in our agreements with our current customers without either the prior written consent of the current customers or prospectively offering such new favorable terms to these customers.

        Since fiscal 2005, the Company has entered into several license and supply or distribution agreements permitting the direct sale or use of life'sDHA™ in various non-infant formula applications. Certain of these agreements establish the customer as the exclusive customer of life'sDHA™ in a particular food or beverage category or categories or geographic region. Certain of the agreements are for terms of 15 years and establish Martek, subject to certain exceptions, as the licensees' exclusive provider of DHA for minimum periods of time. With limited exceptions, there are no minimum purchase requirements or other financial commitments to Martek under these agreements. Other customer agreements are non-exclusive license and supply agreements that enable the customer to

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purchase life'sDHA™ on an "as needed" basis, subject to certain limitations. These non-exclusive arrangements generally include product pricing to the customer that is higher than the pricing to our customers who have agreed to use Martek's life'sDHA™ on an exclusive basis.

Collaborations and Third-Party Technology and In-Licensing Agreements

        In August 2009, we entered into a collaboration agreement with BP for the joint development of biofuels from microbial oils. Under the terms of the agreement, which is expected to continue through at least 2011, Martek and BP will work together to establish proof of concept for large-scale, cost-effective microbial biodiesel production through fermentation. In connection with this agreement, BP has agreed to contribute up to $10 million to the initial phases of the collaboration, which utilizes Martek's significant expertise in microbial oil production and BP's production and commercialization experience in biofuels as the platform for the joint development effort. Martek will perform the biotechnology research and development associated with the initial phases and receive fees from BP for such efforts. All intellectual property owned prior to the execution of the collaboration agreement will be retained by each respective company, and all intellectual property developed during the collaboration period will be owned by BP, with an exclusive license to Martek for commercialization in nutrition, cosmetic and pharmaceutical applications. Additionally, each party is entitled to certain commercial payments from the counterparty for commercialization of the technology in the other party's fields of use.

        In July 2009, we entered into the First Amended and Restated ARA Alliance, Purchase, and Production Agreement (the "Restated Agreement") with DSM Food Specialties B.V. ("DSM"). The Restated Agreement amends and restates our agreement entered into with DSM in 2004 (the "2004 DSM Agreement"). The 2004 DSM Agreement extended the existing relationship between the two companies involving the production and supply of ARA, one of our nutritional oils that we sell to our infant formula customers. Among other things, the 2004 DSM Agreement provided for the grant to Martek by DSM of a license related to certain technologies (including patents) associated with the manufacture of ARA. This grant involved a license fee totaling $10 million, which is being amortized over the 15-year term of the agreement using the straight-line method. The 2004 DSM Agreement, as amended, also provided for the granting to DSM by us of an exclusive license under certain of our patents and intellectual property rights for the production by DSM of products containing ARA for non-human applications, including animal feed products as well as for certain limited human applications. In addition, we and DSM have agreed to contribute our complementary resources to cooperative marketing and joint research and development efforts to expand the applications and fields of use for ARA, with both parties sharing any economic benefits of such efforts. The Restated Agreement, which extends the original supply term through December 31, 2023, amended, consolidated and restated all existing agreements between the two companies governing the cross-licensing, purchase, supply and production of ARA. The licenses and collaborations between the parties noted above remained in effect after the execution of the Restated Agreement. The Restated Agreement is discussed in further detail below in "Production" and in Note 4 of our Consolidated Financial Statements included in Part II, Item 8. "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.

        In February 2009, we entered into a license agreement with an international food company for certain patented technology expected to be used in the production of Martek's life'sDHA™ for certain applications. Under the agreement, Martek was granted a perpetual and generally exclusive license to the technology. As consideration for this license, we paid an upfront license fee of $1.0 million and will pay, subject to the successful completion by the licensor of certain development goals related to the licensed technology, additional fees of up to approximately $5.0 million. In addition, Martek will be required to pay royalties of up to 4.5% of sales of products produced using the licensed technology, including certain minimum royalty payments of approximately $2.0 million, the timing of which is also subject to the successful completion of the development goals.

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        In December 2003, we entered into a collaboration agreement with a Canadian biotechnology company to co-develop DHA products from plants. In January 2007, an amendment to this agreement was executed, whereby we acquired exclusive license rights to the plant-based DHA technology developed by the co-collaborator for a period of at least 16 years. As consideration for this exclusive license, we made a license payment of $750,000, and the license is subject to minimum royalties of 1.5% of gross margin, as defined, on future sales by us of such plant-based DHA. During the term of the license, we may be required to pay additional royalties of up to approximately 1.0% of gross margin, as defined, on sales of products in the future that utilize certain licensed technologies. To further our plant-based DHA initiatives, in May 2008, we entered into a collaboration agreement with a global biotechnology company to jointly develop and commercialize a canola seed that produces DHA. We and our co-collaborator anticipate a multi-year effort to produce this oil. Our financial commitments associated with this development initiative are subject to the successful completion of identified milestones. As of October 31, 2009, our financial commitment, primarily through internal research efforts, to the first projected milestone date totals approximately $700,000. Commitments thereafter, also primarily through internal research efforts, assuming successful achievement of all identified milestones, total approximately $5.6 million.

        We have also entered into various additional collaborative research and license agreements. Under these agreements, we are required to fund research or to collaborate on the development of potential products. As of October 31, 2009, we had no material commitments to fund any future development activities under these arrangements.

PRODUCTION

        We manufacture oils rich in DHA at our production facilities located in Winchester, Kentucky, and Kingstree, South Carolina. The oils that we produce in these facilities are certified Kosher by the Orthodox Union and are certified Halal by the Islamic Food and Nutrition Council of America. Both manufacturing facilities have received favorable ratings by the American Institute of Baking, an independent auditor of food manufacturing facilities, and have obtained the ISO 14001 Environmental Management System ("EMS") International Standard, the most recognized EMS standard in the world. Also, the National Oceanic and Atmospheric Administration has granted Martek's Winchester plant, the Company's primary shipping location, a health certificate, which is required for import of products into many countries, including China and neighboring countries in the Pacific Rim.

        Over 90% of our ARA oils are purchased from DSM. Because DSM is a third-party manufacturer, we have only limited control over the timing and level of its production volumes. The balance of our ARA requirements is produced at our Kingstree facility. In July 2009, we entered into the First Amended and Restated ARA Alliance, Purchase, and Production Agreement (the "Restated Agreement") with DSM. The Restated Agreement, which extends the original supply term through December 31, 2023, amended, consolidated and restated all existing agreements between the two parties governing the cross-licensing, purchase, supply and production of ARA. Among other things, the Restated Agreement established ARA pricing to Martek for calendar years 2009 through 2014 with the potential for only limited changes related to post-2011 volumes and provides that ARA pricing subsequent to calendar 2014 will be negotiated in the future by the parties. For the establishment of the 2009 through 2014 ARA pricing and related contractual provisions, we paid DSM approximately $11.0 million. While, subject to the limited exceptions noted below, Martek is committed to purchasing all of its ARA requirements from DSM through the term of the Restated Agreement, the Restated Agreement also sets minimum ARA purchase quantities for Martek in calendar years 2009, 2010 and 2011. As of October 31, 2009, the value of the remaining calendar year 2009 and full calendar years 2010 and 2011 minimum purchase requirements are approximately $17.2 million, $93.9 million and $87.1 million, respectively. These minimum purchase quantities approximate the amounts expected to be consumed by us in the normal course of business.

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        We have attempted to reduce the risk inherent in having a single supplier through certain elements of our supply agreement with DSM. In connection with this agreement, we have the ability to produce, either directly or through an approved third party, an unlimited amount of ARA. The sale of such self-produced ARA is limited annually, however, to the greater of (i) 100 tons of ARA oil or (ii) any amounts ordered by us that DSM is unable to fulfill. Although we currently produce ARA ourselves, our existing manufacturing capacity would not permit us to produce ARA quantities sufficient to meet current demand without impacting our production of DHA. To further improve our overall ARA supply chain, we have directly engaged a U.S.-based provider of certain post-fermentation ARA manufacturing services. Along with our ARA downstream processing capabilities at Kingstree, this third-party facility provides us with multiple U.S. sites for the full downstream processing of ARA.

        When combining our current DHA and ARA production capabilities in Kingstree and Winchester with DSM's current ARA production capabilities, we have production capacity for DHA and ARA products in excess of $500 million in annualized sales, collectively, to the infant formula and non-infant formula markets. As such, our production capabilities exceed current demand; however, we have the ability to manage production levels and, to a certain extent, control our manufacturing costs. Nonetheless, when experiencing excess capacity, we may be unable to produce the required quantities of oil cost-effectively due to the existence of significant levels of fixed production costs at our plants and the plants of our suppliers.

        The commercial success of our nutritional oils will depend, in part, on our ability to manufacture these oils or have them manufactured at large scale on a routine basis and at a commercially acceptable cost. Our success will also be somewhat dependent on our ability to align our production with customer demand, which is inherently uncertain. There can also be no assurance that we will be able to continue to comply with applicable regulatory requirements, including the Food and Drug Administration's "good manufacturing practice" ("GMP") requirements. Under the terms of several of our agreements with infant formula customers, those customers may elect to manufacture these oils themselves. While our customers are not required to disclose to us that they have begun the process, we are currently unaware of any of our customers producing our oils or preparing to produce our oils, and estimate that it would take a customer a minimum of one year to implement a process for making our oils.

SOURCES OF SUPPLY

        Our raw material suppliers for production of DHA oil include major chemical companies and food and beverage ingredient suppliers. We have identified and validated multiple sources for most of our major ingredients and do not anticipate that the lack of availability of raw materials will cause future production shortages.

RESEARCH AND DEVELOPMENT

        Our research and development focus areas include: (i) broadening the scientific evidence supporting our products; (ii) improving manufacturing processes; (iii) developing food and beverage applications; and (iv) developing new products and technologies to expand our market offerings. We perform research and development at our Columbia, Maryland, Boulder, Colorado and Winchester, Kentucky facilities. Our research and development expenditures in fiscal 2009 included, among other things, development activity directed toward (i) improving the quality, sensory properties and stability of our nutritional oils; (ii) developing new ingredient forms and applications technology for DHA-enriched food and beverage products; (iii) optimizing production characteristics of microalgal strains; (iv) investigating the clinical health benefits of DHA and ARA fatty acids; (v) increasing our DHA production yields; (vi) improving our ability to produce ARA; (vii) reducing waste and continuing to improve the overall quality of our oils; (viii) developing feasible approaches to the expression of nutritional fatty acids, especially DHA, in plant oilseeds; (ix) developing biofuels in conjunction with

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BP; and (x) investigating the feasibility of utilizing our expertise in molecular biology to produce other bioactive compounds with applications in the health and wellness fields. We incurred total research and development expense of approximately $27.4 million, $26.2 million and $24.9 million in fiscal 2009, 2008 and 2007, respectively.

SALES AND MARKETING

        Our nutritional oils are marketed and sold primarily to the infant formula, pregnancy and nursing, food and beverage, dietary supplement and animal feed markets. Currently, we are supplying over 35 infant formula customers with our nutritional oils. These companies collectively represent approximately 75% of the estimated $15 billion worldwide retail market for infant formula and nearly 100% of the estimated $4.5 billion U.S. retail market for infant formula, including the retail value of Women, Infants & Children program ("WIC") rebates. WIC is a federal grant program administered by the states for the benefit of low-income, nutritionally at-risk women, infants and children. Our customers include infant formula market leaders Mead Johnson Nutritionals, Nestle, Abbott Nutrition, Pfizer (formerly Wyeth) and Danone (formerly Numico), each of whom is selling infant formula supplemented with our nutritional oils. Our customers are now selling infant formula products containing our oils collectively in over 75 countries. Supplemented infant formulas from Mead Johnson Nutritionals, Abbott Nutrition, PBM Products, Nestle, Hain Celestial and Nutricia North America are currently being sold in the United States. In addition, certain infant formula customers are selling products in the United States and abroad that contain our nutritional oils and target the markets for children ages nine months to seven years of age and older. One infant formula customer, Mead Johnson Nutritionals, as well as non-infant formula customers including Wal-Mart, CVS/pharmacy, Walgreen's, Everett Laboratories and Mission Pharmacal are selling products containing life'sDHA™ targeted to pregnant and nursing women.

        Life'sDHA™ is sold as an ingredient to food and beverage and supplement manufacturers and is also a supplement brand sold directly by Martek. Neuromins® is a Martek supplement brand that is distributed and sold nationwide under license by several supplement manufacturers.

        We are currently marketing and selling life'sDHA™, either directly or through distributors, for food and beverage, supplement and animal feed applications to both U.S. and international companies. To date, over 200 domestic and international companies, including Dean Foods, Coca-Cola/Minute Maid, JM Smucker/Crisco, Danone, Starbuck's, Parmalat Australia and Ragasa, have launched non-infant formula products that contain life'sDHA™, most of which remain on the market and are believed to be meeting customer expectations. Generally, these products are also co-branded with the life'sDHA™ logo.

        Certain of our DHA license and supply agreements with major consumer food products companies establish Martek, subject to certain exceptions, as their exclusive supplier of DHA for minimum periods of time. Certain of these agreements establish the customer as the exclusive customer of life'sDHA™ in a particular food or beverage category or categories or geographic region. We, along with our customers and certain third parties, are developing other DHA delivery methods, including powders and emulsions, to facilitate further entry into the non-infant formula markets. Management believes that over the next few years, the non-infant formula markets will continue to expand and could ultimately represent a larger opportunity than infant formula.

        Consumer marketing efforts are performed primarily by our customers although we play a supportive role. Our infant formula customers market their DHA and ARA supplemented formulas directly to consumers and healthcare professionals. Our dietary supplement, food and beverage and animal feed customers also create and implement their own advertising campaigns. We support these efforts through trade show participation and targeted direct mail campaigns as well as limited advertising and public relations campaigns.

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        Our DHA product is branded as life'sDHA™ and includes the tagline "Healthy brain, eyes, heart" which is designed to be consumer-friendly and to communicate the importance of DHA for health throughout life. Our ARA is branded as life'sARA™. The purpose of this branding initiative is to raise the awareness and understanding of the life'sDHA™ and life'sARA™ brands. Management believes that as consumers learn more about these trusted brands via Martek's, and certain of our customers', marketing and public relations efforts, they will be more likely to purchase products containing the life'sDHA™ and life'sARA™ logos. This, in turn, provides support to Martek's customers by further accentuating the benefits of Martek's products over other sources.

COMPETITION

        The healthcare and biological sciences industries are characterized by rapidly evolving technology and intense competition. Our competitors include major pharmaceutical, chemical, specialized biotechnology and food and beverage ingredient companies, many of whom have financial, technical and marketing resources significantly greater than ours. In addition, many specialized biotechnology companies have formed collaborations with large, established companies to support research, development and commercialization of products and technologies that may be competitive with our products and technologies. Academic institutions, governmental agencies and other public and private research organizations are also conducting research and development activities that may be competitive with our products. These organizations are seeking patent protection and may commercialize products and technologies on their own or through joint ventures that are competitive with our products and technologies. The existence of products and technologies of which we are not aware, or those that may be developed in the future, may adversely affect the marketability of the products and technologies that we have developed.

        Fish oil-based products currently dominate the adult DHA supplement market and certain foods containing fish oils are on the market in various parts of the world. DHA-containing fish oil for infant formula applications provides an alternative to our DHA nutritional oil and is used by certain of our customers and other infant formula manufacturers outside the United States. In addition, in April 2006, the FDA notified Abbott Nutrition (then known as the Ross Products Division of Abbott Laboratories) that it had no questions at that time regarding Ross' conclusion that DHA-rich oil from tuna and ARA-rich oil from Mortierella alpina are safe as sources of DHA and ARA in term and post-discharge preterm infant formulas. While Abbott Nutrition has the regulatory permission to introduce fish oils into infant formula in the U.S., under the terms of the agreement executed by Abbott with us in October 2007, Abbott has agreed to purchase its total needs for DHA and ARA from Martek through at least 2011. Furthermore, we are not aware of any plans by any of our other customers to incorporate this alternative DHA and ARA blend into their infant formulas. The GRAS notification, however, removes a significant regulatory hurdle to the introduction of competitive products in the U.S.

        Fish oil is generally less costly than our DHA oil, and therefore presents a substantial competitive threat to our DHA product line. However, certain fish oils have odor, stability and taste characteristics that may limit their usefulness in food and beverage products. In addition, fish oils may be negatively perceived by certain customers. Several companies, including BASF AG, DSM and Ocean Nutrition, and a number of other companies, manufacture microencapsulated fish oil products. Although microencapsulation of the oil resolves many of the odor, stability and taste issues found with fish oil, a microencapsulated product currently is more costly than regular fish oil. Because fish oil is generally less costly than our DHA oil, even when microencapsulated, and continues to improve in quality and gain general market acceptance, fish oil presents a substantial competitive threat.

        We continue to work to reduce the costs of our products and to improve the sensory and stability characteristics to make it easier for our customers to incorporate our products into their products. We have also continued to refine our manufacturing processes in order to produce higher levels of DHA and thereby reduce our DHA unit costs. These improvements and changes make our DHA more cost

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competitive with certain microencapsulated fish oils, on a price per DHA unit basis, but not on a total omega-3 basis due to the presence of large quantities of EPA and other non-DHA omega-3 fatty acids in fish oil.

        Published reports have cited certain fish oils as containing chemical toxins not present in our oils. In addition, we believe the combination of low-EPA fish oil with a microbial source of ARA for use in infant formula would likely infringe upon our patent position in several countries.

        We believe that our nutritional oils have the following advantages over fish oil and other currently available sources of DHA and ARA for use in infant formula, as food and beverage ingredients, or as supplements:

•

our oils, in general, are easier to formulate than certain fish oils in food and beverage products;



•

our oils can be blended in a variety of mixtures in precise ratios for specific applications, whereas the composition of fish oils may vary;



•

each of our oils used in infant formula is comprised of a fatty acid blend that does not contain certain other fatty acids, such as EPA, in significant quantities, which may not be appropriate for consumption by infants at high levels.



•

our oils do not contain substances found in certain fish and fish oils such as methylmercury, polychlorinated biphenyls ("PCBs"), dioxins and other toxic contaminants;



•

our oils have a higher oxidative stability and longer shelf life than certain fish oils and are, therefore, more amenable to the spray drying process required for powdered formula;



•

our oils are not produced from animal sources and, therefore, should be more desirable for use in food and beverage products, as the available market includes consumers who require a vegetable-sourced DHA, unlike fish oil;



•

our oils are produced from renewable, sustainable natural resources, unlike fish oil;



•

our DHA and ARA-enriched oils are in an easily digestible triglyceride form similar to that found in fish oils and breast milk, but different from the phospholipid form found in egg yolk lipids; and



•

our oils can be produced in large quantities under controlled conditions satisfying strict regulatory scrutiny.

        At this time, our oils are the only DHA and ARA oils used in infant formula in the U.S.

        Suntory Limited, Nippon Suisan, Cargill Inc. (through a joint venture with a company in China) and other independent Chinese manufacturers are producing and distributing a fungal source of ARA. Monsanto/Solae are expecting to commercialize an inexpensive, sustainable, vegetarian omega-3 for foods and beverages in the next one to three years. This product is a soybean oil containing stearidonic acid ("SDA"). Monsanto/Solae are positioning SDA as a precursor to EPA, in addition to DHA, the other omega-3 found in fish oil. In addition, we are aware that there may be manufacturers in China and India producing or attempting to produce an algal source of DHA, but we are uncertain of the overall status and commercial potential of these development efforts. In addition, other companies, several with greater financial resources than ours, are developing plant-based DHA, other plant-based oils or, in the case of DuPont, an EPA product derived from yeast, that may compete with us, and other companies may be developing chemically synthesized DHA.

        Small amounts of DHA and ARA can be derived from egg yolk lipids, but DHA and ARA of this type are not in the same molecular form as that predominantly found in breast milk (i.e., phospholipid vs. triglyceride). DHA and ARA derived from egg yolks are currently being added to some brands of infant formula marketed by several small companies. We believe that the processes to produce DHA

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and ARA from egg lipids are more costly than the processes that we use for producing DHA and ARA from microbial sources. Furthermore, the addition of DHA and ARA from egg yolks at levels equivalent to those found in human breast milk may result in dietary levels of lecithin and cholesterol in excess of those found in human breast milk.

        In December 2005, Lonza Group LTD, a Swiss chemical and biotechnology group, acquired from Nutrinova Nutrition Specialties & Food Ingredients GmbH, a wholly-owned subsidiary of Celanese Corporation, Nutrinova's business having as its product a DHA-rich microalgal oil. Since the acquisition, Lonza has actively marketed its DHA oil to the food and beverage and dietary supplement markets in Europe and China, and was actively marketing in the United States. In addition, Lonza may be actively marketing its DHA oil for infant formula applications in certain markets. Nutrinova and Lonza are defendants in patent infringement actions involving our DHA patents that we have brought in both the United States and Germany, and Lonza is a defendant in a patent infringement action in France. One of Nutrinova's customers is also a defendant in these actions in Germany. In connection with these patent lawsuits, the Company has incurred and capitalized significant external legal costs. As of October 31, 2009, the patents being defended in the Lonza matter had a net book value of approximately $4.4 million, including capitalized legal costs, which is being amortized over a weighted average remaining period of approximately five years. These lawsuits are further described in Item 3. "Legal Proceedings" of Part I of this Form 10-K.

        GlaxoSmithKline is currently selling LOVAZA™, a prescription DHA/ EPA ethyl ester for treatment of hyperlipidemia. LOVAZA™ is a lipid-regulating agent which includes both EPA and DHA from fish oil. GlaxoSmithKline has filed an application with the FDA for an indication that will expand the use of LOVAZA™ and is actively evaluating new indications. Other pharmaceutical companies offering other applications using omega-3 fatty acids may be expected.

        There may be other competitive sources of DHA and ARA of which we are not aware. The fact that many of the companies mentioned above are larger, more experienced and better capitalized than Martek raises the significant risk that these companies may be able to use their resources to develop less costly sources of DHA and ARA than our current technology permits.

        Our competitive position will also depend on our ability to attract and retain qualified scientific and other personnel, develop effective proprietary products, implement production and marketing plans, obtain and maintain patent protection and secure adequate capital resources.

PATENTS, LICENSES AND PROPRIETARY TECHNOLOGY

        We have received numerous patents protecting our nutritional products technology, including the fermentation methods of producing our DHA and ARA oils, as well as the blending and use of certain DHA and/or ARA oils in infant formula. In 1994, we received a U.S. patent covering certain blends of a microbial oil enriched with DHA and a microbial oil enriched with ARA, as well as the use of such blends in infant formulas. In 1995, we received a U.S. patent covering a process for making an edible oil containing DHA under certain specified conditions and the edible oil made by such process as well as a U.S. patent covering an infant formula comprising an edible DHA-containing oil with certain specified characteristics. In 1996, we received two additional U.S. patents covering our nutritional oils technology. The first patent protects pharmaceutical compositions and dietary supplements comprising a single cell oil in concentrations of at least 20% DHA in a triglyceride form made using our method of producing DHA oil. The second patent clarifies that our patent coverage includes the blending, in infant formula and dietary supplements, of microbially derived ARA oil with low EPA fish oils. Fish oil is a potential competitive source of DHA to Martek's algal-derived DHA oil. This patent makes it more difficult for low EPA fish oils to be combined with microbial sources of ARA oils in the U.S. without violating our patents. A U.S. patent was granted in 1997, which protects the production, use and sale of certain microbial oils rich in ARA. In 1998, a U.S. patent was issued protecting our

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DHA-rich algal biomass. DHA-rich algal biomass is the raw product of the DHA fermentation process and represents an inexpensive source of DHA that may potentially be a low cost product itself. We also have been awarded a number of foreign patents covering various aspects of our nutritional oils, including European patents covering our DHA and ARA-rich oils.

        We also own patents and applications that cover certain algal fermentation processes, lipid extraction/purification, genomic-based approaches to lipid production, arachidonic acid production and use, animal feeding protocols, and food and beverage applications for LCPUFAs. From 1992 to 2006, eight U.S. patents owned by us were issued covering the use of certain algae in the production of omega-3 LCPUFAs (e.g. DHA-S), and the use of such LCPUFAs in such products as human foods and beverages, animal feed, aquaculture and the resulting supplemented meat, seafood, milk and eggs. Four of these patents have now expired. From 1994 to 2008, twelve U.S. patents were issued covering, among other things, the fermentation of microorganisms in low chloride fermentation medium and their use in aquaculture applications. Seven of these patents have now expired. Additional patent applications covering this technology are still pending. Other U.S. patents have been issued and a number of patents are pending worldwide.

        Our success is largely dependent on our ability to obtain and maintain patent protection for our products, maintain trade secret protection and operate without infringing the proprietary rights of others. Our policy is to aggressively protect our proprietary technology through patents, where appropriate, and in other cases, through trade secrets. Additionally, in certain cases, we rely on the licenses of patents and technology of third parties. We hold approximately 80 U.S. patents, covering various aspects of our technology, which will expire on various dates between 2009 and 2026. Our core infant formula-related U.S. patents expire between 2011 and 2014. We also license from DSM certain patents that provide additional protection for our nutritional oil products and expire between 2017 and 2024, and certain patent applications that could, if granted, provide added protection for our nutritional oil products. Martek has been granted U.S. patents covering certain processes for producing DHA-containing oil that may be used in foods and beverages which expire between 2010 and 2024. In addition, Martek has several pending patents related to DHA, including products and processes, which could offer long-term protection. We have filed, and intend to file, applications for additional patents covering both our products and processes as appropriate. While we have sole source supply agreements (in most cases through 2011) with customers comprising nearly 80% of our current infant formula revenues, it is uncertain how much protection that our patents or those in-licensed from DSM expiring after 2011 will provide should these customers choose ingredients from our competitors. Furthermore, even if our customers continue to use our oils, direct competition could force us to reduce the price of our products, which could materially affect future revenues and product margins.

        Currently, we have over 350 issued patents and over 500 pending patent applications worldwide. There can be no assurance that:

•

any patent applications filed by, assigned to or licensed to us will be granted;



•

we will develop additional products that are patentable;



•

any patents issued to or licensed by us will provide us with any competitive advantages or adequate protection for inventions;



•

any patents issued to or licensed by us will not be challenged, invalidated or circumvented by others;



•

issued patents, or patents that may be issued, will provide protection against competitive products or otherwise be commercially valuable; or



•

we will be successful in securing arrangements with our customers after patent expirations that will provide economic protection similar to patents.

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        Patent law relating to the scope of claims in the fields of healthcare and biosciences is still evolving, and our patent rights are subject to this uncertainty. European, United States and Asian patent authorities have not adopted a consistent policy regarding the breadth of claims allowed for health and bioscience patents. Our products might infringe the patent rights of others, whether existing now or in the future. Similarly, the products of others could infringe our patent rights. The defense and prosecution of patent claims are both costly and time consuming, even if the outcome is ultimately in our favor. An adverse outcome in infringement actions by Martek against third parties could reduce or eliminate any competitive advantage provided by the affected Martek patent rights. An adverse outcome in infringement actions by third parties against Martek could subject us to significant liabilities to third parties, require disputed rights to be licensed from third parties and/or require us to cease selling the affected products.

        In certain competitive geographic markets, we do not have patent protection and may be unable to obtain it. In other competitive markets, we may be unable to maintain (through patent expiration or otherwise) the patent protection for our nutritional oils currently afforded to us. A lack of patent protection would have a material adverse effect on our ability to gain a competitive advantage for our oils and may have a material adverse effect on our results of operations, especially on future sales of our nutritional oils. In particular, a lack of patent protection would permit our competitors to manufacture products that would be directly competitive with our nutritional oils using similar or identical processes, and it is possible that our current infant formula, supplement, or food and beverage customers, or those that may be under license in the future, may choose ingredients from our competitors if they choose to include the ingredients at all.

        It is our corporate policy to vigorously protect our substantial investment in the research and development of our products and to continue to enforce our patent and other intellectual property rights against third parties who engage in the unauthorized manufacture, sale, or use of our technology. We currently have several challenges to our European patents covering our DHA and ARA oils and an anonymous party has filed Requests for Reexamination with respect to two of Martek's U.S. blended oils patents and one U.S. ARA patent. In addition, Lonza has filed Requests for Reexamination with respect to nine of Martek's DHA patents (four of which have now expired). These challenges, as well as our lawsuit against others for infringement of our patents, are described in Item 3. "Legal Proceedings" of Part I of this Form 10-K. Total patent litigation expenditures were approximately $4.3 million, $1.6 million and $2.3 million in fiscal 2009, 2008 and 2007, respectively.

        We expect that, in the future, as our nutritional oils continue to be commercialized, opposition to our patents and other intellectual property by our competitors will continue and most likely increase. We may incur substantial costs in the future protecting and defending our patents and other intellectual property rights and cannot be sure that we will be able to successfully defend our patents or that our competitors will not be able to "design around" our intellectual property.

        We also rely on trade secrets and proprietary know-how, which we seek to protect in part by confidentiality agreements with our collaborators, employees and consultants. There can be no assurance that these agreements will not be breached, that we will have adequate remedies for any such breach or that our trade secrets will not otherwise become known or be independently developed by competitors.

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GOVERNMENT REGULATION AND PRODUCT TESTING

        Our products and our manufacturing and research activities are subject to varying degrees of regulation by state and federal regulatory authorities in the United States, including the FDA pursuant to the Federal Food, Drug and Cosmetic Act. The products developed by us are subject to regulation by the FDA as food and beverage ingredients, dietary supplements, animal feed, drugs and/or medical devices. The regulatory status of any product is largely determined by its intended use.

        Drugs and medical devices generally may not be marketed without first obtaining FDA authorization to do so. New infant formulas also are subject to premarket notification requirements. Although there are no premarket authorization requirements for whole foods per se, there are premarket approval requirements for food and beverage additives. Specifically exempt from the food additive definition and, therefore, the premarket approval requirements, are generally recognized as safe food, beverage and animal feed ingredients. FDA's Center for Food Safety and Applied Nutrition is responsible for the regulation of human food products. The Center for Veterinary Medicine ("CVM") is responsible for the regulation of animal food (feed) products. Dietary supplements for the most part are not subject to premarket authorization requirements, although there is a premarket notification requirement for certain new dietary ingredients that were not marketed as dietary supplements prior to October 1994. The FDA has established detailed GMP, labeling and other requirements for drugs, medical devices, infant formulas, foods and beverages and dietary supplements. The requirements for drugs, medical devices and infant formulas generally are much more stringent than the requirements for dietary supplements and foods and beverages.

        Our infant formula customers are responsible for obtaining the requisite regulatory clearances to market their products containing our oils. Sales of our products outside the United States are subject to foreign regulatory requirements that may vary widely from country to country.

        In May 2001, the FDA completed a favorable review of our generally recognized as safe ("GRAS") notification for the use of our DHASCO® and ARASCO® oil blend in specified ratios in infant formulas. Since the first product introduction in February 2002, supplemented infant formulas manufactured by six of our customers, Mead Johnson Nutritionals, Abbott Nutrition, PBM Products, Nestle, Hain Celestial and Nutricia North America, have been sold in the United States.

        The FDA regulates the use and marketing of dietary supplements under the provisions of the Dietary Supplement Health and Education Act of 1994 ("DSHEA"). We are currently selling several lines of DHA dietary supplements. In addition, we are researching and developing new applications for our DHA and ARA oils. We believe that our DHA and ARA are not new dietary ingredients and, as such, are not subject to premarket notification requirements when marketed for use as dietary supplements. There can be no assurance that the FDA would agree that a premarket notification is not required or that we will be able to comply with the requirements of DSHEA or any regulations that the FDA may promulgate thereunder.

        In June 2002, the Australia New Zealand Food Authority authorized the use of DHA-S oil for use as a novel food ingredient in Australia and New Zealand. In June 2003, the European Commission authorized the use of our DHA-S oil as a novel food ingredient in certain foods in the European Community. This novel food designation authorizes the use of our DHA-S as an ingredient in certain foods such as certain dairy products, including cheese and yogurt, spreads and dressings, breakfast cereals, food supplements and dietary foods for special medical purposes in the European Community. In July 2009, the Standing Committee of the European Commission and the 27 Member States approved the expanded use of our DHA-S algal oil in beverages, bakery products and nutrition bars. Official approval for the new uses for DHA-rich oil in food throughout the European Union was achieved and recognized via publication in the Official Journal of the European Union in October 2009. In February 2004, the FDA completed a favorable review of our GRAS notification for the use of DHA-S in food and beverage applications. In October 2006, Health Canada approved per serving levels

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of Martek's DHA-S of not less than eight mg and not more than 100 mg of DHA when used as a food ingredient. In June 2007, we received approval for the use of our DHA-S oil in food and beverages in Mexico. In August 2007, the Ministry of Health in China authorized the use of our life'sDHA™ as a novel food ingredient. This designation permits the use of life'sDHA™ in foods, beverages and supplements in China for persons older than three years. This initial approval by the Ministry of Health is part of the regulatory process applicable to Chinese novel foods. In December 2007, China issued a new Novel Food Regulation requiring that a new application be filed. We have therefore prepared a new application for submission in order to obtain approval under this new regulation. In March 2008, the Israeli Ministry of Health approved DHA-rich oil from Schizochytrium (DHA-S) patterned after the 2003 approval in Europe. In 2008, the Ministry of Health Labor and Welfare in Japan confirmed that DHA algal oil is also regarded as a traditional food and, as such, is acceptable for use in foods and beverages and dietary supplements.

        The regulatory status of an animal feed product is determined by CVM on a case-by-case basis. FDA cooperates with the Association of American Feed Control Officials ("AAFCO") and state authorities for the implementation of uniform policies for regulating the use of animal feed products. This includes the establishment of uniform feed ingredient definitions and proper labeling to assure the safe use of feeds. We believe that our animal feed ingredient is acceptable for use by classification under an existing AAFCO feed ingredient definition; however, there can be no assurance that the FDA would agree with this determination. Other products derived from microalgae and other organisms may be 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. Such classification would subject the products to premarket clearances and/or regulatory approvals. There can be no assurances that we, our customers or collaborators would be able to develop the extensive safety and efficacy data needed to support such FDA premarket authorizations or that the FDA ultimately would authorize the marketing of such products on a timely basis, if at all.

        For potential pharmaceutical uses of products derived from microalgae and other organisms, there can be no assurance that required clinical testing will be completed successfully within any specified time period, if at all, with respect to our products. Additionally, there is no assurance that we, our customers or collaborators will be able to develop the extensive data needed to establish the safety and efficacy of these products for approval for drug uses, or that such drug products will not be subject to regulation as biological products or as controlled substances, which would affect marketing and other requirements.

        Some of our products are in research or development phases. We cannot predict all of the regulatory requirements or issues that may apply to or arise in connection with our products. Changes in existing laws, regulations or policies and the adoption of new laws, regulations or policies could prevent us, our customers or collaborators from complying with such requirements.

        Due to the cost and time commitment associated with the FDA regulatory process, we will decide on a product-by-product basis whether to handle relevant clearance and other requirements independently or to assign such responsibilities to our customers or future collaborative partners. There can be no assurance that we, our customers or collaborators will be able to obtain such regulatory clearances, if required, on a timely basis or at all. Delays in receipt of, or failure to receive, such clearances, the loss of previously received approvals or clearances, or failure to comply with existing or future regulatory requirements would have a material adverse effect on our business, financial condition and results of operations.

        In connection with the manufacture of most of our products, we are required to adhere to applicable current "good manufacturing practice" ("GMP") regulations as required by the FDA. GMP regulations specify production and process controls, component and product testing standards, quality control and quality assurance requirements, and records and other documentation controls. The GMP

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requirements for foods and beverages, infant formulas, drugs and medical devices vary widely. As a manufacturer of DHA and ARA that are marketed as dietary supplements and used as ingredients in infant formulas sold in the United States and in foods and beverages, we are subject to GMP and various other requirements applicable to such products. There can be no assurance that we will be able to continue to manufacture our nutritional oils in accordance with relevant food and beverage, dietary supplement and infant formula requirements for commercial use. Ongoing compliance with GMP and other applicable regulatory requirements is monitored through periodic inspections by state and federal agencies, including the FDA and comparable agencies in other countries. A determination that we are in violation of such GMP and other regulations could lead to an interruption of our production output and the imposition of civil penalties, including fines, product recalls or product seizures, and, in the most egregious cases, criminal sanctions.

        As large-scale manufacturing facilities, our plants in Winchester, Kentucky and Kingstree, South Carolina are required to abide by applicable federal and state environmental and safety laws, including regulations established by the Environmental Protection Agency and the Occupational Safety and Health Administration and similar state agencies. In addition, our solvent extraction processes include the use of hexane, which is extremely flammable and subject to emission requirements. If we fail to abide by these laws we could receive fines, or if the violations were serious enough, our operations could be shut down or restricted until the problems are fixed. Such penalties could have a material adverse effect on our ability to manufacture our nutritional oils, and our financial results could be negatively impacted. While the costs of our compliance with environmental laws and regulations cannot be predicted with certainty, such costs are not expected to have a material adverse effect on our earnings or financial or competitive position.

        The Federal Trade Commission ("FTC") regulates certain aspects of the advertising and marketing of our products. Under the Federal Trade Commission Act, a company must be able to substantiate both the express and implied claims that are conveyed by an advertisement. It is not uncommon for the FTC to conduct an investigation of the claims that are made about products in new and emerging areas of science that involve a potentially vulnerable population such as infants, or that relate to conditions impacting significant portions of the population. An adverse action by the FTC could have a negative impact on our results of operations and financial condition.

EMPLOYEES

        As of October 31, 2009, we had 587 full-time employees, 42 of whom have Ph.D.s. Approximately 139 employees are engaged in research and development activities, 283 are engaged in production or production development related activities and 165 are in administrative, business development and sales and marketing positions. We consider relations with our employees to be good. None of our employees is covered by a collective bargaining agreement.

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EXECUTIVE OFFICERS OF THE REGISTRANT

        Our executive officers are as follows:

        Mr. Dubin became Chief Executive Officer of Martek in June 2006 after serving since September 2003 as President of Martek. Mr. Dubin joined Martek in 1992 and has served in various management positions, including CFO, Treasurer, Secretary, General Counsel and Senior Vice President of Business Development. In 2000, he moved to a part-time position of Senior Advisor—Business Development, a role he filled until his election to President of Martek in September 2003. He also spent time during 2000 through 2003 co-founding and co-managing a Maryland-based, angel-investing club that funds early-stage, high-potential businesses. He was also "Of Counsel" to the law firm Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. during part of 2001 and 2002. Prior to 1992, Mr. Dubin worked in the financing and management of early-stage businesses and, over a period of 12 years, served in various positions at Suburban Bank, now part of Bank of America, including Vice President and Treasurer of their venture capital subsidiary, Suburban Capital Corporation. Mr. Dubin received a B.S. in accounting from the University of Maryland and a Juris Doctor degree from the National Law Center at George Washington University. Mr. Dubin is a Certified Public Accountant and a member of the Maryland Bar. Mr. Dubin has been a director of Martek since July 2006. His term expires in 2009.

        Mr. Abramson joined Martek in 2003 as head of Corporate Development and was elected President in September 2006. Prior to joining Martek, he was the Executive Vice President and General Counsel for U.S. Foodservice from 1996 to 2003. In this position, Mr. Abramson oversaw the legal and regulatory affairs of U.S. Foodservice, a large foodservice distributor in the United States, and advised on business development opportunities for this company. U.S. Foodservice became a subsidiary of Royal Ahold in 2000. In addition, Mr. Abramson was also the Executive Vice President for Legal Affairs at Ahold, U.S.A. from 2000 to 2003. Mr. Abramson also served on the Board of Directors of U.S. Foodservice from 1994 to 2003. Prior to joining U.S. Foodservice, from 1983 until 1996, Mr. Abramson was a partner at Levan, Schimel, Belman & Abramson, P.A., now a part of Miles & Stockbridge P.C. Mr. Abramson graduated from George Washington University in 1975, where he obtained a Bachelor of Business Administration in accounting. He received his Juris Doctor degree, with honors, from the University of Maryland School of Law in 1978. Mr. Abramson is a member of the Maryland Bar.

        Mr. Buzy joined Martek in 1998 as Chief Financial Officer. Prior to joining Martek, Mr. Buzy spent 13 years with the accounting firm of Ernst & Young LLP, most recently as an audit partner in the Northern Virginia High Technology/Life Sciences Practice. Mr. Buzy is a Certified Public Accountant and a member of the American Institute of Certified Public Accountants. He received his B.S. in accounting from Salisbury University.

        Mr. Feitel joined Martek in 2004 as Associate General Counsel and was elected to the position of Senior Vice President and General Counsel in December 2006 and later to Executive Vice President and General Counsel in November 2008. From 2003 until joining Martek, he practiced law at

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Miles & Stockbridge P.C., where he had started his legal career in 1988. From 2000 to 2003, Mr. Feitel was the Vice President and General Counsel of BCE Emergis, an eCommerce service provider and a subsidiary of Bell Canada. Prior to BCE Emergis, Mr. Feitel worked for the Discovery Group, a Columbus, Ohio-based venture capital company, from 1997 through 2000. Mr. Feitel received his undergraduate degree from Duke University and his Juris Doctor from the Duke University School of Law in 1988.

        Mr. Nitze joined Martek in 2005 as Chief Operating Officer. Prior to joining Martek, Mr. Nitze served as Vice President of Operations at DRS Technologies from April 2004 to July 2005, with responsibility for the alignment and deployment of the company's manufacturing and supply chain resources. Before joining DRS Technologies, Mr. Nitze served as the Chief Operating Officer of Regulatory DataCorp, a New York City firm that provides risk management services to financial services institutions, from July 2002 to April 2004. Prior to joining Regulatory DataCorp, Mr. Nitze was the business leader of the Optoelectronics venture at Honeywell International from February 2000 to November 2001, where he had previously served as the head of global operations for the Amorphous Metals division. Mr. Nitze began his career at General Electric Co. in finance and subsequently held a variety of positions in engineering, marketing, supply chain and operations management. Mr. Nitze has over 20 years of operations and general management experience with small, medium and large companies. He holds two M.S. degrees in engineering from Stanford University and a B.A. degree from Harvard University.

        Mr. Easterling joined Martek in 2003 in connection with Martek's acquisition of FermPro Manufacturing, LP ("FermPro"). With the acquisition, he was named Vice President of Manufacturing of Martek, and in March 2004, he was elected to the position of Senior Vice President of Manufacturing. From 1994 to 2003, Mr. Easterling served as President and CEO of FermPro, a provider of contract fermentation services. From 1980 to 1994, Mr. Easterling served in various management capacities for Gist-Brocades. He received a B.S. in premedicine from Clemson University.

COMPANY

        Martek was incorporated in Delaware in 1985. Martek's principal executive offices are located at 6480 Dobbin Road, Columbia, Maryland 21045. Our telephone number is (410) 740-0081 and our website address is http://www.martek.com. We make our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to these reports available on our website free of charge as soon as practicable after we file with the SEC.

        Financial information prepared in accordance with U.S. generally accepted accounting principles, including information about revenues from customers, measures of profit and loss, total assets, financial information regarding geographic areas and export sales, can be found in our Consolidated Financial Statements included in Part II, Item 8. "Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.

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ITEM 1A.    RISK FACTORS.

        Investing in our securities involves a high degree of risk. Before making an investment decision, you should carefully consider the risk factors set forth herein, as well as other information we include in this report and the additional information in the other reports we file with the Securities and Exchange Commission (the "SEC" or the "Commission"). If any of the following risks actually occur, our business could be harmed. In such case, the trading price of our securities could decline and you could lose all or part of your investment.

Current economic and market conditions could adversely affect our revenue and profitability.

        The United States economy and the global economy are recovering from a severe recession. Due to factors such as uncertainties in consumer spending, a sustained regional and/or global economic downturn or slow recovery may continue to reduce the demand for our nutritional oils. If demand for our oils continues to decline, our revenue and profitability will be adversely affected. Furthermore, challenging economic conditions also may impair the ability of our customers to pay for products they have purchased and may impair the ability of our vendors to supply us with items critical to the operation of our business. Any of these negative occurrences could adversely impact our operating results, financial condition or business, in general.

A substantial portion of our nutritional oil products sales is made to five of our existing customers under agreements with no minimum purchase requirements. If demand by these customers for our nutritional oil products decreases, our revenues may materially decline.

        We rely on a substantial portion of our product sales to five of our existing customers. Approximately 77% of our product sales revenue during the year ended October 31, 2009 was generated by sales of DHA and ARA to five customers: Mead Johnson Nutritionals, Abbott Nutrition, Nestle, Pfizer (formerly Wyeth) and Danone (formerly Numico). We cannot guarantee that these customers will continue to demand our nutritional products at current or predictable levels. None of our license agreements requires our licensees to purchase any minimum amount of products from us now or in the future, and certain of our license agreements can be terminated within short periods and also allow our customers to manufacture our products themselves or purchase nutritional oils from other sources. We have limited visibility into our customers' future actual level of demand, notwithstanding our view of consumer demand. We have sole source supply agreements (in most cases through 2011) with customers comprising nearly 80% of our current infant formula revenues. If demand by any of our significant customers for our nutritional products decreases, either prior to or subsequent to the expiration of such supply agreements, we may experience a material decline in our revenues. Furthermore, if purchasing patterns by our significant customers continue to be uneven or inconsistent, we will likely experience fluctuations in our quarter-to-quarter revenues and cash flows. In addition, if these customers attempt to utilize their purchasing power in order to receive price reductions on our products, we may be unable to maintain prices of our oils at current levels, which could materially affect future revenues and product margins.

        Our major customers are part of either the pharmaceutical or food and beverage industries. Mergers and acquisitions are prevalent in both industries. If one of our major customers or divisions thereof are acquired, as there are no minimum purchase requirements in our license agreements with them, there is no guarantee that the acquirer will continue purchasing our oils at current levels or continue selling infant formula at all. An acquisition of one of our major customers could have a material effect on future revenues.

        Our major customers also employ differing strategies with respect to the timing of their inventory and raw material purchases. To the extent that these strategies change (i.e., further advancements to a "just-in-time" procurement process), our revenues in the quarter of such change could be materially

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affected by this modification in customer ordering patterns. In addition, our major customers use varying inclusion levels of DHA and ARA in their infant formulas. If significant changes in their market shares occur, or, in general, our customers reduce such inclusion levels, we could experience material changes in our infant formula revenues.

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.

        Our success is largely dependent on our ability to obtain and maintain patent protection for our products, maintain trade secret protection and operate without infringing the proprietary rights of others. Our policy is to aggressively protect our proprietary technology through patents, where appropriate, and in other cases, through trade secrets. Additionally, in certain cases, we rely on the licenses of patents and technology of third parties. We hold approximately 80 U.S. patents, covering various aspects of our technology, which will expire on various dates between 2009 and 2026. Our core infant formula-related patents expire between 2011 and 2014. We also license from DSM certain patents that provide additional protection for our nutritional oil products and expire between 2017 and 2024, and certain patent applications that could, if granted, provide added protection for our nutritional oil products. We have been granted U.S. patents covering certain processes for producing DHA-containing oil that may be used in foods and beverages which expire between 2010 and 2024. We have filed, and intend to file, applications for additional patents covering both our products and processes as appropriate. While we have sole source supply agreements (in most cases through 2011) with customers comprising nearly 80% of our current infant formula revenues, it is uncertain how much protection that our patents or those in-licensed from DSM expiring after 2011 will provide should these customers choose ingredients from our competitors. Specifically, as discussed more fully in Item 3. "Legal Proceedings" of Part I of this Form 10-K, our U.S. ARA patent expiring in 2014 is under reexamination challenge and will likely emerge from this process with narrower claims. It is probable that the broader product claims will not survive. Rather, the patent will likely contain narrower product claims and process claims that, among other things, would provide patent protection to a production process that we believe: i) results in higher quality oil and higher ARA potency and ii) is cost efficient compared to other processes for producing ARA. When combined with our in-licensed patents from our ARA production partner DSM, we believe that it will be technologically difficult and less cost efficient for competitors to design around these claims. Nonetheless, it is uncertain how much protection they will provide. Furthermore, even if our customers continue to use our oils, direct competition could force us to reduce the price of our products, which could materially affect future revenues and product margins.

        Currently, we have over 350 issued patents and over 500 pending patent applications worldwide. There can be no assurance that (i) any patent applications filed by, assigned to or licensed to us will be granted; (ii) we will develop additional products that are patentable; (iii) any patents issued to or licensed by us will provide us with any competitive advantages or adequate protection for inventions; (iv) any patents issued to or licensed by us will not be challenged, invalidated or circumvented by others; (v) issued patents, or patents that may be issued, will provide protection against competitive products or otherwise be commercially valuable; or (vi) we will be successful in securing arrangements with our customers after patent expirations that will provide economic protection similar to patents. Furthermore, patent law relating to the scope of claims in the fields of healthcare and biosciences is still evolving, and our patent rights are subject to this uncertainty. European, United States and Asian patent authorities have not adopted a consistent policy regarding the breadth of claims allowed for health and bioscience patents. Our products might infringe the patent rights of others, whether existing now or in the future. Similarly, the products of others could infringe our patent rights. The defense and prosecution of patent claims are both costly and time consuming, even if the outcome is ultimately in our favor. An adverse outcome in infringement actions by Martek against third parties could reduce or

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eliminate any competitive advantage provided by the affected Martek patent rights. An adverse outcome in infringement actions by third parties against Martek could subject us to significant liabilities to third parties, require disputed rights to be licensed from third parties and/or require us to cease selling the affected products.

        In certain competitive geographic markets, we do not have patent protection and may be unable to obtain it. In other competitive markets, we may be unable to maintain (through patent expiration or otherwise) the patent protection for our nutritional oils currently afforded to us. A lack of patent protection would have a material adverse effect on our ability to gain a competitive advantage for our oils and may have a material adverse effect on our results of operations, especially on future sales of our nutritional oils. In particular, a lack of patent protection would permit our competitors to manufacture products that would be directly competitive with our nutritional oils using similar or identical processes, and it is possible that our current infant formula, supplement, or food and beverage customers, or those that may be under license in the future, may choose ingredients from our competitors if they choose to include the ingredients at all.

        There are a number of intellectual property proceedings pending against Martek or that Martek has pending against third parties. See Item 3. "Legal Proceedings" of Part I of this Form 10-K for further information. If any of these challenges or any other challenges to our patents that we do not currently consider material or that may arise in the future are successful and we are unable to secure customer arrangements upon patent revocation or expiration that would ensure continuity of our customers' purchases from us or obtain comparable protection after patent expiration through other patents, we may experience decreases in the future sales of our nutritional oils or we may be forced to reduce the price of our products due to our competitors' ability to produce similar products, both of which could cause decreases in future revenues as well as product margins. Specifically, the revocation of our European DHA patent or ARA patent could result in a decrease in revenues under our license agreements. Furthermore, it is our accounting policy to capitalize legal and related costs incurred in connection with patent applications and the defense of our patents. As of October 31, 2009, the net book value of our patent assets totaled $16.7 million, which includes approximately $4.4 million of costs related to our patent defenses in the Nutrinova/ Lonza matters discussed above, which is being amortized over a weighted average remaining period of approximately five years. If, in the future, it is determined to be unlikely that our patents will be successfully defended in connection with the challenges described above or if it is concluded that certain of our patents will no longer provide an economic benefit to the Company, a write-off of the costs ascribed to the particular patent or patents would be required. The effect of such write-off could be material to our results of operations.

        We expect that in the future, as our nutritional oils continue to be commercialized, opposition to our patents and other intellectual property by our competitors will continue and most likely increase. We may incur substantial costs in the future protecting and defending our patents and other intellectual property rights and cannot be sure that we will be able to successfully defend our patents or that our competitors will not be able to "design around" our intellectual property. We also expect that in the future, third parties may allege that Martek infringes their intellectual property rights, which could subject us to significant liabilities to third parties, require disputed rights to be licensed from third parties and/or require us to cease selling the affected products.

We are aware of several products that are currently available, and products under development, that may present a serious competitive threat to our products. If we are unable to maintain a competitive differentiation from these products, our revenues may be adversely affected.

        Our continued success and growth depends upon achieving and maintaining a superior competitive position in the infant formula, supplement and food and beverage product markets. Potential competitors include companies such as BASF AG, DSM, Cargill Inc., Nippon Suisan, Suntory Limited, Archer Daniels Midland Company, Lonza Group LTD, Nagase & Co. Ltd., Ocean Nutrition ("ONC")

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and Monsanto. Many of these companies have substantially greater research and development capabilities, marketing, financial and managerial resources and experience in the industry. Some of our competitors are currently offering, at prices less than ours, competing sources of DHA and/or ARA for use in the food and beverage and dietary supplement markets and for use in infant formula. If our competitors' products gain widespread acceptance due to pricing or other advantages, our patents expire, or we lose our patents, the sales of our products may be materially adversely affected and our technologies rendered obsolete.

        We are aware that other sources of DHA and ARA are or may be available, any of which could represent a competitive threat that could seriously harm our product sales. Specifically:

•

Abbott Nutrition (then known as the Ross Products Division of Abbott Laboratories), a significant Martek customer, filed a generally recognized as safe notification on January 2, 2002 seeking Food and Drug Administration ("FDA") concurrence that its tuna oil source of DHA and its fungal source of ARA, as manufactured by Suntory Limited, are generally recognized as safe when used as ingredients in infant formula. In April 2006, the FDA notified Ross Products that it had no questions at that time regarding Ross' conclusion that DHA-rich oil from tuna and ARA-rich oil from Mortierella alpina are safe as sources of DHA and ARA in term and post-discharge preterm infant formulas. While Abbott Nutrition has not announced any introduction of such oils into infant formula in the U.S. and has agreed to purchase its total needs for DHA and ARA from us through at least 2011, and while we are not aware of any plans by our other customers to do so, the GRAS notification removes a significant regulatory hurdle to the introduction of competitive products in the U.S.



•

Suntory Limited, Nippon Suisan and Cargill Inc. (through a joint venture with a company in China) and other independent Chinese manufacturers are producing and distributing a fungal source of ARA. In addition, we are aware that there may be manufacturers in China and India attempting to produce an algal source of DHA, but we are uncertain of the overall status and commercial potential of these efforts. ONC has also indicated their desire to enter the microbial oil market.



•

Some infant formulas now on the market outside the United States, including those marketed by certain of Martek's customers, use DHA derived from other sources, such as fish oil or eggs.



•

In December 2005, Lonza Group LTD, a Swiss chemical and biotechnology group, acquired from Nutrinova Nutrition Specialties & Food Ingredients GmbH, a wholly-owned subsidiary of Celanese Corporation, Nutrinova's business having as its product a DHA-rich microalgal oil. Since the acquisition, Lonza has actively marketed its DHA oil to the food and beverage and dietary supplement markets around the world. In addition, Lonza may be actively marketing its DHA oil for infant formula applications in certain markets. Nutrinova and Lonza are defendants in patent infringement actions involving our DHA patents that we have brought in the United States, Germany and France. One of Nutrinova's customers is also a defendant in these actions in Germany. These lawsuits are further described below in the risk factor regarding patent protection and in Item 3. "Legal Proceedings" of Part I of this Form 10-K.



•

Monsanto/Solae are expecting to commercialize an inexpensive, sustainable, vegetarian omega-3 for foods and beverages in the next one to three years. This product is a soybean oil containing stearidonic acid ("SDA"). Monsanto/Solae are positioning SDA as a precursor to EPA, in addition to DHA, the other omega-3 found in fish oil. While a large amount of SDA soybean oil must be included in a food or beverage to achieve the intake level Monsanto has recommended for SDA, the oil should be inexpensive, claims to have stability and formulation advantages and may be able to make similar cardiovascular structure-function claims to fish oil. As another omega-3 on the market, SDA soy oil could be a threat to Martek's food and beverage business.

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•

GlaxoSmithKline is currently selling LOVAZA™, a prescription DHA/ EPA ethyl ester for treatment of hyperlipidemia. LOVAZA™ is a lipid-regulating agent which includes both EPA and DHA from fish oil. GlaxoSmithKline has filed an application with the FDA for an indication that will expand the use of LOVAZA™ and is actively evaluating new indications. Other pharmaceutical companies offering other applications using omega-3 fatty acids may be expected.



•

Other companies, several with greater financial resources than ours, are developing plant-based DHA, other plant-based oils or, in the case of DuPont, an EPA product derived from yeast, that may compete with us, and other companies may be developing chemically synthesized DHA.

        Several large companies, including BASF AG, DSM, ONC and a number of smaller companies, manufacture microencapsulated fish oil products. Although microencapsulation of the oil resolves many of the odor, stability and taste issues found with fish oil, a microencapsulated product currently is more costly than regular fish oil. Fish oil-based products (i) are used as a DHA source by some infant formula companies, (ii) currently dominate the adult DHA supplement market and (iii) are included in certain foods on the market in various parts of the world. Because fish oil is generally less costly than our DHA oil, even when microencapsulated, and continues to improve in quality and gain general market acceptance, fish oil presents a substantial competitive threat.

Experts differ in their opinions on the importance of DHA and/or ARA in infant formula and the levels of DHA and/or ARA required to achieve health benefits for babies. Some experts feel that they are not necessary ingredients for infant development. If clinical trials do not continue to yield positive results, certain favorable regulatory guidelines are not enacted or current favorable regulatory guidelines are amended, our future revenues in the infant formula market may be limited.

        Our continued success in the infant formula industry depends on sustained acceptance of our nutritional oils as necessary or beneficial ingredients in infant formulas. Notwithstanding existing clinical results that have demonstrated the beneficial effects of adding our nutritional oils to infant formula, some experts in the field of infant nutrition do not believe that our nutritional oils are necessary or that they provide any long-term beneficial effects. There have also been clinical studies where no beneficial effects have been found, possibly due to dose, duration or other factors. Experts generally recommend that mothers breastfeed rather than use infant formulas whether or not they contain our nutritional oils. Furthermore, breastfeeding advocacy groups challenge the benefits of infant formulas whether or not they contain our nutritional oils. Some experts believe that infant formulas without our oils or with greatly reduced levels are sufficient as infants can convert precursor fats into DHA and ARA as needed. In addition, some physicians are unimpressed by studies showing that infant formulas supplemented with our oils improve infants' cognitive ability at early ages, suggesting that these results may not carry over to improved results later in life. Due to these differences in opinion, if clinical studies do not continue to yield positive results, our future revenues in the infant formula market may be limited.

        We are aware that in Asia as well as other international markets, certain infant formula manufacturers incorporate very low levels or, at times, no ARA in their supplemented infant formulas. Furthermore, in most countries, there are significant disparities amongst infant formula manufacturers as to the levels of DHA and ARA in their respective products. A failure by one or more regulatory authorities to enact guidelines for minimum levels of DHA and/or ARA for supplementation of infant formula products or the issuance of regulatory guidelines that establish targeted levels of DHA and/or ARA in infant formula that are lower than levels currently being used could result in lower-potency formula products in specific affected countries, which could reduce the market opportunity for DHA and ARA ingredients. Any regulatory guidelines for infant formula that permit inclusion of DHA and ARA ingredients containing higher levels of EPA than covered in Martek's patents could also reduce the market opportunity for Martek's DHA and ARA ingredients in affected countries. While the Codex

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Alimentarius Infant Formula Standard and the European Union and Australia/ New Zealand regulations all allow the optional addition of DHA and ARA in infant formula, there are no existing regulations in any country requiring the addition of DHA and ARA.

Our opportunity in the U.S. infant formula market may be limited by the renewal rate of supplemented formulas into the Women, Infants and Children program or if the eligibility requirements for participating in the program are made more restrictive or if the amount of infant formula offered to participants is reduced.

        We estimate that of the total current annual U.S. market opportunity for sales of supplemented infant formula, approximately half represents Women, Infants and Children ("WIC")-funded sales. WIC is a federal grant program that is state-administered for the benefit of low-income nutritionally at-risk women, infants and children. Most WIC state agencies provide only one brand of infant formula to its participants, depending on which company has the rebate contract in a particular state. Currently, WIC programs in 50 states and the District of Columbia offer term and certain specialty infant formula products supplemented with our oils. If supplemented formulas are removed from WIC programs that previously adopted them, eligibility requirements for participating in WIC become more restrictive and/or participation decreases, or if any of our customers fail to renew, in a timely fashion, their contract awards from WIC agencies for the adoption of a supplemented infant formula, then our future revenues from supplemented infant formula sales in the U.S. would be limited. Further, in December 2007, the USDA, the federal agency which governs WIC, issued an interim final rule which included a reduction in the amount of infant formula to be offered through WIC. State WIC agencies had until October 2009 to implement this change and the USDA is accepting comments on this interim final rule through February 2010. If there is a permanent reduction in the amount of infant formula offered through WIC, then our future infant formula revenues could be materially adversely affected.

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.

        We are continuing to aggressively pursue further penetration of our DHA oils in the food and beverage, pregnancy and nursing, nutritional supplement and animal feed markets. To this end, we have signed license and supply agreements with several consumer products companies. Our success in penetrating this market, however, is dependent upon these customers introducing products that contain our nutritional oils into the marketplace and is further dependent upon the end consumer purchasing such products. Although some of our customers have launched products containing our oils, we cannot control whether our existing customers or potential new customers will continue to do so in the future, nor can we control whether our current or future customers will follow through with their planned launches of products containing our oils. Furthermore, as a broad scale product launch by our customers is likely dependent on actual or perceived consumer demand, which is inherently uncertain, we cannot control whether our customers will broadly distribute such DHA-enriched products or offer them beyond niche products or line extensions. To date, our non-infant formula customers have launched over 300 products containing our oils. Of the products launched, some have failed, but most remain on the market. Despite this fact, industry averages, particularly food and beverage, would continue to suggest that many of these products will not ultimately be successful in the marketplace. As such, the introduction of a product by our customers does not guarantee that the product will remain on the market. If our non-infant formula customers do not introduce products containing our nutritional oils on a broad scale into the marketplace and end consumers do not purchase such products, our sales to the food and beverage, pregnancy and nursing, nutritional supplement and animal feed markets would be limited.

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Our oils are very sensitive to oxidation and may not be very compatible with many liquid or dry foods that are currently on the market. If economical methods are not developed to successfully incorporate our oils into various food and beverage applications, we may never be able to gain large-scale entry into the food and beverage and nutritional supplements markets.

        Due to the sensitivity of our oils to oxidation, it is possible that our oils may change over time in such a way as to negatively affect the taste, smell and/or shelf stability of food and beverage applications. While we believe that the food and beverage market could be a large market for DHA supplementation with our DHA-S oil, the potential in this market would be limited if methods are not developed that allow incorporation of the oil into various foods and beverages with, among other things, acceptable flavor, odor and texture for the duration of the shelf life of the food and beverage products. Furthermore, while DHA-enriched food and beverage products with acceptable flavor and stability have been developed, risks exist for other finished food and beverage products, including cereals, shelf-stable beverages and certain types of nutritional bars for which DHA supplementation has not yet been successfully established. Even if we can successfully incorporate our oils into foods and beverages, manufacturers of these products will have to develop methods to demonstrate feasibility in their production and distribution processes, including the packaging, storage and handling of such products. To facilitate this, our customers may require us to meet certain enhanced specifications and standards, our compliance with which cannot be assured. The timing and extent of our sales into the food and beverage market, therefore, are dependent not only on market demand, but also on customer formulation, production and distribution issues over which we have little or no control.

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.

        Investigators at universities and at other research centers, such as NIH, have observed a relationship between low levels of DHA and a variety of health risks, including increased cardiovascular problems, Alzheimer's disease and dementia and various other neurological and visual disorders. We are currently trying to establish what contribution, if any, supplementation with our oils will make in addressing a number of these problems. Although clinical data is not required to market food and beverage ingredients or dietary supplements outside of the infant formula market, we believe that further clinical studies may be needed to validate the benefits of DHA supplementation in order to gain widespread entry into these markets. If clinical trials do not continue to yield positive results on the benefits of DHA or if these benefits are not considered significant by our targeted consumers, our future revenues in these markets may be limited.

If our oils are unable to be used in organic food and beverage products, the opportunity for sales of our oils into the food and beverage market will be limited to non-organic products.

        The Organic Foods Production Act of 1990 required the U.S. Department of Agriculture ("USDA") to develop national standards for organically produced agricultural products to assure consumers that agricultural products marketed as organic meet consistent, uniform standards. Accordingly, the USDA has put in place a set of national standards (the "National Organic Program" or "NOP") that food labeled "organic" must meet, whether it is grown in the United States or imported from other countries. Under the NOP regulations, only a USDA-accredited certifying agent may make the determination that a food product may be labeled as organic. Martek is not a USDA-accredited certifying agent.

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        Some of our customers have obtained organic certification from USDA-accredited certifying agents and have received authorization to use the USDA's organic seal on certain products that contain our oils. In some instances, such products have been further reviewed and the authorization to use Martek's oils has been explicitly ratified by the USDA. Certain advocacy groups, however, have challenged these authorizations and ratifications. In addition, recent media attention directed to NOP regulations has increased the level of scrutiny being placed on these regulations. Because the NOP regulations are subject to change and interpretation, there can be no guarantee that our oils will be acceptable for use in all organic products. Organic food sales accounted for approximately 3.5% of the total U.S. food sales in 2008; however, we believe that interest from food manufacturers in producing and selling organic products is expanding. If our oils are ineligible for inclusion in products that bear the USDA organic seal, our sales opportunity in the food and beverage market may be adversely impacted.

Because food and beverage pricing is very competitive, the premium that our oils adds to the cost of a food or beverage may never allow it to be priced at levels that will allow acceptance by consumers.

        Food and beverage pricing is very competitive and the market is very sensitive to product price changes. Moreover, these consumer sensitivities are further heightened during periods of economic uncertainty and downturn. Because the inclusion of our oils may add to the retail cost of these products, there is the risk that our potential customers in this market may not be able to sell supplemented products at prices that will allow them to gain market acceptance while, at the same time, remaining profitable. This may lead to our customers delaying or suspending product launches, or, at a minimum, may lead to price pressure on us. If our food and beverage customers delay product launches or we have to reduce our prices, our sales and/or profitability relative to the food and beverage market may be adversely impacted.

If we are unable to gain or maintain 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.

        To date, we have received limited approval in several countries for the incorporation of our DHA-S oil into foods and beverages. Our DHA-S oil has received regulatory approval or is accepted for inclusion in foods and beverages, with certain country-specific limitations, in Argentina, Australia, Canada, Chile, China, the European Community, Israel, Japan, Korea, Malaysia, Mexico, New Zealand, the Philippines, Singapore, South Africa, Taiwan and the United States. With respect to approvals in Europe and Israel, the use of our DHA-S is authorized as an ingredient in certain foods such as certain dairy products, including cheese and yogurt, spreads and dressings, breakfast cereals, food supplements and dietary foods for special medical purposes. In July 2009 the Standing Committee of the European Commission and the 27 Member States approved the expanded use of our DHA-S algal oil in beverages, bakery products and nutrition bars. In parts of the world not mentioned above, laws and regulations with respect to the addition of our oils into foods and beverages are diverse and our ability to gain or maintain the necessary regulatory approvals is unclear. If we are unable to gain or maintain broad 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 it is determined that large amounts of eicosapentaenoic acid ("EPA") must accompany DHA in order to achieve optimal health benefits, we may never be able to gain large-scale entry into the food and beverage and dietary supplements markets.

        The rationale for supplementing foods and beverages with DHA is to, in part, improve overall cardiovascular system and/or central nervous system development and health. In September 2004, the FDA authorized a qualified health claim that may be utilized for food and beverage products containing both DHA and EPA relating to the reduction of risk of coronary heart disease. No minimum amounts for either DHA or EPA were established as prerequisites for the claim. Our DHA-S

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oil includes limited amounts of EPA and therefore products containing the DHA-S oil are eligible for use of the qualified health claim. Studies have been completed in the past to investigate the independent effects of DHA and EPA on health and additional studies may be ongoing or conducted in the future. If consensus of results from these studies establishes that relatively large amounts of EPA are required to be supplemented with DHA in order to achieve the optimal cardiovascular benefits, then our penetration of the food and beverage and dietary supplements markets may be limited.

If the FDA finalizes its proposed rule to prohibit nutrient content claims for DHA and EPA, our penetration of the food and beverage and dietary supplements markets may be limited.

        In November 2007, the FDA issued a proposed rule that would prohibit the nutrient content claims for DHA and EPA that had been authorized in three previously submitted Food and Drug Administration Modernization Act notifications. The FDA is proposing to prohibit the DHA and EPA nutrient content claims because the agency does not believe they are based on an authoritative statement. The FDA specifically acknowledged that it did not conduct an independent review of the scientific evidence when evaluating these nutrient content claims. In addition to other stakeholders, we have submitted comments in opposition to this proposed rule. It is unclear when the FDA will issue a final rule. In the event the proposed rule becomes final, the potential health benefits of consuming DHA and EPA still may be communicated through the use of a qualified health claim and/or structure/function claims that are made consistent with applicable FDA requirements and/or quantitative claims. Nonetheless, our penetration of the food and beverage and dietary supplements markets may be limited if this proposed rule is implemented.

If the FDA narrowly interprets certain sections of the Food and Drug Administration Amendments Act of 2007, such an interpretation could have a material adverse effect on our business and financial condition.

        In July 2008, the FDA issued a notice and request for comments on section 912 of the Food and Drug Administration Amendments Act of 2007, titled "Prohibition Against Food to Which Drugs or Biological Products Have Been Added." This section of the Act prohibits the use in food of certain authorized drugs and biological substances, including certain such substances that have been the subject of substantial clinical investigations that have been made public. The prohibition applies unless companies first marketed the substance in food prior to the FDA authorization and before the substantial clinical investigations had been instituted. We have submitted comments to the FDA in which we assert that the implementation of section 912 should be based on the intended purpose of the clinical investigation rather than on the mere existence of such an investigation. A more restrictive interpretation of the implementation of section 912 could not only discourage companies from sponsoring clinical research for new food ingredients, but could also bar the continued marketing of some food ingredients and dietary supplements already on the market. Such an interpretation by the FDA could have a material adverse effect on our results of operations and financial condition.

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.

        In December 2006, the European Parliament and Council issued regulation EC No 1924/2006 on "nutrition and health claims made on foods". Implementation of this regulation is currently scheduled for January 2010, although the review of claim applications under the regulation is currently underway. Until the implementation date, which now appears will be postponed, claims that have been in use in Member States prior to January 2006 may continue to be used. After the implementation date, only claims listed in the regulation and those that have received European Union ("EU") authorization shall be permitted on foods and dietary supplements within the EU. Our failure, and that of our customers, to secure authorized claims for our DHA and ARA could adversely impact future market penetration of products containing our DHA and ARA in the EU. Martek's efforts to secure such claims under the

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current regulation have so far been unsuccessful. In addition, market penetration could be limited for a period of 5 years if claim approvals are given proprietary status for a particular customer's or competitor's product.

We have a single third-party supplier of our ARA with whom we have a contractual relationship. If this supplier of our ARA is unable to supply us with our required amounts of ARA, our results of operations may be adversely affected.

        In July 2009, we entered into the First Amended and Restated ARA Alliance, Purchase, and Production Agreement (the "Restated Agreement") with DSM. The Restated Agreement, which extends the original supply term through December 31, 2023, amended, consolidated and restated all existing agreements between the two parties governing the cross-licensing, purchase, supply and production of ARA, one of the Company's nutritional oils that it sells to its infant formula customers. Because DSM is a third-party manufacturer, we have only limited control over the timing and level of its production volumes. If DSM fails to supply us with required amounts of ARA under our agreement, we would not be able to meet our customers' demands unless we were able to utilize alternative sources of supply. In this regard, we would have to either manufacture the ARA at one or both of our plants, which may be more costly and would also reduce our DHA oil production capacity, or enter into other third-party manufacturer supply agreements, none of which may be achievable in a timely manner. An inability of DSM to supply us with our required amounts of ARA may have a material adverse effect on our results of operations.

We hold inventory and are committed to significant future inventory purchases. If our inventory on-hand or committed amounts cannot be sold, our results of operations and/or financial position may be adversely affected.

        As of October 31, 2009, we had total inventory on-hand of $116.2 million. Such inventory equates to approximately seven months of future sales. In addition, the Restated Agreement with DSM establishes minimum ARA purchase quantities for calendar years 2009 through 2011. As of October 31, 2009, the value of the remaining calendar year 2009 and full calendar years 2010 and 2011 minimum purchase requirements are approximately $17.2 million, $93.9 million and $87.1 million, respectively. Furthermore, our ARA pricing from DSM from 2012 through 2014 is to an extent volume dependent. If our customers' demand for our ARA and DHA declines, we may have excess inventory on-hand; we may be forced to purchase excessive amounts of ARA in periods through 2011; or we could experience an increase to ARA unit costs after 2011. All such occurrences, through inventory write-downs or other, may have a material adverse effect on our results of operations and/or financial position.

Market fluctuations in the availability and cost of raw materials and energy are beyond our control and may adversely impact our business.

        Raw material and energy costs are a significant operating expense of our production facilities and we are dependent on outside suppliers for nearly all of our key raw material and energy needs. The prices and availability of raw materials and energy can be volatile and are susceptible to rapid and substantial changes due to factors beyond our control such as changing economic conditions, weather conditions and supply and demand considerations. A substantial decrease in the availability of raw materials and/or energy from our suppliers, the loss of a key supplier or a substantial increase in the cost of our raw materials and/or energy could adversely impact our results of operations.

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If customer demand for our nutritional oils requires us or our major suppliers to increase production beyond current levels, we may experience certain risks associated with the ramp-up of commercial manufacturing that could have a material adverse effect on our business, financial condition, and/or results of operations.

        When combining our current DHA production capabilities in Kingstree and Winchester with DSM's current ARA production capabilities, we currently have production capacity for all DHA and ARA products in excess of $500 million in annualized sales, collectively, to the infant formula market and pregnancy and nursing, food and beverage, dietary supplement and animal feed markets. Our and DSM's ability to maintain commercial production at these higher levels has not been successfully tested.

        If we or our major suppliers increase our production, we each may encounter many risks associated with our commercial manufacturing such as:

•

we may experience problems processing, handling and shipping the higher quantities of oil produced from suppliers' or our expanded facilities;



•

the costs of expanding, operating and maintaining our production facilities may exceed our expectations;



•

product defects may result;



•

lower than anticipated fermentation success rates may result;



•

lower downstream processing yields may result;



•

environmental and safety problems may result from our production process; and



•

regulatory issues relating to the scale-up and operations regarding our production processes may arise.

        If we were to experience any one or more of these problems, there could be a material adverse effect on our business, financial condition, and/or results of operations.

We have significantly increased our manufacturing capacity and have incurred substantial costs in doing so. If we are unable to increase our revenues from our nutritional oils produced at these facilities, we may continue to experience excess production capacity and we may be unable to recover these plant expansion costs, which could result in a write-down of certain production assets.

        In connection with our efforts to alleviate supply constraints with our infant formula customers and to prepare for other applications of our products, we expanded our internal production capacity and incurred significant expansion costs in doing so. As of October 31, 2009, the Company had $34.4 million of production assets that are currently idle. Our ability to recover the costs of these and certain other assets may depend on increased volumes and revenue from the products manufactured at our facilities. There are no assurances that we will be able to achieve this goal. If it is estimated that we will not be able to ultimately recover the carrying amounts of the production assets, we would be required to record an asset impairment write-down. The effect of such write-down could be material. In addition, when experiencing excess capacity, we may be unable to produce the required quantities of oil cost-effectively, which could have a material adverse effect on our product margins and overall profitability.

Our business would be harmed if we fail to comply with applicable good manufacturing practices as required by the FDA.

        In connection with the manufacture of most of our products, we are required to adhere to applicable current "good manufacturing practice" ("GMP") regulations as required by the FDA and our contractual obligations. GMP regulations specify production and process controls, component and product testing standards, quality control and quality assurance requirements, and records and other

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documentation controls. As a manufacturer of DHA and ARA that are marketed as dietary supplements and used as ingredients in infant formulas and foods and beverages sold in the United States, we are subject to GMP and various other requirements applicable to such products. There can be no assurance that we will be able to continue to manufacture our nutritional oils in accordance with relevant food and beverage, dietary supplement and infant formula requirements for commercial use. Ongoing compliance with GMP and other applicable regulatory requirements is monitored through periodic inspections by state and federal agencies, including the FDA and comparable agencies in other countries. A determination that we are in violation of such GMP and other regulations could lead to an interruption of our production output and the imposition of civil penalties, including fines, contractual damages, product recalls or product seizures, and, in the most egregious cases, criminal sanctions.

Our manufacturing process involves the handling of hazardous materials and emission of regulated pollutants. If we fail to properly handle these hazardous materials and/or emissions, substantial costs and harm to our business could result.

        In connection with our research and development and manufacturing activities, we utilize some hazardous materials and emit regulated pollutants. We are subject to federal, state and local laws and regulations governing the use, storage, handling, discharge, management and disposal of hazardous materials and the emission of regulated pollutants. The cost of compliance with these laws and regulations could be significant, and our ability to comply with certain emission requirements is somewhat dependent upon raw materials produced by others, over whom we have little or no control. Moreover, we could be subject to loss of our permits, government fines or penalties and/or other adverse governmental or private party action if our hazardous materials or waste products are used, stored, handled, emitted or otherwise managed in violation of law or any permit. In addition, we could be subject to liability if hazardous materials or waste are released into the environment. A substantial fine, penalty or judgment, the payment of significant environmental remediation costs or natural resource damages or property or personal injury damages, or the loss of a permit or other authorization to operate or engage in our ordinary course of business could result in material, unanticipated expenses and the possible inability to satisfy customer demand for our nutritional oils.

Our corporate compliance program cannot guarantee that we are in compliance with all potentially applicable federal and state regulations.

        Our business is subject to extensive federal and state regulation. Current products and products in development cannot be sold if we or our customers do not obtain or maintain regulatory approvals. While we have developed and instituted a corporate compliance program, we cannot assure you that we or our employees are or will be in compliance with all potentially applicable federal and state regulations. If we fail to comply with any of these regulations, a range of actions could result, materially affecting our business and financial condition, including, but not limited to, the failure to approve a product candidate, restrictions on our products or manufacturing processes, including withdrawal of our products from the market, significant fines, or other sanctions.

Our business exposes us to liabilities related to allegedly unsubstantiated product efficacy claims.

        The Federal Trade Commission regulates certain aspects of the advertising and marketing of our products and the products of our customers that incorporate our oils. Under the Federal Trade Commission Act, a company must be able to substantiate both the express and implied claims that are conveyed by an advertisement. The food and supplements industries are under increasing scrutiny by regulators, attorneys general, consumer groups, the class action bar, and others for claims appearing on product labels, websites, advertisements, and other product promotions. These actions are based on consumer protection laws and typically allege that a company lacks data that can substantiate the claims made in advertising and marketing efforts. Actions against certain food, beverage and

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supplement companies are occurring, and product claims being made by certain food, beverage and supplement companies, some of which may relate to the benefits attributable to our ingredients, are being examined more closely. In the future, we may be subject to regulatory actions and/or litigation relating to these claims, which could adversely affect our business.

Our business exposes us to potential product liability claims and recalls, which could adversely impact our financial condition and performance.

        Our development, manufacture and marketing of products involve an inherent risk of exposure to product liability claims, product recalls, product seizures and related adverse publicity. In addition, as only a small amount of our oils resides in our customers' end product, a recall of our oils could impact a much larger recall of our customers' end products. With respect to infant formula, customer recall could result from such things as contamination, spoilage, product misbranding or product tampering, whether real or perceived. Although we currently maintain product liability and recall insurance for our products in the amounts we believe to be commercially reasonable, we cannot be certain that the coverage limits of our insurance policies or those of our strategic partners will be adequate. Insurance coverage for such risks is expensive and difficult to obtain, and we may be unable to obtain coverage in the future on acceptable terms, if at all. If we are unable to obtain sufficient insurance at an acceptable cost, a product liability claim or recall could adversely impact our financial condition. Furthermore, if a product liability claim is made against us or if there is a product recall, whether fully covered by insurance or not, our future sales could be adversely impacted due to, among other things, negative publicity and the resulting inability to effectively market our products.

Concerns with the safety and quality of our nutritional oils could cause customers to avoid our products.

        Recent adverse publicity about the safety of certain foods due to the actual or potential existence of certain compounds therein has heightened the sensitivities of many consumers. These safety and quality issues, whether real or perceived, may discourage customers from buying products containing or perceived to contain the compounds which give rise to such concerns. We could be adversely affected if our customers or the ultimate consumers of our products lose confidence in the safety and quality of our nutritional oils. Any negative change in customer perceptions about the safety and quality of our products could adversely affect our business and financial condition.

We may need additional capital in the future to continue our research and development efforts, to conduct product testing, including preclinical and clinical trials, and to market our products. We may also need additional capital to expand our production capacity if market demand for our products continues to grow.

        As of October 31, 2009, we had approximately $141.1 million in cash and cash equivalents as well as $135 million of our revolving credit facility available to meet future capital requirements. We may require additional capital to fund, among other things, our research and development, product testing, and marketing activities. Our ability to meet future demand may require even further expansion of our production capability for our nutritional oils, which would also require additional capital. The timing and extent of our additional cash needs will primarily depend on: (a) the timing and extent of future launches of infant formula products containing our oils by our customers; (b) the timing and extent of introductions of DHA into foods and beverages and/or dietary supplements for children and adults; and (c) our ability to generate profits from the sales of our nutritional products.

        To continue to fund our growth, we may pursue various sources of funding, which may include debt financing, equity issuances, asset-based borrowing, lease financing, and collaborative arrangements with partners. In September 2005, we amended and expanded our secured revolving credit facility to $135 million and extended the term until September 2010. This debt financing arrangement requires us to comply with financial covenants, which we may not be able to meet if demand for our products was to significantly decline, if there was a significant change in our financial position or if our cash needs are greater than we currently anticipate. Additionally, funding from other sources may not be available,

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if needed, due to financial covenant compliance or credit facility expiration, or may not be available on terms that would be commercially acceptable or permit us to continue the planned commercialization of our products or expansion of our production capacity. Furthermore, future equity issuances may be dilutive to our existing shareholders. If we obtain funds through collaborative or strategic partners, these partners may require us to give them technology or product rights, including patent rights, that could ultimately diminish our value. If we cannot secure adequate funding, we may need to scale back our research, development, manufacturing, and commercialization programs, which may have a material adverse effect on our future business.

The market price of our common stock may experience a high level of volatility due to factors such as the volatility in the market for biotechnology stocks generally, and the short-term effect of a number of possible events.

        We are a public biosciences company. As frequently occurs among these companies, the market price for our common stock may experience a high level of volatility. During the fifty-two week period ending October 31, 2009, our common stock traded between $31.60 and $15.36 per share. During the fifty-two week period ending October 31, 2008, our common stock traded between $39.60 and $22.47 per share. The following are examples of items that may significantly impact the market price for our common stock:

•

announcements of technical innovations, new commercial products and product launches by us or our competitors;



•

announcements of use of or intention to use competitors' DHA and/or ARA products by our customers;



•

arrangements or strategic partnerships by us or our competitors;



•

announcements of license agreements, acquisitions or strategic alliances by us or our competitors;



•

announcements of sales by us or our competitors;



•

announcements of results of clinical trials by us, our competitors or others;



•

patent or other intellectual property achievements or adverse developments;



•

quarterly fluctuations in our revenues and results of operations;



•

failure to enter into favorable third-party manufacturing agreements;



•

regulatory decisions (approvals or disapprovals) or changes concerning our products and our competitors' products;



•

events related to threatened, new or existing litigation, or the results thereof;



•

changes in our estimates of financial performance or changes in recommendations by securities analysts; and



•

general market conditions for bioscience companies.

        Because we may experience a high level of volatility in our common stock, you should not invest in our stock unless you are prepared to absorb a significant loss of your capital. At any given time, you may not be able to sell your shares at a price that you think is acceptable.

        The market liquidity for our stock is relatively low. As of October 31, 2009, we had 33,269,686 shares of common stock outstanding. The average daily trading volume in our common stock during the fifty-two week period ending October 31, 2009 was approximately 400,000 shares. Although a more active trading market may develop in the future, the limited market liquidity for our stock may affect your ability to sell at a price that is satisfactory to you.

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        As a single reporting unit, we evaluate the realizability of our goodwill using the market approach. Under this approach, market value is determined utilizing our market capitalization plus a control premium. A control premium is representative of premiums paid in the marketplace to acquire a controlling interest in a company. As such, the realizability of our goodwill is somewhat dependent on the market value of Martek's stock. Should the market value of our stock decline significantly, we may need to record a goodwill impairment write-down and the effect of such write-down could be material.

If significant shares eligible for future sales are sold, the result may depress our stock price by increasing the supply of our shares in the market at a time when demand may be limited.

        As of October 31, 2009, we had 33,269,686 shares of common stock and approximately 600,000 unvested restricted stock units outstanding, as well as stock options outstanding to purchase an aggregate of approximately 2.4 million shares of common stock. Of the stock options, substantially all were exercisable at December 17, 2009, and approximately 300,000 had exercise prices that were below the market price on this date. The restricted stock units will vest and common stock will issue at various dates through 2014. To the extent that these options for our common stock are exercised, restricted stock units vest or we issue additional shares to raise capital, the increase in the number of our outstanding shares of common stock may adversely affect the price for our common stock. This could hurt our ability to raise capital through the future sale of equity securities. If we require additional outside sources of capital to finance, among other things, our research and development, product testing and the manufacturing and marketing of our products, we may need to raise additional capital through the sale of equity securities.

If we pursue and ultimately consummate a business combination, we may not realize all of the anticipated benefits of the merger.

        We have an ongoing process of evaluating potential merger and acquisition candidates that will support our future growth and expand our product offerings. To be successful after any consummated merger, we would need to combine and integrate the separate organizations and operations of the two companies. The combination of two independent companies is a complex, costly, and time-consuming process. As a result, we would need to devote significant management attention and resources to integrating the diverse business practices and operations of the two companies. We may encounter difficulties that could harm the combined businesses, adversely affect our financial condition, and cause our stock price to decline. Furthermore, even if the operations of the two organizations are integrated successfully, the combined company may not realize the expected benefits of the transaction, including the synergies, cost savings, or sales or growth opportunities.

Changes in foreign currency exchange rates or interest rates could reduce profitability.

        In July 2009, we entered into the Restated Agreement with DSM. As part of the agreement, it was established that 25% of the ARA we buy from DSM will be denominated in Euros. As such, consistent with our payment arrangements with DSM prior to the execution of the Restated Agreement, we are exposed to risks related to changes in exchange rates between the U.S. dollar and the Euro. Fluctuations in the Euro-U.S. dollar exchange rate can adversely impact our cost of ARA oil and our gross margins. To reduce the risk of unpredictable changes in these costs, we may, from time to time, enter into forward foreign exchange contracts. However, due to the variability of timing and amount of payments under these contracts, the forward foreign exchange contracts may not mitigate the potential adverse impact on our financial results and, in fact, may themselves cause financial harm. Furthermore, these contracts have inherent levels of counterparty risk over which we have no control. While we had no foreign currency forward contracts outstanding at October 31, 2009, we expect to enter into new forward contracts in the future. We estimate that a 5% change in the Euro-U.S. dollar exchange rate would impact gross margins of our infant formula products by less than 0.5%.

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ITEM 1B.    UNRESOLVED STAFF COMMENTS.

        None.

ITEM 2.    PROPERTIES.

        We lease an aggregate of approximately 79,000 square feet of laboratory, technical and administrative space in Columbia, Maryland. The lease for approximately 13,000 square feet expires in January 2010 and the remainder expires in January 2011. This facility acts as Martek's corporate headquarters.

        We also lease an aggregate of approximately 19,000 square feet of laboratory, technical and administrative space in Boulder, Colorado. The lease expires in May 2011.

        We own a fermentation and oil processing facility in Winchester, Kentucky where we can produce our nutritional oils. The facility is located on 30 acres with buildings occupying approximately 114,000 square feet holding multiple fermentation vessels totaling 1.2 million liters of capacity.

        We also own a fermentation and oil processing facility in Kingstree, South Carolina where we produce our nutritional oils and provide contract manufacturing services. The facility is located on more than 500 acres with buildings occupying approximately 419,000 square feet and holding multiple fermentation vessels totaling 2.7 million liters of capacity. The large majority of the fermentation capacity is intended for the production of DHA and ARA.

ITEM 3.    LEGAL PROCEEDINGS.

        Aventis S.A. and Nagase & Co. Ltd. are challenging our European patent covering our DHA-containing oils, which expires in 2011. At a hearing in October 2000, the Opposition Division of the European Patent Office ("EPO") revoked our patent on the grounds that it was not novel. We immediately appealed this ruling, and in July 2002 we received a positive ruling from an Appeal Board of the EPO, setting aside the prior decision to revoke this patent. The patent was returned to the Opposition Division for a determination as to whether it has met the legal requirement of "inventive step". A hearing in August 2005 resulted in a ruling by the Opposition Division that this requirement had been met and the validity of the patent was upheld. Aventis appealed the decision to the Appeal Board of the EPO. Martek filed its answer to Aventis' grounds for appeal in July 2006. The appeal hearing was scheduled for March 2009. Martek submitted new evidence that the appeal was inadmissible because Aventis was not the proper party. Because the Appeal Board found that there are questions relating to the admissibility of Aventis' appeal, it postponed the hearing and directed the parties to submit additional briefs on this issue. Aventis submitted its brief in May 2009 and Martek submitted its brief in August 2009. Aventis has filed a further brief, and Martek intends to respond. The filing and consideration of these briefs will likely delay the appeal hearing for about one to two years from the original hearing date. Martek's patent will remain in full force and effect during the pendency of these proceedings. Claim 1 of this patent is the basis of the patent infringement suit against Nutrinova and Lonza in Germany and against Lonza in France, discussed below. In the event Martek were to lose this appeal, this DHA patent would be revoked. The revocation of this patent would result in the dismissal of the patent infringement suit against Nutrinova and Lonza in Germany and against Lonza in France, discussed below, and patent protection for Martek's DHA-containing oils for use in infant formula would be compromised in Europe. Currently, annual sales of Martek's DHA for use in infant formula in Europe to companies other than those with whom Martek has or expects to have an exclusive supply agreement are less than $1 million. Such exclusive agreements generally run through 2011. An adverse decision would not impact Martek's ARA patent position in Europe. Moreover, the outcome of this appeal will not affect the patent infringement lawsuit against Lonza in the U.S., as the U.S. lawsuit is based on a different family of patents.

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        In April 2007, the EPO granted another patent to Martek for ARA oil made from Martek's microbial source for use in infant formula. This divisional ARA patent strengthens Martek's intellectual property position by providing commercially significant protection through the expiration date of the original patent in January 2012. Suntory, N.V. Nutricia and Cargill filed oppositions against this divisional ARA patent. N.V. Nutricia has withdrawn from the opposition. At a hearing held in June 2009 before the Opposition Division of the EPO in The Hague, Netherlands, the Opposition Division upheld the patent with narrower claims. The claims were narrowed by adding a specified ratio of ARA to eicosapentaenoic acid, or EPA, in infant formula applications. The narrower claims cover the use of Martek's blended microbial oil products in infant formula, but do not cover microbial ARA when blended with certain fish oils in infant formula. Martek appealed the decision to the Board of Appeals of the EPO in December 2009. During the pendency of the appeal, which will likely take between one and two years from the date the appeal was filed, the original claims of the patent will remain in full force and effect. Martek does not believe this decision will have a material adverse impact on its infant formula revenues.

        Prior to our purchase of OmegaTech in fiscal 2002, Aventis Research and Technologies GmbH & Co. KG, and Nagase Limited challenged OmegaTech's European patent covering its DHA-containing oils. At a hearing in December 2000, the Opposition Division of the EPO upheld some of the claims and revoked other claims. OmegaTech immediately appealed this ruling, as did Aventis. At an appeal hearing in May 2005, we received a favorable decision from the Appeal Board of the EPO, which overturned the decision of the Opposition Division and returned the case to the Opposition Division for review on the merits of the patent claims. In a November 2007 hearing, the Opposition Division upheld claims that are narrower than the claims originally granted but broader than the claims that were previously upheld in the December 2000 Opposition Division hearing. Martek and Aventis have appealed. The patent, which expires in late 2010, will remain in full force and effect during the appeal process. This appeal suffers from the same admissibility problems that Aventis has with the appeal of the DHA patent discussed above.

        In October 2007, the EPO granted a patent to Martek for fermentation processes for producing microbial lipids (e.g., DHA oil) under low dissolved oxygen conditions. Lonza AG filed an opposition against this process patent in July 2008, and Martek filed a written response in April 2009. A hearing before the Opposition Division of the EPO in Munich, Germany is scheduled for April 2010.

        In September 2003, we filed a patent infringement lawsuit in the U.S. District Court in Delaware against Nutrinova Inc., Nutrinova Nutrition Specialties & Food Ingredients GmbH, Celanese Ventures GmbH, and Celanese AG. Celanese Ventures GmbH and Celanese AG were dropped from the lawsuit. Lonza Ltd. was added to the lawsuit. In October 2006, after an almost two week trial in Wilmington, Delaware, the jury returned a favorable verdict to Martek, deciding that all three of the asserted Martek DHA patents were valid and infringed, and that one was willfully infringed. In October 2007, the judge upheld the October 2006 jury verdict that the defendants infringed all of the asserted claims of U.S. Patent Nos. 5,340,594 and 6,410,281 and that these patents were not invalid. The judge has granted a permanent injunction against the defendants with respect to those two patents. The judge also upheld the jury verdict that the defendants had acted willfully in their infringement of U.S. Patent No. 6,410,281. Regarding the third patent involved in the case, U.S. Patent No. 6,451,567, the judge reversed the jury verdict and found that the asserted claims of this patent were invalid. Martek's request to the judge to reconsider his ruling on the third patent was denied. Martek and the defendants appealed aspects of the judge's final decision and a hearing was held before the U.S. Court of Appeals for the Federal Circuit in April 2009. In September 2009, the Court of Appeals ruled in Martek's favor on all of the patents that were the subject of the appeal, which included U.S. Patent Nos. 5,340,594, 6,410,281, 6,451,567 noted above and 5,698,244, which was included in Martek's appeal as a result of the trial court's decision at a pre-trial hearing on the meaning and scope of the patent claims in dispute. With respect to U.S. Patent No. 5,698,244, the Court of Appeals reversed the trial court's interpretation of certain claim language and remanded this patent to the trial court for further

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proceedings. Lonza subsequently filed a request with the U.S. Patent and Trademark Office seeking reexamination of this patent. U.S. Patent Nos. 5,340,594 and 6,454,567 have expired and U.S. Patent Nos. 6,410,281 and 5,698,244 are scheduled to expire in August 2011 and December 2014, respectively. The defendants requested a rehearing with the Court of Appeals on the decision, but their request was denied. The defendants may seek an appeal to the U.S. Supreme Court with regard to certain of the patents.

        We also filed a patent infringement suit involving Nutrinova Nutrition Specialties & Food Ingredients GmbH and Celanese Ventures GmbH in Germany in January 2004. Lonza Ltd. and a customer of Nutrinova have also been added to this lawsuit. The complaint alleges infringement of our European patent relating to DHA-containing oils. A hearing was held in a district court in Dusseldorf in September 2007 and the court issued its decision in October 2007, ruling that Martek's patent was infringed by the defendants. The defendants have appealed, and an appeal hearing was scheduled for February 2009. Martek and the defendants requested that the appeal hearing be delayed until the Appeal Board of the EPO decides whether to uphold Martek's European patent covering our DHA-containing oils. This EPO Appeal Board hearing was scheduled for March 2009 and has been postponed. In December 2008, Martek requested that the court expand the appeal to include Lonza's production of DHA in Germany, based on evidence discovered in October 2008.

        We filed a patent infringement suit involving Lonza Ltd AG and Capsugel France in France in November 2008. The complaint alleges infringement of our European patent relating to DHA-containing oils. We agreed to dismiss our claims against Capsugel France in November 2009.

        Martek is opposing two of Suntory's low sterol ARA oil patents in Europe and one in Australia. The patents are generally directed to processes for producing microbial ARA oil having a low ratio of certain sterols, the resulting oil and its use in infant formula. Martek believes that the patents are invalid for a number of reasons, including prior art that anticipates the claims relevant to Martek. An Opposition Division hearing on the first European patent was held in April 2008, and the Opposition Division revoked the Suntory patent. Suntory has appealed, during which time the patent will remain in full force and effect. A hearing on the other European patent took place in December 2009, resulting in the revocation of the Suntory patent. Suntory will likely appeal. A hearing on the Australian patent is expected in 2010.

        Third parties have filed Requests for Reexamination ("Requests") of twelve of Martek's U.S. patents. Nine of these Requests were filed by Lonza with respect to nine of Martek's DHA patents which, with the exception of U.S. Patent No. 5,698,244 described below, are generally not relevant to Martek's infant formula business. Four of these patents have now expired. Additionally, an anonymous party filed the other three Requests with respect to two of Martek's blended oils patents and one ARA patent. The U.S. Patent and Trademark Office has granted eleven of the Requests to initiate a Reexamination process. As a result of these Reexaminations, the claims of the subject patents may be upheld in their current form, narrowed, abandoned, or revoked, or the term of a patent may be shortened. Not all of the claims of the patents are subject to Reexamination. With respect to the ARA patent, which is scheduled to expire in 2014, we received a second adverse office action in July 2009 and conducted interviews with the examiners. In October 2009, we received a positive advisory action from the examiners regarding 80 claims pending in the reexamination of the ARA patent. While the examiners have indicated that the broader composition claims in the patent likely will not be upheld, we believe that certain process claims that have been deemed allowable will provide a competitive advantage. We also received positive advisory actions from the examiners regarding claims pending in the reexaminations of two DHA patents that have not expired and the two blended oils patents. Notices of Intent to Issue a Reexamination Certificate have been received for the two DHA patents and one of the blended oils patents. We expect the fourth will issue in December 2009. The reexaminations are continuing for the remaining two unexpired DHA patents, and we have been conducting further proceedings with the examiners on these two DHA patents. If we are unable to

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obtain commercially meaningful claim coverage, we plan to appeal within the U.S Patent and Trademark Office, and in the event of a negative outcome, we will have an opportunity to further appeal to the federal courts. These patents will remain in full force and effect during the appeal process. However, if the appeals are not successful or are not pursued, some or all of the claims of these patents could be revoked. In November 2009, Lonza filed a request for reexamination of Martek's U.S. Patent No. 5,698,244, which is the patent that the Court of Appeals for the Federal Circuit remanded to the District Court for trial, as discussed above. The U.S. Patent and Trademark Office determined that the request did not comply with Office requirements, and Lonza has submitted a replacement request.

        With respect to our infant formula business, as stated previously, our blended oils patents expire in December 2011, which generally coincides with the expiration of our customers' sole source purchase obligations. As for the ARA patent discussed immediately above, it is likely that the patent will emerge from the reexamination process with narrower claims. Specifically, it is probable that the broader product claims will not survive. Rather, the patent will likely contain narrower product claims and process claims that, among other things, would provide patent protection to a production process that we believe: i) results in higher quality oil and higher ARA potency and ii) is cost efficient compared to other processes for producing ARA. When combined with our in-licensed patents from our ARA production partner DSM, we believe that it will be technologically difficult and less cost efficient for competitors to design around these claims. Nonetheless, it is uncertain how much protection they will provide.

        There are additional intellectual property proceedings pending against Martek or that Martek has pending against third parties that are not considered material.

        In addition, from time to time, Martek is a party to additional litigation or administrative proceedings relating to claims arising from its operations in the normal course of business or other matters. Management believes that the ultimate resolution of any such additional litigation or administrative proceedings currently pending against Martek is unlikely, either individually or in the aggregate, to have a material adverse effect on Martek's results of operations or financial condition.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

        No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.

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PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

        The Company's common stock is traded on The NASDAQ Global Select Market under the symbol MATK. As of December 17, 2009, there were approximately 265 holders of record of the Company's common stock. The price of the Company's common stock was $17.79 on December 17, 2009. No cash dividends have been paid on the common stock and the Company does not anticipate paying any cash dividend in the foreseeable future. Dividend payments are restricted under the Company's Amended and Restated Loan and Security Agreement dated September 30, 2005. The following table sets forth, for the calendar periods indicated, the range of high and low sales prices for the Company's common stock as reported by NASDAQ:

Sales Price Range of Common Stock

 

        No repurchases of common stock took place during fiscal 2009.

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Performance Graph

        The following graph sets forth the Company's total cumulative stockholder return as compared to the NASDAQ Stock Market Composite Index and the NASDAQ Biotechnology Index, for the period beginning October 31, 2004 and ending October 31, 2009. Total stockholder return assumes $100 invested at the beginning of the period in the common stock of the Company, the stocks represented in the NASDAQ Composite Index and the NASDAQ Biotechnology Index, respectively. Total return assumes reinvestment of dividends; the Company has paid no dividends on its common stock. Historical price performance should not be relied upon as indicative of future stock performance.

COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among Martek Biosciences Corporation, The NASDAQ Composite Index
And The NASDAQ Biotechnology Index

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*

$100 invested on 10/31/04 in stock or index, including reinvestment of dividends. Fiscal year ending October 31.

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ITEM 6.    SELECTED FINANCIAL DATA.

        The selected financial data set forth below with respect to the Company's consolidated statements of income for each of the years in the three-year period ended October 31, 2009 and with respect to the consolidated balance sheets as of October 31, 2009 and 2008 are derived from the audited consolidated financial statements included elsewhere in this Form 10-K. The statements of operations data for each of the years in the two-year period ended October 31, 2006 and the balance sheet data at October 31, 2007, 2006 and 2005 are derived from audited financial statements not included in this Form 10-K.

        The following selected financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and notes contained in this Form 10-K.

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