Senomyx (SNMX) is a biotechnology company using proprietary taste receptor-based assays, screening technologies and optimization chemistry to discover and develop novel flavors, flavor enhancers and taste modulators for the packaged food and beverage industry. They believe that their flavor ingredients will enable packaged food and beverage companies to improve the nutritional profile of their products and generate cost of goods savings, while maintaining or enhancing taste. (SNMX) plans to license their flavor ingredients to collaborators on an exclusive basis, which they believe will provide these companies with the ability to differentiate their products. At this stage of development they have entered into product discovery and development collaborations with four of the world's leading packaged food and beverage companies: Campbell Soup Company, The Coca-Cola Company, Kraft Foods Global, Inc. and Nestlé SA. They currently anticipate that we will derive all of their revenues from existing and future collaborations. (SNMX) has undertaken a unique approach in how they will make money for the company in that existing collaboration agreements provide for research and development funding, milestone payments based upon our achievement of research or development goals and, in the event of commercialization, royalties on future sales of consumer products incorporating our flavors, flavor enhancers and taste modulators. Their current programs focus on the development of savory, sweet and salt flavor enhancers and bitter taste modulators. In addition, future collaboration agreements may provide for up-front license fees.
Their most advanced project is the savory product that received GRAS determination from the FEMA Expert Panel on March 3rd.(See News Release on this Event) IMO this approval came much soon than the company expected as they only submitted the product for review in late December, 2004. The company had projected that the FEMA action would not come until at least mid-year or later. With this approval this means their partner, Nestle, can move forward now with the actual testing of their product in consumer acceptance studies. If all goes well, this could lead to the first actual product launch using the (SNMX) ingredient in early 2006.
ERRATA:
(In my original message I cited the revenue projections from one firm(Needham)that upon further review seemed to be incorrect, based on the assumptions he made. I am therefore removing his projections and instead will insert the analysis from Smith Barney, as they were the lead underwriter for their IPO.
This Smith Barney analyst projects that on the total current collaborations this could generate royalty payments to (SNMX)from between $310 million to $1.2 Billion, based upon the disclosed royalty rates of between 1% and 4%.)
Near term milestones that could be achieved:
1) With the GRAS approval, Nestle should launch their consumer acceptance studies.
2) The sweet enhancement project that is partnered with Coke and Kraft should lead to determining the final compound selection by mid-year (05).
3) Additional collaborations deals should be forthcoming. What is so enticing is that with the current deals with such major corporations as Coke, Nestle, Kraft and Campbell Soup these deals are only touching the surface of all the potential deals that are still available to (SNMX). For example, the Nestle deal alone represents only about 20% of the total market potential for the savory program. Plus, the real market (IMO) is the (SNMX) projects for the salt and sweet enhancement programs. And with the quick approval by FEMA for the savory product this should enhance and speed up the approval for these other products that also will include a new project with Nestle for a bitter blocker product.
Often, as investors in biotechs we look for the exotic product companies and ignore the mundane companies like Senomyx. However, we currently have going on in our nation epidemics of mass portions with diabetes and obesity. In that the root causes of both of these epidemics can be laid at the foot of what we eat and drink, “IF” Senomyx’s product actually accomplish what they have set out to prove, then just think what a royalty stream will be flowing into their coffers.
I currently have a position in Senomyx's stock. I would suggest anyone interested that they should review their SEC filings and recent IPO documentation. As with any biotech, the hurdles are enormous in getting an actual product on the market. And in the case of Senomyx there is no guarantee that any of their current projects with the major players like Coke, Campbell, Kraft or Nestle will ever come to fruition. |
