Gfp,
A good question about the revenue potential for (SNMX)! As for the 1-4% royalty range it is my experience that biotechs keep a very close mouth on actual royalty arrangements because of proprietary reasons. Remember that (SNMX) has only scratched the surface with the potential collaboration partners, so to release actual details of the current deals would pretty much box them in on future deals. It is my “guess” that this first deal with Nestle and for the savory product is one that will garner the lowest amount…1%. IMO this product’s market potential is the least important going forward for (SNMX). As previously stated, the salt and sweet products are the ones that will have the most impact for them. Our daily salt intake has a direct effect on our vascular system maladies and sweets influence the growing crisis in the diabetes problems that we face in the world. It is for this reason that I think food product companies will clamor for a solution to these issues and thus be willing to pay more to the likes of (SNMX).
However, I will take a stab at answering your question and will be using data garnered from their IPO prospectus:
1) According to Euromonitor International, an independent research organization, worldwide sales of packaged food and beverage products in 2003 were estimated at approximately $1.2 TRILLION, of which $227 billion was generated in the US. Based on these numbers the worldwide total for 2003 it seems that sales of packaged foods were about $906 billion and sales of non-alcoholic beverages were about $278 billion.
2) Based on the above totals provided by Euromonitor, and with input from Information Resources, Inc. and by looking at the collaborators’ 2003 annual reports it is estimated that their products sales that fall within their exclusive product fields were $31 billion dollars. So based on this total revenue potential for the “current” collaborators you would get a maximum potential for (SNMX) of $1.2 billion if you used the maximum 4% royalty rate. Needless to say, there is no way that anyone should expect this to happen. This is only to show the potential for (SNMX) as it relates to the mere four collaborators that are currently on board for potentially using their product. Remember as shown in #1, the world-wide market for potential products using (SNMXs) product is $1.2 Trillion dollars. But getting back to the current partners, if you use the 1% royalty rate on the $31 billion of product sales this would generate a revenue flow of $310 million.
3) Even the $310 million as shown in #2 is still a number that I think investors should discount. So if for example purposes you cut this $310Million down to merely a fourth coming to (SNMX) you would still see $77.5 million in revenue for (SNMX). And if you bump the 2004 Total Operating Expense of $28.5 million up to an even $30.0 million and deduct this from $77.5 million you would have a gross income of $44.5 million and with 25 million shares outstanding this would generate about $1.70 a share for (SNMX). (Remember the royalty is a straight payment to (SNMX) as the product production cost will be borne by the collaborators.)
4) So just for example purposes and based on only the four current collaborators and what I think is a most conservative revenue basis you could see (SNMX) earning $1.70 a share within the next couple of years. Any additional collaborator deals, and IMO with the sweet and salty products I think there will be many such deals, IMO this $1.70 a share is most reasonable and thus should support a share price well above the current $12.50.
5) This $1.70 a share based on my estimations is further supported by others as shown in the March 28 edition of BusinessWeek. yahoo.businessweek.com
I hope this helps! |
