NEW YORK (Dow Jones)--Shares of Senomyx Inc. (SNMX) rose 14% Wednesday after Bear Stearns initiated coverage of the company with an outperform rating, saying the company has potential for large global revenue and quick earnings-per-share growth.
Even though the food-and-beverage flavoring company has never been profitable, "we believe it is on track for success and that many positive catalysts potentially await," Bear Stearns analysts Terry Bivens and Ken Goldman said, in a note published Wednesday.
Senomyx, a biotechnology company based in La Jolla, Calif., has four development programs: salt, sugar, savory and bitterness. It aims to improve the nutrition and/or taste of foods and beverages.
According to Bivens and Goldman, almost all of Senomyx's revenue comes from research and development from such companies as Nestle SA (NESN.VX), Kraft Foods Inc. (KFT), Campbell Soup Co. (CPB) and Coca Cola Co. (KO). Senomyx earns royalties on any consumer product sold with its compounds.
The analysts said that, so far, Senomyx has received about $38.6 million in research-and-development funding from its collaborators.
Bivens and Goldman said Senomyx will claim up to 4% of revenue on all products sold with its compounds. According to Senomyx, collaborators have up to $51.4 billion in annual sales.
Bivens and Goldman said Senomyx doesn't have direct competitors, and potential competitors "face significant barriers to entry, including patents." The company had 72 U.S. patents and 282 patents pending as of May 1.
The analysts also said Senomyx's discovery and development process differs from the traditional method of mixing and modifying flavors that already exist, because it screens more than 250,000 compounds and generates entirely new and unique compounds that can be patented.
Bivens and Goldman said there are risks with Senomyx. For example, its sweet and salt enhancers are scheduled to enter the market next year, but "there's no guarantee of that taking place" since they haven't been approved by the U.S. government yet.
Nevertheless, Bivens and Goldman said "after Senomyx successfully introduces products, for a limited time, revenues could grow rapidly.
Senomyx shares were recently trading at $14.80, up $1.81 or 13.9%. Volume stood at 178,237 shares, compared with average daily volume of 199,032 shares. |
