Uncertainty Weighs Heavily On Senomyx Ahead Of Key Pepsi Decisions

Absent enthusiastic, or even encouraging, adoption of the company's flavor technology products, Senomyx (NASDAQ:SNMX) has languished for quite some time. The company has developed a portfolio of assets for food, beverage, and personal care companies that address sweet, savory, cooling, and bitter blocking, but there have been relatively few solid commercial bites so far.

Now the company is heading into a period where the decisions of key partner PepsiCo (NYSE:PEP) will have a significant impact on the company's future. Should PepsiCo move ahead with commercialization of the sweetness-enhancing compound it has been testing in Mug root beer and Manzanita Sol, upwards of $100 million in 2020 revenue comes into view and the company gets a major boost to its credibility. If PepsiCo backs away, the road in front of Senomyx gets even more challenging but is not the end of the story.

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Uncertainty Weighs Heavily On Senomyx Ahead Of Key Pepsi Decisions

Seeking Alpha: The Pepsi Launch Approaches, But Senomyx Needs To Deliver On Its Own Sales Efforts

The wait drags on for Senomyx (NASDAQ:SNMX), testing the patience of shareholders ahead of a long-anticipated launch from its major partner PepsiCo (NYSE:PEP). Chemophobia-laced "healthy living" nonsense aside, the fact remains that additives remain integral to the packaged food and beverage industries and a large revenue opportunity for Senomyx in the coming years.

The key question remains as to whether Senomyx can convert that large opportunity to real sales. Although the company's direct sales efforts have long lead times (up to, or beyond, two years in some cases), some fruits of those efforts should be visible in the next twelve months. Likewise, investors will know soon enough whether PepsiCo is going to launch products incorporating Senomyx's Sweetmyx S617 with its full marketing vigor or whether it will be a more cautious and limited effort. Delays in commercialization efforts and increased execution risk in my model have led to a lower fair value, but that fair value target remains close to $10 and offers substantial upside if those orders do in fact materialize.

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The Pepsi Launch Approaches, But Senomyx Needs To Deliver On Its Own Sales Efforts

Seeking Alpha: Despite A Reminder Of The Risks, Senomyx Still Has Appealing Potential

Wall Street can be a harsh teacher (I have the grey hairs to prove it), so it's best to learn certain lessons with a minimal number of repetitions. One of those lessons is that it almost always pays to be skeptical when it comes to small development-stage companies that depend upon commercial launches controlled by larger companies.

Senomyx (NASDAQ:SNMX) has an interesting IP and technology portfolio for taste receptor-based food additives and a high-profile partnership with PepsiCo (NYSE:PEP). Optimism over the commercialization potential of an additive designed to reduce the sugar/HFCS content of sodas and other beverages sent these shares close to $13 this year, but then the market swept the legs out from under the stock on worries about a later-than-guided commercial launch from Pepsi and lackluster self-directed sales efforts.

I had been less bullish on Senomyx's near-term prospects than at least some of the sell-side, so the consequences of this six-to-nine month delay aren't as bad to my valuation. I still believe this is a high-risk/high-reward situation, but the commercial potential of products that can reduce the sugar or salt content of food and beverages, or enhance their savory characteristics is such that this is still a stock for aggressive investors to consider as a 2015 breakout story.

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Despite A Reminder Of The Risks, Senomyx Still Has Appealing Potential

Seeking Alpha: A Quietly Busy Senomyx

While shares of small-cap food biotech Senomyx (NASDAQ:SNMX) have pulled back almost 30% from my last piece as enthusiasm has faded in the wake of securing GRAS determination for key product Sweetmyx S617, they're still up more than 50% from my Top Idea write-up in 2013. More importantly, Senomyx continues to make significant progress with its developmental and commercial programs. Although Senomyx shares may well get batted around this year as the market vacillates between risk-on and risk-off, the significant potential of the company's sweet and savory programs is a good reason to buy or continue holding the shares.

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A Quietly Busy Senomyx

Seeking Alpha: With GRAS Status In Hand, It's Close To 'Go Time' For Senomyx's Partners

Patience with development-stage food additive developer Senomyx (SNMX) has really started paying off over the last six months. Investors started bidding up the shares on expectations of FDA approval of key product S617, as well as optimism that the company's direct sales effort will lead to greater adoption of products already shown to replace significant amounts of sugar or other sweeteners and those that enhance savory flavors.

Up almost 170% from where I recommended the stock as a Top Idea, it's tempting to call it a day and take the winnings off the table. While obtaining the GRAS designation removes a critical commercialization hurdle for Senomyx's partners PepsiCo (PEP) and Firmenich, there are still many operating risks remaining, including commercial introduction and acceptance of products using Senomyx's additives. I'm bullish about the prospects of S617 in beverages like sodas and sports drinks, but I'm not so bullish yet on the opportunities in foods like baked goods. If adoption there proves stronger than I currently expect, the upside for the shares could be considerable.

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With GRAS Status In Hand, It's Close To 'Go Time' For Senomyx's Partners

Seeking Alpha: Senomyx Is Getting A Second Wind On Commercialization Potential

I can't stand casinos, so I suppose I use investments like Senomyx (SNMX) to scratch that speculative itch. That's not to say that I don't do the same level of due diligence before, but I go in with open eyes about the likelihood of the story working out. For most of the past three years, it didn't look like this story was going to have a happy ending, as the Street's frustration with an apparent lack of progress in the company's research efforts and licensing relationships took the stock from over $7 to below $2.

Now it looks like the story is heading in the other direction. Although licensing relationships with companies like Nestle (OTC:NSRGY) and Ajinomoto really haven't delivered much and the company is pursuing an uncertain path of commercializing its own compounds, management believes that its key asset (S617) may get FDA approval in the first quarter of 2014 and start appearing in PepsiCo (PEP) products next year.

With management issuing bold guidance for profitability in 2015, these shares may still have room to run and reward those shareholders who've had the patience to hang on this long. In fact, if Pepsi beverages containing S617 can get 20% of the U.S. diet soda market and Senomyx's own commercialization strategies can deliver 5% share in markets like sugar reduction and savory enhancement, upside of more than 80% is possible from here.

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Senomyx Is Getting A Second Wind On Commercialization Potential

Seeking Alpha: PepsiCo Looks Like A Relative Value In Its Sector

Investors have certainly been willing to pay more for the relatively predictable streams of earnings from packaged food companies recently, and that has left scant value in the sector. That PepsiCo (PEP) still seems to have some value in it is likely a product of the fact that not all analysts are completely sold on the idea that the benefits of the company's recent restructuring will last over the long term. While wasteful acquisitions and unsuccessful marketing initiatives may loom as ongoing threats, these shares do seem to over some relative value in the sector today.

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PepsiCo Looks Like A Relative Value In Its Sector

Seeking Alpha: Taking The Bitter With The Sweet At Senomyx

It's a fact of the investing life that when you swing for the fences, you will occasionally strike out. Thus far, owning shares of "bioflavor" developer Senomyx (SNMX) has been a frustrating and losing experience for most investors. While there is still considerable potential in this very under-followed stock, investors have to accept a biotech-like risk that Senomyx will ultimately be a bitter experience and a total washout as a stock.

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Taking The Bitter With The Sweet At Senomyx

Seeking Alpha: A Taste Of The Flavor Company Sector

Is it any surprise that the worldwide market for flavors is a multi-billion dollar per year business? After all, what really separates a Coke drinker from a Pepsi drinker other than the taste? Likewise, until Frito-Lay figures out how to grow a potato that comes out of the ground tasting like sour cream and onion, there will be a strong demand for both novel and familiar flavors, and companies like International Flavors and Fragrances (IFF) and Senomyx (SNMX) will stand to benefit.

Good Taste Really Matters
It is hardly controversial to suggest that a huge amount of packaged food brand value is wrapped up in taste. To paraphrase comedian Dave Chappelle, aside from trace amounts of flavorings, Coca-Cola is really just "sugar, water, and brown (caramel color)." We like things that taste good, and we naturally crave particular combinations of salt, sweet, and savory. Consequently, it's a safe bet that packaged food companies will continue to build brand identity around flavor.


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