With Aspartame losing the flavor of consumers things are looking good for Senomyx, Inc. (SNMX) and their line of taste modifiers, specifically one dubbed Sweetmyx®.
In a nutshell, Senomyx focuses on taste receptors in the tongue by attaching a small molecule to the sugar or salt in drink or food items. The result is an increase in the sweetness or saltiness of a product because the taste receptors in the tongue make more molecular contact. The result is the ability for companies like PepsiCo and Nestle to use less sugar creating healthier products while maintaining or enhancing flavor and reducing manufacturing costs.
Remarkably, the quantity of the Senomyx taste receptor molecules needed to achieve results is incredibly small. For example, 180 mg’s of aspartame are needed in a typical 12 oz can of soda while just 3.5 mg of Sweetmyx achieves the same result. This quantity is so small it won’t even need to be listed on the ingredients and falls under the label “natural or artificial flavors.” The same goes for salty foods where food companies are wrestling with high unhealthy sodium contents. Senomyx has a solution for this too. Also in the product mix are savory flavor enhancers (a potential MSG replacement) and cooling and bitter blocker programs.
The big news is the SNMX collaboration with food giants like PepsiCo. Under the partnership arrangement PepsiCo pays for Senomyx’s R&D costs for first rights when their products are ready for market. Similar arrangements have been made with Nestle, Ajinomoto (aspartame’s largest producer) and Firmenich, the globe’s largest flavoring manufacturer. These agreements have amounted to a whopping $230 million in R&D funding for SNMX.
On the financial front, Senomyx is in good shape with $25 million in cash and no debt. But the big news comes from the coming commercialization of the product line. SNMX projects revenues of $25 million in 2015 with incredible profit margins. Most of the costs to manufacture the products come from the aforementioned third party R&D agreements giving SNMX over 90% gross profit margins.
Another factor to consider is the announcement by Pepsi’s CEO in late 2013 that new “sugary” flavoring agent products are planned to come to market in 2014. This news looks great for SNMX stock. Also in consideration is the current small Senomyx market cap of $370 million making it an easy takeover target for a giant like Pepsi.
When you consider that SNMX has a huge patent portfolio, and their flavor enhancer’s have been green-lighted as “generally recognized as safe” (GRAS) by FDA regulatory watchdog group Flavor and Extract Manufacturers Association, SNMX looks like a winner to hit analyst price targets of $14.20 to $16.50 per share.
Stay tuned TKO’ers!
http://finance.yahoo.com/q?s=SNMX
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