Senomyx is up over 10% today as Craig Hallum started coverage with a buy rating. The flavor ingredient company utilizes R&D to improve food and beverage products through healthier, better tasting modifiers. Though today’s catalyst has been a trigger to an over-extended rally, Senomyx offers potential in the longer term.
In May, it was announced that PepsiCo would extend the collaboration with Senomyx’s sweet-taste technology through August 2016. This came after PepsiCo entered into a new agreement with Senomyx for their salt-taste program in April. The agreements with PepsiCo signify the mutual interest in both companies to develop modifiers that can become alternatives to a growing health conscious consumer. For Senomyx, having the world’s second largest soda division offers a potential customer once the company moves focus to commercialization, which it expects by 2015.
Senomyx expects to receive initial commercial scale quantities of sucrose modified SR69 by mid-year 2014, meaning that the second half of 2014 is when the company should experience uptake. Management projects revenues to be in the low $30M range of which approximately $10M are from commercial streams. Though the company anticipates a loss in 2014, 2015 is when commercial revenues are expected to see traction and result in profitability for Senomyx. With more than $30M in cash and no debt, the company is well positioned to advance with operating plans.
Although I think today’s action is an overreaction, Senomyx has a promising future due to consumer health trends and interest from PepsiCo. Moving towards commercial manufacturing will result in a lucrative 2015 from greater adoption of Senomyx’s alternative ingredients. Investors should be patient and wait for pull backs to buy Senomyx.