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XMFHelical (< 20)

Sorry Charly



October 12, 2007 – Comments (0)

Biotech investors don't want companies with good taste; they want technologies that taste good!

Which brings us to small cap biotech company Senomyx.  This isn't another pharma-wannabe with a new tech - so many of which litter the great biotechnology graveyard.  Senomyx is more of the industry's hippie new age flower girl - with a phD in molecular biology.

Senomyx looks to add taste.  Not class, but actual taste - to things like ketchup, gum, chocolate; and who knows, maybe even tofu.  They do this via their technology which is built on having isolated the key taste receptors in the mouth and establishing bioassays to know what compounds bind to / interact with them.

[Note, typically protein isolation starts with homogenized tissue - yup, that's right -  we are talking about a literal tongue-in-the-blender on an industrial scale].

They claim to have synthesized or discovered "hundreds of unique potential flavor enhancers and taste modulators".  I got over 47 patent applications on a quick search going back only to 2002, including the latest "Chimeric human sweet-umami and umami-sweet taste receptors".

What is umami (pronounced you-mommy - or in certain neighborhoods yo-momma)?  It is one of the 5 taste senses:  Sweet, sour, bitter, salt, (those I knew) and umami (that one I didn't).  Umami is a hearty or fullness of flavor, a savoriness.  It is why MSG is added to asian dishes (glutamate binds the umami receptors).  [See what you can learn in CAPS.]

Senomyx's business model is to contract with food companies to identify taste enhancers compatible with certain products, add them to the products as improvements, and eventually collect royalty payments on sales.  -- "Through our collaboration agreements, we have received and expect to continue to receive a combination of upfront license fee payments, research and development funding, and milestone payments. All of the agreements provide for Senomyx to receive royalties on end-product sales that contain our flavor ingredients." -- This could be slow going as the money is initially of the contract research nature, but a few key hits and every Coke, Pepsi, or Hershey bar sold could be sending a penny or two to Senomyx - it could really snowball if they are successful.  Imagine a world where the preservatives in your Cheese-Nips actually add to the flavor (is cheesiness another taste sense - it oughtta be).  While the FDA does get involved in the approval process for these ingredients, it is not nearly the hurdle faced with pharmaceutical products.

This company does not yet make money, and may not for some time.  But, they do have products on the market (via Nestle) and contracts / collaborations with some key food producers (Coke, Kraft, Cambell Soup, Cadbury Swhepps).  Revenue growth is great on a % basis, but that is because it is modest revenue - and losses should prevail for some time. R&D outpaces revenue by 2:1 in the last 10k.  It seems well split throughout the collaborations, and adding new contracts should improve revenues as well.  With no debt (yet) and a good 2.5-3 years cash on the balance sheet at current burn rate, this company should have a solid chance to become a winner.

News will likely drive share price from here.  And it should mostly be good for this company as ingredients get approval and find their way to the market.  It may be too soon for a thumbs up - but this has the makings of a long-term winner.

I may make this a biotech contest pick for 2008 (we'll see).

Getting in early on a promising company is always pretty Sweet (and perhaps umami as well).

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