SNMX -- Senomyx

[yadayada]

yeah but I am already counting their other sugar product for the broader sugar market out. It is already v cheap just based on their pepsico sweetener product. And that seems to be as far as they have ever come. If they make this product themselves (instead of oursourcing it), this could be a huge opportunity.

 

I think this quote is very telling from latest quarterly call:

As we discussed in our March call, our S617 Sweetmyx flavor ingredient is the most recent and potentially the most valuable of all our ingredients discovered to date. It has utility for our broad range of non-alcoholic beverages, alcoholic beverages in a wide variety of foods. The recent FEMA GRAS regulatory designation allows immediate use of the Sweetmyx flavor ingredient in the U.S. and a number of other countries.

They are basicly saying themselves, this is the most valuable one. If the other one had any promise, they wouldnt say something like this right?

 

To be clear there is S9632 is the  new one that will be used for pepsi. And then tehre is also S6973, which is the 5 year old one now they couldnt market. Sweetmyx is S9632. And the guy in the VIC write up is claiming that S6973 (number is smaller so that helps confusion on which one is older), could adress the huge sugar market, which it didnt so far.

 

They never got anywhere as far with 6973 then with their new 9632 one right now.

[merkhet]

This is potentially the most valuable of all our ingredients. That one missing word changes the meaning of your statement:

 

They are basicly saying themselves, this is the most valuable one. If the other one had any promise, they wouldnt say something like this right?

 

I have no idea if the Pepsi case is going to work out or what the economics of the deal might be. Why do people think it will work out well? Or is this just a speculation position?

 

Note, there's no judgment on my end if this is a speculation position -- I'm just trying to figure out what has motivated so many posters to take a position in this company.

[yadayada]

This is potentially the most valuable of all our ingredients. That one missing word changes the meaning of your statement:

 

They are basicly saying themselves, this is the most valuable one. If the other one had any promise, they wouldnt say something like this right?

 

I have no idea if the Pepsi case is going to work out or what the economics of the deal might be. Why do people think it will work out well? Or is this just a speculation position?

 

Note, there's no judgment on my end if this is a speculation position -- I'm just trying to figure out what has motivated so many posters to take a position in this company.

No read my above post, the point I am trying to make is that they have 2 sweetener enhancers. the VIC write up says that the old one could be huge, but management is actually saying that their new one is potentially the most valuable. So they are not saying that about the old one that they couldnt sell in the last 5 years.

 

But their new one went a lot further so far.

 

It is all a bit confusing :)

 

And if they could sell their new S9632 directly to pepsi for drinks, instead of through firmenich, then they will make a killing compared to their current market cap. And they actually said with exact dates and numbers their commercial revenue would ramp up in the next few years. They never did that with the old one. Also no CEO of food company's got excited about a new product when the old one got approved.

 

edit:

Ok now i am fking confused, apparantly there are 3:

Two of their sweetener compounds already have GRAS approval (which is the FDA-blessed approval process that a product like this follows), S6973 and S9632.  Both of these products allow for the reduction of up to 50% of the sugar (sucrose) used in a food or drink.  In addition, the company has isolated, tested and expects to shortly receive GRAS approval for a third enhancer, S617.  S617 not only allows for the reduction of up to 50% of the sucrose in a given product, but also an up to 35% reduction in the amount of fructose (which is relevant in products such as the majority of sodas that use High Fructose Corn Syrup, or HFCS, instead of sugar).

 

I thought S617 was 9632 with a different name. How old is 9632?

[yadayada]

S6973 = 5 year old

S9632 = approved in 2012,

S617 = approved 2014 and apparantly a better version of their 5 year old S6973 and now in the pepsi agreement

 

That last one is suposed to be the most valuable, so forget what I said before.

 

 

[DTEJD1997]

 

DTEJD,

 

  There is one major difference between senomyx and other sweetners. it does not alter the taste of the substance is any way. Zero change in taste. The molecules that are introduced into the liquid are only 10 parts per million.  This is quantity is so tiny that it does not even need to even show on the label according the VIC write up. I highly recommend this VIC post.

 

I understand that...but I am still skeptical.  I am sure nobody at Cott said let us make something that tastes worse than our stuff already does...The soda being sold by them is truly ghastly in taste. 

 

If this stuff truly has NO taste of it's own, and no aftereffects, then it might be a big seller.  However, I've never tasted an artificial sweetner that was the same as sugar.  Some are closer than others, but they all suffer from the same problem to one degree or another.

[writser]

This is a 'story'-stock, not a value investment. Absolutely not my taste (pun intended) but I hope it works out for the rest of you guys. Just be aware that their product might be awesome but that's a different thing than this investment being awesome. The entire discussion here is about how good the sweetener is. All the proponents seem to ignore that the company burned money every year for a decade, shares outstanding have tripled in the same period and insiders are consistent sellers.

 

Sure, this might be the exception but if the past is any guide ..

[yadayada]

You are now the typical guy who comes from the outside, glances over the stock barely doing any work, and draws some v superficial and untrue conclusions. I am also that guy sometimes unfortunately :( .

 

Insiders have not been selling. They held 1.6 million shares in 2007, or 5%, in 2010 they held 2.9 million shares, they now hold 6 million shares. going from 7% to 13%.

 

And

 

They have a new product now, and a lot more progress then they have had before.

 

Further optionality on salt or other taste products.

 

And every single stock that is not a net net is a story stock. KO is a story stock. You asign a probability that they will make a certain amount of money over the next 5-10 years. If those (in this case huge) streams are mostly not priced in compared to their market cap, and the probability of them happening looks half decent, then it is a very good bet in theory. Obviously you shouldnt have a whole portfolio of stocks like this, but having some seems like a good idea. Taleb's antifragility and all. You usually cannot have a large margin of safety for 10 or 20 baggers. But the kelly criterion suggests that this is a very +ev bet.

[merkhet]

yada,

 

I am actually very well-versed in the write up. I know that they have multiple flavor enhancers and that the S617 is the one that is in the agreement with Pepsi.

 

The issue I was pointing out is that on the conference call, they mentioned that S617 is potentially the most valuable of all their ingredients. You have, seemingly, stored this information in your brain as just "the S617 is the most valuable of all their ingredients." These two are different statements with different underlying meanings.

 

Their revenue ramp, from my memory, seems to be $25 million in 2015 and $40 million in 2016 or something like that. (Regardless, the numbers are small.) And yet, the implication is that Pepsi will start rolling our soft drinks with this flavor enhancer in their beverages at the end of this year.

 

What does that imply about the economics of the deal?

[writser]

KO is not a story stock, it has increased earnings and dividends for about a century. This company has never earned a dime. Also, your last sentence is complete gibberish. The Kelly criterion suggests nothing about the profitability of a bet, only about its optimal sizing. You have to input assumptions about the probability of success and the upside IF it is succesful. Stuff that you only touched marginally. Nevertheless I hope it works out for you.

[yadayada]

yada,

 

I am actually very well-versed in the write up. I know that they have multiple flavor enhancers and that the S617 is the one that is in the agreement with Pepsi.

 

The issue I was pointing out is that on the conference call, they mentioned that S617 is potentially the most valuable of all their ingredients. You have, seemingly, stored this information in your brain as just "the S617 is the most valuable of all their ingredients." These two are different statements with different underlying meanings.

 

Their revenue ramp, from my memory, seems to be $25 million in 2015 and $40 million in 2016 or something like that. (Regardless, the numbers are small.) And yet, the implication is that Pepsi will start rolling our soft drinks with this flavor enhancer in their beverages at the end of this year.

 

What does that imply about the economics of the deal?

Yeah I agree with you, it is potentially the most valuable. But someone commented that this is a bad pick, because why couldnt they commercialize their sweetener product that is suposed to be very valuable in the last 5 years? So my response was, that their 5 year old product is likely not the most valuable, but their most recent one as indicated by that remark.

 

KO is not a story stock, it has increased earnings and dividends for about a century. This company has never earned a dime. Also, your last sentence is complete gibberish. The Kelly criterion suggests nothing about the profitability of a bet, only about its optimal sizing. You have to input assumptions about the probability of success and the upside IF it is succesful. Stuff that you only touched marginally. Nevertheless I hope it works out for you.

yeah it is a story stock. Except with KO, the probability is extremely close to a 100%, that is why almost all future value creation is priced in. With this one I imagine the probability is probably in the double digit % looking at insiders, and looking at how far they have come with pepsi. And the upside you get is  several thousand %. So even if I lose 100% here, on average my expected value is still very high. But as a rule I will try to not hold more then one typ of this stock in my portfolio.

 

I mean sharon wicker (now chief commercial development officer) increased her stake by a lot  over the past years. The CFO ramped up his stake. The previous CEO has put almost all his past earnings in this stock. A bunch of PHD's who are involved ramped up their stake. And looking at how far they got with the product with Pepsi, you could deduce that the odds of success are pretty high here if those guys apparantly are willing to risk this much in this. It is all indirect evidence, kinda reminds me of OJ :D .

 

I remember in 'you can be a wall street genius' there was a similar situation where he made a killing just based on the fact that Malone was v interested in buying those warrants in Liberty media I think. I dont exactly remember the details, but wouldnt you have made like 10-15x your money in that one? Even tho it was extremly hard to value. But it can pay big time to follow if a lot of smart insiders like what they see.

[PatientCheetah]

I think a proper way to view SNMX is from an early stage VC prospective. You have a situation where there are large uncertainty (traditional valuation techniques does not deal with uncertainty well) and large beta, and the vast majority of potential value creation depends on management's execution. To have any shot of somewhat predictable return profile, it becomes a number game and you add value by sizing the position properly and evaluating the quality of management. I am planning to have 5-10% of my portfolio in this type of situations and dynamically shift the position weight based on thesis changing new information.

[writser]

I mean sharon wicker (now chief commercial development officer) increased her stake by a lot  over the past years. The CFO ramped up his stake. The previous CEO has put almost all his past earnings in this stock. A bunch of PHD's who are involved ramped up their stake. And looking at how far they got with the product with Pepsi, you could deduce that the odds of success are pretty high here if those guys apparantly are willing to risk this much in this. It is all indirect evidence, kinda reminds me of OJ :D .

 

I remember in 'you can be a wall street genius' there was a similar situation where he made a killing just based on the fact that Malone was v interested in buying those warrants in Liberty media I think. I dont exactly remember the details, but wouldnt you have made like 10-15x your money in that one? Even tho it was extremly hard to value. But it can pay big time to follow if a lot of smart insiders like what they see.

 

Did the Senomyx insiders actually buy shares or were those option grants? On insider monkey I see only one insider buying shares in 2010 and 2014:

 

http://www.insidermonkey.com/insider-trading/company/senomyx+inc/1123979/purchases/

 

And a lot of selling by everybody else:

 

http://www.insidermonkey.com/insider-trading/company/senomyx+inc/1123979/sales/

 

Sharon Wicker has never bought a share, has a 40k share position leftover from option exercises and sold ~200k shares last year at prices 50% from where they are now (link).

 

The CFO has never bought shares either as far as I can see and has been converting options and selling stock not even a week ago (link).

 

They both owned ~500k more options as per the latest proxy. I'm not really convinced by you trying to support the bull-case because of insiders who are 'risking it all'. To me it just looks like they receive a shitload of stock options. They're ramping up their stake, sure, but at your expense. Both own only ~6 months salary worth of stock, all from granted option conversions. Not really comparable with John Malone. I have to admit I only looked at the first two insiders you mentioned though.

 

This investment might work out based on other factors. You were right, I am just 'a typical guy' doing some superficial research and I probably made some errors somewhere. But so far I believe I have seen enough to gladly move to the next opportunity. You infer a double digit chance of success based on insider conviction, I'm a bit skeptical about that. I'll leave the discussion to those more versed (and enthousiast) about this stock.

[merkhet]

yada,

 

You can drown in water that is less than one inch deep "on average," and there's a reason why people don't play Russian roulette for any amount of money.

 

I suspect this is just a style differential. I wouldn't buy something with any possibility of 100% downside.

 

And I only mentioned the five year delay on the first one to show that the author of the VIC writeup seems to be emotionally compromised in his interpretation of the facts. I know it's not the one mentioned in the conference call.

[jouni1]

i've seen quite a lot of these "our next product will change the world" companies. the world rarely changes, and the stock prices usually go the wrong way.

 

i agree it can be lucrative if it goes their way, but often even that isn't enough(as insiders/related parties take everything). that said, i have one speculative non-profit company in my portfolio, so i agree there's a place for these. just wondering if they truly are the best sweetener chemists in the world. every other artificial sweetener is shit. i'm 99% certain it will apply to this one too.

 

a few years ago they(soda companies, not senomyx) said these "stevia" sweeteners taste like sugar. yeah right  ;D

[yadayada]

yada,

 

You can drown in water that is less than one inch deep "on average," and there's a reason why people don't play Russian roulette for any amount of money.

 

I suspect this is just a style differential. I wouldn't buy something with any possibility of 100% downside.

 

And I only mentioned the five year delay on the first one to show that the author of the VIC writeup seems to be emotionally compromised in his interpretation of the facts. I know it's not the one mentioned in the conference call.

yeah i wouldnt put too much weight in the VIC write up, and you gotta seperate the idea from the guy writing it up.

 

@writser:

Im pretty sure you need to look in the proxy statement for insider ownership. Almost all these guys have years of salary in this. I dont really care how they got it, they are not selling. If this has a low probability of success, wouldnt you just cash in most of your stock options and not hold on to the stock?

 

Sharon wicker has like 3.8 million$ worth of stock, she made 600k last year. Kent Snyder has almost 20 million$ worth of stock. He made a little over 7 million$ in the last 3 years I think.

 

Chief scientific officer has 4.5 million$ worth of stock, he made a little over 2 million in the last 3 years. Same for CFO.

 

http://www.sec.gov/Archives/edgar/data/1123979/000110465914027821/a14-2435_1def14a.htm

Page 19. Dont look on sites like insider monkey for ownership they are v innacurate.

 

Pepsi actually said they are very excited about their new sweetener product in their Q call, and it could be big. The product is actually already approved. A lot of these write ups on biotech company's are not even approved, these guys are already starting to ramp up commercial revenue, and it is not priced in yet.

 

To top it off, if they find a natural sweetener or the same product like this for salt, then that could also be huge. if something still has a large chance of failing, but the pay off is huge, I am willing to gamble on it. And it seems to me, the odds of failing arent even that large here.

 

Also some 71 year old director bought like 500k worth of stock recently. 71 year old guys tend to not take a lot of risks on the stock market.

 

Well im done here anyway unless you can dig up some new angle that could shoot this down.

[writser]

If you look in the footnotes you see that Wicker and the CEO don't actually own all those shares, they only own options to buy them. I believe Insider Monkey is correct in this case. Also you are factually incorrect with regards to selling: they are selling, as I pointed out. Sharon Wicker was granted a lot of options over the last decade, exercised them and sold 200k shares last year and only owns 40k shares as of now. I wouldn't quite compare that to John Malone.

[yadayada]

what is the difference? Either way, they could turn them into cash. Also the CEO owns 3.3 million$ worth. And it seems they hold on to most of them. Wouldnt be that worried about them turning some of those into cash.

[merkhet]

I don't know what it is about this particular story that seems to inspire such an extreme following. This particular thread is beginning to resemble the VIC comments on the name.

 

yada, there is a huge difference between being given options and buying shares with your own money. You are correct that, when viewed rationally and in a vacuum, there is no difference. However, in the real world when psychology comes into play, things are very different.

 

Options are basically "house money" -- have you ever heard a person say at a casino that they're okay making stupid bets because they're playing with "house money" anyway? That's basically what's happening here -- money is fungible and yet psychology intervenes. Additionally, if you're given these options and you want to sell -- is there a culture that makes it infeasible to do so while still holding your job? Will the CEO get pissed that you're selling out? Will your job still be secure at the time? Ah, screw it, why bother? It's "house money" anyway. See what I'm getting at here?

 

Pepsi actually said they are very excited about their new sweetener product in their Q call, and it could be big. The product is actually already approved. A lot of these write ups on biotech company's are not even approved, these guys are already starting to ramp up commercial revenue, and it is not priced in yet.

 

From the 1Q conference call:

 

Regarding our financial guidance for the full year 2014 Senomyx continues to expect total revenues of $32 million to $35 million of which approximately 10 million are commercial revenues. Our commercial revenues will be weighted towards the end of the year and our guidance assumes S617 will be commercialized by one of our partners in the second half of 2014.

 

We also expect total operating expenses of 44 million to 46 million of which approximately 6 million is non-cash stock based expense. Our net loss is anticipated to be 10 million to 12 million resulting in basic and diluted net loss of $0.23 to $0.28 per share. We expect to end the year with more than $25 million in cash, cash equivalents and investments available for sale. With $31.6 million in cash, no debt and significant development funding commitment from our collaborators going forward, Senomyx remains well positioned to achieve our discovery development commercialization objectives including our goal to achieve approximately $25 million in commercial revenues in 2015 and importantly our goal to achieve profitability in 2015.

 

So, I'll re-ask my question from before. If Pepsi is going to end up using this product in its drink(s), and it will begin in the second half of 2014, what does the revenue ramp of $10 million of commercial revenue in 2014 and $25 million in commercial revenues in 2015 imply for the economics of the deal?

[writser]

The difference is that if you are granted options you have nothing to lose, you only participate in the upside. So it might make sense for them to do some speculative / promotional stuff that is not nessecarily in your best interest, like touting new discoveries as 'potentially' extremely valuable so common shareholders bid up the stock and they can sell out.

 

What surprises me is that multiple people here are skeptical and point out multiple flaws and factual errors in your reasoning (the PEP deal potentially being smaller than you imagine, insiders are mostly sellers, not buyers as you stated, the net worth invested by insiders is substantially smaller than you thought, the comparison with John Malone is flawed) yet whenever you are proven wrong you switch to another argument for the bull-case. Was inventing synthethic salt really a part of your initial thesis? Do you really don't see a difference between owning stock and owning options?

 

Given all the rebuttals I really don't understand why this still is a high-conviction holding of yours yet all you do is dig your heels deeper in the sand.

[yadayada]

I dont think this is comparable. Can you really compare some Las vegas tourist gambling with 4x his monthly salary he just won, to 60 year old accomplished insiders gambling with millions of dollars (and likely a large % of their networth) on something that has a v low chance of succeeding at the end of their career? They know exactly how good or bad their products are, and they also know exactly how valuable this could  be to food company's. Usually the type of people involved here aren't the risk taking gambler type's.

 

Also you are ignoring direct sales opportunity, and their proprietary method of finding these taste enhancing molecules (I dont think downside is actually 100% because of that). But let's wait and see who is right. It is not the most amazing investment, but I like the odds. If it goes down, I lose a tiny % of my portfolio, but they all lose millions of dollars.

 

And again, they are also not net sellers. Their exposure through options increased, and their direct ownership increased. So how is that net selling? The options they did exercise and sell is a small %.

[merkhet]

I'm not saying the Senomyx insiders are stupid. I am saying that options are different than shares bought with your own money from a behavioral perspective. I don't understand why this is so difficult to consider.

 

It is highly irrational to assume away the possibility of irrationality in otherwise rational people.

 

I am, in fact, ignoring the direct sales opportunity because of what I posted earlier from my chemical engineering friend -- no one here has indicated whether the flavor enhancers retain their abilities when cooked, frozen, etc. -- which might be something we would want to know when thinking about the direct sales opportunity.

[writser]

And again, they are also not net sellers. Their exposure through options increased, and their direct ownership increased. So how is that net selling? The options they did exercise and sell is a small %.

 

Maybe it's a question of definition, but if you receive something as a gift and you then sell it partially, I'd say you are a net seller. At the very least not a buyer.

[yadayada]

Ok Kent snyder made about 14 million$ if I add up his $ compensation 2006-now. If he would have turned all of that into cash asap, and then bought shares in this company with that money, would that change your opinion? He has most of his earnings of the last decade in this stock, that is my point. Currrent value is about 20 million$ or so.

 

There are two flaws in your assumption. One is that someone decided to give him free money just one day instead of letting him work for it for 8 years (so the casino comparison doesnt go up). And two, why would there be all of a sudden a big difference between getting a salary and then turning it into stock, or receiving exposure to the stock outright and not choosing to sell it (or only a small %)?

 

That is why I think this isn't some long shot.

[Hielko]

And two, why would there be all of a sudden a big difference between getting a salary and then turning it into stock, or receiving exposure to the stock outright and not choosing to sell it (or only a small %)?

I'd say the difference is somewhere between huge and enormous. What's the average returns for companies where insiders are using their cash compensation to buy more shares? what's the average return for companies where insiders are 'just small %' sellers? Hint: it isn't zero.

[merkhet]

Ok Kent snyder made about 14 million$ if I add up his $ compensation 2006-now. If he would have turned all of that into cash asap, and then bought shares in this company with that money, would that change your opinion? He has most of his earnings of the last decade in this stock, that is my point. Currrent value is about 20 million$ or so.

 

Yes. It would change my opinion significantly.

 

There are two flaws in your assumption.

 

Nope.

 

One is that someone decided to give him free money just one day instead of letting him work for it for 8 years (so the casino comparison doesnt go up).

 

No one said that "someone decided to give him free money." That is a strawman that you have either intentionally or inadvertently set up. In the casino case, no one is giving him free money either. When it comes to the concept of "house money," I am saying that people categorize the money differently in their head and apply different rules to that money. I am then making the comparison to stock options and saying that while, rationally, there should be no difference, people categorize stock options ownership differently in their head and apply different rules to that ownership.

 

I am starting to run out of ideas on how to explain this notion, but I'll try again anyway because it's a slow day for me. Let's say that you were volunteering for a music festival, and at the end of the festival, they give you a tshirt worth $25. You have no choice in the matter. My contention is that you will not value this shirt the same way as if you were paid $25 and then decided to buy the exact same shirt. This is because you have severed the connection between money and the good. I know plenty of people that exercise in "free shirts" like this because they would never buy a shirt just to sweat into it. And yet, there should be no difference because those aren't really "free" shirts.

 

I would highly recommend reading some books on behavioral economics. It would be very helpful to understanding this concept. I remember a study by Dan Ariely on the matter of stealing from the break room. He did a control study where he left $5 in the fridge and no one took the money. He then put in $5 of Coca-Cola in the fridge and, lo-and-behold, people took the Coca-Cola that was clearly not theirs. The sole act of separating out the money from the product has strange results. Similar results were found with experiments exploring cheating on tests that resulted in a monetary reward -- people cheat less when they get paid in money -- they cheat more when they are given tokens that are then exchanged for money just down the hall!

 

And two, why would there be all of a sudden a big difference between getting a salary and then turning it into stock, or receiving exposure to the stock outright and not choosing to sell it (or only a small %)?

 

Already addressed above.