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Senomyx, Inc. (NASDAQ:SNMX)

Q2 2014 Earnings Conference Call

July 31, 2014 11:00 ET

Executives

Gwen Rosenberg - VP, IR and Corporate Communications

John Poyhonen - Chief Executive Officer

Sharon Wicker – SVP and Chief Commercial Development Officer

Tony Rogers – SVP and Chief Financial Officer

Don Karanewsky - SVP, Discovery and Chief Scientific Officer

Analysts

Serge Belanger - Needham & Company

Mike Malouf - Craig-Hallum Capital

Scott Henry - ROTH Capital

Chris Krueger - Lake Street

Justin Ruiss - Sidoti

Operator

Good morning. We will now begin the Senomyx Conference Call. At this time, I would like to inform you that this conference call is being recorded and that all participants are in a listen-only mode. At the request of the company, we will open the conference call up for questions and answers after the presentation. (Operator Instructions)

I would now like to turn the call over to Gwen Rosenberg, Senomyx Vice President of Investor Relations and Corporate Communications.

Gwen Rosenberg

Good morning and welcome to the Senomyx second quarter 2014 earnings and corporate update conference call. Participating in this call from Senomyx will be John Poyhonen, Chief Executive Officer; Sharon Wicker, Senior Vice President, Chief Commercial Development Officer; Tony Rogers, Senior Vice President and Chief Financial Officer; and Don Karanewsky, Senior Vice President, Discovery and Chief Scientific Officer.

Before we begin, please note that during the course of this call, we may make projections or other forward-looking statements regarding future events or financial performance of the company that involve risks and uncertainties. The company’s actual results may differ materially from the projections described in today’s press release and this conference call. Factors that might cause such a difference include, but are not limited to those discussed in our quarterly and annual reports filed with the SEC. Copies of these documents are available upon request from Investor Relations at Senomyx or maybe accessed via our website at www.senomyx.com.

I would now like to turn the discussion over to John Poyhonen, CEO of Senomyx.

John Poyhonen

Thank you, Gwen. Good morning to everyone and thank you for joining the Senomyx management team for our conference call and webcast. Senomyx’s Sweet Taste program is critical to our future success and we are very pleased with the recent key partnership intellectual property and regulatory developments in the program during the second quarter.

In May, we announced that PepsiCo exercised its option to extend our 2010 collaborative agreement related to the Sweet Taste program for an additional two years through August 2016. During the extended period, Senomyx will receive approximately $18 million in committed research funding payments and we will continue to be eligible for milestone payments. This is in addition to the $32 million in research funding for the initial four years of the collaboration and the $30 million that Senomyx received in upfront payments, which brings the total committed funding to over $80 million. Most importantly, we will receive royalty payments on PepsiCo’s use of any sweet flavor ingredients discovered and selected during the entire six-year research funding period. Royalty payments will continue through the life of patents that cover utilized flavor ingredient.

From an intellectual property perspective, Senomyx’s first patent for Sweetmyx S617 will be issued shortly and will be in force through December 4, 2033. It includes composition-of-matter claims for Sweetmyx S617 as well as a number of similar flavor modifiers for sucrose, fructose, and sucralose. As a reminder, Sweetmyx S617 is a novel flavor with modifying properties that can be used as part of a flavor system to maintain the taste and products in which a sweetener has been reduced, including a broad range of non-alcoholic beverages, alcoholic beverages, and a wide variety of foods. The FEMA GRAS determination received in March allows commercialization in the U.S. and in number of other important markets. PepsiCo has exclusive rights for use of Sweetmyx S617 and non-alcoholic beverages and Firmenich has rights for food and alcoholic beverages. We believe that we are still on track for the first commercialization of Sweetmyx S617 by a partner before the end of 2014.

Another recent advancement for the Sweet Taste program was the receipt of a positive safety determination for Sweetmyx SR96 which is also known as S9632. This was from JECFA or the Joint Expert Committee on Food Additives. SR96, a flavor modifier for sucrose-reduced products, is currently being commercialized by Senomyx and Firmenich based on the previously received FEMA GRAS designation for use in virtually all food and beverage product categories. JECFA determination allows usage or additional regulatory approvals of SR96 in many new international markets in Asia, Latin America and Africa.

Lastly regarding the Sweet Taste program, we have received notification that alcoholic beverages were added to the list of FEMA GRAS designated product categories – or Sweetmyx SR69 also known as S6973. SR69 was previously granted FEMA GRAS status for use in virtually all foods and selected beverages. As a reminder SR69 has received regulatory approvals allowing commercialization in Europe, Asia and in other areas of the world. It is being marketed by the both Firmenich and Senomyx under our direct sales effort.

Turning to the other developments during the past quarter, Senomyx received an important milestone with the FEMA GRAS regulatory approval of S2227, a novel cooling agent. S2227 has demonstrated preferred cooling properties and advantages over currently available agents such as menthol including greater potency, longer cooling duration and lack of undesirable aroma for certain applications. S2227 may be used in a variety of product categories including confectionaries, sauces, beverages and dairy products.

The estimated annual market for cooling agents is approximately $400 million based on a volume of 30,000 metric tons. Senomyx has the opportunity to receive royalties paid on the sales of cooling flavor systems which have an estimated market value of approximately $1.2 billion. The FEMA GRAS status allows Senomyx’s partner Firmenich to pursue commercialization of S2227 in the U.S. and in a number of other countries and assist with approvals in other regions of the world.

In summary since our last earnings call we have made important decisions to Senomyx’s committed research funding, intellectual property and flavor ingredient portfolio.

I will now turn the call over to Sharon Wicker, who will address Senomyx’s commercialization activities and she will be followed by Tony Rogers who will review our financial status and outlook. And I will return after the Q&A session for a few closing remarks. Sharon?

Sharon Wicker

Thank you, John. During the second quarter we saw continued progress in the direct sales of our Complimyx line of flavor ingredients to flavor companies. Most importantly we achieved our first meaningful direct sales orders from a flavor company that’s using a Senomyx ingredient in a flavor solution for one of its customers. Our previous sales have been for customer’s internal development purposes and this first sale for use in a consumer product is a significant step for our program.

To put this sales win in perspective I would like to provide some insight into our marketing strategy and sales cycle. Flavor companies also known as flavor houses sell their flavor solutions to consumer packaged goods or CPG clients by responding to project brief or proactively presenting new solutions. Normally a client will prepare a brief requesting a new flavor solution, which specifies sensory and other properties to be delivered in a new or a formulated product. Generally the brief will be sent to the clients three or four preferred flavor company suppliers with each competing for the business by developing a few customized flavor solution options intended to meet the specified flavor profile stability, sugar content, pricing or other outlined requirements.

In addition a flavor house may proactively develop a flavor system for a prototype application that is presented to a current or potentially new client. In this case the flavor house is looking to bring innovation to a client in order to create demand for a given flavor solution. In either scenario, Senomyx’s goal is to generate trial of our differentiated Complimyx flavor ingredients with flavor houses, so that they incorporate them into as many flavor solutions as possible thereby increasing their likelihood of wins.

Our sales process is a continuum that includes four major phases. The first phase is the flavor house evaluation. It starts with a Senomyx introductory presentation to a targeted flavor company, including taste tests of our offerings. The majority of our targeted flavor house customers have requested samples to conduct an internal evaluation of our flavor ingredients as well as to consider their potential use in flavor solutions they are developing for clients.

The second phase is flavor house product development. In this phase, the flavor house conducts an iterative development process to add our novel flavors into solutions for CPG clients, which includes both retail and foodservice companies. The key activities in this phase impacting Senomyx includes fulfilling small orders and re-sampling requests from flavor houses, completion of supplier qualification documents and responding to request for price quotations.

The third phase is client evaluation. This is the key phase as promising flavor solution options are presented to CPG clients. Each client has its own evaluation processing criteria for adoption of a new flavor, which includes meaning sensory, stability, technical, cost and use and other specifications. If the criteria are met, then the evaluation will advance to the final step, which is the client decision phase. In this phase, the CPG client completes its product development work and technical assessment, conducts consumer research and ultimately decides whether to move to commercialization with the new or reformulated product.

A positive client decision would result in a flavor house win and at this time, they would place orders with their ingredient suppliers, including Senomyx to support an initial product launch. The timeframe to complete all four phases in the process can be as short as six months that typically occurs over a 12-month to 24-month period. Based on ongoing discussions with our customers, we understand that our ingredients are currently representing all four stages of the sales process continuum.

During the second quarter, we received our first order for Senomyx ingredient that will be used in a commercial product. The value of this initial sale is approximately $100,000 and represents about a quarter of the annual demand for this win based on our customers’ forecast. In addition to continuing our outreach to target flavor companies, a secondary focus for our sales team is conducting demonstrations directly with CPG companies. We have met with many food and beverage companies to introduce them to our Complimyx offerings.

Our objective is to generate awareness of Senomyx’s flavor ingredients and create cost through the supply chain, which is when a CPG client approaches its flavor company suppliers to inquire about our unique new ingredients. We are encouraged by the positive response to our push and pull activities. The primary drivers for interest in the Sweetmyx flavor modifiers are the need for lower calorie products that truly satisfy consumer taste, pricing stability and potential cost savings compared to sugar. Interest in Savorymyx UM80 has exceeded expectations and the effectiveness of Bittermyx BB68 and reducing the bitterness of numerous ingredients is gaining attention. I look forward to reporting additional progress for our direct sales program during our next earnings call.

I will now turn the discussion to Tony Rogers, Senomyx’s CFO, who will provide an overview of our financial status and outlook.

Tony Rogers

Thank you, Sharon. Financial results for the first half of 2014 were consistent with management expectations and we remain on track to achieve our financial guidance. At June 30, 2014, Senomyx held $33.6 million in cash, cash equivalents and investments available for sale. Total revenues were $7.3 million for the second quarter ended June 30, 2014 and $7.7 million for the same period in 2013. Total revenues for the six months ended June 30, 2014 were $15.5 million compared to $15.1 million for the six months ended June 30, 2013.

Development revenues were $5.9 million for the second quarter of 2014 and $6.2 million for the second quarter of 2013. The decrease was primarily attributable to a change in the service period over which the upfront license fee related to PepsiCo Sweet Taste program collaboration is being recognized. PepsiCo’s election in May 2014 to extend the research funding period of the collaboration an additional two years to August 2016 effectively extended the service period by two years. There was no impact on operations or cash flow since the $30 million upfront license payment was received in 2010. The decrease was partially offset by $500,000 development milestone related to the cooling taste program.

Development revenues for the six months ended June 30, 2014 were $12.7 million compared to $12.2 million for the same period in 2013. The increase primarily resulted from $1.8 million of development milestones earned through June 30, 2014 partially offset by decreases in development cost reimbursement revenues and cooling taste program research funding.

Commercial revenues were $1.4 million for the second quarter of 2014 and $1.5 million for the second quarter of 2013. Commercial revenues were $2.9 million for each of the six months ended June 30, 2014 and 2013. These results reflect non-recurring revenues in the second quarter of 2013 related to a Savory Taste Program collaboration as well as direct sales and increases in other commercial revenues from Savory and Sweet Taste programs in the first half of 2014.

Research, development and patents expense, including non-cash stock-based expenses, decrease to $6.6 million for the second quarter of 2014 from $7 million in the second quarter of 2013. For the six-month period ended June 30, research, development and patents expenses decreased to $13.6 million in 2014 from $14.3 million in 2013. The primary factor for the decreases in expenses from 2013 to 2014 was reduced outside services cost for safety studies in support of regulatory filings.

Selling, general and administrative expenses, including non-cash stock-based expenses, were $3.3 million for the second quarter of 2014 and $2.9 million for the second quarter of 2013. Selling, general and administrative expenses for the six months ended June 30, 2014 were $6.4 million compared to $6 million for the six months ended June 30, 2013. The increases from 2013 to 2014 were due to increased non-cash stock-based expenses in 2014 resulting from a higher fair value for stock options granted in 2014 based on the higher price of Senomyx’s common stock.

The net loss for each of the quarters ended June 30, 2014 and 2013 was $0.06 per share. The net loss for the six months was $0.11 per share compared to $0.13 per share for the six months ended June 30, 2013.

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 toward the end of the year and our guidance assumes that Sweetmyx S617 will be commercialized by one of our partners in the second half of 2014. We also expect 2014 total operating expenses to be $44 million to $46 million, of which approximately $6 million is non-cash stock-based expense. Our net loss is anticipated to be between $10 million and $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. As Sharon explained, during the second quarter, we continued to make progress with our direct sales initiative highlighted by our first sales order of a product to be commercialized by a flavor company. We continue to expect that growth and commercial revenues over the next several years will be driven by direct sales and the Sweet Taste program collaboration with PepsiCo.

Finally, I would like to point out that today we are filing an S-3 registration statement commonly known as a shelf-registration statement with the Securities and Exchange Commission. The purpose of the shelf-registration statement is to allow company to pre-register securities for possible future issuance should there be a compelling strategic rationale to do so is widely considered a good corporate practice to maintain an active shelf-registration statement, which we have done since 2008. The S-3 to be filed today is intended to replace the one filed on 2011 that is said to expire in August.

We have not used the S-3 filed in 2011 and we do not have plans to use the one filed today. With $34 million in cash and no debt, as well as $29 million in committed development payments and $28 million in potential milestone payments under current collaboration, Senomyx remains well-positioned to achieve our discovery, development, and commercialization objectives, including our goal of achieving approximately $25 million in commercial revenues in 2015. Furthermore, we have no plans to raise money through the issuance of equity or debt and we will remain on track to achieve profitability in 2015.

I will now turn the call back over to the operator to open up for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from Serge Belanger from Needham & Company. Your line is open. Please go ahead.

Serge Belanger - Needham & Company

Hey, good morning.

John Poyhonen

Good morning, Serge.

Serge Belanger - Needham & Company

Just a question on 617, is there anything that happened in the second quarter either the granting of the patent by the patent office or the renewal with – for the collaboration with Pepsi that increased your confidence that one of your partners will launch a product before you are in?

John Poyhonen

Serge, during the quarter, we continue to have routine updates with both of our partners on their internal evaluation and plans for commercialization. So, I think that overall we have good visibility into the direction that they are headed and we remain confident that Sweetmyx S617 will be commercialized by one of our partners before the end of 2014.

Serge Belanger - Needham & Company

And then with the JECFA approval on SR96 trying to understand whether worldwide approval on this product in the direct sales portfolio are a gaining factor for potential customers to want to introduce them in their flavoring products?

John Poyhonen

So, I will take the – I think the first stab at that and then ask Sharon to join in if she has additional thoughts. Obviously, if you have global regulatory approval that’s beneficial when you are dealing with global companies from a direct sales standpoint, our flavor customers are dealing with companies that are global, but also some that only compete in certain regions of the world. So, I think that’s an important distinction. Most companies from a CPG perspective would tend to launch in an individual country or two and then roll it out more broadly. So, I don’t think it’s a real gating factor for us at this point. Obviously, we want to get as many regulatory approvals as quickly as we can and we have made great progress this year on that front. But we don’t believe that’s – it’s doing anything to delay the launches. Sharon, do you have anything to add?

Sharon Wicker

No, I think that covers it.

Serge Belanger - Needham & Company

Okay, thanks. That’s helpful. And then one last one on commercial revenues, I know you don’t break it out between direct sales and royalties, but if you can give us a little more info today on what direct sales were for the second quarter? Anything you can tell us about the royalties you are getting from Nestlé and Firmenich and what you think – how to think about them going forward?

John Poyhonen

Our commercial revenue as you know is composed of the existing royalty partnerships that we have. We have never provided specifics around that and really don’t intend to. I think what we have indicated is directionally we expect those to be fairly flat compared to the $4.6 million achieved during 2013. With respect to direct sales as you mentioned, Sharon indicated for the first time that we’ve actually had an initial order, which was a win and one quarter or so worth of demand represented approximately $100,000 in value to the company. That’s – that’s the majority of the direct sales for this quarter. The other direct sales tended to be more of the reorder and stocking for work with evaluations and presenting briefs on the brief solutions so, I think that’s about all we can say at this point.

Serge Belanger - Needham & Company

Okay, thank you.

John Poyhonen

Okay, thanks, Serge.

Operator

Thank you. And our next question comes from Mike Malouf from Craig-Hallum Capital. Your line is open. Please go ahead.

Mike Malouf - Craig-Hallum Capital

Great, thanks for taking my question. I wondered if we could drill down just a little bit on that – on the first product win, you talked about two types of products, one that was a prototype from the flavor houses and then maybe another one that was a response from the CPG companies. And I am wondering is this – was this either the prototype or a response?

John Poyhonen

I will have Sharon answer that, Mike.

Sharon Wicker

Sure. And so we are really excited about this first win that we got and the potential that it represents. Our flavor house customer currently plans to expand their work and usage and based on that we are really not in a position to say very much about the particulars that are behind this particular win. But I think in a general sense and again that’s not necessarily tied to this sale, in a general sense probably most of the business comes through reacting or responding to briefs from CPG clients because there is many of them out there on a regular basis. So every case has its own situation, but I think when you think about from an industry standpoint that’s where most of these will probably come from.

Mike Malouf – Craig-Hallum Capital

Okay. Great. And then I am wondering if you could get an update on the natural progress, either the natural sweet enhancers or the natural sweeteners that you have been working on? Thanks.

John Poyhonen

Sure, Mike. We have made excellent progress on the natural components of our Sweet Taste program. Earlier we have announced that for the first time ever we have actually identified a natural sweet taste modifier that allows for a significant reduction of sucrose. And we actually have been able to follow-up that with more potent versions of natural products. So I think from our perspective that’s been exciting. We also have what we believe our novel sweeteners and these are high potency sweeteners that would be considered natural. Where we are really out with both of these is because of the fractionation or really isolation of the natural material from the plant source that we need, it takes a while to get enough material to scale up and do the type of taste testing that you want. So that’s our key priority as we move forward and as scaling both of those leads up and just see how close we are in meeting the taste characteristics. We have done initial work and we know that we have the sweetness desired, but we have to also look at things like off taste lingering. We want to also look at the physical capabilities whether its solubility, stability, light stability those sorts of things. So, right now, our biggest go on the program is really getting enough material to follow-up on both of those.

Mike Malouf - Craig-Hallum Capital

Great. Thanks for the help.

John Poyhonen

Sure.

Operator

Thank you. Our next question comes from Scott Henry from ROTH Capital. Your line is open. Please go ahead.

Scott Henry – ROTH Capital

Thank you. A couple of questions, obviously that basket of commercial and direct sales have to pretty much double in the second half from the first half of the year. What I’m trying understand is, if you put it in the two baskets commercial sales and direct sales do you expect the growth to come largely from one of those baskets or is it a mix of the two?

John Poyhonen

So Scott, this is John. At the beginning of the year and this is the way that we continue to feel about this. We really believe that the growth in commercial revenue will be driven by our direct sales effort as well as commercialization of S617 our new Sweetmyx product. So between the two of those we believe that we are still in line to achieve our financial guidance. We haven’t provided any more clarity on what that looks like. And part of it is additional evaluations need to take place on Sweetmyx. Right now, as Sharon indicated we are in all four phases of the selling process and we have a number of very interesting quotes out to flavor companies that could generate meaningful direct sales. So it’s really going to be a mix, but as far as the actual weighting, I don’t believe we are prepared to say anything of this point.

Scott Henry – ROTH Capital

Okay. Now Pepsi is in the commercial basket, correct?

John Poyhonen

So, I would say that the way that we would look at theirs is they would be in – potentially in the S617 commercialization. And we have said that we expect direct sales and S617 revenues will really drive our growth in the future, so that’s not just in 2014 but beyond. But we haven’t been done specific on which of our partners will commercialize in 2014.

Scott Henry – ROTH Capital

Okay. And then I look at the income statement R&D, SG&A were a little lower than expected in 2Q, should I expect a significant uptick in the second half of the year certainly if you get in line with your guidance on expenses?

Tony Rogers

Yes, Scott this is Tony. So, yes, I think that we will see a little bit of an increase in expenses driven by two things. One is cost of commercial revenues, if you look at our guidance we said it intimates that the cost of commercial revenues will be between $1.5 million and $2.5 million for the year. So that will be one driver. I also expect an increase in outside services R&D expense as well. So, as you suggest our guidance does indicate that we will have higher expenses in second half and I see those two things being the driver.

Scott Henry - ROTH Capital

Okay. And then the final question I thought that was helpful discussion on the four phases and where you are within that? And I guess my question is as you reach a steady state, how many customers would you expect to place orders in a quarter? I mean, it sounds like you have one customer placed an order this quarter. What are we, are we looking to get to 5 or 6, are we looking to get to 10? When you are at a steady state, where would you expect to be?

John Poyhonen

Well, I think that from our perspective, it’s a bit premature to predict, but our audiences is probably closer to 80 flavor companies that we are working with, Scott and we would certainly hope at some point that all 80 of those companies are ordering from us.

Scott Henry - ROTH Capital

Okay, that’s helpful. So, there are about 80 flavor houses.

John Poyhonen

Right. And keep in mind that the top 11 flavor houses represent 81% of the business. So, we are definitely allocating our resources appropriately, where the largest customers are, but there are also some very interesting smaller and midsize flavor houses that tend to be very quick to add.

Sharon Wicker

Yes, the numbers we have quoted are more U.S. focused to outside of the top 10 or 11 global, right.

John Poyhonen

Right.

Scott Henry - ROTH Capital

Okay. And of those 80 flavor houses, how many are you in discussions with currently or I am just trying to get an idea of how we can gauge progress?

Sharon Wicker

Sure. Scott, we with our sales organization, they each have their target customers and we have made great headway in virtually contacting everyone on our target list of potentially those 80 that John has talked about that again are tend to be more U.S. focused outside of the global companies. So, they are in various stages of discussion and levels of interest, but I think we are out really penetrating the market.

Scott Henry - ROTH Capital

Okay, alright, great. Well, thank you for taking the questions.

John Poyhonen

Okay, thanks Scott.

Operator

Thank you. Our next question comes from Chris Krueger from Lake Street. Your line is open. Please go ahead.

Chris Krueger - Lake Street

Good morning.

John Poyhonen

Good morning, Chris.

Chris Krueger - Lake Street

Hi. Another question related to your direct selling efforts, can you give us a little bit of a recap, I am a little bit newer to the story, just when those efforts began and what you had to do as far as hiring people if there is more to go there?

John Poyhonen

Yes. So, we actually announced the direct sales in March of last year that we have made the decision. And at that point, we have not hired any of the staff that we have in place. By the end of the third quarter last year, we had everyone hired that was part of our initial hiring plan and that included both from a demand creation, our account management team, also our supply chain work that we have done. So, we have made really what I believe is tremendous progress over the last year. If you look at where we were a year ago at this time, we only had one product. We didn’t have anything that had been commercially scaled up. At this time, we have four products in our product portfolio. We have got commercial supply of three of those with another to come by the end of the third quarter. We have got a sales team in place. And we think we have got a lot of interest in the marketplace. So, Sharon, do you have anything that you wanted to add to that?

Sharon Wicker

No, no that’s accurate.

Chris Krueger - Lake Street

Alright. I am following up on that, I know you stated that four phases can be as shirt as six months, but 12 to 24 months is more likely. So, as we get into the third quarter and fourth quarter into next year, I mean is there growing pipeline of customers, kind of hitting that 12 months mark?

Sharon Wicker

Sure. Let me try to give a little bit of additional color to that. I guess, building on what John did just say how we put the organization in place, we really started actively calling on the target flavor companies about this time and started about this time a year ago. So, again get to all of them at once, but as you go out and make presentations bring in the samples, I mean, I think, yes, things are ramping up. You can get lucky and hit on the earlier side of the six months. But in general, it is 12 to 24 months just given the steps that have to occur that kind of describe. So, I mean, yes, I mean, I think all along we have said that, our revenues will build just the year goes on and into the future. So, it’s – that pipeline is starting to materialize and we’ll view it growing from there.

John Poyhonen

One of the other advantages we had Chris as we did a tremendous amount of due diligence upfront before we made the decision and actually started working with some key flavor companies prior to even announcing that. So, some of the companies have benefit further along in the process than the once that Sharon mentioned that kind of started about this time last year.

Chris Krueger - Lake Street

Okay, one other question, I know I believe Coca-Cola launched a light product in Sweden, just with your partners and your customers and flavor companies and industry people in general. Is there an increasing sense of urgency that to come up with these reduced shared products at the same environment as you’ve seen in the past couple of years?

John Poyhonen

I would say based on feedback that we’re getting from CPG companies and flavor companies. It’s kind of the perfect storm right now. Companies for years have been looking to take calories out of their product. But they want to do it with great tasting solutions and I think that’s what we’re really differentiate ourselves from anyone else. There are number of solutions where you can reduce calories. But we don’t believe that anyone else can reduce it and maintain great taste like you can when you use our flavors as part of the flavor system.

Chris Krueger – Lake Street

Alright, thanks a lot, that’s all I had.

John Poyhonen

Okay. Thanks Chris.

Operator

Thank you. Our next question comes from Justin Ruiss from Sidoti. Your line is open. Please go ahead.

Justin Ruiss - Sidoti

Good morning. I just had a quick question when it comes to the cooling agent. Now that you have the GRAS approval, will you be awarding anymore resources towards that part of those programs going forward.

John Poyhonen

It’s a very good question, Justin, and I think what we’re doing right now is, it was one of the most fruitful of all of our programs from a discovery perspective. We have already discovered a number of other interesting cooling agents. That we’re considering for an actual addition to our direct sales portfolio at sometime into the future. But it really isn’t going to be a dedicated continuing effort from a discovery standpoint.

Justin Ruiss – Sidoti

And then the only other question I have was really looks like soft kind of take a backseat. Is there anything new on that front or is it – is there anything to discuss?

John Poyhonen

Well, it’s obviously a very important need in the marketplace. And during the last call and really during the earnings press release, we indicated that we’re continuing to work with a small group of proteins. What we’re doing more specifically as we’re actually screening against those proteins and looking for flavors that produced a taste effect that would validate the target and allow us to do broader screening program. So, I think that this program has been ongoing from number of years in the company and while we’re excited that we’ve limited the list of potential target candidates, we also want to be cautious and not say too much until we actually deliver on the result.

Justin Ruiss – Sidoti

Got it. Alright, perfect, thank you.

John Poyhonen

Okay, thank you.

Operator

Thank you. And I’m showing no further questions at this time. I would like to turn the call back over to Mr. Poyhonen to conclude.

John Poyhonen

I would like to thank all of you for participating in our call today and leave you with the few highlights regarding Senomyx’s progress. At the beginning of the year, we identified three key areas of focus for our 2014 effort. The first is continued to grow, protect, and maximize our unmatched expertise and key science technologies. Second is the expansion of our flavor ingredient pipeline for our collaborators and flavor industry customers. And third, is the successful implementation of our direct sales program as measured by our ability to drive commercial revenues.

During the first half of the year, we made progress in each of these areas of focus. We add it to Senomyx’s intellectual property portfolio including the important patent covering Sweetmyx S617. We are granted new regulatory approvals for Sweetmyx S617 and SR96 as well as S2227, our new cooling agent, which opens additional commercial opportunities for Senomyx and our partners. In regard to our direct sales program, we achieved the first sales order for a commercial win as our push and pull strategies are beginning to gain traction. In addition, we also added to Senomyx’s research funding with the extension of our Sweet Taste program collaboration with PepsiCo as well as the PepsiCo research agreement for our Salt Taste program that was initiated earlier this year. In summary, during the first half of 2014, we have continued to build value as we positioned Senomyx for future success. We thank you for your interest in Senomyx and look forward to updating you on our next earnings call.

Operator

Ladies and gentlemen, this concludes our conference call for today. All parties may now disconnect.

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