Senomyx CEO Discusses Q4 2010 Results - Earnings Call Transcript

| About: Senomyx, Inc. (SNMX)

Senomyx, Inc. (NASDAQ:SNMX)

Q4 2010 Earnings Conference Call

March 3, 2011, 11:00 am ET

Executives

Gwen Rosenberg – VP, IR and Corporate Communications

Kent Snyder – CEO

John Poyhonen – President and COO

Tony Rogers – VP and CFO

Don Karanewsky – SVP, Discovery and Chief Scientific Officer

Sharon Wicker – SVP and Chief Commercial Development Officer

Analysts

Andrew Vaino – Roth Capital Partners

Dalton Chandler – Needham and Company

Doug Thomas – JET Investment Research

Operator

Good morning. We’ll now begin the Senomyx fourth quarter 2010 conference call. At this time, I would like to inform you that this conference call is being recorded and that all participants are in listen-only mode. At the request of the company, we will open the conference up for questions and answers after the presentation. If you any problem hearing the call, please key star zero and the conference operator will assist you. And now I would like to turn the call over to Gwen Rosenberg, Senomyx Vice President of Investor Relations and Corporate Communications. Please go ahead.

Gwen Rosenberg

Good morning and welcome to the Senomyx fourth quarter and year end 2010 earnings and corporate update conference call. Participating in this call from Senomyx will be Kent Snyder, Chief Executive Officer; John Poyhonen, President and Chief Operating Officer; and Tony Rogers, Vice President and Chief Financial Officer; Don Karanewsky, Senior Vice President, Discovery and Chief Scientific Officer and Sharon Wicker, Senior Vice President and Chief Commercial Development 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 involves risks and uncertainties. The company's actual results may differ materially from the projections described in the 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 may be accessed via our website at www.senomyx.com. I'd now like to turn the discussion over to Kent Snyder, CEO of Senomyx.

Kent Snyder

Thank you, Gwen. Good morning to everyone, and thank you for the joining Senomyx management team for our conference call on webcast. During this call, we’ll provide you with a general business and financial update with a 2010 fourth quarter and year end, including comments regarding Senomyx’ business strategy and corporate collaborations. This will be followed by a question and answer session. 2010 was an outstanding year for Senomyx. Our accomplishments included an improved balance sheet, numerous business development achievements, value progress of our flavor and flavor modulation programs and increased commercialization efforts by three of our partners.

Senomyx improved each of our key financial metrics in 2010 compared to the prior year and we achieved record annual revenue while continuing to carefully manage our expenses. As a result, we are considering [ph] our net loss from $26.2 million in 2009 to $10.7 million in 2010. We also increased our cash position by more than $40 million putting us in an excellent financial position going forward. Tony will provide a more detailed financial review here, as well as guidance for 2011 later during the call.

Our business development accomplishments were our highlight of 2010. Our collaboration with PepsiCo in August provided a $30 million upfront payment to Senomyx and a committed source of R&D funding through August 2014. A notable aspect of both this collaboration and a recently expanded complementary agreement with Firmenich is financial support for a new focus on the discovery and development of natural flavor enhancers for the Sweet Taste Program.

Another business development achievement in 2010 was the expansion of our commercialization agreement with Firmenich regarding our S6973 sucrose enhancer to include selected beverage applications in addition to virtually all food product categories Snyder stated. Importantly, Firmenich has demonstrated that use of S6973 allows sucrose to be reduced in products by up to 50%, yet the sweet taste desired by consumers is maintained. As John will discuss shortly, we are very enthusiastic that our Firmenich’s activities regarding market launch of S6973.

John will also talk about Firmenich’s recent sale of commercial quantities of S2383, Senomyx’s highly effective Super Less enhancer. We believe that Firmenich is highly motivated and well positioned to take advantage of the market opportunities for S2383.

2011 started off very well with our announcement in January of another new partnership, our collaboration with the Cadbury Adams unit of Kraft Foods regarding the development and worldwide commercialization of novel flavor modulators for use in gum and medicated confectionary products. Kraft has agreed to take Senomyx development funding, cost reimbursements and specified payments upon the achievement of milestones during the collaborating period. Kraft may evaluate and select flavor ingredients for commercialization, after which Senomyx will receive royalty payments based on sales of products using the new flavor ingredients. We are very pleased to be working with Kraft team on this collaboration.

I am happy to announce today that Firmenich has exercised its options to extend the research funding period of our collaboration related to Senomyx Sweet Taste Technology for an additional year through July 28, 2012. As we have discussed previously, this research program is focused on discovery and development of both natural and artificial flavor ingredients intended to enhance the taste of sucrose, fructose and varied forms of Rebaudioside A, commonly known as stevia. Firmenich will continue to provide committed funding through the extended research period and Senomyx will receive royalty payments based on sales of products using any new flavor ingredients that Firmenich selects for development and commercialization.

The agreement with Firmenich complements Senomyx’s collaboration with PepsiCo which is focused on the discovery, development and commercialization of natural and artificial enhancers of sucrose and fructose for use in non-alcoholic beverages.

Turning to the R&D front, we had a number of important scientific and regulatory accomplishments during 2010. Highlights included the receipt of GRAS or Generally Recognized As Safe regulatory designations for two of our bitter blockers S6821 and S7958.

The GRAS regulatory status allows usage of flavor ingredients for designated product categories in the US and numerous other countries. Senomyx has now achieved GRAS designations for eight novel ingredients which include four savory flavors, our S2383 Super Less enhancer and our S6973 sucrose enhancer, as well as the two bitter blockers.

As you may recall, the primary goals of our bitter blockers program are to reduce or block bitter taste and to improve the overall taste characteristics of foods, beverages and ingredients. S6821 has demonstrated the activity against bitter taste in foods and beverages that include soy and proteins, menthol, caffeine, coco, and Rebaudioside A or stevia; S7958, a related bitter blocker with similar functionality as alternative desirable physical properties that may be useful for these or other product applications. S6821 is currently evaluation by Senomyx collaborators for potential future commercialization.

We cannot name these collaborators at this time due to confidentiality considerations but we will provide additional information about their activities when possible. As we discussed, our Sweet Taste Program received much attention during 2010. The primary goal for this program is to identify flavor ingredients that allow a significant reduction of sweeteners in food and beverage products while maintaining the desire to retaste.

Senomyx has demonstrated success with the discovery, development and perhaps regulatory approvals of S2383 which enables up to a 75% reduction of sucralose in products and S6973 which increase sucrose sweeteners allowing a reducing a sucrose content. We are very encouraged by the progress made with new sucrose enhancers that have distinct physical properties which may be advantageous for a broad range of beverages and other product applications. Currently, we and our partners are evaluating several new sucrose enhancers and various product prototypes. This includes investing since reevaluation and profiling the enhancers all of which could lead to selections for development later on this year. We’ll keep you updated as progress is achieved in this important program.

Senomyx is also working to discover and develop new flavor ingredients that amplify the sweet taste of fructose, component of high-fructose corn syrup. Recent advances included the identification of potential new enhancers that have demonstrated activity in our proprietary screening assays. We currently optimizing several candidates and conducting taste tests to indentify fructose enhancers with the desired characteristics. During 2010 Senomyx initiated a new effort to discover and develop natural high potency sweeteners. Our scientists have begun high-throughput screening of the company’s natural products library. This is an important new focus for Senomyx and I’m looking forward to reporting on its progress during future quarterly calls.

Moving to our Salt Taste Program, the goal of this program is to identify flavor ingredients that allow a significant reduction of sodium in foods and beverages yet maintain the salty taste desirable to consumers. This effort involves chemistry and biology approaches, including assessing the components of Senomyx's proprietary database of proteins found in taste buds. We’re exploring the role of a number of these proteins that may function as receptors or co-factors responsible for salt taste perception. Our work in this area is cutting-edge research that is a high priority for Senomyx. We believe the discovery of the protein or proteins that function as the salt taste receptor could lead to identifying an enhancer of salt taste. There is a large amount of unmet need for an ingredient that allows consumers to limit their sodium intake without sacrificing taste.

While we cannot predict the timing for a discovery of the receptor or identification of an enhancer, we are optimistic about the prospects for the salt taste program.

Lastly, regarding our discovery and development program, the goal of our Cooling Flavors Program is to identify novel cooling flavors that do not have the limitations of currently available agents. Senomyx has discovered several sample classes of new cooling flavors that demonstrate a taste proof-of-concept and display cooling properties that exceed those of commonly used agents.

During the fourth quarter of 2010 we extended the research period of our Cooling Flavors collaboration with Firmenich for an additional two years. Senomyx and Firmenich are currently evaluating promising candidate cooling flavors in product prototypes for use in specific applications.

I’d also like to note that in addition to other activities, Senomyx is diligent in seeking protection for our intellectual property. As we announced recently, 2010 was a productive year during which we increased our intellectual property portfolio by 50 issued patents. As of December 2010, Senomyx is the owner or exclusive licensee of 230 issued patents and several hundred pending patent applications related to proprietary taste receptor technologies in the U.S., Europe, and elsewhere. Technologies covered in the company's patents include the taste receptor sequences and functions, screening assays, new flavor ingredients, and product applications.

In management news, Lorenzo Pena has been promoted from Executive Director to Vice President, Information Technology. Lorenzo has been at Senomyx almost 11 years managing our Information Technology group, as well as recently assuming leadership of our Informatics department.

Prior to joining Senomyx, he held senior positions at a biotechnology company and a software/hardware development company. Senomyx's Information Technology and Informatics departments support some of our most critical discovery operations and workflows, including chemistry and biology activities, taste testing, product development, and project tracking. We appreciate the significant contributions Mr. Lorenzo has made to the company and welcome him to the management team. I’ll now turn the discussion over to John Poyhonen, who will provide an update on business and commercialization activities. John?

John Poyhonen

Thank you, Kent. I’ll begin my remarks with a few comments about our collaboration agreements and then I’ll discuss our partners’ commercialization efforts. As Kent noted, 2010 was an exception year on the business development front. Our new and expanded agreements with Firmenich, as well as our new collaboration with PepsiCo not only improved our financial position but they provided additional validation of the strength of our technologies, expertise and business model. There’s also been a rewarding start with 2011 a new agreement with Kraft and new extension of our Sweet Enhancer collaboration with Firmenich. As mentioned in this morning’s press release, our agreement with Campbell Soup Company regarding the Salt Taste Program will expire at the end of March and we do not expect that it will be extended.

Campbell’s rights were related to the use of new salt taste enhancers that improve the taste of wet and savory beverages. These rights were limited to the term of the agreements and upon expiration of the agreement, all rights will be returned to Senomyx. Based upon our discussions with Campbell and their public comments, it is our understanding there be shipping away from further sodium reduction and concentrating their efforts on the taste profile of their products and growing their business. In fact, the Wall Street Journal in late November reported that Campbell feels their challenge is to focus on better taste and exciting varieties. We appreciate Campbell’s support during our collaboration and we are pleased our relationship with them remains very positive.

Based upon what we hear from major consumer product companies, club professionals and government authorities, Senomyx continues to believe that sodium reduction remains a major health issue. We want to emphasize that the expiration of Campbell agreements will have no impact on our commitment to the Salt Taste Program or in any of Senomyx’s discovery and development activities which will continue uninterrupted.

Although the Salt Program is still in an early stage, we are hopeful that we will be able to provide enhancers of salt taste that allow for a meaningful reduction in the sodium content of foods and beverages. We believe that the best time to enter into a collaborative agreement for the Salt Program is when we’ve achieved additional progress in identifying the salt taste receptor before we’ve discovered an enhancer that provides a taste proof-of-concept success. Our experiences with our agreements with PepsiCo and Firmenich regarding the Sweet Taste Program have demonstrated that we were able to maximize the commercial value of our program in terms of upfront and milestone payments and more favorable royalty arrangements as we advance the program and reduce risk.

Next I’ll cover the current commercialization activities of our partners, as we’ve discussed previously, Nestlé, the world's largest food and beverage company, has been conducting marketing activities with Senomyx's Savory Flavors, which are intended to reduce or replace added monosodium glutamate or MSG in foods. Nestle's commercialization efforts were expanded in 2010 to reformulated established products that contain these ingredients. Ongoing activities include launches of new and reformulated products that incorporate Senomyx's Savory Flavor ingredients in Asia, Latin America, Africa, and the Middle East.

We previously shared with Senomyx’s receipt from the European Food Safety Authority, also known as EFSA of a favorable opinion for S336, our S807 Savory Flavors, which means that no further evaluation is required. Final regulatory approval and commercialization in the European Union is contingent upon the ingredients being included in the EFSA Union List. EFSA had previously targeted publication of the Union List by the end of 2010; however, the list is not yet published and there has not been an official update. Approval to use Senomyx's Savory Flavor ingredients in Europe could create a new market opportunity for Nestle.

Ajinomoto, a leading global manufacturer of food and culinary products, has also been introducing products that contain a Senomyx flavor ingredient in China and elsewhere. Ajinomoto increased the number of products launched during 2010 and recently reported its first sales in North America. Senomyx earned a milestone payment in the first quarter of 2011 based on Ajinomoto's recent commercialization activity.

As you know, Firmenich, a global leader in providing ingredients and flavor systems to major consumer companies, has exclusive worldwide rights to market S2383, Senomyx's extremely effective enhancer of the high-intensity sweetener sucralose, as either a stand-alone ingredient or as part of a flavor system in all food and beverage product categories.

During the fourth quarter, Firmenich received initial orders and more recently they processed additional orders for commercial quantities of S2383. They are currently engaged in marketing activities with other major clients for use of S2383 in beverages, cereal, dairy products, baked goods, and confectionary products. The feedback from potential customers regarding the taste profile and other characteristics of S2383 has been very favorable.

We believe the future introduction of products containing our sucralose enhancer by a consumer company is a positive event for Senomyx. Firmenich also has exclusive worldwide rights to commercialize the company’s S6973 sucrose enhancer for virtually all food and specified beverage categories. We believe S6973 commercialization may benefit from a perfect confluence of three factors.

One, as alluded earlier, increased concerns about nutrition and health are compelling food and beverage companies to offer products with reduced sugar and calories. Two, the high price of sugar makes it appealing to manufacture to use flavor ingredients that could also allow them to reduce up to half the sugar content in their products. And finally, reduced sugar utilization is a positive impact on sustainability and costs including reduced water usage associated with processing sugar and transportation expenses.

Given these factors, along with Firmenich’s preliminary feedback from their customers, S6973 has the taste and function attributes required for wide acceptance. Importantly, it allows significant sucrose reduction while maintaining the taste of a fully sugar sweetened products and it’s already been manufactured in commercial scale quantities.

In addition, Firmenich is an ambitious commercialization partner with world-class capabilities and major brand companies as customers. Of course, food and beverage companies conduct thorough evaluations of new ingredients before launching new products or changing formulations. So it is difficult to predict the speed of the uptake for 6973, however, the factors I outlined gives us confidence that S6973 will achieve commercial sales in 2011 and it’s positioned to do well in the marketplace. This completes my updates. Tony Rogers, Senomyx’s CFO, will now provide financial overview of the company.

Tony Rogers

Thank you, John. Revenues were $9.5 million for the fourth quarter in 2010, compared to $4.9 million for the fourth quarter of 2009, an increase of 95%. Revenues were $28.7 million for the year ended December 31, 2010, compared to $15.5 million for the year ended December 31, 2009, an increase of 85%. Included in annual revenues is $2.6 million in commercial revenue, of which $500,000 is related to a one-time commercial milestone.

The increases in revenues for the fourth quarter and the year were primarily due to the recognition of license fees and R&D funding revenue related to the company's August 2009 Sweet Program collaboration with Firmenich and its August 2010 collaboration with PepsiCo. License fees and R&D funding related to these collaborations contributed $7.5 million and $18.3 million for the three and twelve month periods ending December 31, 2010, respectively. Also contributing to the annual increase was a total of $3.8 million in non-recurring milestone payments and cost reimbursements from collaborators.

Research and development expenses, including stock-based compensation expense, were $6.6 million for the fourth quarter of 2010, compared to $5.8 million for the fourth quarter of 2009, an increase of 14%. The increase was primarily due to increased costs for contracted development activities related to regulatory submissions, expenditures for compound acquisition and related high-throughput screening activities, and personnel-related expenses during the fourth quarter.

Research and development expenses, including stock-based compensation expense, were $26.6 million for the year ended December 31, 2010, compared to $28.2 million for the year ended December 31, 2009, a decrease of 6%. The year-over-year decrease was primarily due to reduced personnel-related expenses, expenditures for compound acquisition and related high-throughput screening activities, and reduced depreciation expense. These decreases were partially offset by increased expenditures for software licenses used for R&D activities and costs for contracted development activities related to regulatory submissions.

General and administrative expenses, including stock-based compensation expense, were $3.6 million for the fourth quarter of 2010, compared to $3.7 million for the fourth quarter of 2009, a decrease of 3%. General and administrative expenses, including stock-based compensation expense, were $13.1 million for the year ended December 31, 2010, compared to $13.7 million for the year ended December 31, 2009, a decrease of 4%. These decreases were primarily due to lower stock-based compensation expense.

The net loss for the fourth quarter of 2010 was $0.01 per share, compared to a net loss of $0.15 per share for the fourth quarter of 2009. The net loss for the year ended December 31, 2010 was $0.28 per share, compared to $0.85 per share for the year ended December 31, 2009.

I’d now like to discuss our financial outlook. Process my comments by noting that a number of shareholders and analysts have requested us to provide insights which are our expectations on the present year. We appreciate your interest and we are exploring ways to satisfy your request within the bounds of our confidentiality obligation and our current limited visibility into the commercial uptake of products incorporating our flavor ingredients. As Kent and John noted, 2010 was an exceptional year financially for Senomyx and we are looking forward to a strong 2011 including continuing our trend of increasing revenue and improving net loss.

For the year 2011, Senomyx expects total revenues of $30 million to $34 million; total expenses of $42 million to $44 million, of which approximately $4 million to $5 million is non-cash, stock-based expense; net loss of $8 million to $10 million; basic and diluted net loss of $0.21 to $0.26 per share; and year-end cash, cash equivalents and investments available for sale balance greater than $50 million.

Regarding revenue, during 2011 we expect to recognize approximately $4 million in commercial revenue. We anticipate that commercial revenue growth over the next several years will be driven primarily by commercialization of products from our Sweet Taste Program, as well as flavors and flavor modulators from our Savory Flavors, Bitter Blockers, and Cooling Flavor programs.

Going forward, as we gain greater insights on the market adoption of our commercialized products, we anticipate providing additional visibility regarding our commercial revenue projections.

Regarding development revenue, our existing collaborations provide us with considerable ongoing funding. We have approximately $74 million of development revenue commitments, which we expect to recognize as revenue beginning in 2011 through August 2014. Of this amount, approximately $38 million of the related cash has been received as of December 31, 2010 and is represented as deferred revenue on our balance sheet. We therefore expect to receive approximately $36 million in new additional cash based on these existing commitments.

The majority of our deferred revenue balance at December 31, 2010 is comprised of $27.5 million related to upfront payments from PepsiCo and $7.1 million related to upfront payments from Firmenich. In 2011, we expect to recognize as revenue $7.5 million of the PepsiCo upfront payment deferred revenue and $5 million of the Firmenich upfront payment deferred revenue.

In addition to our committed development funding, we may receive up to an incremental $26 million related to potential extensions of existing collaborations, and we have approximately $29 million in milestone opportunities under existing agreements. Any future new collaborative agreements may also increase our development revenue.

As for expenditures, our goal is to manage annual expenditures over the next several years to be relatively flat, although it is possible that we will continue to experience quarterly fluctuations of our expenses. We have a significant amount of control over expenditures, including the ability to reallocate resources if necessary.

In regards to cash requirements, based on our current balance sheet, committed collaborator funding, and our long-range financial goals, we do not have plans to raise additional capital from investors to fund existing operations. However, we routinely monitor and evaluate opportunities to increase shareholder value and we may access the capital markets in the future if there are compelling reasons to do so. I would now turn the call back over to our operator to open it up to questions.

Question-and-Answer Session

Operator

Thank you. The question and answer session will begin at this time. (Operator instructions) And your first question, Mr. Sydney is from the line of Andrew Vaino, Roth Capital Partners. Please go ahead.

Andrew Vaino – Roth Capital Partners

Thank you. Just quickly on the bitter blocker, what is the degree of confidence that you have that one of them will be commercialized in 2011?

Kent Snyder

John, you want to comment on that?

John Poyhonen

Sure. Well, right now, our partners are evaluating the two bitter blockers that we have that have received demographic termination. So until they have completed their evaluation process, it’s hard to predict, I know that from our own internal work, we’ve seen that save the ability to significantly reduce the bitter taste associated with a number of ingredients used in food and beverages. So we are encouraged about the performance of it, but until our partners have finalized it, it would be difficult to predict. We wouldn’t expect commercial sales though to occur during 2011 from either partner even if they were to select and move into commercialization.

Andrew Vaino – Roth Capital Partners

Okay. On the Salt Program which sounds as though Campbell is going to discontinue, how long will you continue to pursue Salt Enhancers in the absence of a partnership.

Kent Snyder

Andy, this is Kent. We continue to believe based upon what we hear from a variety of companies, from health professionals, from government agencies that sodium intake remains a key health issue and we are committed to this program. We feel that we have the critical math and the intelligence base here at the salt problem. So we are committed to carrying out this program for as long as we feel that there is an opportunity to be successful and as long as there is a need in the marketplace.

Andrew Vaino – Roth Capital Partners

Okay. Any guidance on the possibility that Nestle introduces the Savory product in North America or the EU?

Kent Snyder

With respect to Nestle’s rights, they do not currently have rights within North America for the Savory Flavor program, they do – in fact, have raised in the EU and as I mentioned. Right now, we are waiting on the EFSA, the European Food and Safety Authority to publish their Union List which would allow our commercialization of our flavor ingredients. They have reviewed our agreements, our ingredient tracker and everything went through very smoothly.

John Poyhonen

The information we are getting right now, and it is in an official publication. So I want to make sure I’m clarifying that, but through the European Flavor Association, they believe that it actually will be adopted in the first half of 2011 with a publication likely to be by the end of 2011. So from a timeframe, that’s the best competitive information that we have regarding our regulatory approval.

Andrew Vaino – Roth Capital Partners

Okay. And then lastly, you make the economic argument that using less sugar just from a materials cost point of view is an economic benefit, can you comment at all on what that economic benefit would be specifically?

Kent Snyder

Well, I think it really depends on the product that you are looking at in the amount of sucrose that you are able to remove from –

Andrew Vaino – Roth Capital Partners

that you can reduce the amount of sucrose by 50% using your product and wouldn’t the economic benefit be based on the addition of the cost of your product.

Kent Snyder

Right. And I don’t mean to be very guarded, Andy. I think the reality is it depends on how much sugar you are using to start off with the product. So, different products at varying degrees of sucrose there is also a factor if you have to add something backend that maybe required others on – that may offset the cost of our ingredient. So each situation is a bit different.

John Poyhonen

Andy, I think – the economic benefits, the real key here is to help – benefit by decreasing sugar and decreasing calorie and then we continue to hear, that is a key situation from companies out there that have a lot of sugar in their products.

Andrew Vaino – Roth Capital Partners

Okay. Thank you

Kent Snyder

Thank you.

Operator

Your next question comes from the line of Dalton Chandler, Needham and Company. Please go ahead.

Dalton Chandler – Needham and Company

Hi, good morning. I just wanted to clarify from your comments on Nestle, do they actually have reformulated product on the shelf in some geographies?

Sharon Wicker

Dalton, this is Sharon. I’ll address that. Yes, they do have reformulated beverage products that incorporate the savory ingredient and are being sold.

Dalton Chandler – Needham and Company

I mean, does that have some implications for Europe such that as soon as you finally get this approval, they could be on the market sooner rather than later?

Sharon Wicker

Well, I think as it relates to your opinion, yes, that is a large opportunity for Nestle, we’ve discussed previously that a large percentage of their portfolio for which they hold rights are – do come from the European market. However – but however, I would not expect that once published and ready to go that they would be on the market immediately. We need to continue to do some market activities once that list is published. The other thing is they can draw from the products that they are marketing in other areas, so I think there are also other products outside of the realm of what they are marketing in other regions that they might want to incorporate for the savory ingredient in the European markets.

Dalton Chandler – Needham and Company

Okay.

Sharon Wicker

That could obviously take a little bit longer.

Dalton Chandler – Needham and Company

Okay, thanks. And then, with regard to the Cooling opportunity, you mentioned that some of the things on the market that they have limitations, could you just, I guess, describe that in some more detail and how you might be able to overcome some of those?

John Poyhonen

This is John. The collaboration looks at overcoming some key characteristics. So for example, menthol has an odor, an aroma associated with it. So, in certain product types, you would want something that provides a very strong cooling effect without that aroma. In addition, most consumer product companies are looking for ways to really increase the cooling sensation that their products provide that can be initial onset in the cooling that occurs or longer-lasting. So we are looking at both of those. As you’ve looked at the cooling agents that are currently available whether it’s menthol or WS3 [ph] as you push up on the concentrations that they use. There can be off-tastes [ph] including bitterness associated with that. So we think there is a wide variety of opportunities that would really work well whether in a beverage, a confectionary, oral healthcare, all those types of opportunities we see as being very promising.

Dalton Chandler – Needham and Company

Okay. And then just on the Salt Program, I think you said it doesn’t consumer a lot of resources today, could you just give us some sense of what part of R&D is committed to that?

Kent Snyder

Sure, Dalton. This is Kent. We haven’t really commented in the past on the number of resources that are associated with any of our programs. So I won’t give you too many specifics here. But what we can say is that at this point in time, it’s really a biology stage program. So a significant part of the biology efforts that are ongoing here at Senomyx are dedicated to the Salt Program, but we think it’s the appropriate amount of resources committed at this time and as I mentioned, we are committed to carrying out the program.

Dalton Chandler – Needham and Company

Okay. Thanks a lot.

Kent Snyder

Thank you, Dalton.

Operator

Your next question is from the line of Doug Thomas of JET Investment Research. Please go ahead.

Doug Thomas – JET Investment Research

Release and call, I appreciate the information. Kent, I was wondering if you could – just a follow-up on the question about the Salt Program, could you talk about – I know obviously with respect to your partnership with Pepsi, they also have a little snack foods business that they have and I was wondering if sort of relative to the Co Pepsi transition that we saw not too long ago, is it possible that one of your partners Firmenich or Pepsi might express an interest in taking over all of that intellectual property and progressing with the partnership with you?

Kent Snyder

Well, obviously it’s difficult for us to comment on that type of question. We have a very close working relationship with both companies, Pepsi and Firmenich. We are in a position to routinely report to them the status of our other programs and potential interests. Right now, as John said, we are committed to making progress in the Salt Enhancer program before putting in place any type of major agreements, because we truly believe that if we can build value in the program and then make progress that really enhances the economic terms that we can get from any new potential partner.

Doug Thomas – JET Investment Research

Is it – you talked about it being in sort of biology stage, I’m just wondering, is there something about the Salt Program that lends itself to be more of a natural target for you, or is that not correct?

Don Karanewsky

When you say a natural target?

Doug Thomas – JET Investment Research

As opposed to synthetically derived compounds, I mean, when you talk about natural programs and natural solutions, is there anything about salt that makes it more applicable to natural than for example savory or sweet or anything else?

Don Karanewsky

Doug, at this time, we don’t believe that there is any reason to believe that we would need only a natural product defined to sell them here and so we think that as with our other programs having an artificial enhancer per se certainly is a possibility as well as natural which maybe a longer term activity. So in terms of where that program is at, we still are looking to identify conclusively what is the receptor or cofactors involved in sale taste perception and until we do that, we will keep the program primarily as a biology program rather than doing any significant (inaudible) activity on that program.

Kent Snyder

Okay. Thanks, Don. The conversations we’ve had with leading consumer product companies, while all of them might desire a natural solution in the future, all of them have indicated a willingness to initially launch an artificial salt enhancer. So, we believe, as with our other programs, that’s likely the fastest way to market and then longer term, we could look on developing natural solutions as well.

Doug Thomas – JET Investment Research

I’ve been a big critic of Campbell’s – of the evolution of Campbell’s products, and I think if anybody could use your help in certainly them, and I just wonder maybe looking back on the program over the last few years, and I know you have to be diplomatic and polite in a essence, did you – I guess the best way to ask it is have you learned anything from the Campbell’s program that you can use in another collaboration going forward?

Kent Snyder

Well, I’m not sure if there’s anything specific that came out as a collaboration with Campbell. Obviously, they’ve been a good partner on that program. They have been very supportive in looking for a solution. We’ve – I said that the Salt Enhancer program is scientifically the most challenging thing that we are doing. As you know, Campbell has taken other steps to reduce sodium in their products I think based upon what they have said publicly, they’ve kind of taken that where they wanted to go and now they have some other priorities. So there is nothing specifically that learned from working with Campbell on that. We certainly have learned a lot about the salt enhancer program over time, but that was somewhat independent of the partnership.

Doug Thomas – JET Investment Research

Okay. And then just quickly, someone asked about the question about the – you talked a little bit about commodity cost issues being a factor now as opposed to – really in the recent past, I think it’s been more focused on health and wellness, and I’m just wondering are you hearing from Firmenich that they are seeing a lot more potential customers come to them in the last several months with reformulation requests that are based maybe not more so because of higher commodity prices, but certainly that that is a factor in some increased activity?

John Poyhonen

Yes, that’s a good question, Doug. And I think the reality is that they are seeing tremendous traction just based on the nutritional profile and benefits that are offered, but certainly anytime that you can offer a cost savings that helps accelerate the decision and perhaps the breadth in which consumer product companies might be willing to utilize something. So, it’s an important factor that we are monitoring very closely with Firmenich.

Doug Thomas – JET Investment Research

I just wanted to make sure, the question was asked earlier I think about the cost benefit analysis just from commodities, but that’s not the whole equation, I mean, if health and wellness and if you get this kicker from being able to save on commodity price, I guess, is just kind of like icing on the cake is what way I would look at it.

John Poyhonen

Yes, yes. Absolutely, that’s very well put.

Doug Thomas – JET Investment Research

Okay. And then just quickly, I know Pepsi has obviously had some issues which I’ve written on recently, but I’m just wondering, do you see – could you talk about their beverage plans and any further detail, is it likely that they might accelerate their efforts to launch with the Senomyx product and it will – for example, if they’ve had conversations with Firmenich about, maybe acquiring the rights to something that Firmenich has that help them get to market a little bit sooner rather than later?

Kent Snyder

Yes, Doug, we really can comment on any of those discussions that we’ve had with Pepsi or Firmenich and certainly not any conversations they had with each other. But, as we said in the past, one of the reasons why we’re still enthusiastic about working with PepsiCo is that they’ve convinced us that they would move very rapidly to the marketplace once we had a sweet enhancer that had gone the process. So we still remain convinced that they are fully behind our program and that once we have something that needs their need, they will more very rapidly to the marketplace.

Doug Thomas – JET Investment Research

Okay. Great. Thank you very much. I appreciate it.

Kent Snyder

Thank you, Doug.

Operator

At this time, there are no questions. So, I’ll turn the call back over to Mr. Snyder to conclude.

Kent Snyder

Well, first of all, thank you all for participating in the call today. As our results demonstrate, 2010 was a remarkable year for Senomyx in many aspects. We had new extended and expanded collaborative agreements, discovery and development progress, new bitter blocker and a substantially improved balance sheet. We feel 2011 promises to be another important year as we start to see the proof of our labor, increased commercialization efforts by our three partners, including market introduction of S6973, free commercialization activities with major clients progressing as expected in support of the anticipated first product launches with 6973 during this year and we look forward to providing status reports on future earnings calls.

In addition to the commercialization activities with S6973, S2383, and our Savory Flavors, there are a number of other potential value drivers for Senomyx. These include progress with our partner’s evaluation of the S6821 bitter blocker, initiation of development activities for our new sucrose enhancer, selection of a fructose enhancer for development and advances in our Salt Taste Program. Lastly, our flavored programs continue to drive into [ph] some prospective partners and we believe our business model and proven discovery and development expertise are attractive to manufacturers and can provide Senomyx potential new revenue opportunities.

We are fortunate that given our current cash position and committed collaborative time being, we can’t take the appropriate amount of time to enter into new collaborations until further advances in the programs increase the value to new partners. So this concludes our update call. We appreciate your time and interest in Senomyx. And if you have any additional questions, please feel free to contact us directly or through our website. Again, thank you very much.

Operator

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

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