SenesTech Issues IPO Price Range But Revenues Are Unknown

| About: SenesTech (SNES)


SenesTech has developed non-lethal rodent pest population control chemicals.

The company has a royalty revenue model which leaves most of the upside on the table.

First product launch is expected by Q1 2017.

My opinion is to AVOID the IPO and wait until we know more about the product and potential revenues.

Quick Take

Pest control technology company SenesTech (Pending:SNES) wants to sell 2 million shares at a midpoint price of $13 per share, according to its latest S-1 regulatory filing.

I previously analyzed the SenesTech IPO opportunity in detail in my article:

SenesTech IPO - Humane Pest Control For The Future

I reiterate my previous AVOID opinion, since the company's royalty revenue model is uncertain at best. Better to wait until H1 2017 when we get initial reporting on its lead product candidate's performance in the marketplace, and the company's revenues.

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Company Recap

SenesTech is developing a fertility control product to gradually reduce rodent pest populations over time for agricultural, industrial, municipal and other application environments.

The company was founded in 2004 by CEO Loretta Meyer and President Cheryl Dyer, who are married to each other.

SenesTech's lead product candidate is called ContraPest, and is a non-lethal chemical that uses Triptolide as a main ingredient as a non-lethal means to disrupt the reproductive cycle in rodents and other animal pests.

The company is pursuing regulatory approval in the U.S., European Union, India and Argentina.

It has already received US EPA "exclusive-use status" on a restricted use basis for its liquid formulation, which it says has effected a 40% reduction in rodent fertility in 12-week tests. The company expects that figure to rise to 70% when third parties complete their 12-month testing periods.

SenesTech has a pipeline of other population management, non-surgical spay and neutering and related products.

IPO Terms, Valuation and Commentary

SenesTech intends to sell 2 million shares at a midpoint price of $13 per share, subject to the usual over-allotment provided to the underwriters.

The company expects to receive up to $27 million in net proceeds, to be used as follows according to its S-1 filing:

$10 million to launch its lead candidate ContraPest

$5 million for CapEx related to ContraPest

$5 million for R&D related to ContraPest and other candidates

$161,000 payment to the holder of its Series A convertible preferred shares

Working capital and general corporate purposes

Assuming a successful IPO at the pricing midpoint, the company is proposing a post-IPO market cap of $133 million.

SenesTech presents an interesting take on non-lethal pest control, but there are a few problems that I see with the company.

First, the company appears to be relying on royalty revenue as its revenue model. While the advantage of this model is that SNES doesn't have to create a manufacturing and sales and marketing infrastructure in order to go to market, the disadvantage is that it leaves most of the product value money on the table. So the revenue upside is much more attenuated with a royalty model.

Second, the product itself is a more long-term approach to pest control. To be sure, it will likely have a market for those forward-looking, environmentally friendly companies that have the time and capability to test its solutions over a one-year period.

However, for the part of the market that needs a more immediate solution, ContraPest will not be of interest.

I see the SenesTech revenue model as being valuable in that it assists the company in developing the rest of its product pipeline, which is based on the main ingredient Triptolide and SenesTech's capabilities in commercializing it.

But that is a much longer time horizon, and accordingly, I reiterate my previous opinion to AVOID the SenesTech IPO.

I would wait until we know more about the company's royalty-based revenue stream from its lead product, which won't happen until H1 2017.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.