Another quarter, another Senomyx (SNMX) sell-off. The latest source of a collective freak out: growing worries that PepsiCo (PEP) will not give the green light to a national rollout of an S617-infused Mug Root Beer. We are now clocking up to the one-year mark since the trial in the two test markets of Denver and Philadelphia began. And yet radio silence.
Also fueling these worries: Senomyx's new three-year deal with PEP included only natural sweeteners, leading some to conclude that Pepsi was throwing in the towel on S617. Others argued that the deal being non-exclusive somehow suggested a lack of commitment on Pepsi's part. I strongly disagree - and feel even more strongly about this after discussions with a number of other SNMX holders.
One especially sharp analyst - EB DD - sent me a long comment, which he has given me permission to post in edited form. Below is his analysis and framework (which I fully agree with), interspersed with a few thoughts of my own in parts.
The fear of Mug not going national is misguided for a ton of reasons. Here are just two:
1) Most importantly, the Mug trial by all accounts is a success. Keep in mind the test objective for PepsiCo is basically "do no harm" - given the cost advantage S617 gives them (and keeping in mind the sugar price has almost doubled in the last year), it would make sense to go ahead if sales trends in the two test markets were just in line with the national trend. The good news is Nielsen scanner data are not only showing "no harm" - they are actually showing growing market share for Mug in the root beer category, versus nationally, where the Mug share is flat.
2) PepsiCo is not only getting serious about
