Senomyx, Inc

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Senomyx, Inc.

11099 North Torrey Pines Road
La Jolla, California 92037
U.S.A.
Telephone: (858) 646-8300
Fax: (858) 404-0752
Web site: http://www.senomyx.com

Public Company
Incorporated: 1998 as Ambryx, Inc.
Employees: 93
Sales: $9.3 million (2005)
Stock Exchanges: NASDAQ
Ticker Symbol: SNMX
NAIC: 541710 Research and Development in the Physical, Engineering, and Life Sciences

Senomyx, Inc., is a biotechnology company whose scientific work is applied to the biology of taste. The company uses genomics to develop novel flavors, flavor-enhancing compounds, and taste modulators for the packaged food and beverage industry, using its proprietary taste receptor-based assays for four of the five senses of taste: sweet, salt, bitter, and umami, the savory taste of glutamate. Senomyx conducts its research and development work under collaboration agreements with five of the largest packaged food and beverage companies: The Coca-Cola Company, Kraft Foods Global, Inc., Nestlé SA, Cadbury Schweppes PLC, and Campbell Soup Company. The company is responsible for the discovery, development, and regulatory approval phases of product development; its partners are responsible for manufacturing, marketing, selling, and distributing the consumer products containing Senomyx flavor ingredients.

ORIGINS

Unlike the vast majority of start-up biotechnology companies, Senomyx did not enter the pharmaceutical industry when it commenced operations in the late 1990s. Instead, the company entered the food industry, focusing its efforts on developing ingredients to improve the taste of food and beverages, make them healthier, and lower their production costs. Historically, the food industry's attempts to enhance flavor or to reduce unhealthy amounts of ingredients such as sugar, salt, and monosodium glutamate centered on developing artificial substitutes. The results frequently fell short of expectations, producing artificial flavors that failed to dupe taste buds or posed their own health risks. Senomyx approached the problem in a different way, using genomics as a way to understand the molecular mysteries of scent and taste. The scientific work undertaken by the company promised to alter the more than $1 trillion food industry, but, like biotechnology start-ups in the drug industry, Senomyx faced years of research and development work before it could hope to capitalize on the potential of its technology.

Senomyx began as a company named Ambryx, the creation of a group of distinguished scientists who based the start-up in La Jolla, California, the headquarters location for numerous biotechnology companies. The company was incorporated in September 1998 and commenced operations in January 1999, taking its mission from one of its principal founders, Lubert Stryer. A professor of neurobiology at Stanford University, Stryer became interested in the sense of smell roughly three years before cofounding Ambryx, inspired by the work of two colleagues who discovered a family of genes whose receptors for smell and taste were located at the base of the nose. Stryer, who remarked, "olfaction and taste are really the new frontier in neurobiology," in a December 27, 1999 interview with Forbes, launched his own investigation, researching the sense of smell in goldfish. During the course of his study, he perceived potential commercial applications of his work, not the first time he adopted an entrepreneurial posture with his scientific research. In 1993, Stryer cofounded Affymetrix to market a gene chip used to analyze DNA sequences. Stryer also had helped start Aurora Biosciences Corp., a company that screened vast numbers of potential drugs against disease targets. In founding Aurora Biosciences, Stryer was joined by Charles Zuker and Roger Tsien, two scientists who also helped Stryer form Ambryx. Zuker, a professor of biological sciences and neurobiology at the University of California, San Diego (UCSD), discovered a number of the proteins that Ambryx would use to detect bitter and sweet tastes. Tsien was employed by UCSD as well, serving as a professor of pharmacology, chemistry, and biochemistry.

Stryer, Zuker, and Tsien set out to revolutionize the flavor-enhanced food market, an estimated $36 billion industry. Through Ambryx, they intended to develop flavor-enhancing compounds capable of triggering taste receptors, the tiny sensors of taste buds. To help shepherd their discoveries to market, the Stryer-led team recruited an Aurora Biosciences colleague, Paul Grayson, who left his position as Aurora Biosciences' senior vice-president of corporate development to head the tiny La Jolla based company. Grayson's responsibilities would include bringing the compounds developed by the Ambryx research team through the required discovery and development process that led to commercialization, a process far less complicated, time-consuming, and costly than what biotechnology companies in the drug industry faced, but a process that would incur heavy annual losses for Ambryx, nonetheless.

The process involved first developing assays based on human taste receptors, which would give the company the capability to measure interactions between the taste receptors and potential flavors and flavor enhancers. Next, the company intended to use the assays to identify lead compounds, the compounds that bound themselves to human taste receptors, a step in the process requiring the screening of hundreds of thousands of compounds. After identifying lead compounds, the candidates were to be optimized to allow lower amounts of the compound to be used in the finished product or to meet the taste objectives of the food manufacturer. The final step before commercialization involved clearing safety hurdles. Biotechnology companies in the drug industry faced a long and costly effort to gain approval from the Food and Drug Administration (FDA), frequently spending a decade and millions of dollars to bring their discoveries to market. Ambryx, in contrast, faced an approval process requiring roughly one year and less than $1 million to complete. The company needed to gain a "Generally Recognized As Safe" (GRAS) recommendation from the Flavor and Extract Manufacturers Association (FEMA), an FDA-approved industry group whose recommendations the FDA usually supported.

COMPANY PERSPECTIVES

At Senomyx, we expect to continue to establish product discovery and development collaborations with leading consumer products companies in multiple segments of consumer product markets. We will continue to enhance and protect our technology position through the establishment of intellectual property protection on our discoveries. In short, Senomyx is sensing the future through innovation.

Ambryx's first years in business were spent in developmental mode. It would be more than five years before the company received its first GRAS recommendation, years spent getting its operations up and running, developing and screening compounds, securing capital, and forging all-important partnerships with the titans of the packaged food and beverage industry. Grayson's first months in office were devoted to obtaining licenses to libraries of smell- and taste related receptors from several prestigious universities. Intellectual property was licensed from Johns Hopkins University, Harvard University, Rockefeller University, and nearby UCSD, from whom the company licensed proteins discovered by Zuker that detected sweet and bitter tastes. Grayson also licensed technology and screening tools from other biotechnology companies, including Genomix, Inc., Incyte Genomics, Inc., and, notably, Aurora Biosciences. To finance his purchases, Grayson turned to venture capitalists, raising $12 million in October 1999. The following month, the company vacated its temporary quarters and moved into a new 15,000-square-foot facility, where, six months later, a new corporate banner was unfurled. Ambryx changed its name to Senomyx, Inc. in May 2000, deriving the name from the subject of its work, "sensory genomics."

SIGNING ITS FIRST
PARTNER: 2000

The funds solicited from the investment community provided much needed capital, but the primary source of financial support for Senomyx's research and development came from partnerships formed by the company. Small, biotechnology drug companies frequently collaborated with giant pharmaceutical companies, and Senomyx, too, joined forces with the giants of its industry. Collaboration agreements provided the majority of the company's revenue during its developmental phase in the form of milestone payments, payments received by Senomyx for reaching predetermined goals in a compound's development. The company signed deals with the largest packaged food and beverage companies in the world, securing its first collaboration agreement in December 2000 with Kraft Foods Global, Inc., the largest food company in the United States. Next, the company forged an agreement with Campbell Soup Company in March 2001, signing a three-year deal to discover specified flavors and flavor enhancers for soups. In April 2002, Senomyx secured two valuable partners, signing collaboration agreements with the largest beverage company in the world, The Coca-Cola Company, and the largest food company in the world, Nestlé SA. Both agreements covered a three-year period, putting Senomyx scientists to work on developing specified flavors and flavor enhancers for soft drinks and other non-alcoholic beverages, the objective stipulated by the contract with Coca-Cola, and specified flavors and flavor enhancers for dehydrated and culinary food, frozen food, and wet soup, the purpose of the agreement with Nestlé.

At Senomyx's research laboratories in La Jolla, the identification and screening of innumerable compounds was underway, the activity energized by signing four important contracts within two-and-a-half years. Leadership of the company passed from Grayson to a new president and chief executive officer, Kent Snyder, in June 2003. Retired for two years before joining Senomyx, Snyder spent his career in marketing and sales, including a decade at Agouron Pharmaceuticals, Inc., his last job before taking the helm at Senomyx. Snyder inherited a $7.3 million-in-sales company that was still several years away from introducing its first product. The company revenue was obtained from its agreements with Coca-Cola, Campbell Soup, Nestlé, and Kraft, but the total was not enough to offset significant losses. Senomyx incurred a net loss of $14.8 million the year before Snyder was appointed president and chief executive officer, and the losses would continue until the company began to collect royalty payments from its four partners. To reduce its debt and secure capital, the company turned to the investment community, filing with the Securities and Exchange Commission (SEC) for an initial public offering (IPO) of stock. Senomyx first filed for an IPO slated for September 2001, but a weak market exacerbated by the terrorist attacks in New York City and Washington, D.C., scuttled plans for a public debut. In early 2004, the company revisited the idea of a stock offering, filing with the SEC for an IPO that was expected to raise nearly $100 million. Initially, the company planned to offer six million shares at between $13 and $15 per share, but it was forced to reduce its proposed offering price twice, resulting in an IPO in May 2004 of six million shares at $6 per share.

KEY DATES

1998:: Senomyx is founded as Ambryx, Inc.
2000:: Ambryx changes its name to Senomyx, Inc. and signs its first collaboration agreement with Kraft Global Foods, Inc.
2001:: Campbell Soup Company becomes a Senomyx partner.
2002:: Senomyx signs collaboration agreements with The Coca-Cola Company and Nestlé SA.
2004:: Senomyx completes its initial public offering of stock.
2005:: Senomyx receives regulatory approval for its savory enhancers.

REGULATORY APPROVAL IN 2005

In the wake of its IPO, Senomyx faced increased public scrutiny. Investors eagerly awaited the commercial introduction of the first Senomyx ingredient, aware that the company's finances would only improve after one of the four collaboration agreements began producing royalty payments. Financially, years devoted to research and development were taking their toll, resulting in mounting losses that left Senomyx awash in debt. In 2003, the company lost $17.4 million, a total eclipsed the following year when a net loss of $19.7 million was posted. By the end of 2005, after another net loss of more than $19 million during the year, the company's accumulated deficit since its inception was $104 million. The deficit was cause for anxiety at the company's headquarters, but Snyder and his management team had equal cause for celebration. In the first half of 2005, Senomyx reached a significant juncture in its development, receiving the first GRAS recommendation for one of its compounds. FEMA informed the company that four of its savory enhancers were considered to be safe, permitting the use of the first Senomyx compounds in a variety of food products, including sauces, frozen foods, processed cheese, and snack foods. Snyder expressed his elation in a March 4, 2005 interview with just-food.com, explaining the importance of receiving the regulatory nod of approval from FEMA. "Receiving GRAS determination for our savory enhancers represents a very important milestone for Senomyx as we move towards the commercialization phase of our company," he said. "Now that we have received the GRAS determination, consumer acceptance testing of our savory enhancer can begin. We anticipate that the first commercial sale of products that include our savory enhancers will occur during the first half of 2006, which will result in royalty payments to Senomyx."

With the beginning of its first commercial sales approaching, the company could look forward to exponential revenue growth as it concluded its first decade in business. Its savory enhancers promised to be the first to make their debut, entering a market in which worldwide food and beverage sales in the savory category were estimated to be $365 billion. The markets for sweet and salt categories were $483 billion and $402 billion, respectively. Senomyx's sweet and salt compounds were expected to be introduced by 2007. To add to the celebratory mood at company headquarters, Senomyx signed its fifth collaboration agreement shortly after receiving the GRAS determination for its savory enhancers, its first new partner since 2002. In July 2005, Cadbury Schweppes PLC offered Senomyx a two-year deal for the discovery and commercialization of new flavors in the gum confectionary category. With a new partner in its endeavors and its first product nearing market introduction, Senomyx stood poised for exponential sales growth and the beginning of profitability, with its future success set to confirm the value of genomics in the realm of taste.

Jeffrey L. Covell