Written by Jason Napodano, CFA
RP44 Receives FEMA GRAS Approval
On November 3, 2010, Redpoint Bio (RPBC) announced that it had received notification from the Flavor and Extract Manufacturers Association (FEMA) that its all-natural sweetness enhancer, RP44, had been determined to be Generally Recognized As Safe (GRAS) under guidelines set by the U.S. FDA. Receiving U.S. GRAS approval is a major milestone for Redpoint and RP44. Redpoint’s development partner, International Flavor & Fragrances, Inc. (IFF) can now begin the next steps with respect to commercialization in the U.S. Additionally, many countries outside the U.S. recognize the U.S. GRAS designation, which should contribute towards regulatory acceptance around the world for RP44.
Based on U.S. GRAS approval, Redpoint earned a $500,000 milestone payment from IFF. We believe with U.S. GRAS approval in hand, IFF will now actively pursue supply agreements with major stevia manufacturers, including PureCircle or Cargill / GLG LifeTech. These discussions will center on the economics of purifying RP44 (rebaudioside C) from raw Stevia leaf, steviol glycosides, or during the rebaudioside A (“Reb-A”) purification process. As a reminder, Reb-C is a side-stream product derived from material found in the Reb-A production process. Redpoint can still earn an additional $500,000 milestone if IFF enters into a supply agreement subject to certain commercial criteria.
We believe consumer product companies will be highly interested in RP44 based on growing end-user demand for an all-natural option for sweetness enhancing. The use of Stevia as a natural sweetener has grown by 5x the growth in sugar over the past year. Stevia use is up 25% from 2009 in the U.S. alone. Outside the U.S., Stevia has become a major alternative to sugar or high-fructose corn syrup. Additionally, with the price of sugar doubling over the past month, along with heavy scrutiny from consumer advocacy groups on the overuse of sugar and high-fructose corn syrup leading to increased rates of obesity and diabetes in the U.S., we believe consumer product companies like Coke, Pepsi, and ConAgra are actively seeking ways to reduce sugar use in their products while still offering consumers an all-natural alternative without sacrificing taste or perception.
Financial Position Improving
Yesterday, Redpoint received a $244K grant under the Qualifying Therapeutic Discovery Project for the company’s preclinical diabetes program. The Department of Health and Human Services (HHS) designates such projects based on the potential to produce new cost-saving therapies, support jobs, and increase U.S. competitiveness. Over the past two days Redpoint has pulled in $744K in non-dilutive capital. We believe a supply agreement on RP44 is near, which would bring yet another $500K into the company. We remind investors that the company exited the second quarter with $2.5 million in cash and a relatively low burn rate. With a market capitalization of only $12 million, Redpoint is significantly undervalued in our view based on the clear market opportunity with RP44, and additional out-licensing potential in salt enhancing, new taste discovery projects, or in the preclinical diabetes / obesity area.
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