Zacks Senior Biotechnology Analyst, Jason Napodano, CFA, recommends micro-cap Redpoint Biosciences (RPBC).
In the past, we have written extensively about the opportunity for all-natural sweeteners such as Stevia, and the newly discovered ability for Stevioside derivatives such as Reb-C to enhance the taste of caloric sweeteners, including sugar and high-fructose corn syrup. The result of using Stevia and Reb-C: an all-natural sweet tasting product with significantly less calories.
Here is a video interview with Redpoint Bio’s CEO, Ray Salemme, discussing his company’s potential.
Last quarter, Redpoint Bio announced that it has entered into a license and commercialization agreement with International Flavors & Fragrances (IFF) covering the commercialization of RP44, Redpoint’s all-natural Reb-C sweetness enhancer. Under terms of the agreement, IFF will develop, manufacture and commercialize RP44 in virtually all food and beverage product categories. In return, Redpoint received an upfront payment of $0.5 million and will be eligible to receive up two separate $0.5 million in milestone payments based on supply and regulatory approval.
In addition, Redpoint will receive royalties based on the amount of RP44 purchased by IFF for use in products. IFF will assume responsibility for the regulatory process and for costs associated with prosecuting and maintaining Redpoint’s intellectual property (IP) covering the sweetness enhancer.
IFF: An Ideal Partner
We believe that IFF is an ideal partner for Redpoint Bio with RP44. IFF is a global leader in the food and beverage industry with deep sector knowledge and a global customer base. IFF will provide outstanding regulatory and product development capabilities. We note that IFF’s CEO, Doug Tough, highlighted the deal with Redpoint on his company’s second quarter call, calling the deal an opportunity “to offer customers more natural solutions to reduce sugar products.” Clearly, IFF is behind the concept of RP44 and motivated to see it succeed.
Three More Shots on Goal for Redpoint
We believe that Redpoint Bio has three more potential deals it can sign in 2010 or 2011 to create shareholder value. The first is a potential opportunity for Redpoint Bio to partner yet another taste enhancing program, this time with salt enhancers. The concept of enhancing salty taste is similar to RP44 and sweetness enhancing.
Redpoint is discovering potential compounds that enhance the ability to taste salt in foods, which would allow for less salt to be used to obtain the same salty taste. It’s an ideal product for salty-snack such as chips and pretzels that have come under heavy consumer fire recently due to the increasing sodium consumption in our diets.
The second opportunity for Redpoint is to leverage its Microtiter Operant Gustometer (MOG) novel and proprietary technology platform used to discover the sweetness enhancing effects of Stevia and RP44 and advance the current salt enhancing program. The basic strategy involves sourcing both natural compounds and natural product compound libraries, and then screening these compounds using an in-house proprietary, computer-controlled operant model system.
The Stevia leaf has been used as an all-natural sweetener around the world for hundreds of years. Reb-C was dismissed by consumer product companies as a relatively useless compound within the leaf until Redpoint’s discovery of its sweetness enhancing effects. Redpoint potentially has discovered a meaningful product in RP44 right in the midst of the Stevia revolution using its MOG technology. Imagine the possibilities to find additional compounds by applying MOG on libraries of compounds not being used by consumer product companies. Management has the potential to leverage its discovery of RP44 and its new salt enhancer program into signing new discovery collaborations in 2010 or 2011.
The third opportunity is another for Redpoint Bio stems from the company’s work in TRPm5 modulators and the discovery of incretin and glucose-dependent secretogogues. This work could potentially offer a new exciting therapeutic option for the treatment of type 2 diabetes.
Given the obvious validation of this pathway by blockbuster drugs such as Byetta and Januvia, Redpoint has received significant interest from pharmaceutical partners looking to collaborate through an early-stage discovery program. Redpoint is currently in discussions with these potential collaborators for its incretin secretogogue program, and we are anticipating a deal in 2010 or 2011.
Redpoint is trading like a call option with three potential ways to make money. The first is the commercialization of RP44 at IFF. The second and third are to secure collaborative research agreements on MOG or TRPm5.
The current market capitalization of only $11 million is overly pessimistic. Downside is limited at this point, and we think if management can deliver, the upside is tremendous if RP44, MOG, or TRPm5 pan out. We recommend investors establish a position in Redpoint at today’s price.
REDPOINT BIO CP (RPBC): Free Stock Analysis Report
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