Food and beverage maker PepsiCo (PEP) has inked a four-year collaborative agreement with Senomyx Inc. (SNMX) to research and develop sweeteners for its beverages. PepsiCo will make an upfront payment of $30 million to Senomyx, of which $7.5 million was paid in June 2010.  Senomyx will also receive $32 million in committed research and development payments over the four-year research period. The company has the option to extend the research deal for another two years, which might result in additional research funding commitments. 
The collaboration will entail PepsiCo and Senomyx to work on the discovery, development and commercialization of sweet enhancers, such as sucrose and fructose, and natural high-potency sweeteners. As per the contract PepsiCo will have exclusive rights to the Senomyx sweet flavor ingredients developed under the collaboration for use in its non-alcoholic beverages. Senomyx will, however, be eligible for milestone payments based on the achievement of predetermined goals as well as royalty payments.
Senomyx had earlier failed to renew a pact with The Coca-Cola Co. (KO), the biggest competitor of PepsiCo. Following the collaboration with PepsiCo, Senomyx has revised its revenue as well as earnings outlook. Senomyx now expects revenues of $27–$29 million for fiscal 2010, up from $20–$24 million guided previously. The company also expects to realize $1.9 million in revenues per quarter through August 2014.
Senomyx also narrowed its loss for fiscal 2010 to a range of 37–40 cents per share. The company was expecting a wider loss of 48–56 cents per share for fiscal 2010. Senomyx now expects to record $16 million to $18 million in cash from operations, up substantially from the previous expectation of $6 million to $8 million.
Soft drink makers are looking for alternatives to cater to the health-conscious consumer by reducing calories or switching to non-caloric or low-calorie sweeteners in their drinks, without compromising on taste. The agreement will support PepsiCo’s efforts in reducing added sugar per serving by 25% in key brands and markets over the next ten years.


PepsiCo is already capitalizing on the acquisition of its two anchor bottlers as well as striking broad-based gains across its snack and beverage portfolio in key international markets. The collaboration will provide the company a competitive edge to gain market share and boost profitability going forward.

The Zacks Consensus Estimate for third-quarter 2010 earnings is $1.22 per share. For full years 2010 and 2011, the Zacks Consensus Estimates are $4.16 per share and $4.62 per share, respectively.