NASDAQ:SNES

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Leptospira is a bacterium that is transmitted by rats to humans. As per CDC, contracting Leptospirosis can cause illness and when left untreated can lead to respiratory distress, kidney damage, liver failure and death. Some of the “rattiest” cities in the U.S. are New York, Washington D.C., Los Angeles, Chicago and San Francisco, to name a few. Rat infestations are fueling concerns over hygiene and city authorities have performed a large number of rodent treatments in both residential and commercial buildings. However, the places continue to attract these critters who manage to find a home in the walls of the buildings.

SenesTech (NASDAQ:SNES) has developed a solution for managing pests through fertility control. Their current marketed product, ContraPest®, a liquid bait, limits fertility in male and female rats. ContraPest is the first and only non-lethal, fertility control product approved by the Environmental Protection Agency (EPA) for the management of rodent populations. ContraPest deployment areas include zoos and animal sanctuaries, agricultural land and municipalities. The company intends to target zoos and sanctuaries (currently servicing 15 facilities) primarily, which, although are a relatively small market, offer the best chance at near‐term revenue. SNES anticipates expanding their sales to pest management professional (PMP) market eventually.

(Source: https://senestech.com/)

California: Rodents are nocturnal creatures. Therefore, rodent activity during the day signals a sign of a large rodent population. Reform California, a political committee, commissioned a study¹ that surveyed several pest management companies operating in California to observe and measure the rodent activity in the cities of Los Angeles, San Diego and San Francisco. The results revealed a sharp spike in rodent population caused as a result of restricting/banning several pest-control tools. Rodent infestation has become a crisis in the state and has spurred a call to action. We think SenesTech has the solution!

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SNES is focused on expanding in several locations in the U.S. with a current geographic emphasis on California. ContraPest has been tested in San Francisco and downtown and six animal shelters in Los Angeles. In this large state where organic farming is prevalent, SNES has expanded their offering within the agriculture market as well. Recently, California Certified Organic Farmers approved the use of ContraPest at one of the largest organic rice farming operations in the state. The program was also approved to be used in an undisclosed poultry/egg production facility. The state is hopeful that AB1788, a bill currently in process to ban or limit the use of second-generation anticoagulant rodenticides, would be approved by legislators. We think that this might be a huge boost toward gaining traction within California in 2020.

(Source: https://www.renthop.com/studies/national/is-your-city-rodent-infested)

Washington DC: The DC Department of Health (DOH) Rodent Control Division awarded a supply agreement with Pestmaster Services, one of SenesTech's distributors, to purchase ContraPest for up to $300,000 per year for up to four years. The city is continuing to expand deploying ContraPest to multiple rat-infested locations. ContraPest has been deployed in all eight wards in the city and is being tested in both residential and commercial areas. The bait consumption, a key measure of efficacy, has been averaging over 80%. DC Health’s rodent control program used ContraPest and preliminary data obtained from recording suggest a 77% decline in the proportion of juvenile to adult rat population. A reduction of juvenile rats is an early sign that fertility control is progressing.

Financial Update

On November 12, 2019, SenesTech Inc. reported their third quarter earnings results.

Revenues from product sales for the quarter were $36,000 compared to $105,000 from the same period the prior year. CEO Ken Siegel mentioned on the earnings call that sequential revenue growth from second to third quarter is promising. Subsequent to quarter end, the firm received an additional order for ContraPest worth $38,000, the bulk of which would be recognized in Q4 revenues. Management mentioned on the earnings call that the company is pursuing a pull-through sales strategy targeting key market verticals and geographies. Although this strategy has shown significant initial promise, lead-to-conversion time remains extended, leading to lower sales velocity. The delay in closing sales deals has impacted revenue growth. However, we think as the team improves execution, we expect sales to continue to trend higher in 2020.

The operating expenses for the third quarter were $2.6 million. While SG&A costs have largely remained flat in the past years, management anticipates higher expenses beginning fourth quarter to support commercialization efforts for ContraPest. Net operating loss for Q3 was $2.6 million. As of September 30, 2019, SNES had an accumulated deficit of about $93 million.

The company exited the quarter with close to $4 million in cash. With a cash burn rate of $2 million per quarter, we think management would need additional capital in the near term to execute on their current operating strategy.

ContraPest has been made available at an opportune moment when the anticoagulant rodenticide market is tackling headwinds from environmental and wildlife conservation groups who are fighting to ban rat poison. We think this might act as a strong catalyst for increasing revenue of ConraPest in the long run.

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1. https://act.reformcalifornia.org/Report_Reform_RAT_03-f3a.pdf