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CORRECTED-UPDATE 1-Senomyx says sweetener enhancer determined safe; shares jump (March 11)

jump (March 11)@ (Corrects headline and paragraphs 1 and 2 in March 11 story to say the company, not the FDA, determined the product to be safe. Also corrects paragraph 14 to remove reference to GRAS compliance being dependent on FDA testing)

March 11 (Reuters) - Senomyx Inc said its Sweetmyx food flavoring was determined to be safe, paving the way for customers such as PepsiCo Inc to add it in drinks to reduce the use of sugar or sugar substitutes.

Senomyx shares jumped as much as 26 percent to their highest in nearly seven years after the company designated Sweetmyx Generally Recognized As Safe (GRAS) under the Federal Food, Drug and Cosmetic Act.

Sweetmyx, not a sweetener itself, works by enhancing the characteristics of other flavors such as sucrose or fructose, allowing for reduced use of sweeteners in drinks.

A growing body of research has identified sugary drinks as the biggest contributors to added, empty calories in the American diet, and as a major culprit in a range of costly health problems associated with being overweight.

"The new Sweetmyx flavor ingredient will enable the creation of lower-calorie beverages and foods that have reduced sweeteners without sacrificing taste," Chief Executive Officer John Poyhonen said on Tuesday.

Soft drink makers PepsiCo and Coca Cola Co have been increasingly seeking to develop natural sweeteners as people ditch even diet sodas for juices, teas and naturally sweetened lemonades.

"We see strong potential with Sweetmyx, and this provides us with yet another option for our innovation teams to develop flavor systems that help meet consumer desire for tasty beverages with less sugar and lower calories," PepsiCo spokeswoman Aurora Gonzalez told Reuters.

PepsiCo has exclusive rights to use Sweetmyx worldwide in all non-alcoholic beverages.

PepsiCo Chief Executive Indra Nooyi has expressed in the past the need for "a new, more natural, low-calorie sweetener."

Senomyx shares have more than tripled in value in the past year as investors pinned hopes on the sweetener enhancer.

Janney Capital analyst Jonathan Feeney said Senomyx's prospects are still undervalued based on its improved commercial stance and significant collaborations, in particular PepsiCo.

"Given the size of PepsiCo's carbonated soft drinks platform and the potentially central role of Senomyx's sweeteners, a roll-out of Sweetmyx would likely reach a significant scale and drive significant returns for Senomyx shareholders," Feeney said.

Geneva, Switzerland-based Firmenich also has lifetime rights to commercialize the flavor for food product categories and alcoholic beverages.

In the United States, food flavors are considered either a food additive or GRAS compliant.

Companies can declare their ingredients GRAS compliant based on their own research or that of hired consultants. But the U.S. Food and Drug Administration has the option to challenge such declarations.

Senomyx shares were up 26 percent at $11.81 in late morning trading on the Nasdaq. PepsiCo shares were up 1 percent.

(Reporting by Aditi Shrivastava and Natalie Grover in Bangalore; Editing by Saumyadeb Chakrabarty)