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Thursday, March 31, 2005

Elan: Nanotech Investors Keep Your Eye on the Prize

On March 2, after Elan dropped 70 percent in one day, I encouraged nanotech investors that it was a good time to look at Elan for its NanoCrystal technology. Today, after the company’s stock dropped another 50 percent, I still believe the company’s NanoCrystal technology—while not yet a substantial portion of the company’s revenues—offers substantial long term promise. (Full disclosure: I own Elan stock).

While it is clear that Tysabri will now represent a significantly smaller share of the company’s overall future revenues, the company still has some other attractive products in its pipeline.

As I said on March 2—and I repeat now--do your own due diligence … but that’s my two cents.

Related Links:
Nano-based Drug Delivery
Starpharma "Nano" star on the rise?
Elan Good News for Nanotech Investors?
pSivida: Down Under Comapny has Big Upside Potential

Wednesday, March 30, 2005

Using History to Better Understand the Future of Nanotechnology

In yesterday’s Financial Times there was an excellent article by Richard Water called “Why nanotechnology is the next big thing.” I say this not simply because the title of the article closely matches the title of my own book but because I sincerely believe it.

The article discusses Steve Jurvetson’s vision of nanotechnology and in it Jurvetson hits on an important theme. Today’s business leaders, he states, must take seriously “the embarrassing and futuristic.” He is absolutely right. Unfortunately, embracing the future is easier said than done.

In my numerous talks around the country, I have found that one of the most effective ways to get people to embrace “embarrassing and futuristic” scenarios is to simply get them to consider history.

Let me give you just two examples which I believe illustrate this point. The first involves the world’s first computer, ENIAC. When it was built in 1946, at a cost of $400,000, it was a technological marvel. It consisted of over 19,000 vacuum tubes, occupied 1500 square feet and was capable of performing 300 calculations a second. Now imagine going back in time to the year 1946 and telling the scientists and technicians who designed and built ENIAC that in the future we would be able to produce a computer millions of time more powerful than ENIAC and that it would fit on your thumbnail and cost less than a penny. My guess it that they would have laughed you out of the room. But, as all of us know, this is precisely what happened.

Therefore, when experts in the field of nanotechnology tell us that in the not-so-distant future we may be able to grow computers (that is get nanoscopic components to self assemble themselves into a functioning device) which are a million times more powerful than today’s state-of-the-art technology, it doesn’t sound as preposterous--with the benefit of some historical perspective.

Another useful example is that of Lee DeForest. In 1913, DeForest was prosecuted by government officials in the United States because they alleged he was defrauding individual investors. His crime? He was telling people he needed their money to develop a device capable of transmitting the human voice over the Atlantic Ocean. To the vast majority of people of that era, his claim sounded crazy. Of course, just three years later DeForest started RCA and had developed the technology to do exactly that.

The emerging field of nanotechnology portends a radically different future. Companies and individuals are working on solar cells that might be painted on walls, self-healing materials, and clothes that can change colors and properties according to the needs of the individual user. Still others speak of the possibility of building an elevator to space and extending life expectancy 30 or more years.

All these things may sound outrageous but are they any more outlandish than a computer orders of magnitude smaller, faster and cheaper than ENIAC, a device that can transmit the human voice over an ocean or extending life expectancy another 30 years--as we did in the 20th century?

The bottom-line is this: True leaders, as Jurvetson urges, must not simply take seriously such futuristic visions; they must courageously facilitate and embrace these visions. For if they do not, someone else will—and it will be those people who actually create our future.

Related Links:
Nanotech has Arrived
Nanotech and the Future of Energy

Monday, March 28, 2005

Nanotech has Arrived

I sincerely appreciate the work of analysts and writers who strive to provide a balanced assessment of nanotechnology’s future potential. As reader’s of this newsletter will appreciate, I’m among the first to call “bullshit” on companies that I think are over-hyping their technology—and often their stock’s—potential.

On the other hand, too many articles now seem to be going the other way and are minimizing the extraordinary progress the field of nanotechnology has already made. This approach is just as unhealthy as is undue “hype.” As examples, I cite two recent articles. The first comes compliments of “The Street”—an investment-related news source. Overall, the article provides a fair and balanced assessment of nanotechnology but, near the end, it states that “[t]urning these new properties into new products will take some time.” The statement is fair enough—in that there are still a great many new nanotech-related products on the horizon. But it is unfair in the sense that it seems to imply that there are few products yet on the market.

The second article, entitled Where are all the New Products is far less thoughtful and bemoans “the lack of nanoproduct commercialization in the United States.” (I would argue that commercialization in today’s global society is largely irrelevant … but that is a topic for a separate article.)

The fact is that there are a great number of “nanoproducts”—even in the U.S. For instance, American Pharmaceutical Partner’s new cancer treatment, Abraxane, employs nanoparticles. Quantum Dot’s nanocrystals are being used by Roche Diagnostics and GlaxoSmithKline. 3M’s is manufacturing nanocomposite tooth filler. General Motor’s is using nanocomposites in its 2005 Chevy Impala. Apollo Diamond is rearranging carbon atoms to manufacture synthetic diamonds. ChevronTexaco has spun-off a new nanotech company called Molecular Diamonds. Hybrid Plastics has been employing its POSS ™ technology to improve the characteristics in a number of plastics for quite some time. Inframat’s nanocoatings have been employed on the hulls of U.S Navy ships and on the engines of Air Force jets. NanoFilm has been making nanocoatings for windows, sunglasses and a variety of other products . Hyperion Catalysis’s FIBRILs ™ are being used in electroconductive polymers and Nanoscale Material’s FAST-ACT, which being used to neutralize hazardous chemical and biological agents, is already on the market.

The list of nanoproducts could go on and on. My point is that just as it is dangerous to over-hype nanotech, it is equally foolish to downplay its potential. The bottom-line is that nanotechnology is here today and it is only going to grow more prevalent in the not-to-distant future. Those investors who take a realistic assessment of nanotechnology will be the ones who profit.

Jack Uldrich

Related Links:
Nano-based Drug Delivery
Nanotechnology & the Dow Index of 2025

Friday, March 25, 2005

Bright Future for Obducat & Molecular Imprints

Today’s news brought to my attention two interesting—and related—news items. The first was an article entitled Life beyond CMOS that noted that companies like Intel, Infineon, STMicroelectronics and Philips are developing CMOS chips with 65nm size features and, longer term, must move to the 45nm range—a development which will require a new fabrication method. The second article announced that sixteen chip makers have now joined the “elite $1 billion capital spending club.”

These two developments should be of great interest to nanotech investors because as those sixteen companies continue to manufacture ever smaller integrated circuits they will need new nanoscale equipment.

This brings me to two companies that I believe have great long-term potential. The first one, Obducat, is a publicly-traded company on the Swedish stock exchange; while the other company, Molecular Imprints, is still private. (Full disclosure: I have not yet invested in Obducat but am in the process of doing more research).

Obducat is an international leader in the emerging field of nanoimprint lithography. According to the International Technology Roadmap for Semiconductors, the future production of electronic devices will require new lithography solutions and Obducat is an early leader in nanoimprint lithography (NIL)—having already sold dozens of its NIL presses to companies such as General Electric as well as major academic institutions.

To date, Obducat has not experienced an increase in sales and its small size and relative dearth of capital leave it at the mercy of large competitors with deeper pockets, but I believe it is worth keeping an eye on--especially if it can sell some of its equipment to a large chip manufacturer like Intel or IBM.

The second company is Molecular Imprints, a world-leading manufacturer of step-and-flash imprint lithography (S-FIL). S-FIL is a stamping lithography technique that is capable of delivering resolution to 20nm and below at a high speed and low cost (estimated to be 10 times less expensive than today’s state-of-the-art).

Many in the semiconductor industry are convinced that progress must continue along the lines of Moore’s Law—-which succinctly states that the number of circuits capable of being placed on a chip doubles every 12-18 months. This means that semiconductors will move from 90nm to 65nm and, soon, to 45nm resolution. Molecular Imprint has the ability to potentially jump the fabrication process down to the 20nm level. Furthermore, its S-FIL technology is well-positioned to deliver a low-cost, low complexity alternative to today’s optical lithography tools because it can operate at lower temperatures and pressures than the technology of some of its leading competitors (like NanoNex).

Furthermore, Molecular Imprints has an extremely strong intellectual property portfolio and has already lined some key partners and customers--including Hewlett-Packard. It also has a $36 million grant from the National Institute of Standards and Technology (along with KLA-Tencor and Motorola) to develop nano-imprint lithography infrastructure for low cost, high-throughput replication at the 65 nm node and below.

If Molecular Imprints goes public in 2005, I would strongly encourage investors to consider an investment. In the interim, publicly-traded Harris & Harris (TINY) offers an indirect way for the individual investor to gain at least a small equity stake in the company.

Jack Uldrich

Related Links:
Molecular Imprints

Thursday, March 24, 2005

Imago: On the Cutting Edge of Nanotech

I just finished reading a wonderful article in Space Daily (thanks to Rocky Rawstern at Nanotechnology Now for bringing it to my attention) which discussed researchers ability to develop a new “high-security” steel that would be resistant to possible terrorist attacks.

The technology that is making this development possible is a new advanced microscope called the Local-Electrode Atom Probe (LEAP). This amazing piece of equipment can literally pluck atoms off a material’s surface one at a time and then, layer-by-layer; analyze the chemical composition of that material. Even more amazingly, it does this at a rate 720 times faster than today’s state-of-the-art SEMs and TEMs. (It can collect 72 million atoms an hour as opposed to 100,000 atoms).

For some reason, however, the article, while touting LEAPs technology, failed to mention who makes this equipment. The company is Imago Scientific Instruments and they are a small, private start-up located in Madison, Wisconsin. If investors of FEI, Veeco or Hitachi have not yet heard of this company, I suggest that you now put it on your radar screen because it has a very promising technology which has the potential to take significant market share away from those companies. Not only can Imago’s equipment be used to test materials like steel, it can also be used to study semiconductors, conductive polymers and, quite possibly, biological materials. This suggests that, at a minimum, Imago could avail itself to two huge potential markets. The first is chip manufacturers—who are always interested in analyzing and quickly detecting defects in their chips. In fact, Seagate is already reportedly using Imago’s LEAP equipment. The second market is for biotech companies who are interested in viewing nanoscale samples in 3-D and might find the equipment helpful in facilitating drug discovery.

The bottom-line is that because Imago’s LEAP can do these things 720 times faster than traditional scanning electron microscopes (SEMs) or TEMs, and can do it in 3-D; it makes Imago a company to watch.

Jack Uldrich

Related Links:
Imago Scientific

Wednesday, March 23, 2005

QinetiQ: A Future Nanotech Investment?

While reading a recent report about pSivida, the Australian-based biotechnology company focused on biomedical applications of nanotechnology, I was reminded that QinetiQ, the United Kingdom-based defense laboratory, may go public in late 2005 (QinetiQ owns approximately 11 percent of pSivida). If it does, I would encourage investors of not only pSivida to take notice but investors of Altair and Nanophase as well. The reason is because the IPO would allow the latter investors the opportunity to invest in QinetiQ’s subsidiary, Qinetiq Nanomaterials—which is Europe’s leading manufacturer and supplier of nanopowders—and thus diversify their portfolios. (Full disclosure: I do not own any stock in either Altair or Nanophase, nor am I recommending that my readers invest in QinetiQ should it goes public).

QinetiQ's nanomaterials have potential applications in batteries, fuel cells, ceramics, composites, electronics, energetics, sensors, magnetics and the material sciences. More importantly, the company is capable of both bulk production and more specialized projects suggesting it can get its products to the market quickly and in quantities that can make a difference. (Something that Nanophase has demonstrated but which Altair has not.)

As a subsidiary of Qinetiq, the company can also draw on the knowledge and expertise of its 9,000 person staff. Moreover, it can piggy-back upon QinetiQ’s existing relationships in the marine, energy, telecommunications, automotive, electronics and defense industries. As a former spin-out from Great Britain’s Defense Evaluation Research Agency (the equivalent of the U.S’ DARPA), the company has good access to the United Kingdom’s defense market.

Again, I am not recommending the stock in the event it goes public—and that is for two reasons. One, at the present time, Qinetiq Nanomaterials only comprises a small portion of the parent company’s overall value and thus makes it hard to classify QinetiQ as a nanotech company. Secondly, as a general rule, I am pessimistic about nanomaterials companies’ future prospects. I think that nanomaterials will soon become commodities and only small niche players and very big chemical giants (e.g. Dow Chemical, BASF, Degussa, etc) will be able to survive.

Moving forward, for investors who have a different outlook than me or wish to diversify their nanotech portfolio, they should watch to determine if the company can crack the U.S. market. QinetiQ’s recent acquisitions of U.S.-based Foster-Miller and Westar Aerospace & Defense Group gives it a good start, and the fact that the U.S.-based Carlyle Group (a huge players in the U.S. defense market) has a 34% equity stake in Qinetiq, also works in its favor.

Related Links:
pSivida: Down-under Company Has Big Upside Potential
Is Altair All Hot Air?

Tuesday, March 22, 2005

Accelrys: A Solid Nanotech Investment

Last week, I advised my readers to stay away from two nanotechnology stocks that I consider wildly overvalued—Altair and Biophan. This week, I would like to highlight one that I consider undervalued and worthy of an investment—Accelrys (ACCL), which is trading at $5.12 a share. (Full disclosure: I own stock in Accelrys).

Accelrys develops and licenses molecular modeling and simulation software to the chemical and life sciences industries. Its software is used by biologists, chemists and material scientists for product design, as well as for drug discovery and development. In 2004, the company spun-off from Pharmacopeia in order to focus exclusively on this area.

I am bullish on the company for the following reasons:

 Accelrys currently counts some of the world’s leading chemical and pharmaceutical firms among its customers, including: DuPont, Dow Chemical, BP, Eli Lilly, Pfizer, Amgen, and Genencor.

 It has started two strategic partnerships. One is with IBM to develop modeling and simulation tools for the Linux operating systems and is expected to provide pharmaceutical companies more flexibility and increased capabilities; the second is with Sigma-Aldrich to integrate its chemical compound catalogs into Accelrys’ database. The latter agreement will save chemists a great deal of time by freeing them from having to search multiple suppliers’ catalogs for the right compounds.

 The company has excellent working relationships with academic institutions, including the University of Cambridge and Harvard; as well as the top nanotechnology government research laboratories such as Argonne, Brookhaven and Los Alamos.

 Recently, it has initiated the Accelrys Nanotechnology Consortium—a program designed to accelerate the development of software tools that enable the design of nanomaterials and nanodevices. Current members include Corning, Fujitsu, e2v Technologies, Imperial College, Uppsala University (Sweden), Franhofer and the Japan Advanced Institute of Science and Technology.

 It currently has over $50 million in cash (meaning that almost 35% of its market capitalization is comprised of cash) and little debt.

Although I’m personally bullish there are, as always, reasons to be bearish. These include:

 In 2004, the company reported a loss of $29 million on revenues of just over $84 million.

 An accounting change (the company went from booking the majority of sales up front to spread those sales out over 12 months) initiated in mid-2004 has made quarter-to-quarter comparisons. (Although this problem should soon resolve itself).

 It faces strong competition in the pharmaceutical arena from Tripos (TRPS), whose customers include, AstraZenaca, Pfizer, Bayer, Hewlett-Packard and IBM Life Sciences; and from NanoTitan, a small nanotech software modeling firm located in Mclean, Virginia.

From my perspective, software tools are going to be essential for nanotechnology research—be it at the academic or corporate level—and the need to view, characterize and understand materials at the nanoscale will only increase in the future as the need to perform calculations increases from hundreds to thousands and, ultimately, millions and billions of atoms. Provided Accelrys stays at the cutting edge of these advances, the company should be well positioned for future growth.

Moving forward, investors should watch for Accelrys to line up additional large corporate customers. If it does, it’ll obviously be a bullish sign. If, however, leading life sciences firms begin switching to the software of Tripos or a private start-up such as Apex Nanotechnologies or NanoTitan, it would be wise to review holdings in Accelrys.

Jack Uldrich

Related Links:
Biophan: Less Talk, More Action
Is Altair All Hot Air?

Monday, March 21, 2005

Nano-based Drug Delivery Devices: A Larger Market than $1.7 Billion

Earlier today, an independent consulting firm announced that it had just issued a new report stating that the "nano-enabled drug delivery market was expected to pass $1.7 billion in 2009." At an asking price of $500, I won't be paying for the report and would encourage my readers to think long and hard before popping down so much money for the report.

From my perspective, the figure of $1.7 billion is too low and it leads me to question the methodology the consultants used in putting together their report. I cite the following evidence as why I believe the figure is too low:

1. Earlier this year, American Pharmaceutical Partners received FDA approval for its new nano-based Abraxane. The market for this breast-cancer treating product alone is expected to be between $125-$250 million in 2006.

2. Elan Corp's nanocrystal technology is already being used by Johnson & Johnson to treat Schizophrenia, and the company now has a partnership with Roche which could lead to additional revenues.

3. Starpharma's VivaGel--a dendrimer-based topical microbicide being tested for HIV--is in Phase II FDA trials and I believe it has a good chance of being fast-tracked. Longer term, the technology could also potentially be used to treat Herpes and Chlamydia.

4. pSivida's BrachySil technology--used to treat liver cancer--is also in late stage FDA trials. The company is working with at least two other "Top Five" global pharma companies and has plans to expand its technology platform to the treatment of pancreatic, ovarian and bladder cancer.

5. SkyePharma is capable of reformulating a number of off-patent drugs using its IDD-D platform--much as it has already done with Propofol.

6. Flamel, although it's stock has taken a plummeling lately, is still working on its Medusa technology which could lead to the more effective delivery of insulin. If it is successful, it could also lead to signficant sales.

7. Pfizer, Bristol-Myers Squibb, Merck and a host of other major pharmaceutical firms are also working on various nano-based delivery systems--many of which are likely to lead to real products before 2009.

I would also argue that the consultants projections that the nano-based delivery market will only grow to $4.8 billion by 2012 underestimates the potential of a number of very promising nanotech start-ups such as NanoBio and NanoSpectra (among others)--whom are likely to be starting their own FDA trials in the next year or so.

Jack Uldrich

Related Links:
Starpharma "Nano" star on the rise?
Elan Good News for Nanotech Investors?
pSivida: Down Under Comapny has Big Upside Potential

Saturday, March 19, 2005

Response from Motley

Dear Readers:

For some reason, neither Carl Wherrett--or myself for that matter--have been able to post a response to my article yesterday about Altair. I have therefore taken the liberty of posting Carl's response in full. Below is the full text:

Dear Jack:

Regarding your comments on our Altair article I would urge your readers to
read the full article. Our by line was we are not buying , holding or shorting Altair. We are watching them carefully, which is the same advice you gave in your article i.e. be very cautious. Imo it is the only sensible advice anyone should give about this company.

Our mention of Spectrum was to highlight they have finally got a commercial
partner after years of trying but we are well aware meaningful revenues are
years away. What might be nearer term is the battery technology and at this
stage I nor anyone else can say for sure it is a bogus claim. Their
statements are very factual and will invite a class action suit if their
claims are proven to be totally without merit. Had these types of claims
been made by the previous management then I would dismiss them as it is
repeating previous broken promises. The fact that they have a new CEO & now President means I cut them a little more slack, after all it is under this
CEO that have signed Spectrum and raised $20m at a price of $4.05, an
unheard of level under their previous managers. Are the two things linked,
well right now only in conspiracy theorists minds. Dr. Gotcher has not lied
to his investors yet, if and when he does you can be sure I for one will be
crawling all over him.

For these reasons we ended with the remark , IF they announce a deal with a
major battery manufacturer then we would look seriously at them.

Carl Wherrett

Friday, March 18, 2005

Altair: Fooling the Fools?

Yesterday, The Motley Fool ran an article on Altair--which I profiled last week. The authors, Carl Wherett and John Yelovich, saw fit to "consider [Altair] ... a rule breaker." To their credit, they didn't recommend the stock but I think they did their readers a real disservice by suggesting that Altair has had some "stunning breakthroughs" in the past few months.

Specifically, the authors suggested that Altair's licensing of RenaZorb to Spectrum Pharmaceuticals was one such breakthrough. I respectfully disagree. I simply remind my readers that RenaZorb is still years away from FDA approval and that Spectrum Pharmaceuticals is hardly a world-class company--it doesn't yet have any revenues.

Secondly, the Motley Fool writers seemed to be far more impresed with Altair's lithium-ion technology than I am. I would argue that Matsushita, given the size of its marketing and distribution network, is far better positioned to be the first to get its lithium-ion technology into the commercial marketplace. This is not to say Altair can't find another major battery manufacturer to license its technology--it's just that the company's previous track record on successfully introducing its products into the commercial marketplace (e.g. NanoCheck) offers little reason to be confident.

In conclusion, I would simply remind my readers of this fact: Altair had only $1.2 million in revenues in 2004, while piling up $7 million in losses. It is impossible for me to justify a market capitalization of $200 million for a company with such miniscule reveneus, no real product yet, and an unproven management team. (Full Disclsoure: I own no stock in Altair.)

Related Links:
Is Altair all Hot Air?

Thursday, March 17, 2005

Starpharma: A “Nano” Star on the Rise

On Monday, Starpharma—an Australian-based biopharmaceutical company focused on the development and application of dendrimer-based nanotechnologies—announced it was launching a new company, Dimerix Bioscience, to develop technology for the new field of receptor coupling. The overall size of the deal is pretty small—about AUD$200,000—and Starpharma will only have a 30% equity stake in the company, but it is yet another indication of Starpharma’s growing sophistication in leveraging its impressive intellectual property position in the area of dendrimer-based nanotechnologies. (Full disclosure: I own Starpharma stock).

To understand the long-term potential of dendrimers—which are tiny (approximately 50 nanometers) synthetic, nanoscale structures that can be tailored for a variety of applications—one need look no further than yesterday’s press release coming out of Central Michigan University (a world leader in the development of dendrimers). The release succinctly addresses how dendrimers may someday be used to treat breast cancer and osteoporosis.

More exciting than these developments, however, was the news last month that Starpharma, in exchange for giving Dow Chemical a 31 percent equity stake in another company it owns—Dendritic Nanotechnologies—received 196 dendrimer patents from the chemical giant. This gives Dendritic Nanotechnologies (of which Starpharma is still the biggest equity holder at 33%) the largest portfolio of intellectual property in the field. It also alleviates the future threat of costly and time consuming litigation.

Beyond these developments, I am bullish on Starpharma for the following reasons:

 The company is developing VivaGel—a dendrimers-based topical microbicide gel that has been developed for women as a preventative against the sexual transmission of HIV. The gel has been proven 100 percent effective in animal trials and, in 2004, received clearance from the FDA for human clinical trials. In early trials, VivaGel appears to be safe (it is still too early to know about its efficacy) but if it is approved it will, arguably, be the first truly nanoscale platform technology approved by the FDA. Longer-term, it is quite possible that the technology will also be tested for effectiveness against other sexually transmitted diseases like Herpes and Chlamydia (an estimated 15 million women in the U.S. contract sexually transmitted diseases every year).

 As stated earlier, Starpharma owns 33 percent, Dendritic Nanotechnologies, which is one of the few companies to be accepted as a partner in MIT’s prestigious Institute of Soldiering Nanotechnologies. (It is likely that the Army is exploring the company’s dendrimers as a possible platform for detecting treating various chemical and biological agents).

 In late 2004, a consortium lead by Starpharma was awarded a $5 million from the National Institute of Health to develop a second generation microbicide for the prevention of HIV and other STD’s.

 And, earlier this year, Starpharma began trading as an ADR on NASDAQ under the symbol: SPHRY. One ADR is equal to 10 shares of the company’s stock on the Australian market.

As always, there is another side to the story and Starpharma is not without some risk. At the present time, the company is not profitable and has few revenues. It also faces some competition from a private start-up out of the University of Michigan, NanoBio Corporation. And, of course, in almost every area it is working—from HIV to osteoporosis—it faces stiff competition from not just the major pharmaceutical companies but hundreds of other promising start-ups as well.

In all, however, I believe Starpharma is an excellent investment for those investors with a strong penchant for risk. VivaGel’s effectiveness in animal studies, coupled with the company’s impressive IP platform and its large stake in Dendritic Nanotechnologies, provide great potential upside—especially in the area of treating various cancers.

Moving forward, investors should look for a major pharmaceutical company to license Starpharma’s technology. If such a development occurs, investors should consider it a very positive development. Of course, the most significant milestone will be if the FDA approves VivaGel. Such an act would serve as a major validation of Starpharma’s technology.

Jack Uldrich

For more information:

Starpharma Pooled Development Ltd.
Address: Level 6, Baker Heart Research Building
Commercial Road
Melbourne, Victoria
Phone: 61.3.9510.5955
CEO: Dr. John Raff
Web: www.starpharma.com

Wednesday, March 16, 2005

Fuel Cell Technology: Connecting the "Nano" Dots

My favorite nanotechnology resource is the website Nanotechnology Now. On a daily—-sometimes an hourly basis--its editor, Rocky Rawstern, gleans from the Internet an ever growing list of articles and press releases dealing with emerging field of nanotechnology. The articles often stand on their own merit but on some days the “connection” between various developments lingers just below the surface. Yesterday was just such a day.

First, there was an interesting article in Small Times (another excellent news sources on nanotechnology) by David Forman talking about Plug Power’s work to develop a fuel cell home energy station. The gist of the article was that the technology is real and potentially disruptive (the station could not only produce hydrogen for a fuel cell car, it could also allow the user to generate some of his or her own electricity), but this development is a long way off.

While I appreciate the effort not to “hype” fuel cell technology, I often think that many professionals in the field fail to appreciate how fast things are moving in their own backyard. To wit, I offer a press release coming out of Brookhaven National Laboratory. The release reports that researchers are honing in on creating the conditions for the “optimal operation” of new catalysts for generating hydrogen. Essentially this means that in the near future fuel cells will be able to operate at even higher levels of efficiency.

The third item was a short article talking about Accelrys (NASDAQ: ACCL) (Full disclosure: I own Accelrys stock) adding five new members to its Nanotechnology Consortium. The addition of these specific individuals may—or may not—be important. What is important is that Accelrys is committed to accelerating the development of new software tools that will enable the design of new nanomaterials and nanoparticles.

This brings me back to the fuel cell technology. I am confident Accelrys (as well as other companies) will speed up the commercial development of not only new nanocatalysts but also new nanomaterials which will allow for the safer and more effective storage of hydrogen.

These two developments, in turn, takes me back to Plug Power’s experimental home energy stations which, I would argue, will be here sooner than later because of these new advances.

And, if this is the case, the implications are significant. Not only should investors look at stocks like Plug Power and Accelrys in a new light, they should also revisit their assumptions about the long-term value of automobile and energy stocks because fuel cell technology has the potential to “disrupt” those industries.

Tuesday, March 15, 2005

Biophan: Less Talk, More Action Needed

Last week, Biophan, a nanotech start-up based in West Henrietta, New York, reached a 12-month high at 2.09 a share. The company’s stock is now up over 300 percent since August. The question is: will it continue to increase? I am doubtful unless the company soon announces a deal of real substance. (Full Disclosure: I do not own any Biophan stock. I sold all my shares in December at $1.50). The announcement in February that it had acquired Amris GmbH was of some importance because it strengthened the company’s position as a leading manufacturer of MRI-compatible medical devices. However, a cursory review of the company’s numerous other press releases over the past few months are more troubling and that is because they appear to have only one thing in common: they aren’t really news. The fact that Biophan has been mentioned in an article or that its CEO is speaking at a conference may give some investors the perception of action and movement but I would prefer if the company stuck to the old fashioned notion that press releases should be saved for real news.

This is not to say Biophan is not without some merit. The company is developing a proprietary thin-film nanomagnetic particle coating to make biomedical devices MRI (Magnetic Resonance Imaging) safe and image compatible. And, if successful, the technology would represent a significant market (by some estimates approximately $5 billion).

Today, many medical devices—particularly pacemakers and neurostimulators—cannot be used with MRI because the resulting magnetic fields cause the devices to heat up and thereby cause tissue damage. Biophan’s technology allegedly alleviates this problem.

Unfortunately, to date, no major medical manufacturer has agreed to employ its technology. Biophan does have a relationship with Boston Scientific (BSX); however, no news on this front has been forthcoming for months. The company also has a partnership with NASA to create a biothermal battery that converts the body’s natural heat into usable electrical energy (Such batteries could extend the life of cardiac pacemakers and require fewer surgical replacements) but, again, nothing of substance has yet been developed from this relationship.

Similarly, the recent news that Biophan was commencing animals of MRI-visible Vena Cava filter bears watching but should be treated with great caution by investors until the results of these trials are known.

The bottom-line is that Biophan does have promising intellectual property and its relationships with Boston Scientific and NASA are noteworthy, but until a major medical device manufacturer actually starts licensing—and employing—its technology, it is simply another promising nanotech company with an unproven technology.

For a company with no revenues in 2004 and little cash on hand, it is hard—in my mind—to justify a market capitalization of $140 million at this time.

As always, due your own due diligence … but that’s my two cents.

Jack Uldrich

For more information:

Company: Biophan Technologies, Inc.
Symbol: BIPH
Trading Market: OTCBB
Address: 150 Lucius Gordon Drive
Suite 215
West Henrietta, NY 14586
Phone: 585-214-2441
CEO: Michael Weiner
Web: www.biophan.com

Friday, March 11, 2005

Nanotechnology & the Dow Index of 2025

In his book, Quantum Investing, Stephen Waite suggests that by 2025 at least half of the companies comprising today’s Dow Jones Index will have been replaced. He bases this prediction on his understanding of quantum physics which, he notes, is the under-lying science behind 30 percent of today’s Gross National Product. He further suggests that the influence of quantum physics will only grow more pervasive by 2025 and, in doing so, fundamentally alter the make-up of Dow.

It is a thoughtful proposition—and one which I agree—but it begs the question: Which companies will survive and which are fated to go the way of Tennessee Coal & Iron and, more recently, International Paper and AT&T?

Waite offers the first clue when he writes in his book that “The mother of all quantum revolutions—the nanotechnology revolution—has the potential to be the twenty-first century what microelectronics was to the twentieth century.” A second clue can be found in the research of the Lux Research—the country’s preeminent nanotechnology research firm—which reported last year that nearly half of the 30 companies listed on the Dow mentioned nanotechnology on their web sites.

While it is not my intention to suggest that the mere mentioning of nanotechnology on one’s web site holds the key to retaining a position on the Dow Index, a company’s involvement in the field does offer an attractive first screen for discerning which companies will survive in the future because it implies, at a minimum, that those companies are at least sensitive to how nanotechnology and quantum physics could change the economic and competitive landscape of the first part of the 21st century.

Among the companies mentioning nanotechnology are 3M, Boeing, Proctor & Gamble, Microsoft, United Technologies, SBC Communications, DuPont, Exxon-Mobil, GE, General Motors, Hewlett-Packard, Honeywell, IBM, Intel, Johnson & Johnson, Merck and Pfizer. A cursory review of these companies involvement in nanotechnology suggests that most of them are approaching the emerging science in a very pragmatic way. They understand nanotechnology has practical applications which can make their existing products better today, while simultaneously possessing the ability to transform their business tomorrow.

It is this balanced approach of applying near-term nanotechnology applications to improve the company’s next quarterly financial statement, together with a long-term commitment to nanotechnology research and development that just might allow these companies to successfully navigate the uncharted waters of the future.

For instance, 3M has developed a new nanocomposite for tooth filler that is stronger, more durable and keeps its polish longer. Hardly sexy, but such advances are the stuff that sustained annual growth is made of. Longer term, 3M is looking at developing nanocomposites for bone regeneration and nanomembranes for water filtration. If the company can master these techniques, it will have gained entry to two new, large and potentially high-margin areas—the type that might allow it stay on the Dow for another two decades.

General Motors and DuPont are following similar strategies. GM is employing nanocomposites to make a number of its newer vehicles more resilient and fuel efficient —including the Chevy Impala and Hummer H2. Down the road, it is looking to nanotechnology to improve both hybrid battery technology and fuel cell technology. Both advances might help the company survive the end of the century-long reign of the internal combustion engine.

DuPont, on the other hand, recently signed a licensing agreement with a very promising nanotechnology start-up, Nanomix, to manufacture flat panel displays using carbon nanotubes. The displays will be flatter and more energy-efficient than today’s state-of-the-art displays and offer to make DuPont more competitive in this lucrative market. The company, however, is also investing millions into the U.S. Army’s Institute of Soldiering Nanotechnologies. Why? Because it knows the Army is interested in producing clothing that can monitor the health condition of its soldiers, change thermal properties, produce its own energy, and maybe even change colors on demand. If DuPont can stay abreast of such developments, it will have a leg up on developing the next great material science advances which could very well revolutionize the textile industry.

Hewlett-Packard, Intel and IBM are also investing millions in nanotechnology, and it is why all three have entered into partnerships with some of today’s most promising private nanotechnology start-ups. They understand that nanotechnology can not only improve the performance of computer chips today, it could well be instrumental in ushering in the era of either carbon- nanotube-based chips or molecular electronics.

The pharmaceutical industry is no different. Johnson and Johnson, Merck and Pfizer all recognize that in the near future a number of their most lucrative patents will expire and that proprietary nanoparticles could help extend those patents. Longer term, they realize that a variety of nanoscale devices might make for more effective new drug delivery platforms, and if they want to survive they need to be developing these nanoscale platforms today.

The very size and diversity of these large companies makes it unrealistic—and imprudent—to evaluate these companies short-term stock performance solely on the basis of their involvement in nanotechnology, but for investors who are interested in positioning themselves for long-term growth, a company’s involvement in nanotechnology today is one practical way of gauging whether they, at least, understand the forces which will allow them to still be in existence in 2025.

Jack Uldrich is the author of the The Next Big Thing is Really Small: How Nanotechnology Will Change the Future of Your Business and the editor of NanoNovus.com. His forthcoming book, Investing in Nanotechnology: Think Small. Win Big is due out later this summer.

Thursday, March 10, 2005

Is Altair all Hot Air?

Earlier today, Altair (NASDAQ:ALTI) announced the termination of its former president, Rudi E. Moerck. This follows on the heels of yesterday’s release of its 10-K statement. While I’m not suggesting that the two events are related, the news offers a good time to look at one of nanotechnology’s most volatile stocks: ALTI.

Altair describes itself as a manufacturer of unique nanocrystalline materials, and it states that its proprietary nanomaterials have a variety of applications in everything from solar cells and fuel cell technology to drug delivery products and advanced batteries. It also reports that it has two potential products in the pipeline—RenaZorb and NanoCheck.

After reviewing the literature and talking with Doug Ellsworth, president of Altair Nanomaterials, I am quite negative on the company’s future prospects. (Full Disclosure: I do not own any Altair stock and have not taken a position to short the company’s stock). The only positives I see coming out of the company—besides its penchant for a well-timed news release—is that it has been able to successfully land some modest grants from the U.S. government. Specifically, Altair is involved (as a subcontractor) with a $400,000 grant to develop a hydrogen refilling station in Las Vegas and is also sharing a $1 million grant with the Western Michigan University to conduct research aimed at developing nanosensors for chemical and biological detection.

A company—especially a publicly-traded company—cannot, however, survive on grant money alone. And reviewing the company’s recent 10-K, Altair only received $1.15 million in revenues in FY2004 and the majority of it came from grant money.

To make matters worse, the company reported a loss of nearly $7 million for the fiscal year. For a company whose share price closed at $4.09 today—and has a market capitalization of slightly over $200 million—these figures would suggest that the stock is dangerously overpriced. (To be fair, the company does have close to $30 million cash-on-hand which gives it 4 years at its present burn rate).

The only thing, from my perspective, that would justify a price this high is if Altair could demonstrate it has a viable commercial product coming to market very soon. Based on my research, there is, however, no visible evidence of any such development.

I base my analysis on the following:

 RenaZorb, which is a nanotechnology-based drug candidate for phosphate binding in early stage Renal disease, has not even started the FDA approval process. Even if Altair can start the process this year (a big if), it’ll be years before the product winds its way through the regulatory process. And, of course, at any stage the FDA can terminate the drug. Therefore, at best, RenaZorb is a long-term question mark.

 Another product Altair has been touting is NanoCheck—a nano-structured compound to remove phosphate from water. Going back to old news articles and releases from Altair, the company has been talking for at least two years about the potential of this technology to capture a sizeable share of the market for spa and pool cleaning products (NanoCheck reportedly helps prevent algae growth). As of today, there is no indication that a product will be forthcoming any time soon and company executives couldn’t provide a timeframe for when it might reasonably be expected.

 Earlier this week, Altair announced that it had been granted a European patent which it claims will improve the performance of Li-ion batteries (it reportedly coats the anode surface with lithium titanate nanocrystals). It is possible that this technology, like RenaZorb and NanoCheck, will eventually materialize into a real product, but investors should beware that Matsushita, the giant Japanese conglomerate, announced this week that it was rolling out a similar product. Given Matsushita’s marketing and distribution strength, it is difficult to imagine how Altair will compete in the highly competitive battery market unless it also announces a partnership with a major battery manufacturer soon.

 Altair’s work in the area of solar cell and fuel cell technology is not without some merit. The problem is that a number of other companies like Nanosys, Nanosolar and Konarka—many of whom have already licensing and distribution partnership agreements—appear much better positioned.

 Lastly, Altair also claims to be developing nanomaterials for everything from better dental fillings to stronger, lighter and cheaper titanium. While I have no reason to question its work in these areas, investors need to understand that much bigger companies like Lockheed and 3M are doing work in the same area. Unless Altair’s nanomaterials are so superior, it will be difficult for them to be competitive.

In conclusion, I would suggest that investors treat this stock great caution. Altair’s management team appears to lack strategic focus. It is unrealistic, given the present state of competition in nanomaterials, pharmaceuticals and solar cells, that it can concentrate in all those areas. More importantly, until Altair actually has some commercial products—and real revenues—it is hard to price its stock much above the $30 million that it has in cash. (Such a valuation would peg the stock at around .60 cents—a far cry from its present price of $4.09).

Moving forward, investors should not be persuaded by press releases announcing new patents or news that it has been awarded modest government grants. Only announcements that demonstrate the company is actually receiving real revenue should be accorded any significance.

Always, do your due diligence … but that’s my two cents.

Jack Uldrich

Contact Information

Altair Nanotechnologies, Inc.
204 Edison Way
Reno, NV 89502
Phone: 775-858-2500
CEO: Dr. Alan Gotcher
Web: www.altairnano.com
Symbol: ALTI

Wednesday, March 09, 2005

Nanotechnology and the Entrepreneurial Mind

Last evening, I had the opportunity to serve on a panel at a forum on nanotechnology held by the Minnesota Entrepreneurs Inc. In my short time before the group, which had just been bombarded with a series of short lectures on the technical and futuristic aspects of nanotechnology, I tried to convey the immense opportunity entrepreneurs can help play in bringing nanotechnology to the commercial marketplace.

It is conventional wisdom that the emerging field of nanotechnology is complex and the field will not suffer from the rash of start-ups that the Dot.com era witnessed. While this is true, I noted that there was no reason to be intimidated by the field—or write it off just because you don’t have a PhD in physics, biology or the material sciences. There will be no shortage of entrepreneurial opportunities for those who understand how nanotechnology-enabled advances in the materials sciences, data storage, energy devices and a myriad of other products might soon be utilized by the masses.

My point was that tomorrow’s most successful entrepreneurs will not just be those people who actually start nanotechnology companies (my guess is that this number will be relatively small and will be limited to those with a deep base of scientific knowledge and/or access to a deep reservoir of financial capital which will be necessary to bring their product(s) to market), it will also be open to those individuals who understand how nanotech-enabled advances can be used to improve people’s everyday lives and enhance business operations.

Let me provide a few examples. Nanotechnology is driving a revolution in material sciences. Nano-Tex’s stain-resistant pants are often held up as a model example for how nanotechnology can revive an industry—the textile industry—that was long given up as outdated and uncompetitive. The question the entrepreneur has to ask is this: Are there new business opportunities that could emerge from this revolution? For instance, if cloths are now lasting longer—and staying cleaner—are there additional business opportunities to rent clothing—or other products—coated with nanofibers? Similarly, as other nanotech companies manufacture lighter, stronger, and more dent and scratch resistant materials, what new opportunities could emerge? If self-cleaning or energy-enhanced windows become more prevalent, how can the engaging entrepreneur harness these properties to improve a company’s—and thus his or her own—bottom line.

The advances nanotechnology is enabling in data storage arena offer similar entrepreneurial opportunities. To illustrate my point, I offer the example of Reed Hastings, the founder of NetFlix. He didn’t invent DVD technology. He was simply among the first to recognize that eventually DVD technology would get so inexpensive that he reproduce and send out DVDs in the mail and allow customers to keep them for an indefinite period of time. In so doing, he successfully challenged the entire video rental industry.

Will similar opportunities emerge in the future? Yes, and it is going to be the entrepreneur—not necessarily the developer of the technology—who gets rich in the process.

Another area, I am personally excited about are the advances being made in flexible solar cell technology. Konarka is reportedly working with the U.S. Army to embed solar fabrics directly into the uniforms of our soldiers. The purpose is to help our fighting men and women reduce the number—and weight—of batteries they must carry. Solar fabric, by allowing them to essentially recharge their computers and other electronic equipment from their clothing, will do this. The technology will undoubtedly be beneficial for our soldiers, but is there also a successful business lurking in the technology? Yes. I don’t necessarily know what that business will be, but if people can recharge their cell phones, laptops, and IPods from their clothing, my guess is that the entrepreneurial mind can think of some exciting possibilities.

To do so, however, the entrepreneur must first understand where nanotechnology is pushing a variety of technologies. By doing so, they can get out ahead of the herd and capture these opportunities before they become obvious to everyone else.

Jack Uldrich

Tuesday, March 08, 2005

Nantero: One Step Closer from Lab to Fab

For the second consecutive day, one of nanotechnology’s most promising companies has announced a very sizeable funding round. Today, Nantero, announced that it received a third round (Series C) investment totaling $15.5 million. (Institutional investors include Draper Fisher Jurvetson, Harris & Harris, Stata Venture Partners, Charles River Ventures and Globespan Capital Partners.) The news suggests that Nantero is yet one step closer to a commercial product.

The Woburn, MA-based company is working with carbon nanotubes to develop non-volatile random access memory (NRAM)—a portable memory chip with low power consumption, high storage density and high speed to compete with the other forms of memory (Static RAM, Dynamic RAM and flash memory).

Nantero has already successfully demonstrated that it can properly align over 10 billion CNTs on a single wafer. It is also claims that its technology has been incorporated into a standard semiconductor production line; which, if true, would mean that major chip manufacturers would not have to alter their production processes—a big plus. If the company’s technology is successful (LSI Logic is reportedly testing it), it could replace all existing forms of memory and lead to more capable laptops, cell phones and other electronic devices, as well as “instant-on” computers. The market for such a technology could be substantial—some estimates range as high as $100 billion.

Nantero executives have stated that the company will have a product by mid-2005. If its tests with LSI Logic prove successful, look for other major semiconductor manufacturers like IBM, Motorola and Infineon to enter into licensing agreements with Nantero. Recently, the company also announced a partnership with BAE System, a major aerospace manufacturer. The partnership could signal Nantero’s move into a new field—that of employing CNT to combat the effects of radiation.

Although it is a private corporation, nanotech investors should definitely put the company on their radar screen.

Jack Uldrich

Contact Information

Nantero, Inc.
25-D Olympia Avenue
Woburn, MA 01801
Phone: 203-656-0833
CEO: Greg Schmergel
Web: www.nantero.com

Monday, March 07, 2005

Nanomix appears to have Right Mix

Earlier today, Nanomix, a leader in the development of carbon nanotube-based nanoelectronics sensors announced the close of a $16 million round of funding. The development should be heeded by nanotech investors because it suggests that the company is one step closer to a commercial product—and, possibly, an IPO.

The company is reportedly preparing to launch devices that harness the features of nanoelectronics. While company executives aren’t discussing what the device will do, my guess is that its first commercial product will be some type of chemical or gas sensor.

The market for chemical and gas sensors is estimated to a multi-billion market and Nanomix’s sensors would appear to have a wealth of industrial applications in these markets. For instance, the gas and oil industry could employ its sensors throughout a refinery for industrial process control or to help monitor gas leaks and air-quality. Other potential applications, however, include pollution or pathogen detection, chemical detection in drinking water, and indoor air-quality sensing in schools.

Nanomix has also already successfully produced a medical capnography sensor (a small, inexpensive, easy-to-use device that can quickly and accurately detect if carbon dioxide is present). Such a device could have a variety of applications in the health care arena where medical personnel must monitor carbon dioxide. It has also successfully licensed field-emitting thick film materials containing carbon nanotubes to DuPont Electronic technologies. This technology could lead to high-quality, affordable flat panel televisions.

Nanomix’s sensors appear to have superior price/performance compared to traditional technologies, and its intellectual property portfolio, strong management and scientific teams all suggest that it well positioned for future growth. The company has not yet received any significant revenue from its licensing agreement with DuPont, nor has its medical capnography sensor yet been widely commercialized but this latest round of funding may help address some of these shortcomings.

The fact that Harris & Harris has joined existing investors, including: Seven Rosen Funds, EnerTech, Alta Partners and Apax Partners, provides another indication that the company is to track to commercialize its technology and become one of the first true nanotech companies to go public.

Moving forward, investors should watch for Nanomix to successfully create a hydrogen storage system. If it can it would represent a very significant long-term market—especially if fuel cell technology becomes prevalent in automobiles. Another area where Nanomix may be able to make some inroads is in the field of chemical and biological detection. Longer term, investors should watch if the company is able to develop system that can mimic the human sensory system, including an artificial nose and tongue.

Jack Uldrich

For investors interested in doing more research:

Nanomix, Inc.
5980 Horton Street
Emeryville, CA 94608
David Macdonald

Friday, March 04, 2005

Nanotechnology as an Economic Development Opportunity

This past week, I had the opportunity to give the opening presentation at the North Dakota Chamber of Commerce’s Annual meeting in Bismarck. Given that North Dakota was recently ranked 44th among the 50 states in a nationwide study reviewing state’s effectiveness in leveraging nanotechnology for economic development opportunities, it might be assumed that there was little interest and even less opportunity for North Dakota in exploring the field.

Nothing could be further from the truth. To begin, although North Dakota has a small population and is still highly reliant on agriculture, there are some very exciting opportunities for the state in the field of nanotechnology, as well as a surprisingly strong foundation upon which to build.

For starters, the coal, oil and gas industry is the second largest industrial sector in the state and nanotechnology could play a significant role in making the industry an even larger, stronger and, more environmentally-friendly, component of North Dakota’s economy. For instance, new nanocatalysts have the potential to make coal cleaner by reducing nitrogen oxide emissions, while the University of North Dakota—the recipient of a $2.3 million grant to explore how nanotechnology might help remove mercury from coal fired power plants—could help alleviate the serious environmental issue of mercury contamination.

Nanotechnology may also play a significant role in bring fuel cell technology to the commercial marketplace. U.S. Senator Bryon Dorgan has long been a leading advocate of fuel cell technology (and has channeled some valuable research money the state’s way). If he and other federal, state and local leaders can use their influence to steer additional nanotechnology research and development resources to North Dakota State University’s Center for Nanoscale Science and Engineering, the result could be better more effective, efficient and safer fuel cells. More importantly, the state could really begin to position itself as a leader in this new, exciting and growing area.

The potential of the Center of Nanoscale Science and Engineering goes well beyond fuel cell technology and could facilitate advances in fields as diverse as agriculture, materials sciences and semiconductors. In fact, the Center of Nanoscale Science and Engineering has already proven itself beneficial by helping land Alien Technology—the largest manufacturer of radio frequency identification tags (RFIDs) in the world—to Fargo. Provided the Center stays on the forefront of nanotechnology, there is every reason to believe it could continue to keep Alien competitive, as well as lure other high tech North companies to the state. The obvious indirect beneficiary of this growth will be the citizens of North Dakota who stand to benefit from the creation of even better and higher paying jobs.

The most exciting opportunity North Dakota has, however, lies in Wahpeton. This is because it is there at the North Dakota State College of Science where educational leaders are leveraging a $200,000 federal grant to begin developing a nanoscience technician curriculum. In the not-too-distant future, business and government leaders are estimating that the U.S. will need upwards of 2 million new workers trained in the nanosciences. Many of these workers will require only a two-year degree and, to the extent, which the state can be among the first states to develop a skill and trained workforce, the new nanotechnology businesses of the future may be forced to go to where the trained workforce is—even Wahpeton.

Obviously, the education and training of students should begin well before the post-secondary-level and K-12 educational leaders in North Dakota are encouraged to begin exploring how they might be able to incorporate nanotechnology curriculum into their school. Above all, however, for North Dakota—or any other state for that matter—to really leverage the full potential of nanotechnology, it must act soon! Just last week, North Dakota’s neighboring state of Minnesota passed a $1.4 million program to develop a nanotechnology training institute, while the state of Ohio convened a group of 500 business, academic and political leaders to explore nanotechnology’s importance to the future economic development.

The bottom line is that nanotechnology may deal with the very small, its economic development potential is huge—even for North Dakota—but time is growing short.

Jack Uldrich

Wednesday, March 02, 2005

Elan: Good News for Nanotech Investors?

On Monday, Elan's (ELN) stock price dropped 70 percent on news that the company was pulling its highly touted and promising new treatment for multiple sclerosis, Tysabri, because two patients using the treatment had developed a rare nervous-system disorder. In the ensuing panic, the company lost billions in market capitalization and was downgraded by a few investment houses.

The drop may represent a real opportunity for investors who have a long-term perspective and understand the company's Nanocrystal technology. (Note: The author does not own any Elan stock at the present time but intends to purchase some on March 2, 2005.) The Nanocrystal technology takes advantage of the unique properties of nanoparticles to help improve the bioavailability of drugs. This is an important characteristic because a large number of drugs produced by Big Pharma either fail or are abandoned due to poor water-solubility. Nanocrystal technology could, therefore, rescue a percentage of these chemical compounds and turn them into profitable drugs. Earlier this year, Roche began testing the Nanocrystal technology; and it is already being used by Johnson & Johnson in a Phase III clinical trial on a injectible treatment for patients with Schizophrenia.

At the present time--and for the near future--these products will make up only a small portion of Elan's overall business, but if the FDA approves J&J's Schizophrenia treatment and/or Elan begins to meet Roche's development milestones, the Nanocrystal technology could become an increasingly profitable component of Elan's overall business.

I am also bullish on the stock because I believe Elan management, the FDA and the broader investment community overreacted to the news about Tysabri. In the wake of Vioxx, everyone has become too cautious. The FDA even stated in its release about the potential link between Tysabri and the nervous-system disorder that it "continues to believe Tysabri offers great hope to MS patients." (The emphasis is mine). My bet is that Tysabri will be re-released toward the end of this year and while it won't command as much of the market for MS treatments as was expected when it was first approved, it will still capture a sizeable share.

As always, do your own due diligence ... but that's my two-cents.

Nanotechnology and the Future of the Energy Industry

Yesterday, two separate news items highlighted the growing importance of nanotechnology to the energy industry. The first was a short news item announcing that Nanosys and signed an agreement with Sharp to use its proprietary nanostructure technology in fuel cell technology for portable consumer electronic devices like laptops and cell phones. The second item was an article discussing Nanosolar’s use of nanotechnology to produce light, flexible, durable and highly efficient solar cells.

It is not my contention to state that Nanosys’ agreement with Sharp guarantees that Sharp’s fuel cell technology will win in the marketplace. In fact, NEC is scheduled to soon release its own nanotechnology-enabled fuel cell technology. Rather, it is to point out to the manufacturers of laptop and cell phone batteries that the development should be heeded by their industry because if either Sharp, NEC or some other as-yet-unidentified competitor can design, manufacture and distribute a fuel cell that will allow electronic devices to operate for a longer period of time and be more easily recharged (actually refueled), the battery industry could be seriously imperiled.

Similarly, while Nanosolar’s announcement that it “might” be able to produce electricity in the range of five cents per kilowatt needs to be viewed with some caution (today’s best solar cells can generate a kilowatt for between 20 and 30 cents), what should not be dismissed by the energy industry—particularly the electrical utility industry—is the relevance of nanotechnology-enabled solar cells.

Solar energy currently makes up for about only one percent of the world’s energy needs. The market for solar power is, however, growing at 40 percent a year and Nanosolar’s claim that it’ll be able to “paint” self-assembling nanomaterials directly onto cars, buses and even rooftops (a development which would allow individuals and businesses to essentially generate their own power free of the existing electrical grid), could throw this figure into hyper drive.

If Nanosolar can’t produce on its promise to deliver solar cell at a competitive price (coal can produce a kilowatt for between 7-10 cents), my guess is that either Nanosys or Konarka—two other companies working on flexible solar cell technology—will.

For those who are doubtful, Nanosys has an agreement with Matsushita to begin producing its flexible solar cells in 2007, while Konarka has received funding from both ChevronTexaco and France’s largest electricity producer—Electricite de France—to develop its own nano-enabled solar cells. Both companies have also received sizeable grants (in excess of $10 million) from the U.S. government to develop their respective technologies.

It is possible—indeed even likely—that the precise timing of when these cheap, flexible solar cells will reach the market may off by a few years; I do believe the electrical utility industry will be adversely affected by nano-enabled flexible solar cells unless they begin, today, in assessing how they might be able to be incorporate the technology into their existing mix of energy-producing sources.

Tuesday, March 01, 2005

pSivida: Down-Under Company has Big Upside Potential

(Editors note: On Friday, February 26, NanoNovus editor Jack Uldrich had an opportunity sit down with pSivida’s Managing Director, Gavin Rezos to discuss pSivida’s business).

pSivida is not listed on either the Merrill Lynch or Punk Ziegel Nanotech Index, and the Forbes Wolfe Nanotech newsletter recently profiled the company but chose not to recommend it. The company, however, has a great deal going for it and is worthy of consideration by any individual investor hoping to profit from nanotechnology. (Full Disclosure: The author is an investor in pSivida and encourages all readers to do their due diligence, as well as consider multiple independent sources before investing in any company).

pSivida is an Australian-based biotechnology company committed to the biomedical applications of nanotechnology. Specifically, the company is developing and commercializing BioSilicon™—a biocompatible and biodegradable nanostructured porous silicon—that has multiple potential applications, including: controlled drug delivery, brachytherapy and tissue engineering.

Below is a list of reason to be bullish on the company:

 pSivida’s BrachySil technology (a radioactive biochip that “locks” on cancer cells and releases predetermined doses of radioactive molecules to kill the cell) has demonstrated effectiveness in reducing the number of malignant cells in a small sample of patients with inoperable liver cancer. By reducing the tumor, the device may help prolong a patient’s life long enough to receive a life-saving transplant. In preliminary trials the technology was found to be 100 percent effective in killing smaller tumors and 56 percent effect in killing larger tumors and reported no adverse side-effects. If it can continue to demonstrate effectiveness in Phase IIb trials, pSivida could be poised to capture a sizeable portion of the $1 billion dollar brachytherapy market.

 To date, one U.S.-based “Top 5 Global pharmaceutical firm” is testing pSivida’s BioSilicon technology and pSivida hopes to report with a few months that a second “Top 5 Global pharma,” along with a major vaccine company, will also begin testing its technology. From an investor’s perspective, these relationships are important because the pharmaceutical firms will fund the direct cost of testing the technology. More importantly, the agreements could lead to significant future milestone payments.

 The company’s BioSilicon—which is silicon manufactured with nanopores that can be loaded with drugs, genes, proteins and other therapeutics or vaccines—is another promising technology. It can be manufactured to release it contents over a defined period of time. Such a technology could free patients from having to take regular dosages of pills and could thus prove helpful for Alzheimer’s patients who may forget to take their drugs.

 BioSilicon is also being investigated by Singapore General Hospital as a scaffold to assist in the growth of tissue cells and, just today, the company announced that it had signed an agreement with PureTech Development to evaluate out-licensing opportunities for BioSilicon in tissue engineering, wound management and orthopedics.

 The company has another agreement with Itochu, one of Japan’s largest life science companies, to help identify, develop and commercialize products for its BioSilicon technology platform in Asia. Itochu is also reportedly interested in developing BioSilicon for food-related applications. BioSilicon is an attractive delivery vehicle because it safely dissolves into silicic acid—which is found in beer, rice and wine—and could expose pSivida to a variety of large commercial opportunity in the field of nutraceuticals.

 The Qinetiq Group, Europe’s largest science and technology company, owns 17 percent of pSivida (and the Carlyle Group, one of the world’s largest private companies, owns 34 percent of Qinetiq). pSivida may be able to leverage these relationships into future business opportunities.

 Lastly, the company has a strong family of intellectual property with over 24 patents and has enough cash on hand ($20 million) to operate until at least 2007.

Like every investment, pSivida is not without some risk. Among the reasons to be bearish are:

 Its BrachySil technology has only been tested on a small sample of patients and needs to be demonstrated to be safe and effective on a much larger sample of patients.

 The company is not currently profitable (it lost approximately $3 million in 2004) and will most likely not be cash-flow positive until 2008.

 Its BioSilicon and BrachySil technology face competition from a host of other drug delivery devices and cancer-fighting drugs (most notably in the treatment of liver cancer from SirTex).

 Finally, the company’s success is obviously dependent on regulatory approval of its products. The company believes the FDA will regulate its technology as a medical device but there is the possibility it will instead be regulated as a drug—which, if it occurs--could greatly slow down product development and adversely affect the company’s timeline to profitably.

Having said this, pSivida appears to be a good, long-term investment for investor’s with a higher threshold of risk. The company’s stock is now traded is the U.S. as an ADR (American Depositary Receipt) under the symbol: PSDV (each U.S. share is worth 10 Australian shares); and on the Australian (PSD.AX) and German stock markets. And although its two leading technologies have not yet received final approval from American, European or Asian regulators, both technologies look very promising. Furthermore, the BioSilicon platform technology holds the potential to be used for a variety of other oncology applications, including pancreatic, ovarian and bladder cancer. The technology could also potentially help Big Pharma reformulate some it’s most profitable drug patents (many of which are set to expire it the next three to four years); and, longer-term, might find applications in the areas diagnostics, nutraceuticals, and tissue engineering.

The challenge for management will be to maintain strategic focus. Company executives, however, appear to be well aware of this problem and are dedicated to bringing BrachySil technology to the market first for the treatment of liver cancer, and then pancreatic cancer.

Moving forward, investors should watch for additional news relating to agreements with major pharmaceutical companies. If additional agreements are announced it’ll be a bullish sign. By the end of the year, investors should also look for pSivida to be receiving milestone payments from at least one of its partnerships. The company’s success will ultimately be driven by regulatory approval—and effectiveness-- of its technology and that is what individual investors should most focus on.

For investors wishing to do more research:

pSivida Limited
Level 12, BGC Centre
28 The Esplanade
Perth WA 6000
Gavin Rezos (Managing Partner)