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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