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Tuesday, May 24, 2005

Dendritic NanoTechnologies: A Nanotech Rule Breaker

Last week, privately-held Dendritic NanoTechnologies Inc. (DNT) announced that it had developed a new family of scalable, precision dendrimer nanostructures. The technology is called Priostar ™ and it could radically change the economics of nanotechnology.

The news is not only important for the emerging nanotech industry, it is especially good news for Dow Chemical (NYSE: DOW) and Starpharma (Nasdaq: SPHRY) -- both of whom own 30% of DNT apiece. (Starpharma is now traded as an American Depository Receipt on the Nasdaq.)

Dendrimers are nanostructures that can be synthetically made with specific, precise and predictable properties. This “tailorability” implies a variety of commercial applications.

Over the past few years, 6000 research papers have written about dendrimers and there has been no shortage of ideas of how they might be employed. To date, however, applications have been limited to a handful of biotech and pharma uses. The limiting factor has been price. The previous top-of-the-line dendrimer took over 30 days to manufacture and cost about $2000 a gram.

Priostar dendrimers are so potentially disruptive because they can be made 2 or 3 days for about $10 a gram. As an added benefit, the new dendrimers are more thermally stable up to 350 Celsius. (The old ones were stable only to 130 Celsius).

The price reduction radically alters the economics of dendrimers and warrants DNT consideration as a possible rule breaker. This is because at $10 a gram, the list of uses for dendrimers suddenly mushrooms well beyond niche applications in the pharmaceutical arena to everything from water filtration to nutraceuticals.

To understand why these new applications become feasible, readers must understand that the branches of tiny devices can now be quickly and inexpensively tailored in such a way as to either hold or capture individual molecules. For instance, pharmaceutical firms could use the new dendrimers to deliver drug molecules to their exact intended destination or, alternatively, a new Priostar dendrimer could be produced to store a vast amount of hydrogen atoms -- thereby making fuel cell technology more economical.

Because the process is repeatable, scalable and precise, not only is FDA is likely to look favorably upon these new dendrimers so are a host of commercial users who can now expect to receive quality dendrimers in amounts suitable for industrial applications. Be it pharmaceuticals, coatings, batteries, catalysts or advanced materials, these new dendrimers have the prospect of adding a significant amount of value to a host of existing products as well as create a variety of new ones.

Lux Research, one of nanotech’s top research firms, recently predicted that nanotechnology will account for 15% of manufacturing output -- or $2.6. trillion -- by 2014. If this aggressive figure is achieved, these new dendrimers could be responsible for a large portion of that output.

Moving forward, investors are encouraged to put DNT on their radar screens. If the company’s technology is as good and as economical as it claims, there should be no shortage of companies knocking at its doors.

In the meantime, investors looking to make a play on this advance might consider an investment in either of the two publicly-traded stakeholders of DNT. Dow Chemical is definitely the more conservative approach as its 30% stake represents but a small fraction of its overall value. The more aggressive strategy is Starpharma. Its 30% stake in DNT represents a significantly greater portion of its overall value. Investors, however, must remember Starpharma is a tiny stock with a market cap of only $50 million and is subject to great volatility. Great caution is advised and limit orders are advisable. (Full Disclosure: I own stock in Starpharma).