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NANOTECH OFFERS SOME THERE, THERE
Nanotechnology firms are attracting investors with the promise of a few near-term products by: ANN M. THAYER, C&EN HOUSTON Venture-capital investors and Wall Street analysts are starting to take an interest in nanotechnology companies. The U.S. government's promotion of the technology has helped create a buzz. Hype exists, but, unlike the boom and bust in dot-coms, nanotech investors see the potential for more stable business models, fewer competitors, and tangible products that will appear in many industries. "Dot-coms were largely marketing deals, where they were really just establishing different distribution avenues for old businesses," says Chris Anzalone, vice president with Galway Partners. "I believe there will be a nanotechnology boom akin to the dot-com boom over the next three to five years. The difference, of course, is that there will be more there, there." Galway Partners, along with Chicago area-based Lurie Investments, has put an initial $3 million into NanoInk, a start-up based on dip pen nanolithography (DPN) technology from Northwestern University. Galway focuses on "raw start-ups," or undeveloped technologies straight out of university labs, Anzalone explains, and thus takes a very active role in setting up the business. More than 50 U.S. venture-capital firms are already investing, reports the recently formed NanoBusiness Alliance (NBA) industry association. These firms seem to be "hedging their bets by spreading smaller amounts of money around to a more targeted set of investments," NBA says. Of 150 nanotech companies surveyed by NBA, 88% have received less than $5 million in funding each. MANY NANOTECH companies have been surviving on money from private sources, cooperative R&D contracts with government labs, and government-supported small-business initiatives. Government funding also has been fueling university research, the source of many start-ups. The companies surveyed by NBA say they would like to see increased support from venture-capital firms, government, and industry. NBA predicts that venture-capital investing will outpace government spending. Spending under the U.S. government's National Nanotechnology Initiative, launched in 1999, rose more than 50% this year to $422 million and is expected to climb to $623 million by 2003. However, most of that government money has been going to university research and government labs. In contrast, venture investments in the private sector are estimated to reach $1.2 billion by 2003, up from about $800 million today. Anzalone says there is much interest in the venture-capital community toward nanotechnology, but no hysteria yet. "The venture world looks for businesses; it does not look for science projects," he says. "There are an awful lot of good science projects out there, but still skepticism that nanotechnology is not quite ready for business. "Everyone is waiting for the first nanotechnology company to really pop," he adds, "and show that it's more than just an academic research tool." Tool and equipment producers, however, are an important focus of early investments. Calling NanoInk a "picks and shovels company," Anzalone believes its business will prosper in the nanotech boom by providing systems that others in research and industry will use to create nanoprocessors, nanoarrays, and biochips. He says NanoInk's first DPN writers should be out by mid-2002. "Initially, it's going to be the toolmakers that make the money," says John M. A. Roy, a director with Merrill Lynch. Instrumentation companies, he notes, have already seen a pickup in sales of atomic force microscopes, used to manipulate things on the nanoscale. Other developments in about two to three years may include enhanced materials, hard drives, memory chips, optical networking components, drugs, and diagnostics, he predicts. "It's not so much a matter of when, but can it be done at the right price?" he asks. NanoGram Corp., for example, is using a laser reactive deposition technology to create doped glass coatings on planar optical components for telecommunications. It has just moved into a commercial-scale manufacturing plant and has customers that are sampling and qualifying materials, says Michael A. Bryan, vice president for business development. The five-year-old company has raised $35 million in two rounds of venture-capital and corporate partner funding. With technology licensed from Harvard University, Nanosys intends to develop devices based on nanodots, nanotubes, and nanowires. Its recent initial funding round attracted attention because it involved several leading venture-capital firms--including Arch Venture Partners, CW Group, and Venrock Associates, which also invested in NanoGram--and a private investment from Robert M. Metcalfe, founder of 3Com and partner in Polaris Venture Partners. THE INVOLVEMENT of leading venture-capital firms--many of which have backed successful biotechnology, software, and other technology companies--lends a level of credibility to nanotech investment prospects. At least one investment operation, Angstrom Partners, was recently set up as a joint venture between two venture-capital companies to focus entirely on nanotechnology. Large companies in computing and electronics--including IBM, Motorola, Hewlett-Packard, NEC, and Lucent Technologies--are investing in internal nanotech R&D and may be among the first with nanocomputing products. Other large companies--including BASF, Dow Chemical, 3M, and Chevron--are testing the waters in new materials by investing in start-ups either directly or through venture funds. For example, BASF Venture Capital GmbH is participating--at a level of about $5 million over 10 years--in NextGen Enabling Technologies Fund, a new venture-capital fund targeting materials development. Fund partners include prominent scientists, largely from the University of California, Santa Barbara, and corporate partners Air Products & Chemicals, Boeing, DSM, Bayer, and Henkel. Germany's Merck has signed two agreements with NTera, one to develop electrochromic displays using nanostructured film electrodes and another to commercialize other nanomaterials for displays, sensors, batteries, and solar cells. Formerly called Nanomat, NTera has raised $7 million from venture and private investors and is trying to raise more capital to expand. Nanomaterials are already widely available and are produced by about one-third of the firms surveyed by NBA. About 25% of all the companies have products on the market. Revenues overall are still low, with only 20% of those with products having sales of more than $50 million per year and about half having less than $15 million in sales.
Carbon nanotubes, however, are a relatively clear-cut case of a new nanomaterial. Market research firm Business Communications Co. (BCC) estimates global production was 1 to 5 kg in 2000. This small quantity had a value of about $1.5 million, or between $300 and $1,500 per g. Sales primarily have been small amounts for research or testing purposes. When commercial uses reach fruition and require tons of product--maybe in about five years and in a variety of electronic, display, fuel-cell, and composite applications--BCC predicts the market will hit $430 million. Bulk use will require much lower priced products from more cost-effective production. Carbon Nanotechnologies (CNI) is building a pilot-scale plant, producing pounds per day, and hopes to need commercial-scale capacity within two years (C&EN, Oct. 8, page 11). It anticipates that initial uses will be in flat-panel displays and electromagnetic shielding. The Rice University spin-off is operating on $15 million in funding from private entrepreneurs. CNI produces pure single-walled nanotubes or "buckytubes," while other firms such as Nanolab, Hyperion Catalysis, and Materials & Electrochemical Research (MER) Corp. use different processes to make multiwalled nanotubes. A former Rice postdoc has set up Versilant Technologies, Philadelphia, supported by a National Aeronautics & Space Administration grant to develop nanotube composites. MER and Mitsubishi Corp. created Fullerenes International in 1999 to commercialize carbon nanomaterials. Mitsubishi also created a $100 million venture fund in February focused on carbon nanomaterial development. The first major investment of its Nanotech Partners fund was a $42 million joint venture with Mitsubishi Chemical called Frontier Carbon. It intends to mass produce fullerenes, or "buckyballs," in early 2002 and anticipates that annual production will reach 1,500 metric tons by 2004, resulting in prices 10 to 100 times lower. Other nanomaterial markets may not have the growth rates of nanotubes. BCC reports that the market for nanoparticles in electronic, magnetic, and optoelectronic applications was $333 million in 2000. It is expected to grow about 15% per year to reach $667 million by 2005. Energy, catalytic, and structural nanoparticle uses totaled $62.5 million in 2000 and are anticipated to grow 7% annually to $87.8 million by 2005. Polymer nanocomposites--generally a polymer containing modified nanoclay additives--have been used commercially for a few years in niche applications. General Motors announced this summer that it had created a minivan step using a thermoplastic nanocomposite from the polyolefins maker Basell and Southern Clay Products, part of Rockwood Specialties. Honeywell launched a nylon-based nanocomposite under the Aegis name in September, using nanoclays from Nanocor, a subsidiary of clay miner Amcol International. Because of its improved oxygen barrier properties, the material is suitable for packaging film, bottle, and coating applications. Bayer also sells a nylon nanocomposite that uses Nanocor materials. Nanocor has development projects with several partners, says President Peter Maul, many of which will come to fruition in the next year or so. Polymeric Supply Inc. recently signed on as a marketing and distribution partner for unsaturated polyester, epoxy, and other thermoset formulations. Nanocor sells its own thermoset polymer nanocomposite called Imperm, targeting ultra-high-barrier applications. Nanocor recently named plastics additives formulator Clariant Masterbatches an approved supplier of its Nanomer nanoclays, primarily for polyolefin uses. Clariant will supply nanoclay-containing additive mixes under its own brand names, as well as to Nanocor for joint development projects with customers. Amcol considered spinning off Nanocor about a year ago, before the stock market soured. Nanocor's business is much more technical than Amcol's, Maul explains, and the spin-off would have "increased the visibility of a technology that we think is going to be big." Nanocor would have joined a handful of public nanotech companies, including Nanophase Technologies and Altair Nanotechnologies. Altair added "nano" to its name this summer to reflect its focus on nanomaterials. The company has been building a 200-ton-per-year commercial-scale plant. From a pilot-scale plant, it has been providing metal oxides to Inframat and F. W. Gartner for use as thermal spray coatings, as well as materials for collaborative R&D programs with Agilent Technologies and with FMC for batteries. Although Altair has amassed $7 million in private equity financing, it has not reported any revenues in 2001. Nanophase had sales of $2.8 million for the first nine months of this year, about $400,000 lower than expected because a buyer defaulted on purchasing nanomaterials for catalytic fuel additives. Most of its sales are of zinc oxide to the personal care market, but it has recently received a $200,000 order from its licensee C. I. Kasei for an unidentified electronics maker. With about 20 ongoing development projects with potential customers, Nanophase has been increasing the productivity of its 1 million-lb capacity. The company Nanotechnologies is moving toward producing 100 lb per day of nanometals, says Chief Executive Officer Dennis Wilson. It is selling materials for testing to about a half-dozen customers, including 3M and Tyco Electronics. Wilson is particularly excited about the company's push into optically transparent ceramic coatings, based on 15-nm alumina, for fiber optics and eyeglasses. It also is closing a second round of venture-capital funding; the first brought in $4 million in April 2000.
Scale-up and product prices may not be as big a challenge for biological applications as for materials. "In materials, there may be an issue of volume," Merrill Lynch's Roy says. "But if they can spread a gram across a particular application and have it do its magic, that's a lot of leverage. Biological uses have that because small amounts do very key things." BCC estimates that nanostructured materials in biomedical, pharmaceutical, and cosmetic applications formed a $97 million market in 2000. This includes inorganic nanoparticles used as or to produce antimicrobial agents, biological labels for research and diagnostics, biomagnetic separation media, drug carriers, magnetic resonance imaging contrast media, orthopedic materials, and sunscreens. By 2005, this market should reach $145 million at an annual growth rate of 8.3%. Many biological applications stem from either unadorned or functionalized nanoparticles in diagnostic, assay, labeling, or drug delivery systems. These small particles can be metals or semiconductors--as are under development at Nanospectra, Nanoprobes, Nanosphere, SurroMed, and Quantum Dots. They can also be polymeric, lipid, or crystalline materials--as at Targesome, Elan, Alnis BioSciences, and BioSante--or even fullerenes, as is C Sixty's focus. Nanosphere Inc. of Northbrook, Ill., is another Northwestern University spin-off and has received about $8.5 million in funding from Lurie Investments. The company is pursuing a third round of funding to raise at least $25 million. With the money, Nanosphere hopes to launch a nanoparticle array probe for the genomics and proteomics research market by 2003 and a clinical diagnostic system by 2005. "There is a tremendous amount of interest in the venture-capital community," says Vijay Vasista, Nanosphere's chief operating officer. "And I believe we are in a particularly good position because we're not only nanotechnology, but life sciences as well." "NANOTECHNOLOGY IS potentially the next big wave from a technology perspective," she adds, "and life sciences is a pretty resilient industry even in an economic downturn." Nanotech companies targeting biomedical applications also have attracted development partners such as Applied Biosystems, GlaxoSmithKline, Genentech, and Johnson & Johnson, along with prominent venture-capital investors and government health-related agency grants. The dollars invested so far in some biomedical nanotechnology firms appear to be higher--at $10 million or more each--than for those in nanomaterials and nanodevices. Hard-and-fast rules still apply, however, to venture-capital investments. Investors say they have several criteria--including the likelihood of producing a successful product, barriers to entry for competitors, market size and share, company management and intellectual property, and a reasonable time frame and size for a return. Materials are already a significant business, Merrill Lynch's Roy says, and biological applications and simple memory devices look promising. Yet more advanced molecular electronics are probably five, if not 10 or more, years away. Still, Roy says, "where there's smoke, there's fire. Nanotechnology is closer than we think, and we need to be watching this.
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