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Posted: March 5, 2008
Nanotechnology struggles to grow up in the Chicago area
(Nanowerk News) Promises of computers that fit in your palm and drugs that keep you young and cure cancer have been abundant in the literature of nanotechnology.
Researchers and entrepreneurs have enthused about the potential of this new field--the science of reducing materials to tiny sizes with new properties--and have promised revolutionary products for industry and consumers. The federal government has invested in it.
In fact, the nanotech industry is struggling and has not yet taken off.
“While the technology is surely moving in the right direction," wrote Broadpoint Capital Inc. analyst Avinash Kant in a November research note, "some of these applications are still quite far away. After the initial euphoria, the nanotechnology industry has now learned to manage investor expectations much better than it did earlier.”
Despite the disappointment, nanotechnology in fact has begun to reach into citizens’ lives through products as diverse as flash drivers, window cleaners, air purifiers, sunscreens and bath and sports towels.
The nascence of nanotech companies in the Chicago area during the last decade has built one of the biggest nano hubs in the U.S., industry leaders, analysts and other experts say.
Located in Skokie, Forest City Enterprises Inc.’s Illinois Science + Technology Park is attracting new nanotech startups. Michael Rosen, senior vice president of business development for Forest City, said Chicago is a leader in nanotechnology in the U.S. and nanotech plays a very significant role in his company.
“Four of our current 10 tenants have nanotechnology affiliations and the national trade nanotechnology association, the NanoBusiness Alliance, has its headquarters at our park” said Rosen. “We do expect to get more nanotech companies in the park and create a nanotech cluster here.”
One Forest City tenant, NanoInk Inc., is a privately held company founded in 2001 to commercialize nanotech for protection of products, patients, people and companies from illegal counterfeiting and illegal manufacture of products.
The company has raised $50 million from private investors nationwide, has been growing since its inception, and currently has 59 employees.
“Every year we will see more and more nanotechnology-supported products being brought into the market. The discovery of nanotechnology is maybe the single largest discovery since the human gene,” NanoInk CEO James M. Hussey said.
According to Hussey, the main challenges facing the industry are investment of time, money and people.
Nanotope Inc., also located at Forest City’s facilities, is a pharmaceutical company using nanotechnology for tissue generation.
“Our company creates materials that will take the place of artificial scaffolds replacing tissue that is damaged, and we’ll teach the body to regenerate its own natural tissues,” said James F. Hulvat, Nanotope's chemical engineering manager.
He acknowledged the excessive hype that has been surrounding the industry and said, “There is a clash between the discoveries in labs and the real manufacturing and marketing process of a company.”
Polyera Corp. is another local startup at Forest City’s park, using nanotechnology to develop chips and electronics to serve bigger companies such as its main partner, German-based and worldwide chemical company BASF SE.
Polyera Founder and CEO Philippe Inagaki said, “In nanotech you see great ideas and great results in the lab, but it’s hard to get them commercialized. Filling the gap between the lab and the every-day market is the biggest challenge most nanotech companies face.”
Inagaki said the nine-employee company “plans to launch its first product within a three-year frame.”
Most of the nanotech startups in the area have been developed out of the laboratories of Northwestern University.
According to www.nano-biology.net, N.U. professor Chad Mirkin is the top-cited nanomedicine researcher in the world.
Mirkin is the director of the International Institute for Nanotechnology, a venture between Northwestern University and Argonne National Laboratory’s Center for Nanoscale Materials, which has raised more than $350 million for nanotechnology research, educational programs, and supporting infrastructure.
Besides the recent startups, some local nanotech companies are down the road and have even gone public.
Northbrook-based Nanosphere Inc. is a clinical diagnostic company using nanotechnology, among other technologies. Its leading product, Verigene, simplifies molecular diagnostic testing, making it accessible to virtually any clinical laboratory.
Nanosphere started in 1998 and raised $57 million in May 2006 in a financing led by Boston-based Bain Capital LLC. The company went public last November, raising a whopping $98 million by selling 7 million shares at $14 each.
However Nanosphere stock has sunk 30 percent since November to $9.65 on March 5. As investors have failed to see short term results, they are running out of patience and some are throwing in the towel.
On Feb. 29 Nanosphere reported a net loss of $11.7 million for the fourth quarter of 2007 due to research and development expenses.
Total sales for the quarter sank to $200 million, down 7 percent from the year-earlier period.
For the full year ended Dec. 31, Nanosphere reported a net loss of $53 million, more than double its net loss of $23 million in 2006. Annual revenues in 2007 were $1.1 million, the same as in 2006.
Nanosphere reported $114 million in cash that can keep the company running until it swings to a profit.
Analysts' consensus estimate compiled by Zacks Investment Research Inc. for the first quarter of 2008 is a loss of 40 cents per share.
Leerink Swann & Co. analyst Bruce Cranna said that even though the company’s stock is performing below its IPO price, Nanosphere is in good shape.
“It’s one of the few molecular diagnostic companies with already FDA-approved products and a decent pipeline,” said Cranna. “However, it’s a show-me story. They have to convince customers that their products add value to the ones offered by its competitors.”
William H. Cork, vice president of research and development and chief technology officer of Nanosphere Inc. said, “There is a lot opportunity and we are growing very rapidly because people see the potential of all the things you can do with one core technology based on the nanoparticles.”
“Nanosphere is compelling for investors because it's a pure play in molecular diagnostics,” Credit Suisse analyst Kristen Stewart wrote in a Dec. 11 research note. “It has substantial growth opportunities, strong intellectual property and research and development relationships with key thought leaders in nanotechnology.”
Nanophase Technologies Corp., headquartered in Romeoville, already has a ten-year history.
It makes personal and sun care products, chemical-mechanical polishing for semiconductors, and nanocomposite formulations in paints and plastics, among other products. But it's still not profitable.
The company reported a fourth quarter net loss of $1.16 million compared with a loss of $1.58 million in the year-earlier period. Revenues were $2.6 million, a 21 percent increase compared with $2.17 million.
For the full year ended Dec. 31 Nanophase narrowed its net loss to $3.59 million from $5.2 million in 2006. But revenues grew 36 percent to $12.21 million from $8.99 million.
Nanophase stock has sunk during the last year more than 42 percent to $3.27 on March 5.
According to Broadpoint Capital’s Kant, given that the nanotech industry has been in its early growth stage, investors have not had a lot of choices so far.
“On the other hand, pure nanomaterials companies such as Nanophase Technologies, remain relatively small in terms of revenues, market capitalization, and trading volume, which makes them highly speculative investments,” Kant wrote in a Nov. 27 research note.
ThinkEquity Partners LLC analyst Michael Lew said that current market for Nanophese Technologies products is not healthy because of a slowdown in consumer spending at its crucial outlet Home Depot.
“However, the opportunities are out there. They have very good innovative products that will help them to supply in a very healthy demand,” Lew said.
Nick Tishchenko, of Global Crown Capital, which performed investment banking services for Nanophase in the last 12 months, stated in a research note, “The financial condition of Nanophase is strong with $15.2 million of net cash and a current cash burn rate of $1.6 million per year, which is expected to decline over 2008 as we believe Nanophase will reach sustainable positive cash flow from operations by the fourth quarter of 2008 or first quarter of 2009.”
Big and well-established companies in the Chicago area are also investing and using nanotechnology in order to develop its products.
Deerfield-based Baxter International Inc. uses a small part of its research budget on nanotechnology in order to develop new products especially for the treatment of cancer.
Barrett E. Rabinow, distinguished scientist for medication delivery at Baxter said, “Nanotechnology is like a Pandora’s box: The good news is that you’ve made the particle small. However, you’ve also increased the surface area and this conveys problems because the particles may stick to each other as opposed to go where they are supposed to go. . . Nanotechnology is like the Chinese word for change: it’s both opportunity and danger.”
Nanotech executives agreed that even though nanotechnology is moving ahead with promising projects that seem to achieve its long-awaited results, the society will still need some more time to understand, approve and see further results of nanotechnology.
Dietram A. Scheufele, professor of life sciences communication at the University of Wisconsin, researches public attitudes on nanotechnology. In a recent poll, he found that even though the majority see benefits in using nanotechnology, only 30 percent of Americans said they morally approved of this new science, a much lower acceptance than its European counterparts.
However, according to Scheufele, nanotechnology is already in everyday life.
“We have in the U.S. more than 500 products that rely on nanotechnology that you can purchase in stores. Mercedes, for instance, uses nanotech for its cars. Federal funds have almost quadrupled in the last eight years up to $1.6 billion. Nano is everywhere and has huge potential opportunities,” Schefele said.