Recent news about nanotechnology, the ability to restructure matter at the atomic and molecular levels, has been a mix of science fiction, fantasy, drama and reality TV.
Nanotechnology applications are being developed to repair damaged hearts, diagnose and target cancer cells, boost solar power efficiency and produce Harry Potter-like invisibility cloaks. Many people don’t realize their cell phones, cosmetics, clothing and cars already contain nanoparticles. Meanwhile, there is growing concern about the potential safety risks of these particles, which can be 50,000 times smaller than the width of a human hair.
But lately, there hasn’t been much noise about investing in nanotechnology, which a decade ago was touted as the next great investment frontier. Back then, when the National Science Foundation estimated nanotech-based products would be a $1 trillion market by 2015, lists of nanotech “stocks to watch” became ubiquitous and a number of nanotech funds were launched. Today, most of the funds are gone and pure-play investments are hard to find, especially for non-accredited investors. Even so, there are investment opportunities for those willing to be patient, say industry trackers.
One of those trackers is Tim Harper, a physicist and the CEO of Cientifica, a London-based consultancy focusing on emerging technologies. His firm, whose clients include businesses, investment funds and national governments, also commercializes new technology through an affiliated entity. Cientifica was spun off from the European Space Agency, where Harper was an engineer.
He is not surprised that many of the nanotechnology funds disappeared. “To be honest, a lot of them looked flaky,” he says, because their holdings often had little nanotech involvement. One remaining fund, which may appeal to investors seeking a broader portfolio with some exposure, is the PowerShares Lux Nanotech Portfolio (PXN). It is based on the Lux Nanotech Index.
As for the pure-play nanotechnology investments, Harper says most were materials companies—which also have limitations. “If you’re a materials company, you’re right at the bottom of the value chain and at the mercy of competition from China and wherever else,” he says. For example, when a company makes pigment for paint, most of the value goes to the store that retails the paint or the people that make the paint, he says.
The companies that will capture the most value, he says, are those that identify a need and then find the technologies to address that need. So where are the current opportunities in nanotech?
“Drug delivery is just one of them, but I think it’s the one that’s potentially the most revolutionary just simply because what we’re getting now is this convergence of IT and life sciences and nanotechnologies,” says Harper.
Technology’s ability to analyze vast amounts of data and do complex calculations is helping scientists better understand biology, and nanotechnology is enabling the engineering of targeted drugs, rapid diagnostics and other life science applications, he says. He likens nanoparticles to a spoonful of granulated sugar as opposed to a sugar cube. “The key is there is more stuff on the surface,” he says. In the case of drugs, smaller particles can enter the body easier and are often more soluble—meaning lower doses may be needed.
Many companies are working on drug delivery systems that target specific cells with reformulated versions of drugs not originally designed for nanotechnology. “If you come up with a new molecular entity, you have three stages of trials to go through and it’ll cost you the best part of $100 million and five to 10 years to get it to market,” he says. “If you can take an existing drug and reformulate it, the regulatory process is a lot quicker.”
Today, large drug makers tend to outsource innovations to small companies, which are often university spinouts, says Harper. He notes that biotech company AstraZeneca PLC (NYSE: AZN) recently agreed to pay privately held BIND Therapeutics as much as $200 million to develop a cancer drug using BIND’s nanotechnology drug delivery system. Cambridge, Mass.-based BIND also signed collaboration deals this year with Pfizer (NYSE: PFE) and Amgen (Nasdaq: AMGN).
“Sanofi and GlaxoSmithKline are also all over nanotech,” says Harper. Sanofi (NYSE: SNY) has teamed up with Selecta Biosciences to develop vaccines for severe allergies. GlaxoSmithKline (NYSE: GSK) is collaborating with Liquidia Technologies on vaccines and inhaled products.
Nanotechnology applications are also being developed for the energy industry, particularly for energy harvesting and storage. “Graphene is one of the hottest topics at the moment—how to get into it, how to apply it,” says Harper. This single layer of carbon atoms has the ability to improve battery capacity, which could be significant for electric vehicles, he says. Graphene can also be useful in other applications.
The European Union has put €1 billion into a 10-year program on graphene, says Harper. The world’s 10 largest graphene patent owners include a half-dozen universities, IBM, Xerox and Samsung Electronics Company Ltd., according to a recent list published by U.K.-based consulting and research firm Cambridge IP.
Harper says more nanotechnology developments are also under way in medical diagnostics and textiles. Meanwhile, Cientifica’s commercialization business, which works with a lot of high-net-worth investors, is developing affordable and sustainable building systems that use nanotechnologies. These systems integrate solar, wind and geothermal energy harvesting with heating and hot water systems, and also use compatible flooring, roofing and other building materials.
Nanotechnology isn’t easy to follow. “The problem is that every bit of academic work is promoted as the next cure for cancer, so it’s hard to sift through and figure out what might be realistic,” says Harper. But he thinks one Web site, “The A to Z of Nanotechnology” (www.azonano.com), does a reasonably good job of sorting out developments.
Early Action
For 30 years, New York-based venture capital firm Harris & Harris Group Inc. has helped retail investors gain access to early-stage technologies. It trades on the Nasdaq under the symbol “TINY.” Today the firm focuses exclusively on nanotechnology (technologies using the nanoscale, which is below 100 nanometers) and microsystems (technologies at the microscale, which is below 100 micrometers. A nanometer is one-billionth of a meter and a micrometer is one-millionth of a meter.)
The firm’s total assets were approximately $132 million as of December 31, 2012. The aggregate revenues for its 24 active investments were $532 million at year-end 2012, an increase of 25% from 2011 and almost 100% from 2009.
The firm invests in sectors such as health care (including life sciences), energy and electronics. Doug Jamison, Harris & Harris’s chairman, CEO and managing director, thinks that life sciences will offer the best ways to capture value, make money and build companies.
“We really like the intersection of the different disciplines—biology and chemistry, biology and physics, biology and engineering, biology and IT,” he says. “It’s at these mergers where we think there are real opportunities in nanotechnology.”
Several Harris & Harris portfolio companies that Jamison describes as “up and coming” are D-Wave Systems Inc., Metabolon Inc., SiOnyx Inc. and Adesto Technologies Corp. All are private.
D-Wave sold the world’s first quantum computer to security and aerospace firm Lockheed Martin Corp. in 2011. In May, it sold a second one that Google, NASA and the Universities Space Research Association (a nonprofit) will use in collaboration. Potential markets for quantum computers include health care, finance and aviation, says Jamison.
Metabolon has launched a diagnostic test for insulin resistance and will soon launch a test that can help determine the aggressiveness of a patient’s prostate cancer. “These are the home run applications for the future,” says Jamison.
SiOnyx offers silicon-based image sensors and other light-sensing electronic devices that can help the military see in the dark and that can be used in the security and surveillance industries. The company is also involved in biometrics, including iris detection, and is developing applications that enable people to interact with electronic devices through motion rather than physical contact. A fourth Harris & Harris investment, Adesto, focuses on ultra-fast, low-power computer memory products.
Jamison says the average time from a first investment to an exit (either a sale or an initial public offering) has stretched from four or five years to 10 years over the past decade as the market’s willingness for risk has decreased. In 2011, five of Harris & Harris’s portfolio holdings exited.
One, Solazyme Inc., engineers algae for oils used in cosmetics and other products. “The market for these oils is monstrous,” says Jamison. His firm still holds half its shares in Solazyme, which now trades on the Nasdaq under the symbol “SZYM.” Another company Harris & Harris exited from in 2011, BioVex Group Inc., which produces a drug therapy for malignant melanoma, was purchased by Amgen.
Jamison says Harris & Harris looks for companies with strong management, intellectual property that can be patent-protected, world-class researchers at world-class research institutions where it’s easier to attract capital and funding, and a market that provides an investment return of at least 10 times—a fairly standard metric in venture capital.
Harris & Harris has several Ph.D.’s on staff and conducts a lot of its research internally while also engaging consultants and other entrepreneurs to assist with due diligence.
Risky Business
Still, questions have been raised about the safety of nanomaterials, particularly in food. Small amounts of nanoparticles can move from a person’s intestinal track into the blood and organs and even cross the blood-brain barrier, according to scientific research cited in the 2013 report “Slipping Through the Cracks” from As You Sow (AYS), a U.S.-based non-profit that promotes environmental and social responsibility through shareholder advocacy.
AYS has been spearheading corporate efforts on nanomaterials. In 2011, it published its “Sourcing Framework for Food and Food Packaging Products Containing Nanomaterials” to inform companies of regulations, risks and best practices. In 2012, it surveyed 2,500 companies on how they use nanomaterials—yet only 26 responded.
Kraft Foods and McDonald’s are among the few companies that have shown leadership in trying to understand nanomaterials, monitor their use and communicate with suppliers. “I’m hoping a year from now we’ll have more clarity around who’s on what side of the issue,” says Andy Behar, AYS’s CEO. AYS will be calling companies that don’t respond and engage, and may file shareholder resolutions, he says.
AYS has conducted independent tests on several products, including Dunkin’ Donuts powdered cake donuts, whose white powdered sugar frosting was found to contain titanium dioxide nanoparticles. Dunkin’ Donuts has said it is looking into the matter. AYS also held its first crowd-funding campaign this year to raise money to test other foods. More important, “I think it has brought nanomaterials and food to the national stage,” says Behar.
Michael Passoff, the CEO of Proxy Impact and co-author of the two AYS publications, says companies have been more interested in using nanomaterials in food packaging than food. Nanomaterials can make packaging more UV resistant and improve shelf life. Food makers don’t seem to be widely embracing nanomaterials given the uncertainties and potential dangers. “I think there’s more an attitude of precautionary principle now than there was 10 years ago,” he says. “People don’t want a repeat of the GMOs.”
Concerns are also mounting about nanomaterials in cosmetics and sunscreens, such as titanium dioxide and zinc oxide. The Campaign for Safe Cosmetics is taking initiatives here. But the biggest potential hazards from nanoparticles are likely to occur during manufacturing, say Passoff and Harper. The National Institute for Occupational Safety and Health (NIOSH) continues to address this issue in the U.S.
When it comes to nanotech, “It’s not just a question of having fantastic technology,” says Harper. “We need to make sure there’s the appropriate policy framework that allows it to be deployed and deals with responsible innovation, health and safety, and toxicity issues.”