Innovation From Down Under

Australian researchers Robin Warren and Barry Marshall were awarded the Nobel Prize in medicine Monday for their breakthrough discovery that ulcers are caused by a bacterial infection, not -- as was long believed -- by stress. "The idea of stress . was just so entrenched, nobody could believe that it was bacteria," Marshall said upon learning of the award. His and Warren's nations to the contrary, he said, "had to come from some weird place like Australia, because I think nobody else would have even considered it."

If Australia really is home to such outside-the-box thinking, it may also be affecting two of its most promising nanotechnology companies, in ways that may transform the companies and the people that their cutting-edge developments aim to serve.

First, pSivida (Nasdaq: PSDV  ) announced that it is acquiring Boston-based Control Delivery Systems, a U.S. drug-delivery company, for $104 million. The deal, if shareholders of both companies approve, will go a long way toward helping pSivida capitalize on its plans to commercialize its BioSilicon drug delivery platform -- which I wrote about this past May -- and will help put it on the path toward becoming a leading global bio-nanotech company.

Starpharma (OTC BB: SPHRY), meanwhile, announced that it has received $20 million grant from the U.S.-based National Institute of Allergy and Infectious Diseases to help accelerate the progress of VivaGel to market. VivaGel is a microbicide that has been developed for women as a preventive treatment against the sexual transmission of HIV. The topical agent is dendrimer-based (that is, built from a nano-molecule) and has been 100 percent effective in animal trials. It has clearly generated enough excitement from the National Institutes of Health to warrant a sizeable investment.

Starpharma has a lot of other things going for it besides VivaGel, and I intend to write about some of those things soon. But if VivaGel is effective, it is quite likely that Starpharma will also be able to generate additional gels to treat a variety of other diseases, including herpes. It could become a leading global bio-nanotech player. But for the time being, the funding announcement should be enough for you to start watching the company. The funding deal, after all, virtually guarantees an inflow of money for the company through the start of large-scale efficacy trials and doesn't dilute shareholder value at all in the process.

At the same time, though, remember that both companies are speculative small-cap stocks and, as such, carry big risks, including a predisposition to volatility. If you want to invest, tread carefully. A tolerance for risk is always a good idea in micro-cap land, especially when the companies are on the leading edge of innovation.

Looking to swoop in before nanotech makes it big? Take a free 30-day trial of theMotley Fool Rule Breakersnewsletter service. It'll keep you up to speed on nanotech and bring you growth-stock opportunities of all shapes and sizes. Just click right here.

Fool contributor Jack Uldrich has been thinking small since grade school. He is the president of theNanoVeritas Groupand author of The Next Big Thing Is Really Small: How Nanotechnology Will Change the Future of Your Business and can be reached owns shares of pSivida and Starpharma. The Fool has a disclosure policy.

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