Q-Dots No More

A potential Rule Breaker bit the dust last week when the founders of privately owned Quantum Dot decided to take the money and run, selling out to Invitrogen (Nasdaq: IVGN  ) .

Quantum Dot, or QDC, pioneered the commercialization of quantum dots -- unique nanocrystals with applications in, among other things, biomedical and cellular assays. Quantum dots are unique in that they are able to receive light at one wavelength and emit a response at a different wavelength, thereby offering a means of visibly reporting the presence of tiny stimuli, from low levels of dangerous pathogens to the binding of proteins. That's a superior degree of sensitivity over what current technologies offer.

We love this kind of stuff at the Rule Breakers service. We are looking to nanotech to provide us with companies capable of producing disruptive technologies that unseat market leaders and create new opportunities for profit. That means sifting through a lot of privately owned enterprises, looking for the next big nano-thing before others see it. Of course, we usually get the opportunity to make some money from our knowledge only when private start-ups go public. By selling out before that crucial step, QDC might seem to be a lost opportunity for us. But is it?

The buyer of QDC, Invitrogen, is a public company that now has a full-fledged portfolio of nanotech products. Apart from QDC, Invitrogen has also bought BioPixels, a division of BioCrystal, and has closed the purchase of Biosource (Nasdaq: BIOI  ) for $130 million. Both companies are at the forefront of commercializing nano assay kits.

No financial details have been released relating to the purchase of QDC, but Invitrogen has made an ambitious step forward into the nano arena. The question is whether that can be parlayed into the kind of high growth we're looking for.

Invitrogen currently has a $4 billion market cap and trailing-12-month revenues of $1 billion. With year-on-year quarterly growth of more than 20% from its existing business, and forecasts for quantum dots alone to grow from a $10 million market in 2004 to $500 million by 2009, Invitrogen's forward P/E of 17 looks cheap, even after the 35% share price appreciation so far in 2005.

Whether it becomes a Rule Breaker is another question altogether -- one we will be answering for our members in due course. Another larger question is whether the absence of an IPO window will push other private nanotech companies to sell now rather than go through the arduous process of a public listing. Can nano go it alone, or will the main thrust of nanotech commercialization come about courtesy of acquisition and partnerships among the "big boys," such as the deal recently announced by Ford (NYSE: F  ) and Boeing (NYSE: BA  ) ?

Whatever route it takes -- and it will most likely a combination of all of these -- there is little doubt that the benefits of nanotechnology are coming to a product near you.

Carl Wherrett and John Yelovich own none of the companies mentioned above. They write specifically on the subject of nanotechnology for theMotley Fool Rule Breakersnewsletter service.


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