The Tiny Next Big Thing

Nanotechnology has the potential to change manufacturing, as we know it, dramatically. It will have significant impact on almost all industries and all areas of society. And it has the potential to make those who believe in its promise and invest in it wisely very rich. Unfortunately, many of these companies are still private, leaving us to wait and anticipate our opportunities.

Today, we'll look at some companies that are out there now and a few for the watch list. We'll give you an overview of the three "sectors" -- nanomaterials, nanobiotechnology, and nanoelectronics -- and some of the companies poised to benefit from the emerging science. We'll even toss in some nanotool makers at the end, just to keep this update balanced.

Nanomaterials
For our purposes here, the term nanomaterials includes carbon nanotubes, fullerenes, nano-oxides, nanocrystals, and nanopowders, among others. To help you with the technical jargon, visit the glossary at Motley Fool Rule Breakers. The market for carbon nanotubes and fullerenes has an annual growth forecast of 173%. For nanomaterials in general, it's 30.6% per annum for the next five years. Now those are some pretty good growth rates!

Let's take a look at some companies.

One private company, Carbon Nanotechnologies, has a patented process for making the harder-to-produce single-wall nanotubes and already boasts more than 450 customers, including DuPont and DowChemical. Nanosys also is attempting to provide solutions based on its nanotubes, with a list of blue-chip clients that includes. Nanosys filed to go public in July 2004, but pulled out at the last moment, citing "market and economic concerns." These are two companies to watch when they go public.

The easier-to-produce and less-exotic variety of these nanomaterials are called multi-walled nanotubes (MWNTs -- that glossary would help here!). Two Japanese industrial giants, Mitsui and Mitsubishi, and one U.S.-based company, Hyperion Catalysis, are perfecting production processes to produce hundreds of tons per annum.

Nanophase Technologies (Nasdaq: NANX  ) is another established company with sales and revenues from nanomaterials. The company sells its proprietary nanocrystalline powders to chemical company BASFAG for its sunscreen products, and recently signed two new partners.

Nanobiotechnology
In drug delivery, Novavax (Nasdaq: NVAX  ) has been working for nine years on its proprietary micellar nanoparticle drug-delivery platform, a topical emulsion of oil, water, and lipids capable of being absorbed through the skin. In October 2003, the Food and Drug Administration approved its Estrasorb for prevention of hot flashes in menopausal women. Novavax has agreed to end its co-promotion agreement with King Pharmaceuticals and has reacquired all rights, including other women's health products that might be developed using the micellar nanoparticle technology.

In this transaction, Novavax will issue common shares to King and repurchase all convertible notes held by the pharmaceutical company. All this will increase King's ownership interest to more than 10% of Novavax and allow King to participate in Estrasorb's market success.

American Pharmaceutical Partners (Nasdaq: APPX  ) has received fast-track status for its novel nanoparticle-based drug, Abraxane, on the back of favorable phase 3 results for use in treating metastatic breast cancer. On May 10, the company reported the FDA had accepted the new drug application for standard review. The current treatment is with Taxol, produced by Bristol-Myers Squibb. Taxol sales in 2003 were $934 million for a variety of treatments.

Skyepharma (Nasdaq: SKYE  ) estimates treatment for 40% of drug candidates is abandoned at an early stage due to the body's inability to absorb the drug. The company's nanoparticulate drug-delivery technology promises to remove a lot of these barriers, open up new opportunities, and widen the market for some current drugs on the market. Other companies working on nanoparticulate drug delivery are Elan Drug Delivery, part of Elan Corp., Eiffel Technologies in Australia, and Eli Lilly, courtesy of Applied Molecular Evolution, now a wholly owned subsidiary of Eli Lilly following a merger. There are a host of private companies also working in this field.

FlamelTechnologies (Nasdaq: FLML  ) , a Motley Fool Hidden Gems pick, has a nanoparticle delivery technology that improves the delivery of drugs without side effects. The company recently suffered a setback when Bristol-Myers Squibb announced in September that it was pulling out of its partnership to develop Basulin. This is the second company to look at Flamel's Medusa nano-delivery technology and decide to pass on it, but the company's CEO is unperturbed and still has high hopes for this product. Flamel is looking for new partners.

Drug discovery has already been revolutionized with the introduction of microarrays and lab-on-a-chip technology. While it once took the effort of a single chemist to view anything from one to 12 gene variations at a time, microarrays can now view thousands in the same time frame. That has produced an industry worth several hundred million dollars. Now, nanoarrays promise to increase even the volume of microarrays exponentially by working at a level far smaller than conventional microarrays. Three of the leading publicly traded companies in this field are Affymetrix, Agilent Technologies, and Cepheid.

In another area of drug discovery, Advanced Magnetics (AMEX: AVM  ) is working on receiving final FDA approval for Combidex, an MRI agent that will aid in diagnosing cancerous lymph nodes vs. nodes that are simply inflamed or enlarged. The FDA has accepted the company's submission and assigned a user fee goal date of March 30, 2005 -- that's when action is due on a marketing application. Meanwhile the company's marketing partner, Cytogen, has reported impressive data using the product.

Nanoelectronics
Working at smaller and smaller levels means more power, more speed, and more applications in nanoelectronics.

In semiconductors, Intel and Advanced Micro Devices are working on 65nm chips and beyond. Intel promises commercially available products by 2005 -- AMD, by 2006.

Hewlett-Packard (NYSE: HPQ  ) ,Toshiba, Samsung, and Texas Instruments are all working on chip designs for sub-100 nm chips. IBM, with reportedly 700 nanotech-related patents, is working on millipede data storage, as well as, ultimately, the molecular computer.

Motorola and Silicon Storage Technology are developing what they call superflash memory chips working at the 65 nm level. Even that work, as cutting edge as it is, could be supplanted by the advent of Magnetic RAM (MRAM). In MRAM, NVE promises a technological leap with its proprietary technology of spintronics. IBM is also trying to bring this breakthrough to market. MRAM promises the much-awaited ability to switch on your computer as you do your TV and receive immediate pictures.

(This is where we really get technical. Please don't hesitate to use that glossary we mentioned.) The next generation of light-emitting diodes (LEDs) is already entering the marketplace with organic light-emitting diodes (OLEDs) being featured in digital cameras being sold by Eastman Kodak. Calling itself a world leader in OLED technology is Universal Display. Another involved in OLEDs with an upcoming IPO is Cambridge Display Technology, with the proposed ticker of OLED. The company promises to deliver the ubiquitous "anywhere, anytime" TV screens of Minority Report fame.

Herecomethosepromisednanotoolmakers!
Whether it is in materials, biotechnology, or electronics, the ability to see and manipulate nanosized "products" depends on the tools of atomic-force microscopes and advanced photolithography. The companies at the forefront in supplying all the above industries include Veeco Instruments, Keithley Instruments, FEI, Ultratech, and Nanoinstruments, a division of MTS Systems.

Summary
In any revolutionary or evolutionary sector -- from trains to planes to automobiles, and from the telegraph to the Internet -- there has always been a classic investment cycle of initial boom, followed by bust, followed by the real money being made by those left standing. It is still our view that nanotechnology is at the point that the Internet pre-boom was in 1992 and 1993. Our goal is to take the hype out of this subject and find the companies that will be left standing in the nanoworld. There may be some from those companies we have presented above, and they may come from the companies yet to become public.

The subject of nanotechnology is vast, the potential is immense, and its study is a wonderful endeavor. Now is the time to do the homework and become informed investors!

This article was first published on March 2, 2004. This is an update.

Now what?
If you're looking for the next growth company in groundbreaking industries like nanotech, then try our ultimate growth service, Motley Fool Rule Breakers.

Do you have high hopes for the nanotechnology sector? Share your views with Carl (TMFBreakerCarl) and John (TMFBreakerJohn) in the Nanotechnology discussion board.

Carl Wherrett owns shares of Nanophase and Ultratech. John Yelovich doesn't own shares of any company mentioned. You can reach them both by email.The Fool has a disclosure policy.


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