Editor's note: This series, originally slated as presented in 2 parts, will offer a 3rd part in our June issue, focused on a variety of nanotech initiatives.
The evolution of the emerging life sciences nanotechnology sector can easily be compared to the turbulent beginnings of the biotech industry, with one qualification: non one doubts that nanotechnology will be something big.
"There have been multiple booms and busts in the biotech sector since the 1980s and we see these nanotech-related companies going through similar booms and busts of investments and then great ad-vancements. In that way, we think they are very similar, Darrell Brookstein, managing director of The Nanotech Company and www.nanotechnology.com (TNC; San Diego) told Biomedical Business & Technology. TNC, a merchant bank and advisory firm, assists emerging nanotech and small tech firms with everything from partnership and licensing transactions to venture capital preparations and IPOs.
"Where they are likely to be dissimilar is that biotech really had to prove itself, Brookstein said. "Biotech started in 1982 and didn't really prove itself until the late 1990s. We think nanotech has already proved itself. We can point to multiple huge and small successes in publically traded companies.
He added: "Nanotech doesn't have to go through that question of whether or not it will it ever make a good biomedical device. We know it already has or does.
As an example, Brookstein points to a company such as AMAG Pharmaceuticals (Cambridge, Massachusetts), which uses superparamagnetic iron oxide nanoparticles in the development of imaging agents for cancer and cardiovascular disease, already deemed approvable by the FDA.
"Nanotechnology is already involved in DNA analysis, lab-on-a-chip, advanced materials for imaging, drug delivery and drug discovery, Brookstein said. "It's just going to continue.
He said that development of these products is being generated by two things: "personalized medicine and the merger of genomics, proteomics stem cell research, nanotechnology and advanced materials that make use of 'smart' nanoparticles. The merger of these things, as they apply to personalized medicine, will result in a phenomenal outcome on the biotech side for nanotechnology. The most exciting of these developments will come within five to 15 years.
But like biotech, nanotech is subject to the whims of the market and Brookstein believes the industry is currently at a tricky stage financially.
"The late 2005 boom that occurred in biotech and in biomedical devices is a very important stock market top for the shares of those types of companies, he said. "Until it's exceeded, we see both biotech and biomedical devices as being in a bear market and it has further to go. We believe it is unlikely to bottom until sometime between the last quarter of this year and mid-2009, at the earliest.
All of this impacts the nanotech-related sub-sector. In some ways, it can work against its further development, according to Brookstein.
"Within the nanotech space, he said, "we think that in the recent past and well into the foreseeable future, the semiconductors and materials side of nanotech will dramatically outperform the nanotech-related biotech and biomedical device side. That means people with money, we believe, are more likely to make investments in advanced materials and semiconductors.
"From the big picture, it's absolutely fair to say that pay-offs for nanotech related biomedical devices are much further off.
FDA slows the pace
As many have noted, besides Brookstein, one of the reasons for the slower pace in the life sciences appears to be the poorly oiled machine known as the FDA.
"Once you get the FDA involved, you get a much longer time frame to commercialization, he said. "We have a lot of interesting research and products started over the last three to four years. That will be fantastic, but you're still looking out five years-plus.
Brookstein said that when he talks to experts in the nanotech field, they say the agency is getting better at reviewing nanotechnologies. "But the complexity and overlap is getting to be more and more intense, he said. "So it's a very imperfect system that is getting better, but slowly.
Much of the negative hype that surrounds nano-tech is either "science fiction or "over-stated, he said. But he acknowledges serious concerns related to nanotech when such materials, or the systems using those materials, come in contact with human beings.
In fact, these risks have come under a certain amount of scrutiny.
The National Nanotechnology Initiative (NNI) recently reported that in FY06, federal agencies devoted $37.7 million — or 3% of the $1.3 billion total nanotechnology research funding — to research focused on the environmental, health and safety [EHS] risks of nanotechnology.
Wrong terms and some mischaracterization?
But here is another problem — specifically, the frequent difficulty of defining the terms associated with nanotech (along with the frequent blurring of the term nanotechnology itself, which often is used simply to describe stuff that is "small).
The Government Accountability Office looked at that research and concluded that about 20% of the studies were not actually attributed nanotech risks.
With its report, "Nanotechnology: Better Guidance Is Needed to Ensure Accurate Reporting of Federal Research Focused on Environmental, Health, and Safety Risks, the GAO found that 22 of the 119 projects identified as EHS-related by five federal agencies in FY06 were not focused on determining the extent to which nanotechnology poses EHS risks. Rather, the focus of these projects was how nanotechnology might be used to remediate environmental damage or to detect a variety of hazards.
GAO said it determined that this mischaracterization is rooted in a reporting structure which does not allow these types of projects to be easily categorized , plus the lack of guidance for agencies on how to apportion funding across multiple topics.
That's not particularly good news, since NNI is the authority, a multi-agency effort tasked by the Office of Science and Technology Policy (OSTP) to coordinate the nanotech-related activities of 25 federal agencies that fund nanoscale research or have a stake in the results.
VCs missing an opportunity
Another stumbling block on the road to developing a nanotech life science sector is financing.
"Many venture capitalists have done a terrible job of nanotech investing in all sectors, Brookstein charged. "We feel that not only have they done a bad job, but [they have] the wrong model.
"Venture capital doesn't appear to work as planned with this sector. We do think that far less venture capital money is going into the biomedical side of nanotech. This is largely due, especially over last two to three years, to the absolute astonishing influence and interest in green technology, cleaner technology and alternative energy.
The current frenzy to push green technology —developing solar, clean coal, wind and geothermal energy — are all huge money makers right now, taking attention away from nanotechnology, and siphoning away potential funding.
"For the venture capital firms, it's not necessarily about saving the planet — its about understanding what will drive people's investment decisions, he said.
Nanotechs are inexperienced
Topping off the problems, Brookstein said that many young companies lack the financing savvy needed to grow in this early-stage sector and "unsophisticated financial public relations, resulting in a failure to tell the right "stories about nanotechnology.
"Some part of it is unsophisticated financial public relations at these companies, he said. "As time goes by, I wouldn't be surprised if some stories that already exist are better noticed when the companies become more open.
Brookstein's advice to young nanotechs seeking to raise money: He encourges them to skirt the traditional venture capital routes and think about an initial public offering (IPO), specifically listing on TSX Venture Market, a subsidiary of the Toronto Stock Exchange.
"This is a very tricky market, he said. "I've been working in it since the early 1980s. For a lot of these projects, it makes complete sense and allows the executives to maintain more control. It allows for initial investors and management teams to maintain a higher percentage of ownership.
He said that while the IPO market in the U.S. requires a company to raise $35 million to $50 million or more, most are typically $100 million-plus.
"So, for start-ups on the bionanotech side, that's too much money. The TSX venture is focused on the $3 million to $12 million range. It's a VC investment being made by the public. It's easier to do and is less expensive.
Keeping tabs on sector progress
Stepping back from the immediate growing pains for the sector, every industry needs benchmarks by which companies can assess their changing value. Such is the case for this sector. And that's why indexes are established.
In just the last decade, several nanotech-focused indexes have emerged — and some have already disappeared, including one by Merrill Lynch (New York), launched in 2004 and removed in 2007, with no explanation from the company or its managers. Ditto for Newbridge Nanotechnology Index, founded by the brokerage Newbridge Securities (Fort Lauderdale, Florida) which listed on the New York Stock Exchange for several years but then was removed at the end of 2007.
Indexes are tools that investors can use to understand how the stock performance of companies involved in nanotech compares with others and how the sector as a whole compares with the market as a whole. Some indexes are traded, while others are not.
Current nanotech-focused indexes include companies from a variety of industries, with medically focused companies comprising different percentages of each. Index components also are fluid, meaning companies can be added or subtracted over time based on the managers' assessment of expertise and devotion of resources to nanotechnology.
To date, a life science index focused entirely on nanotech has not been launch though some include nanotech companies:
• The Lux Nanotech Index is a modified equal dollar-weighted index, comprised of 26 publicly traded companies, which seeks to measure the performance of securities in the nanotechnology field. The index was created in 2005 by Lux Research (New York) and trades on the American Stock Exchange. Although only four of the companies are pure-play healthcare or life sciences firms, other companies on the list are developing enabling products, such as advanced materials, electronics and tools that will be used as part of medical device development.
• The Punk Ziegel Nanotechnology Index, produced by investment firm Punk, Ziegel (New York) since 2004 provides some measure of the stock performance of public companies participating in the nanotechnology sector.
The index, posted on the company's website, began in March 2004 with 15 publicly-traded companies listed on U.S. exchanges that are involved in nanotechnology. It has since grown to include 22 companies with nine of those focused on healthcare and life sciences.
• Global Crown Capital (GCC; San Francisco) in December 2005 launched the Global Crown Capital Nanotechnology Index (GCCNI), price-weighted and composed of 28 nanotechnology stocks posted on GCC's website, 17 of which produce healthcare and medical products; although all are focused on small technology they are not all pure play nanotech — some are focused on microscale technology as well.
• The Nanotechnology.com Small Technology Index is based on 30 international, publicly traded small technology stocks, including nanotechnology companies. Launched in 2006 by the merchant banking firm Nanotech Company (San Diego), 12 of those companies are focused on medical and life science nanotechnologies.
This is another index that is also just posted on the company's website, established to be used as a barometer for the industry.