Wolfe: Bet on Nano-Bio

11/08/2002 12:00 am EST

Focus:

Josh Wolfe

Editor, Forbes/Wolfe Emerging Tech Report

Not since my initial exposure to biotechnology in the early '80s, have I been as intrigued by an emerging market as I am about nanotechnology. As an avid student of physics, biology, and future technologies, I personally find the potential of this market to be awe-inspiring. It is not a question of if nanotechnology will change our lives. It is simply a question of when. Industry expert Josh Wolfe, editor of Forbes/Wolfe Nanotech Report, feels the time for investors to  invest in this sector is now.

“To understand nanotechnology, the first critical thing to understand is what nano itself means. The prefix means billionth. So with respect to nanotechnology, we’re talking about a billionth of a meter. To put that in terms you can understand, if I was to take a strand of hair that is 75,000 nanometers. So when we are dealing with technology at the nanoscale, you’re dealing with something 75,000 times smaller than the width of a single human hair. Why is this important? There are a few critical trends. The first is that this is the largest government funded initiative since the space race. It’s also the first time that the United States has not had a clear, definitive lead in some aspect of technology since WWII.

“The first beneficiaries of this flow of capital is to the companies that are providing the tools to manipulate things at the nanoscale. If I told you to go work with some atoms, you’d think I was crazy. Hands are too big. Optical microscopes are beyond nanoscale limits. So how do you actually make devices or shrink semiconductor chips exponentially? How do you create memory devices of the future? How do you create drug delivery mechanisms? You need the tools. So those are some of the early beneficiaries. 

“Those tools were not previously available ten years ago. This is something entirely new. It is not a function of the telecom debacle. It’s not a function of the dot.com collapse. It’s a function of the science being ready at a level of commercialization now. You now see it not only from the start-ups, but also the bigger players like IBM and Hewlett-Packard, making really deep and really narrow investments. Billions of dollars of R&D are being spent to extend some of their products along the nanoscale. The timing is right now for nanotech.

“The most exciting areas is what we call nano-bio. If you take traditional biotechnology – and it’s not just going down a size regime – it’s things that are uniquely enabled because of nanoscale processes. For example, diabetics have to administer shots or use an implantable device that provides insulin. It’s requires monitoring and heavy administration. The ideal scenario if I was a diabetic would be to take healthy pancreatic cells – which regulate levels of insulin and sugar inside the body – and introduce them into my body. But all of our bodies have immune systems and it would recognize somebody else’s cells as foreign. 

“There is a researcher that has spun technology off into a private company (that will possibly go public in a year and a half) that has taken a pancreatic cell from a normal, healthy person and introduced it into a nanocapsule with little holes in it. Those holes are large enough to allow nutrients and oxygen to get in and out and to secrete insulin out. So it’s perfect. Why?  Because it doesn’t allow antibodies to attack these cells. So the immune response you would normally get is suppressed. What this means is that it has been proven in small animals that we can completely eradicate diabetes at the nanoscale. 

“It doesn’t stop there. You can see this technology in diagnostic mechanisms for cancers. You see it in carbon 60 molecule. The morphology of this molecule may turn out to be a blocker on the receptor of cells to prevent binding of HIV. These are two very salient examples that can be exciting opportunities.

“For investors, the trend that we are playing is government spending. They have spent some $1.3 billion over the past two years, and that number is expected to continue to climb at a 30% to 50% clip a year. So over the next four years we are going to see an exponential growth curve in spending. When you ask where that money is going to go, one of the main places is the toolmakers. Veeco (VECO NASDAQ) has about 70% market share on what is a critical tool called the atomic force microscope, which allows you to manipulate and characterize things on a nanoscale.

"The second company we like is Pharmaceopeia (PCOP NASDAQ). We like this one not only for the technological and market driver behind it, but also because of the way the market is undervaluing the stock. The market capitalization is about $177 million and about 70% of that is in cash. The market is counting the company’s most valuable subsidiary, which is a group called Accelrys, at basically negligible value. Accelrys counts for about 70% of the firm’s revenues and we see this as a tremendous unrealized value that we expect the Street to pick up on in the next several months. We think that’s a good one to ride.”

Editor's Note:  All excerpts from the Forbes editors in this issue of The Money Show Digest are from a panel discussion held at the New York Money Show on Friday, October 25th.  Quoted stock performance, portfolio performance, etc., have not been updated to reflect changes in the market since that date.  

For information on the Forbes group of newsletters, visit www.forbes.com/newsletters.

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