Quantum Dots: Nano meet Bio

12/16/2005 12:00 am EST

Focus:

Josh Wolfe

Editor, Forbes/Wolfe Emerging Tech Report

Nanotechnology and biotechnology are two of the most exciting long-term areas of research, and one of the few advisors with the background and skills to understand and assess these markets is Josh Wolfe. Here, his latest recommendation stock combines both nano and bio.

"Quantum dots are nanoscale structures that may someday replace fluorescent dyes currently used in medical diagnostics. Quantum dots work better than dyes as adherents to specific genes or cells in part because they are more stable and easier to trace. Thus doctors can more easily detect cancer in its early stages. To illustrate this exciting new nanotechnology, I usually hold up a test tube filled with quantum dots and the audience can see the brilliant spectrum of colors that are emitted as I shine an ultraviolet light on them."

"Apparently, I am not the only one shining a light on quantum dots these days. In early October, Invitrogen Corporation (IVGN NASDAQ) - which supplies highly specialized, cutting edge tools used in biotech and genomic research- acquired Quantum Dot Corp. and the BioPixels unit of BioCrystal Ltd. Invitrogen also signed an exclusive licensing agreement with Georgia Tech for use of its new nanocluster technology.  These collective acquisitions will help Invitrogen to innovate products for the detection and labeling of cellular and molecular structures.

"Potential applications span genomics, proteomics, drug research, and even anti-counterfeiting measures. For example, clinicians could use dots designed to selectively bond with cancerous cells in a patient's bloodstream. Combined with advanced imaging technology, this ability might enable in vivo monitoring of cancer cells, and even analyze the movement of proteins within them. Such an ability offers the potential for cancer treatments tailored to the disease's chemistry.

"Invitrogen is no stranger to nanotechnology, nor to opportunistic acquisitions. Two years ago, it bought Genicon Sciences, whose nanoscale reagents - similar to those of Quantum Dot and BioPixels - are used to find and label genes on DNA chips. I am impressed by Invitrogen's smart strategic buys . Such nanotech assets are still in the formative stage and Invitrogen is trying to position itself as a leader in the molecular labeling field.

"I am also encouraged because Invitrogen is no fly-by-night start up. Its life science business spans more than 70 countries around the globe and employs a staff of approximately 4,500. I believe there will be a wave of bigger biotech, materials and technology companies buying into nanotech in the coming year. New nanotechnologies are actually producing improved products and processes.Many nanotech start-ups are ripe for the plucking by better heeled, established companies.

"Is now a good time to buy into Invitrogen? UBS analyst Derik De Bruin likens IVGN's acquisitions to an option on future technologies, rather than a head-on attack against fluorescent dye suppliers. My analysis is similar. I don't expect any real returns from these recently acquired technologies to start appearing on IVGN's bottom line for a few years. It depends on execution, or how quickly Invitrogen can package its new technologies as part of its Molecular Probes portfolio. IVGN must also gain share against entrenched technologies.

"I think Invitrogen's recent acquisitions of promising nanotechnologies represents a shrewd strategy that positions the company as the nano-enabled diagnostics leader. While IVGN stock has tumbled from a 52-week high of $88.50 to a recent price of $64, due to growth concerns, Invitrogen is today priced at reasonable levels. Wall Street analysts now expect IVGN will earn $3.43 per share in 2005, yielding a P/E of 18.78. We expect Invitrogen to play an even larger role in integrating nanotechnology into the medical diagnostics over the coming years. Because of these reasons, we're adding IVGN to the 'Nanosphere' portfolio."

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