Edwards' Real Nanotech Index, Week 2

O.K. so I’m late posting this. You get what you pay for. Remember, this blog uses all volunteer labor (however, if you would like to hire me as a consultant or speaker, e-mail me at steven.alan.edwards@gmail.com).

The reason I’m late is that I was down in New Orleans visiting my daughter, Alison and her husband, Nathan, during Mardi Gras. What a party! The city is in ruins. The levees have yet to be fixed. Hurricane season is only 90 days away. But the Big Easy rolls on…

Alison and Nathan Bays


A Mardi Gras parade is emblematic of naked human GREED. Masked men and women, the elevated chosen few, bequeath favors on the screaming horde of humanity below, all raising their hands and hoping to be rewarded. And what do they get? Beads, beads, and more brightly colored beads. We came home with about 50 lbs of useless, worthless colored plastic. My 55 year-old wife Sally dyed her hair purple and perfected a little dance that seem to make her a bead magnet. If I wasn’t around, who knows what moves she might have added to her act? Next year, she wants to dress up and go back as Josephine, Napoleon’s paramour.

Sally "Rosie" Edwards

Anyway, speaking of greed, how did the Edwards’ Real Nanotech Index do in its first week of existence? Not great; overall it declined from its initial 100 reading to 99.07. The only gainers were two nanomaterials companies, Altair Nanotechnology and Oxonics, and one electronics company, NVE Co, although most stock prices were little changed. Venture capital company Arrowhead Research showed the largest decline.

The Edwards' Real Nanotech Index

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The Senate Commerce Committee held a hearing on nanotechnology recently to a standing room only audience and most heard only good things, according to a Forbes article. Edwards’ Real Nanotech Index (ERNI) companies represented included NVE Co., Altair Nanotechnologies and Nanophase Technologies. A less upbeat article from Business Week—Going Broke to Stay Alive—which concerns the high cost of cancer treatment, mentions ERNI company American Pharmaceutical Partners.

Battling Nanotech Indexes

Fellow blogger Darrell Brookstein mentions the Edwards' Real Nanotech Index in order to distinguish it from the official Nanotechnology.com index, which is about to debut shortly. Readers may wonder what is going on, does the right hand know what the left hand is doing or vice versa? Well, actually, no. I am an independent voice here on Nanotechnology.com. They don’t pay my retirement benefits. We cooperate and sometimes we collaborate, but we don’t always agree. In this case, however, it is a case of apples and oranges. My nanotechnology index is more (as Darrell puts it) an ‘exercise’ to measure the stock market’s valuation of fairly narrowly-defined nanotech stocks. The official Nanotechnology.com index is a more broadly “small technology” index designed, as I understand it, to be a proprietary guide to investors. In this space, I do not advise investors. I do, however, write investment columns as a guest editor for Redzone Profits.

The Edwards' Real Nanotech Index

It is time to put up or shut up. On this blog, I have complained repeatedly that so-called nanotech indexes, like those from Lux Research or Merrill Lynch, do not really reflect the nanotechnology industry as I know it. There are good reasons for this; most nanotech companies are small, under-capitalized, and do not have much liquidity. As a result, their stocks are difficult to use in exchange-traded funds or index options. On the other hand, the inclusion of large cap companies, like GE or Toyota, that do not depend on nanotech products for their revenues, destroys the ability any such index to measure the value placed on nanotech by the stock market. My approach is to build an index without an ulterior motive. You can invest in these stocks, or not, as you please. I am not recommending them or panning them. I am not planning to launch an exchange-traded fund on the AMEX. The sole purpose of the Edwards' Real Nanotech Index is to measure the progress of nanotech stocks in the market. I have selected only companies that derive a large percentage of their revenues from nanotech or would do so, if they had revenues. There are only 14 stocks in this index; that is because there aren't very many decent publicly traded nanotech companies. Hopefully, this will change, and as it does, the index will be expanded.

Structure of the index

The index is divided into 5 segments: Nanomaterials, Pharmaceuticals, Electronics, Nanotools, and Venture Capital. Each segment is weighted at 20% of the total. The stocks within each segment are given equal weight, thus the total of the 4 stocks in the Nanomaterials segment, for instance, add up to 20% of the total portfolio. No adjustment is made for market cap. The stock prices given below are at the close of trading on February 17, 2006. which will serve as the initiation date of the index. Through the use of a calculated fudge factor, the Edwards Real Nanotech Index stands at 100.00 as of this post. Performance will be monitored on a weekly basis at this site.

The Edwards Real Nanotech Index, 2/17/2006

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DISCLAIMER AND DISCLOSURE: Inclusion in this index does not imply a buy recommendation from myself or from Nanotechnology.com. At any given time, I may be long,short or hold no position in any of these stocks.

Some of the stocks listed above have been discussed previously on this blog, including American Pharmaceutical Partners, Nucryst Pharmaceuticals and Harris & Harris. I will be profiling the others in the days to come.

Nanotech Indexology

What is a nanotech company? That depends on who you're talking to. There are only a few publicly traded nanotech companies, but that hasn't stopped various financial companies from putting together nanotech portfolios designed to collectively reflect the industry. As an exercise, I decided to put five such portfolios side-by-side to see how they compare (shown in two panels below). The right hand column is a compilation of all the companies that appeared on more than one list. Four companies were contained on all five indexes, including a manufacturer of nanoparticles (Altair), two drug delivery companies (Flamel and Biosante) and a manufacturer of electron microscopes (FEI Co). Those that made it on all but one list included a molecular modeling company (Accelrys), a venture capital company (Harris & Harris), a manufacturer of X-ray lasers and microscopes (JMAR Technologies), and the market leader for atomic force microscopes (Veeco).



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The Lux Research Nanotech Index contains companies that you wouldn't normally associate with nanotech, like Toyota Motors, but I have given them enough grief for this previously. Their large cap stocks are considered nanotech-oriented because they are "incumbent end users." All of the portfolios include companies that might more properly be considered biotech. Admittedly, this is a hard distinction, because almost everything that biotech companies do is at nanoscale. But I don't think there is much to be gained by reclassifying all biotech companies.

What does this exercise in indexology tell us? Only that despite the small number of publicly traded nanotech companies, there's very limited agreement on which ones are important. If we put together five lists of say, carmakers, I think they would be substantially identical.

On Monday, I will add to the confusion by introducing the Edwards' Real Nanotech Index as a public service to the investment community. I hope you all are looking forward to it.

Cedric Loiret-Bernal, CEO of NanoInk

 
The following interview with Dr. Cedric Loiret-Bernal, CEO of NanoInk, took place at the NanoCommerce/SEMI NanoForum conference in Chicago on November 3, 2005.  It has appeared on nanotechnology.com’s multimedia page, and I have previously blogged some comments about it.  But I am transcribing interviews for my own purposes, so I thought I’d share this one with you.  Previously, I have posted a transcription of an interview with David MacDonald, CEO of Nanomix, from the same conference.
 
 
Edwards:  We’re here at the NanoCommerce conference in Chicago.  I’m going to have a conversation here with Dr. Cedric Loiret Bernal and he is the CEO of NanoInk.  For Nanotechnology.com, I am Steve Edwards, and for the record, I am an independent consultant and I am also the author of The Nanotech Pioneers: Where are they taking us? which will be published next year (it has been published now) by Wiley VCH. 
 
O.K. Dr. uh Cedric, I’ll just call you Cedric.  Cedric, can you give us a little bit about your background and how you came to be with NanoInk?
 
Loiret-Bernal:  Yes, I’m a physician by training.  I’ve also got an MBA from Northwestern University here in Chicago, fifteen years ago.  I’ve always followed new technologies and innovations and I used to work for a biotechnology company that was working on proteins, and proteins are very small biomolecules so it became pretty obvious that nanotechnology would have an impact, and then when I became aware of an opportunity to work for a nanotechnology company in Chicago, and a company that was coming out of Northwestern University that could have tremendous application in the bio-nano world, I didn’t have a minute to waste, and I joined the company about two years ago.
 
Edwards:  O.K., can you give me a little history on the company?  How did it get started?
 
Loiret-Bernal:  The company got started about four years ago based on the research work of Professor (Chad) Mirkin at Northwestern University, and when the technology became strong enough, especially on the IP front, it was a good time for the company to be incorporated.
 
Edwards:  O.K., can you tell me a little bit about dip-pen nanolithography, Dr. Mirkin’s invention?
 
Loiret-Bernal: Dip-pen nanolithography (DPN) is basically the ability to use the tip of the atomic force microscope to write at the nanoscale with virtually any molecule on any substrate.  And this is done in ambient conditions; meaning you control the temperature and humidity, and that’s about it.  You can use DPN with platinum, gold, silver and also biomolecules and some of these biomolecules are extremely fragile, such as proteins, antigens, cell receptors, viruses. 
 
Edwards:  Can you also use nanoparticles, like buckyballs, carbon nanotubes?
 
Loiret-Bernal:  We can use carbon nanotubes, buckyballs, we can write with all of these materials, of course.

Edwards:  What are the applications that you see for this technology in industry? 
 
Loiret-Bernal:  Near term, we can use DPN in a nanoscale additive approach to repair photomasks and flat panel display repairs.  These are small niche markets, but what we’re looking at longer term is using DPN for bionano arrays, and deposition of biomolecules.  In the short term, we’re pursuing an application for brand protection, or the ability to help manufacturers of high value items fighting counterfeiting and parallel trade.
 
Edwards:  So this is the pharmaceutical industry you’re addressing, the counterfeit—
 
Loiret-Bernal:  Yes, exactly, because the industry today loses about $25 billion to counterfeiters and diverters, and there’s huge potential liability if people if people get sicker or even die from taking the wrong products.
 
Edwards:  So who came up with this idea?  It’s pretty amazing--
 
Loiret-Bernal:  With my background as a physician and I had a lot of friends on a global basis talk to me about this, so I’ve been always thinking about it for the last twenty years.  It was really finding the right technology to enable the pharmaceutical industry to trace each product at the unit level, meaning I can tell you if this tablet was manufactured yesterday or two months ago in Puerto Rico, in New Jersey, in Singapore or Ireland and where it should be today and what’s the expiration date of the product. 
 
Edwards:  So tell me a little bit about how the counterfeit protection—the encryption—actually works?  What are you going to write on…
 
Loiret-Bernal:  It’s very confidential information because, in fact, most pharmaceutical companies will not allow us to disclose that they are our customers or which products we’re protecting, but the challenge was to be able to accommodate the throughput, meaning millions of tablets being manufactured every day, billions per year in the world.  So we’ve been able to use our technology to accommodate the pharmaceutical specification and requirements.
 
Edwards:  So not only do you have to be able to put the encryption on, you have to be able to read it, too, so…
 
Loiret-Bernal:  Yes, the authentication is also a very confidential process, in fact, something that we’re keeping in house.  Our long term approach to the authentication is to have six centers worldwide, two in the U.S., two in Europe and two in Asia, where any suspicious products could be shipped via FedEx and be able for a full pedigree reading within 24 hours.  So if I go to a pharmacy and seize 10,000 tablets, so they could be received here in Chicago, and within 24 hours I could give you a certificate of authenticity within 24 hours for each tablet.  So it’s very powerful.
 
Edwards:  I guess at this point, the FBI gets involved.  But they’re not going to do it themselves, though…
 
Loiret-Bernal:  We would welcome working closely with various enforcement agencies, definitely.
 
Edwards:  Well, tell me about—you’ve got a product that you’re selling now, right? The Inscriptor system—that’s what you use for nanolithography.
 
Loiret-Bernal:  Exactly.  The Inscriptor is our dedicated instrument to practice dip-pen nanolithography.  The average cost of the instrument is about $165,000; it can go up, there’s options.  We’re selling it mostly through academia on a global basis.  In fact, over 50% of our sales are not in the U.S.
 
Edwards:  So what kinds of scientists are buying these things? 
 
Loiret-Bernal:  We have various chemists, surface materials experts are using it with various inks, I think a big application for the Inscriptor will be the practice of DPN with biomolecules.
 
Edwards:  Tell me a little about the arrays.  I know about the expression arrays, which is what Affymetrix does.  I guess my question is, do we really need more?  Because in a microarray you can already test for any gene in the genome, because there’s only 30,000, right, so you can already get all those.  What do you think nanolithography can do for you?
 
Loiret-Bernal:  I think dip-pen nanolithography can go beyond DNA, because DNA is a very resistant material, but once you want to try write or deposit cells, cell receptors, virus particles, proteins; these are very fragile biomolecules and the ability to use DPN really enables the researcher to do experiments that do not need to be at the nanoscale, they could definitely be at the microscale, but really moving beyond DNA.  Affymetrix is only focused and interested in DNA.
 
Edwards: (Laughing) Well, they’re doing a fine job with DNA…
 
Loiret-Bernal:  Absolutely.
 
Edwards:  Are you already working with pharmaceutical companies on your anti-counterfeiting scheme?
 
Loiret-Bernal:  We already have one customer, soon a second, and we’re targeting five customers next year (2006).  So there’s an adoption curve for any disruptive technology establishing itself into a new market place, and yeah, we’re working hard with the industry and also regulatory authorities to become a standard down the road.
 
Edwards:  So the FDA is encouraging this…
 
Loiret-Bernal:  The FDA is fully aware of our technology.
 
Edwards:  And the photomask repair, you’re talking to semiconductor manufacturers about that?
 
Loiret-Bernal:  Yes, we’re talking to a Japanese company, and they are the most serious partner for us at this stage.
 
Edwards:  I guess we better wrap it up.  Thank you very much for talking with me today.  We’re about to get drowned out anyway (lots of noise in the background).
 
Loiret-Bernal:  Thank you very much.  It was a pleasure.
 
 

Surviving the Singularity, Revisited

Back in pre-millennial year of 1997, I wrote an article for a very beautiful glossy magazine called 21C—Scanning the Future, long since defunct. The article was titled by the editor Mind Children: Extropians. My title, which I like better, was Surviving the Singularity. It has been posted on the web now for years and has accumulated links from transhumanist groups and Singularity pages.

For the article, I did indeed interview some Extropians as well as like-minded transhumanists. A transhumanists is someone who considers himself to be in transition to a post-human state—molting the fragile human form to become an entity that is hopefully smarter, more durable and longer lasting. An Extropian (see Extropy.org) is a member of Extropy Institute, a transhumanist organization (some would say cult) based in Los Angeles. Extropians, in general, share a libertarian philosophy and an aspiration to live forever through the application of rapidly developing technology. A staple of belief for transhumanists is a rapidly approaching Singularity, a moment in time when technology is advancing so rapidly that it becomes beyond human capability to predict all the ramifications and unintended consequences. Despite this uncertainty, as my article demonstrates, transhumanists tend to see the Singularity as a kind of “techno-rapture” after which we will all be in a better place.

Credit for the original concept of the Singularity goes to John Von Neumann, the brilliant originator of game theory and author of the ‘mutually assured destruction (MAD)” concept that guided our Cold War military policy. The one who really popularized the idea, however, was Vernor Vinge, a computer scientist and author of some classic science fiction novels, like True Names and Marooned in Real Time. The catalyst for the Singularity, according to Vinge, was the increase in computing power, until we can build a greater than human intelligence. From my article:

"We humans," says Vinge," have the ability to internalize the world and conduct "what ifs" in our heads; we can solve many problems thousands of times faster than (Darwinian) natural selection. Now by creating the means to execute those simulations at much higher speeds, we are entering a regime as radically different from our human past as we humans are from the lower animals... From the human point of view this change will be a throwing away of all previous rules, perhaps in the blink of an eye, an exponential runaway beyond any hope of control."

The newest Singularity proponent is Ray Kurzweil, whose book The Singularity is Near has recently been published (I haven’t read it yet). He bases his view, in part, on his Law of Accelerating Returns; basically that technology feeds back on itself to further speed technological development. In the 21st century, he says, we will experience 20,000 years of progress as measured in 20th century units (progress units, hereinafter to be called the kurzweil). If you think back to where the world was in 1900, you can see that he has a point. Advances in not only information science, but biotechnology and particularly nanotechnology are hastening the arrival of the Singularity in Kurzweil’s view.

When I wrote Surviving the Singularity, I did so from the standpoint of a journalist, reporting more or less uncritically on the views of my transhumanist subjects. Now I like to think of myself as an analyst, and as such, I am not a big believer in the Singularity. In my book, Nanotech Pioneers, I use the drug industry to demonstrate that technology doesn’t always work out the way you would expect:

There are perhaps exceptions to be found to the overall march of technology. One problematic area, for instance, has been the field of drug development. The 1990’s should have been the golden era for drug discovery. New methods of “combinatorial chemistry” had made it possible to create almost any organic compound that could be imagined. The sequencing of the human genome was revealing new drug targets on a regular basis. Robotic technologies were automating the process of preclinical testing to the tune of 100,000 individual assays per day. Everything was in place for incredibly rapid progress. But somehow it didn’t happen. At a drug discovery conference, held in June 2000, I heard the keynote speaker Doug Livingstone of Novartis Research Foundation moan, “We bought you the robots, now where are the drugs?”

The buzzword of the conference was “de-bottlenecking,” an egregious neologism that implies a negation of the verb “to bottleneck (as in: I bottleneck, he bottlenecks, they are bottlenecking, we should all be de-bottlenecking). When I was a kid, at parties I would spin a bottle between members of the opposite sex, who were circled around it. Whomever de bottle pointed to, her I would get to neck with. With all this de-bottlenecking going on, it is not surprising that little in the realm of actual drug discovery was getting done.

After the robots were deployed, the slow point in drug development, by common consensus, was assay development. According to a number of companies, this problem could be fixed if you buy their _____ (fill in the blank) a). fluorescent protein, b) electrochemiluminescent reagent, c) ion channel technology, d) microfluidic chips, e) cell line, f) software. All of which might have seemed true to a participant of the conference in June 2000. But the real bottleneck, it seems in retrospect, was a shortage of expertise. It takes a clever person (or two or three or four) to devise an assay that will give a meaningful result.

Another problem for the drug industry was the implementation of an innovative management concept called “drug champions.” Researchers, you may be surprised to learn, reside toward the bottom of the totem pole when it comes to drug companies. They are hired and fired on a project basis while management is, relatively speaking, forever. The idea was that researchers who had discovered a new drug candidate would work their way up the management ladder by following their drug and serving as an advocate for that drug within the company through animal and human trials. The problem was, that by the time that a drug made it to human trials, a “drug champion” might have eight years of his career wrapped around this one particular chemical. Not surprisingly, these researchers became eloquent and forceful proponents of “their” compound. So much so that it became difficult to drop drug compounds in early trials. Drugs that never should have made it past animal testing survived until human Phase III clinical trials. By this time hundreds of millions of dollars of the company’s money had been invested and it took a particularly brave and forceful manager to point out obvious disappointments. A state of corporate cognitive dissonance ensues, group denial. The drug gets pushed until the FDA says no. Most of the oft-quoted $800 million dollar figure for new drugs consists of the amortization of costs for drugs that don’t make it through to approval.

Technology can’t overcome every obstacle. Even if all the new compounds that chemists could invent were effective drugs, they would still have to be tested on humans, a process that can take at least five years and usually much longer. However much the science might say “this drug will work” based on theoretical grounds and animal testing, the government, rightly, will not approve it until it has been shown to be effective and safe in human trials.

Another great part of the problem with the drug discovery process has been the focus of the major drug companies. Faced with the loss of large moneymakers due to patent expiration, the major drug companies were hungry in the nineties and still today for large, blockbuster drugs. Drugs that might have helped tens of thousands of people were ignored because of the economic need to find drugs that they could sell to millions of people--usually drugs that were only marginally better than those already sold in well-established markets. When Vioxx was removed from the shelves, many patients simply resorted to ibuprofen, a generic, over-the-counter drug with a good safety profile and a long history.

The approval rate for new drugs by the Food and Drug Administration was stagnant throughout the nineties and beyond. More depressing still, some of the blockbuster drugs that had been approved, like the Cox-2 inhibitor Vioxx, had to be pulled from the shelves due to safety concerns.

For those believers in the apotheosis of technology, I say beware the human factor. People are the ultimate consumers of technology and they have a lot of problems and eccentricities. Machines don’t spend money and it is money, after all, that makes the world go ‘round.

Bush, Energy and Nanotechnology

George W. Bush, who runs an administration firmly associated with the oil industry, wants to break us of our addiction to oil. In his State of the Union Address on January 31, he said:

So tonight, I announce the Advanced Energy Initiative -- a 22-percent increase in clean-energy research -- at the Department of Energy, to push for breakthroughs in two vital areas. To change how we power our homes and offices, we will invest more in zero-emission coal-fired plants, revolutionary solar and wind technologies, and clean, safe nuclear energy.

We must also change how we power our automobiles. We will increase our research in better batteries for hybrid and electric cars, and in pollution-free cars that run on hydrogen. We'll also fund additional research in cutting-edge methods of producing ethanol, not just from corn, but from wood chips and stalks, or switch grass. Our goal is to make this new kind of ethanol practical and competitive within six years.

You would think we had elected Al Gore, after all.

Well, maybe. According to a New York Times report, the Energy Department will soon begin laying off workers at the National Renewable Energy Laboratory because of cuts to its budget. The jobs lost, apparently, will be in wind energy and biomass to ethanol research, two of the technologies that Bush specifically cited in his energy initiative.

Maybe then, we shouldn’t get too excited about another Bush promise:

First, I propose to double the federal commitment to the most critical basic research programs in the physical sciences over the next 10 years. This funding will support the work of America's most creative minds as they explore promising areas such as nanotechnology, supercomputing, and alternative energy sources.

Still, the dual mention of coal-fired plants and then later nanotechnology by our leader put me in mind of a company that combines the two: Headwaters, Inc. [NYSE--HW]. The company started as an alternative energy concern to improve coal combustion. Today, it also has interests in coal by-products and construction materials. But its future lies in the use of nanoscale catalysts to improve the refining of coal and heavy oil.

A Headwaters division called the Technology Innovation Group consists of two entities: Nanokinetix, which develops catalytic nanoparticles of precious metal that are around 10 nm in diameter; and Hydrocarbon Technologies, which commercializes catalysts and technologies to create clean alternative fuels. One nanotcatalyst developed by Nanokinetix boosts the octane level of gasoline during the refining process.

Hydrocarbon Technologies has an agreement with Shenhua Group Corp., China’s largest coal company, to provide a process design package for a direct coal to fuel factory. The coal-to-fuel production process uses a Headwaters’ proprietary nanoscale iron-based catalyst. The $2 billion facility is being built in Inner Mongolia, and eventually will have a capacity of 50,000 barrels per day of low-sulfur diesel fuel and gasoline. The first reactor should begin production in 2007. Shenhua eventually hopes to build three more such facilities.

Headwaters has been awarded a contract to study the feasibility of using its coal to liquid fuel process by Oil India Limited, a government owned company. Oil India wants to convert the abundant coal reserves around in the Assam region of India into gasoline, diesel fuel, jet fuel, and fuel oil.
Headwaters also did a feasibility study for the Philippine Department of Energy to develop coal liquefaction projects. The study concluded that it would be both technically and economically feasible to locate liquefaction projects in the Philippines. The first proposed project is slated to produce up to 60,000 barrels per day of clean burning fuel at an estimated capital cost of $2.8 billion.

Headwaters has begun commercial scale test of its (HC)3 technology which uses a catalyst to convert residual oil feedstocks into higher value distillates, which can then be converted to gasoline or diesel fuel. Benson said that Headwaters expects to record revenues from this technology in 2006. Longer term, the (HC)3 could be the principal hydrocracking technology for heavy crudes, including Canada’s tar sands, which represent a large part of the world’s oil reserves. Estimated at 174 billion barrels, these oil sands are largely untouched because of the expense of converting it usable hydrocarbons. Headwaters is working with Northwest Upgrading, Inc., which intends to build a heavy oil hydrocracker that will employ (HC)3 technology in Sturgeon County, Alberta. The unit is expected to come online in 2010.

Another Headwaters energy initiative is the construction and management of a facility that will produce 50 million gallons of ethanol per year, located adjacent to the Coal Creek power plant run by Green River Energy in North Dakota.

So can nanotech come to the rescue and get the monkey of Middle East oil off our back? Probably not until the economy shakes with delirium tremens. But better late than never.