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Emerging Technology Report #12: June 20, 2002

Emerging Technologies in Biotech: MEMS and Nanotechnology

New York City - Conference Summary -

Global Emerging Technology Institute

On June 14 in New York City industry and investment experts gathered for a GETI event which was co-hosted by the International Investment Committee of the New York Society of Securities Analysts and Small Times magazine.

The event in general focused on the application of new emerging technologies toward drug development in the biotechnology sector. Louis Ross, Director of GETI, opened the conference with remarks discussing the importance of overseas developments in MEMS and nanotech, especially the importance of government involvement in developing small tech. He also highlighted the importance of publicly listed company R&D initiatives and the value of these activities in relation to their future earnings potential and the commercialization of new technologies. For now, these emerging technologies are initially being introduced through previously commercialized technologies, improving existing products and enhancing their growth prospects.

The National Nanotechnology Initiative launched by the U.S. in 2000 has led to billions of dollars of federal and state funds into supporting emerging technologies, especially nanotechnology with $679M in nanotech spending planned for 2003 alone. These funds are being earmarked even in the midst of a crippling stagnant economy and increasing budget deficits. Other countries quickly followed suit, including Japan, Germany, France, China the UK and others. Several of these countries also announced their strong support for the biotechnology sector. Though the US is the clear leader in biotech, the future of the sector and its increasing dependence on nanotechnology and MEMS may directly impact U.S. competitiveness. In this area of technology innovation, the US clearly does not dominate. As a result, among other things, private equity/venture capital investors need to be able to assist portfolio companies even in early stages of development with an overseas strategy and business plan.

Outlook for Global Pharmaceutical R&D and the Role of Emerging Technologies

The keynote speaker, Janice Reichert, Senior Fellow at the Tufts Center for the Study of Drug Development, discussed emerging technologies within the context of global pharmaceutical R&D, which included the cost of new drug development. The global therapeutics market is estimated at $364b, with approximately half of that market in North America, a quarter coming from Europe and the Japanese market representing 13%. Dr. Reichart emphasized the major challenges facing the industry, especially the deficit of breakthrough products in drug pipelines, rapidly rising R&D costs, mergers, acquisitions and strategic alliances, long clinical development and approval times and the globalization of industry practices. Rapidly expanding product development costs have required a renewed focus on improving R&D efficiency, like reducing late stage failures and profiting from successful approvals of new drugs. Directly related to the above is the whole process of drug approval by an under-staffed FDA and the need to support global harmonization efforts, leading to the ease of the global introduction of new drugs and more cross-border activity.

Dr. Reichart also discussed the importance and prospects for emerging technologies being the focus of therapeutics R&D efforts, including pharmacogenomics, proteomics, bio-informatics, in-silico (predictive testing) such as ADME profiles, toxicology and efficacy. Advances in nanomedicine are expected to lead to improved imaging, delivery of treatment and better (bio) chips for DNA and protein analysis.

Explaining MEMS and Nano as Related to Biotech

Mr. Mark Modzelewski, Executive Director of the NanoBusiness Alliance helped to lead the panel that focused on explaining what MEMS and nanotechnology are and its potential applications. The NY-based NanoBusiness Alliance is the first industry association founded to advance the business of nanotechnology in the United States and is a significant lobbying arm for the industry in Washington, DC. The Alliance expects nanotech revenues to reach over $200b by 2006. That was based on a prediction by the National Science Foundation that estimated a $1 trillion global market for nanotech in a decade. In response, government funding in the US and abroad has increased significantly, with over 30 academic programs having been developed and corporate R&D budgets by large technology companies correspondingly expanded. Even with the current concerns by the VC community as mentioned above, VC funding is expected to continue to grow, now at 30% per year, helping to fund over 300 nanotech companies based in the U.S.

In the biotechnology realm, the Alliance expects about half of all pharmaceutical production will be dependent on nanotech within the next 10-15 years, affecting over $180b in revenues. The key areas include nanoparticle tagging, drug delivery and cellular manipulation. In materials science, growth is expected in nanocomposites, nanofibers, nanoparticulate fillers, among others.

Michael Fancher, Director of Economic Outreach at Albany Nanotech detailed AN`s ambitious initiative to become one of the leading nanotech centers in the U.S. AN, a global R&D center on the SUNY Albany campus in New York state, is a prime example of interesting university-industry initiatives funded by the public sector with strong support from strong regional private companies which act as `anchors` for growing regional emerging technology hubs. IBM, the leader in nanotechnology innovation and R&D, is a major supporter of AN activities. Albany Nanotech will be investing a total of nearly $500m over the next two years in a sprawling facility in upstate NY, which includes a research park and incubator for nanotech. AN is conducting work related to bio-chip development, among other biotech related activities related to MEMS and nanotech. Mel Billingsly, CEO of the Central PA Life Sciences Greenhouse, described another university-industry collaboration, which is totally devoted to biotech, supporting such companies in central Pennsylvania with support and funding.

Investing in Biotech

Rich Gula of Argyle Investments gave a stimulating presentation on public equity market valuations for both biotech and global big pharma. Rich discussed the use of some traditional valuation methods in valuing new emerging technology companies, especially biotechs. In the private equity area, the VC panel focused on the difficult environment for funding biotechnology companies, including those attempting to utilize improved drug development tools. VCs are becoming more concerned about business models for such firms and, in many cases, they may not be the best suited to provide capital, especially in the early stages. The risks are high, especially during the discovery process that includes long clinical development times with no guarantees of success, a complicated FDA approval process and the high cost of R&D. Also, the expected return time horizon is much longer so such investments than what the VCs are used to, even in the current unfavorable climate for initial public offerings in general. All of the above are usually anathema for VC investors, even the specialists. . The corporate venturing model, angels and various types of schemes that include outsourced R&D and licensing and university-industry collaborative assistance have helped to provide critical funding for companies companies in the United States. Due to the heightened risk of investing in the area, the larger VCs have opted to invest in later stage companies. All agreed that the market for MEMS and nanotech development is truly global and that it should be a priority for investors to be able to enhance portfolio firm value by actively developing an overseas business strategy.

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