Some Successful and Unsuccessful Nanotechnology Companies
Keywords
Cambridge Display Technologies (CDT); Enact Pharma; Hyperion; MesoPhotonics; NanoCo; NanoMagnetics; Owlstone; Oxonica; Q-Flo; Semzyme; Theranos
Commercial nanotechnology is epitomized by small companies, typically spun out of a university research department. That is not to say that large companies do not engage in nanotechnology—many of them do, but they are (of course) far smaller in number. This chapter will look exclusively at small companies, which constitute the main innovative force in the field. Large companies often get involved in nanotechnology by buying up a small company at a promising-looking juncture. An internal nanotechnology project within a large company might share many of the characteristics of a small independent company, but information about its history is usually a confidential, internal matter of its owner, which is another reason for focusing on the small companies here.
Despite many commercial surveys proclaiming multibillion dollar markets for nanoproducts, the record of success of small companies is, on the whole, rather dismal. Errors seem to be repeated again and again. There would appear to be nothing more straightforward than exploiting a brilliant idea that is unique and technically superior to all existing materials for doing the same job. Time and time again, however, a material or device is launched without there being any prospective buyers. Since much nanotechnology is generic, a company might be formed to make, for example, nanoparticles. The company's unique know-how resides in its process for making the nanoparticles, which it has demonstrated in the laboratory. Prospective buyers are then told “we can make any kind of nanoparticle that you like”. If a customer does not come with the specification of what nanoparticle it needs (presumably to incorporate into another product), it is unlikely to find such a declaration helpful. Contrast this with the product range of the German company Freudenberg, a world leader in industrial lubricants and in elastomers: in each of these areas, Freudenberg sells about 30,000 different kinds of product. Each one corresponds to a well-defined demand. The nanoparticle company might easily be able to make 30,000 different kinds of nanoparticles, but does not succeed in selling even one kind. Naturally it is not entirely fair to compare an established company that has attained its leading position after many years of sustained effort with a recent start-up. But the principle of manufacturing that for which there is demand nevertheless holds.
The second failure is choosing the wrong model for financing the company. This is covered in more detail in Chapter 13; in brief, the “neoclassic” model that is taught in business schools and has become very widely disseminated is to start with some seed capital, perhaps from the inventors themselves and a close circle of friends and relatives, then procure “angel” finance and finally move on to venture capital and/or private equity. At that stage the founders have essentially lost control. The priorities of the board now become very different. Making and selling the brilliant new product, which would ensure prosperity in the long-term, is subordinated to extracting maximum short-term value from whatever the company has to offer. As a result, most nanomaterials companies seem to adopt the business model of simply licensing technology, managing projects and, possibly, further research and development. The actual manufacturing is outsourced. The true classic model is what was developed and honed in the early years of the Industrial Revolution—the community of producers and consumers organized an exchange for selling and buying, whereby forward selling provided the capital to finance scale-up of production. This exchange system has its roots in agriculture—an arable farmer necessarily has to buy seed in advance of the harvest, and forward selling the crop is a straightforward and efficient way of enabling this to be done (cf. Section 13.4).
Some of the other warning signs of ill company health are: an excess of executive and nonexecutive directors and managers over employees, which seems remarkably often to account for the high cash burn rate of many start-ups; too much focus on the technology itself without considering the user interface (this is more of a problem with nanodevices rather than nanomaterials); and a simple lack of entrepreneurial vision about why the company exists—what could be called the company “religion”—and where it is going and how to get there. Getting this conceptual basis right is probably essential to ensure that all staff, whether directors or employees, have the determination and capacity for hard work to get the company off the ground. See also Section 12.11.
In the first five sections of this chapter the histories of the five (initially British) companies highlighted as model examples of entrepreneurial nanotechnology in the Taylor Report [1] are briefly recounted. Only two are still in existence and only one of them can, at the time of writing, be said to be successful. Then, we have updated information about the four companies initially described in the first edition of this book: two were medium-sized and two were small, and in each size category one was very successful and one perhaps haltingly successful. The remainder of the chapter introduces a couple of other companies at the bio-/nano-interface.
Key ingredients of success are evidently (as inferred from these examples):
- • Focusing on a single application
- • Launching as downstream a product as possible
- • Making a prototype to demonstrate value
- • Having dedicated staff.
Spin-out companies are often tempted to economize by continuing to use university facilities and part-time staff, but this seems to ensure that the necessary pressures to succeed never surmount what might be a critical threshold. Doubtless location in a thriving center of high technology is important (but even this might be becoming less so in the age of the Internet). Given the novelty of the upstream product, persuading downstream companies to incorporate it into their final product, with all the attendant expense of redesign (even if the upstream product is merely substitutional) may be even more expensive than pursuing the downstream product in-house. Here, a rational basis for estimating the costs is important (although difficult). And even if the downstream client is a partner, it may still be difficult to obtain accurate information about key attributes. Finally, as already mentioned it is known that the further upstream one is positioned, the harder it is to capture value from any specific application, which diminishes the attraction for investors.
16.1 NanoMagnetics
This company's product was nanoscale magnetic particles (DataInk™) made very uniformly by deriving them from the natural iron-storage protein ferritin. It was claimed that by coating magnetic media with these novel particles, storage density could be raised by two orders of magnitude. According to the Taylor Report [1], “NanoMagnetics started in the research laboratories at Bristol University. Over the past couple of years the company has filed several patents, raised £6.7 million, and recruited a high-powered CEO. Earlier this year the UK Minister for Science and Innovation cut the ribbon at its new purpose-built 10,000 sq. ft laboratories in Bristol.”
The claim sounds plausible but currently the feature limiting the usable storage density is the size of the reading device, which will not change even if the magnetic particles are superior. Furthermore, a very similar research project has been running for some years at the Nara Institute of Science & Technology (NAIST), sponsored by Panasonic [2]. That project successfully demonstrated the material, but Panasonic decided not to exploit it due to incompatibilities between it and their regular production process required for finishing any device.
Nevertheless, the company was considered to be a star in the UK firmament of entrepreneurial nanotechnology. It was founded in 1997 by Eric Mayes, then doing a PhD at the University of Bath, and Nick Tyler, a former investment banker, with very limited resources. In 1999 they won a Department of Trade and Industry (DTI) “Smart” award worth £133,000 and secured a further £650,000 in venture capital, which enabled them to set up a laboratory within the Department of Physics at Bristol University and establish a research team. The venture backing was later increased to $10 million. The Royal Society of Chemistry presented the cofounders with the Chemistry Entrepreneur of the Year Awards in 2004. The company's business model was to carry out research and development, license its technology and outsource all production. It had about a dozen full-time employees.
Administrators were appointed on 27 January 2006 and the company was formally dissolved on 27 January 2011.
Interestingly, another little company, NanoMagnetics Instruments, was founded in 1999 as the first nanotechnology spin-off in Turkey; it also has a base in Oxford, UK. Its primary area of activity is the development of high-resolution scanning Hall probe microscopes for room temperature magnetic imaging applications. A low temperature microscope was launched in 2001 and a low temperature magnetic/atomic force microscope launched in 2005, followed by a room temperature version achieving sub-10 nm magnetic resolution in air. Another novel instrument, a noncontact atomic force microscope, capable of achieving atomic resolution on mica in water, was launched in 2010. This company has been quietly forging ahead, without government awards and without venture capitalists, providing specialist instruments to the nanoscience community, which evidently demands what they produce. They remain at the forefront of innovation. A recent development is a novel radiation pressure-based cantilever excitation method for imaging in dynamic-mode atomic force microscopy [3].
In the USA, Nano Magnetics Ltd was founded in 2009 and launched “Nanodots” in the same year. The company, based in Wilmington, Delaware, dubs Nanodots “Lego for the 21st century”; they are designed to model atomic interactions at a human scale. These small (centimeter-scale) but powerful spherical magnets are based on work by the Hungarian mathematician János Szaki, and exploit the neodymium alloy Nd2Fe14B, which enables extremely strong permanent magnets to be made. The product is primarily destined for consumers, ranging from children using it as a toy to artists making elaborate sculptures.
16.2 MesoPhotonics
This company was launched in 2001 to design and develop photonic crystal nanodevices made using conventional semiconductor (silicon) processing technology. It was spun out of the Department of Electronics and Computer Science at the University of Southampton by Prof. Greg Parker, who retained his university post while becoming technical director of the company, and received an investment of £2.8 million from BTG. Proof-of-principle devices (building on almost a decade of prior research within the university) were envisaged by mid-2002 with demonstrator devices going out to potential customers in early 2003 [1]. £5.5 million was secured in a second round of venture financing in 2004. In January 2005 the company launched “Klarite”, a nanostructured surface material exploiting surface-enhanced Raman scattering (SERS).
The company's business model was to undertake modeling, design, testing, applications, engineering, and sales while outsourcing semiconductor and device fabrication. It had about 20 full-time employees.
In 2007 the SERS substrate technology was sold to D3 Technologies (a collaborative venture between the University of Strathclyde and Renishaw) for £0.85 million. By 2013 MesoPhotonics appeared to be inactive.
16.3 Enact Pharma
Two existing companies merged in 2000 to form this development company focused on cancer and neurological diseases, which went on to raise over £5 million in equity investment and was listed on Ofex. Its technology portfolio included cancer therapy and specially treated biodegradable polymers able to provide a chemical pathway for nerve cells to grow along. The company was based on the Porton Down Science Park. By 2003 its drug “Voraxeze” (glucarpidase), to combat side-effects in cancer treatment (the treatment of toxic plasma methotrexate [used to treat certain types of cancer, severe psoriasis and rheumatoid arthritis] concentrations in patients with delayed methotrexate clearance due to impaired renal function), was in late stage development (with launch envisaged in 2005 or thereafter); the company had debts of over £1 million. In the same year it was bought by Protherics, a company specializing in making snakebite treatments. The drug is now commercially available in the USA.
16.4 Oxonica
Originally called Nanox, the company was spun out of Oxford University's Department of Materials in 1999 by Prof. Peter Dobson and Dr Gareth Wakefield with a starting investment (private sources) of £750,000. Angel investors contributed £100,000 in 2000, the name was sold to another company for a similar sum and changed to Oxonica in 2001, and further angel finance amounting to £540,000 was secured. In that same year Dr Kevin Matthews was appointed as a full-time CEO and found “a business with no real product focus, lots of research but no real commercial focus, and low morale”. Venture capital funding of £4.2 million was secured in 2002 followed by a rights issue bringing in £4 million in 2004, in which year the company also won a DTI “Smart” award worth £450,000. A further $2.5 million was received in venture funding in 2005. It was floated on the Alternative Investment Market (AIM) of the London Stock Exchange between 2006 and 2009. The business model is technology and marketing, with production being outsourced. Its main offerings are “Envirox”, a nanoparticulate catalyst for increasing the combustion efficiency (by between 5 and 10%) in diesel engines, originating elsewhere but developed into a product by Oxonica and trialed in hundreds of buses in 2003–4; an inorganic nanoparticulate sunscreen (“Optisol”) that does not form highly reactive free radicals upon illumination, based on an invention of Prof. Dobson (patent owned by Oxford University); a silver nanoparticle SERS product (“Nanoplex”) from the University of Strathclyde, intended for biomarker detection; and a polymer stabilizer (“Solacor”) intended for use in cosmetics.
An “appallingly drafted” patent agreement with Neuftec resulted in Oxonica losing a High Court case (and a subsequent appeal) over Envirox, following which Oxonica's Energy division was sold in 2009. Oxonica Materials Inc. was sold to Cabot Corporation in 2010, generating $4 million. Given the uncertainties over the health hazard associated with the emission of large quantities of semiconductor nanoparticles in engine exhausts, this was probably a prudent divestment. The company's primary objective is now “to return surplus capital to shareholders” based on license agreements for the SERS and sunscreen products. It still proclaims itself as “leaders (sic) in nanotechnology” on its website.
Oxonica has patent license agreements with Croda Europe Ltd (a speciality chemicals company) and BD (Becton, Dickinson and Co.) in the USA. Its revenues, of the order of £105 per annum, depend almost entirely on the license to Croda. The company now has 1 employee.
16.5 NanoCo
NanoCo Technologies Ltd started with one full-time member of staff when it was spun it out of his research group at Manchester University in 2001 by Prof. Paul O'Brien together with Dr Nigel Pickett. The company's product is quantum dots for security applications. They were developed in collaboration with a major company who desired them for anti-counterfeiting purposes and who initially approached Prof. O'Brien. The special, innovative technology of the company is a molecular seeding process that enables the bespoke manufacture of cadmium-free quantum dots (CFQDs) on a commercial scale. The company is also at the cutting edge of chemical functionalization of the particles for biomedical and other purposes. The company was admitted to AIM in 2009. From its inception up to early 2013 it had raised £4.1 million of private equity funds; these investors are now the most significant shareholders. In late 2013 a further £10 million were raised through the placing of additional shares. In May 2015 NanoCo shares begin trading on the Main Market of the London Stock Exchange and £20 million was raised thereafter. Of the order of £1 million has been raised from UK government grants. Its main research and manufacturing facility remains in Manchester and nearby Runcorn. Another manufacturing facility is being built in Cheonan, South Korea.
Although the company attracted some negative publicity in 2011 when it threatened to move its manufacturing overseas unless the UK government provided some support (no support was forthcoming and the company remained in Manchester), it has essentially got things right: based on demand coming to the company rather than launching a product for which no proven demand exists; stringently controlling costs (especially staff) in the early stages; manufacturing as well as doing research and development. According to its website, NanoCo leads the world in the research, development, and large-scale manufacture of heavy-metal-free quantum dots and semiconductor nanoparticles for use in displays, lighting, solar energy and bio-imaging.
In June 2017 the company received its first commercial order from a large Taiwanese manufacturer of optical films and sheets for the display industry, for the supply of resins containing CFQDs, which may appear in display products later in the year. The order followed the signing of a supply and license agreement in 2016. The technology is being evaluated by other original equipment manufacturers (OEMs) for similar purposes.
16.6 Hyperion
Hyperion (unfortunately a rather popular name for businesses, presumably because it means “the high one”, the name of one of twelve Titans of Greek mythology) was founded in 1981 to develop carbon filament-based advanced materials for a variety of applications. Located in Cambridge, MA, they developed their own process for the fabrication of multiwalled carbon nanotubes (MWCTs), their key intermediate product. By 1989 they could make them in-house on a fairly large scale and to a high level of purity. The problem then was to choose a downstream application. In the absence of prototypes, they widely advertised their upstream product with the aim of attracting a partner. Their first was a company that had developed a competitive polymer automotive fuel line as a substitute for the existing steel technology, but still needed to make the polymer electrically conducting (to minimize the risk of static electricity accumulating and sparking, possibly triggering fuel ignition). Dispersing MWCTs in the polymer looked capable of achieving this, and by 1992 Hyperion had developed a process to disperse their material into the polymer resin, meanwhile also further upscaling their process to reach the ton level. Related applications followed from the mid-1990s onward—conductive polymer automotive mirror casings and bumpers, which could be electrostatically painted along with the steel parts of the bodywork and hence fully integrated into existing assembly lines. The company moved slightly downstream by starting to compound its MWCTs with resin in-house. Efforts to diversify into structural aerospace parts did not succeed in demonstrating adequate enhanced value to enter the market, but the company did successfully break into internal components of consumer electronics devices. Research into supercapacitors and catalysts was pursued with the help of government funding. By the year 2009 Hyperion have filed over 100 patents. The product line remains based on carbon nanotubes dispersed in resin to make it conductive. The CNT-based products are available both as masterbatches requiring subsequent letdown and compounding and as ready-to-mold compounds. In 2011 the firm concluded a patent license agreement with Bayer MaterialScience, enabling Bayer to use Hyperion's CNT within a defined field.
Today the company is called Hyperion Catalysis International and proclaims himself as the world leader in carbon nanotube development and commercialization. It is trying to enter the market for precious metal catalysts using a network of fused carbon nanotubes. Other emerging applications for the CNT are flat-panel displays, advanced batteries and fuel cells, and polymer reinforcement.
16.7 CDT
Cambridge Display Technology (CDT) was founded in 1992 as a spin-out from Cambridge University (UK), where during the preceding decade polymer transistors and light-emitting polymers had been invented (the key polymer electroluminescence patent was filed in 1989). CDT's objective was to manufacture products for flat-panel displays, including back-lighting for liquid crystal displays. It soon became apparent that a small company could have little impact on its own, hence it abandoned in-house manufacturing and sought licensing arrangements with big players such as Philips and Hoechst (finalized by 1997), and in 1998 embarked on a joint venture with Seiko-Epson Corp. (SEC) to develop a video display. Other strategic allies included Bayer, Sumitomo, Hewlett-Packard and Samsung. CDT continued patenting (end-products developed with allies were included in the portfolio), but R&D costs remained huge, far exceeding license revenues. In 2000 the company was acquired by two New York-based private equity funds. This caused some turbulence: the departure of the energetic CEO (since 1996) and the decision of the founder, Richard Friend, to form a new company on which he focused his continuing research efforts. CDT then decided to recommence manufacturing and released an organic light-emitting diode (OLED) shaver display in 2002, but an attempt to extend this to the far more significant cellular telephone market came to nought and the commercial-scale production line was closed in 2003, retaining only the ability to make prototypes. The company thus reverted to the licensing mode. By 2003 it held 140 patents, generating $13–14 million per annum, compared with annual running costs of ca $10 million (the company had 150 employees at that time). The strategy of getting the technology into small mobile displays in the short term, and aiming at the huge flat-panel market (estimated as $30 milliard annually) in the medium term has remained attractive to investors despite the ups and downs, and the company went public on the NASDAQ in 2004. In 2007 CDT was acquired by Sumitomo Chemical (which had started its research activity in polymer light-emitting diodes in 1989), of which it became a wholly owned subsidiary. Since then the company has been active in forging links with overseas partners—with Semprius in 2008, and in 2009 CDT joined the Center for Organic Photonics and Electronics at Georgia Tech (USA) as an industrial affiliate. In 2011 CDT signed a five-year intellectual property pipeline licensing agreement with the Organic Nano Device Laboratory of the National University of Singapore to facilitate the commercialization of research results.
Applications are now being broadened to encompass energy harvesting and storage, biosensors and optoelectronic detection. The company supports the idea of open innovation.
16.8 Q-Flo
Q-Flo was founded in 2004, also as a spin-out from Cambridge University (UK), in order to commercialize a novel process for making carbon nanotube (CNT) fiber (at a cost potentially one-fifth that of then-current industrial CNT fiber) as a very strong material in the form of a textile or a film. A gas-phase catalytic reaction creates a dense cloud of very long carbon nanotubes in a continuous network of CNTs which is drawn out of the reactor and spun around a drum to create a non-woven mat, up to a few square meters in area and tens to hundreds of micrometers thick. Favorable electrical properties are reflected in envisaged applications in supercapacitors and batteries. Other opportunities include bulletproof body armor, shatter-proof concrete, ultrastrong rope, tires, and antennae. However, the company is too small to be able to afford to make prototypes for value-demonstration purposes, but in their absence cannot attract the investment needed to be able to afford to make them. The key resource-building cycle (see Figure 13.2) cannot therefore start turning. Because the company is so small, none of its seven employees work full-time for Q-Flo, which also limits the intrinsic dynamism of the available human resources.
A promising development has been the joint venture company TorTech Nano Fibers formed in 2010 with Plasan Sasa, an Israeli kibbutz-owned company specializing in vehicle (such as armored personnel carriers) and personnel protection armor, to scale up Q-Flo's technology for industrial production from about 1 g/day, for body armor and other defense applications, for which Plasan has been given exclusive sales and marketing rights, and EMI shielding.
Nevertheless, the company appears to have lost momentum since 2012, and it is not clear how active TorTech remains after 2016.
16.9 Owlstone
Owlstone was also founded in 2004 as a spin-out from Cambridge University (UK). Its technology is nanoscale manufacturing to produce a microelectromechanical system (MEMS) gas sensor, based on field-asymmetric ion mobility spectrometry (FAIMS). This generates a “fingerprint” for any gas or vapor entering the sensor, which is matched against a collection of standard fingerprints. The device is several orders of magnitude smaller than existing competitors and detection takes less than 1 s. The company's first investor was Advance Nanotech, which acquired a majority interest, but after other companies owned by Advance Nanotech failed to reach expectations, Owlstone took over its erstwhile owner.
The original aim was to make the FAIMS chip and sell it to sensor suppliers, leaving it to them to incorporate it into their products. However, the uniqueness of the device meant that outsourcing production of the chip alone would incur high development overheads with general foundries in any case, hence it was decided to aim instead to produce the finished downstream sensor. With the help of SBIR funds (fortunately for this purpose Advanced Nanotech was registered in both the UK and the USA) the first production model sensor was launched in 2006. Further products were subsequently launched with partners already in the market. Revenue in 2008 was expected to exceed $2 million, and since then the company has continued to expand, entering the pharmaceutical (2009) and crude oil (2012) domains.
Healthcare applications are now subsumed in Owlstone Medical Ltd, which was spun out from Owlstone in 2016 with an investment of $7 million. Further investment of $11.55 million was raised at the beginning of 2017. Owlstone Medical's vision is to become the global leader in noninvasive diagnostics for cancer, infectious diseases, and inflammatory diseases using the core Owlstone technology (FAIMS) to create “a breathalyser for disease”, otherwise known as “breath biopsy”. In this application, a patient's breath is analyzed for key disease biomarkers.
16.10 Semzyme
Semzyme Inc. was cofounded by Angela Belcher from MIT in 2002 in order to exploit biomimetic materials, such as the mineral platelet–protein composites that constitute the shells of oysters and other sea creatures. The particular novelty was to harness viruses to direct the synthesis of such composites, with the ultimate aim of making and assembling nanoscale components for electronic circuits.
In 2004 the company was renamed Cambrios Technologies Corp. and received $1.8 million in Series A financing from ARCH Ventures, Alloy Ventures, and Oxford Biosciences. Since then, the direction of the company has considerably evolved and it is now the market leader in silver nanowire-based transparent conducting materials, used for example to make touchscreens. In 2009 in raised $14.5 million in a Series D funding round. Other applications started to emerge, such as organic light-emitting diodes and photovoltaic cells. In 2012 the company moved into Taiwan and raised a further $5 million from Samsung Venture Investment Corp. By 2013 a 
cm grid-free lighting tile could be fabricated with the Cambrios transparent electrodes, and by 2014 manufacturing capacity was 15 million m2 per annum. By 2016 the resistance of the material was down to 30 Ω/square, enabling touch panels in the 30–40 inch diagonal size range to be produced. The material is now also available as an ink.
16.11 Theranos
This Palo Alto, California-based company was founded in 2003 by Elizabeth Holmes, then just 19 years old, with a microfluidics blood-testing device for early illness detection and disease prevention, requiring just a few microliters of blood obtained using an almost painless finger prick rather than the traditional 30 milliliters obtained using an uncomfortable venipuncture, and reducing the overall price for the analysis to just a few dollars rather than hundreds of dollars.
Within a few years the company had raised several hundred million USD from US investors, including prominent individuals such as Carlos Slim and Larry Ellison, and the stock value of the company reached several thousand million USD. The company built a 25,000 m2 facility in California and employed about 700 staff. During the presidency of Barack Obama, Holmes was appointed “United States Ambassador for Global Entrepreneurship”. Former US Secretary of State George Shultz suggested that she was going to be “the next Steve Jobs or Bill Gates”. The lab-on-a-chip itself was named Edison.
About 200 different tests were offered with Edison, but in October 2015 an unannounced inspection by the US Food And Drug Administration (FDA) concluded that only one test, that for the herpes simplex 1 virus IgG, was regulatorily approved, whereas all the others had not been tested for accuracy and were not approved. Indeed, Theranos had never released any data showing reliability and accuracy, nor any independent auditing, benchmark testing, nor even any scientific paper. Holmes then admitted that many of the purported test results had been obtained not with Edison but using conventional medical diagnosis machine. By the middle of 2016 the company's worth had dropped about tenfold to a few hundred million dollars, and several regulatory and legal proceedings were under way. But in early 2017 a global settlement agreement was reached with the Centers for Medicare & Medicaid Services (CMS), under the terms of which CMS withdrew the revocation of the company's Clinical Laboratory Improvement Amendments (CLIA) operating certificates and reduced the civil monetary penalty payable by Theranos to $30,000, and the company agreed not to own or operate a clinical laboratory within the next two years. Elizabeth Holmes now proclaims on the company's website that “we believe access to actionable health information is a basic human right”. Even though its stock value is now close to zero, the company appears to be continuing, albeit with a much reduced staff and range of activities.