By Jeff Karoub
Small Times Staff Writer

Sept. 7, 2001 — Merrill Lynch & Co. Inc. is telling managers of its mutual funds — and those who invest in them — that it’s time to start looking at nanotechnology.

The global financial management firm this week released “The Next Small Thing: An Introduction to Nanotechnology.” The six-page report, available to its


clients online, outlines the emerging field and said investment opportunities are closer than many in the market realize.

“We’re saying, ‘Heads up, Wall Street — this is in the two-year time frame,'” said John Roy, a Merrill Lynch technology strategist and co-author of the report.

The report is the latest of several on the smallest of small technologies, and its economic impact in the years ahead. But it’s believed to be the first from a major firm directly aimed at mainstream investors, rather than strictly venture capital sources.

Roy said Merrill Lynch wanted to educate both individual and institutional investors, though it’s designed more for the latter, since fund managers are looking ahead 18 months.

He said selected nanotech applications will make it to market within the next two or three years, and some, such as nanoparticles for sunscreens and other products, already are being produced. One company, Nanophase Technologies Corp. in Romeoville, Ill., is selling its nanocrystalline technology and is publicly traded.

The report outlines five emerging markets, focusing on the near-term applications of the first two:

  • Instrumentation: In any new technology, the first winners are the toolmakers.
  • Physical: Examples include denser hard drives, smaller and faster chips and better optical switches.
  • Biological: Applications include drug delivery and disease detection.
  • Materials: Nanotechnology in materials development already is a significant business and is expected to grow dramatically as research and development advances with carbon nanostructures, such as buckyballs and nanotubes.
  • Futuristic: The long-term potential for nanotechnology, such as self-replicating nanorobots, is fascinating but fantastical, and therefore beyond investors’ interest.

Merrill Lynch said nanotechnology holds promise as the next big growth innovation to drive the economy and stock market.

The idea of growth innovations and their economic implications are based on the work of economist Norman Poire, who said it takes about 28 years for a technology to be widely accepted, 56 years of rapid growth and 112 years to mature and grow in line with population increases.

Such innovations include textiles, railroads, automobiles and computers. According to this theory, the computer market should mature around 2025, paving the way for another technology to take its place.

Roy and his colleague, Steven Milunovich, present nanotechnology not so much as a product but as a process that could affect multiple industries.

Roy said the catalyst for the report was a visit to Professor Chad Mirkin, director of the Institute for Nanotechnology at Northwestern University in Evanston, Ill. Mirkin and his colleagues have parlayed their research into two spin-off companies, Nanosphere Inc. and NanoInk Inc.

Nanosphere is developing biodiagnostic devices and expects to have products on the market within two years. NanoInk seeks to commercialize Mirkin’s nanosize pen that could create lower-cost, higher-resolution photomasks.

“We were quite surprised at the meeting (with Mirkin) at the nearness of that technology,” Roy said. “Things are happening now — research and companies are starting to spin out now.”

The report is the latest of several this year to analyze trends in nanotechnology.

Lux Capital Group, a fledgling New York-based venture capital firm, recently released The Nanotech Report. The 269-page overview, currently only available to the investment community, sells for $4,750.

Earlier this year, the marketing consultant Frost & Sullivan and publisher John Wiley & Sons Inc. issued Nanodevices: Future Markets, Applications and Technology. The $2,450 report looks at research and investment in nanotech-related fields.

The Los Angeles Regional Technology Alliance (LARTA) started working late last year on its Nanotechnology Yellow Pages a free, downloadable industry study on nanotechnology with a focus on Southern California’s thriving nanotech scene. An updated version of the study later this year will delve into the national and international scene.

Lynn Foster Jr., who worked on LARTA’s study, said other investment houses, such as J.P. Morgan & Chase Co., have been focusing on nanotechnology’s potential. But Merrill Lynch’s report brings it more into the mainstream.

“There are educated investors here who have made investments in nano, so in that sense it’s none too soon,” said Foster, a business consultant for LARTA, a nonprofit group that offers entrepreneur education, venture capital, seed grants and outreach to local universities and laboratories.

“Coming from a larger investment house, I definitely think this is the time to gear up for it. … They feel this is going to be a huge market, and they just want to be out front.”

Still, any investing carries some level of risk, and nanotechnology is no exception.

Foster and his colleagues said nanotechnology as a whole has no business or marketing model, which makes the field hard to quantify.

He said all of the publicity — even the reasoned reports — might give some investors the feeling that nanotechnology is a sure-fire investment.

“Across the board, investors still are looking for a very high return in a reasonable time frame,” he said. “And while some investors may receive large — and possibly even fast — returns in areas like biodevices, other nanotechnology applications have not proven themselves.

“Being a young, undeveloped field, nanotechnology still has a long way to go to develop the ubiquity, pervasiveness and predictability that the now-chastened investment world demands.”

Roy said the extra burden on any unproven technology is whether it will be profitable long-term.

“You may be able to make one of these, but will you be able to make it cost-effectively?” Roy said. “You have to have an idea of your investment horizon. This could take years to get cost-effective.”

John Ryan, an associate with J.P. Morgan Partners, the investment company’s venture capital arm, said he and the firm as a whole have been researching nanotechnology for more than a year, and his unit has made several small investments in nanotech-related companies.

Ryan, who focuses on nanotechnology, life sciences and health care for the firm, said he is unaware of any nanotechnology-specific reports released by J.P. Morgan, and that largely is because of the status of the field.

“The technology and companies are at such an early stage — there’s not yet a lot of need for investment banking services in the industry,” he said.


Jeff Karoub at [email protected] or call 734-528-6291.


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