By Candace Stuart
Small Times Senior Writer
Sept. 18, 2001 — Some MEMS companies in the United States and abroad said they anticipated few repercussions from the stock market’s tumble on Monday, the first day of trade since last Tuesday’s attacks on New York’s World Trade Center.
At least one company that stands to benefit from increased defense spending saw its stock come close to doubling in price on a day that the Dow Jones industrial average dropped 7.07 percent and the Nasdaq composite index fell a 6.85 percent.
The head of another small tech company said that what appears to be a hostile investing environment for some can be an advantage for others.
“If you are in a sector that is strong during a downturn,
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| Cepheid Inc. stock price shot up nearly 90 percent Monday as investors looked for defense and security technologies. |
MicroCHIPS is developing a MEMS implant that delivers drugs at set intervals over a prolonged period of time, making it an attractive candidate for pharmaceutical, hormone and other treatments. The company earlier received more than $2 million from Polaris Venture Partners and Santini said he is optimistic about the company’s chances to increase that amount several-fold.
Revenues from MEMS-based medical devices are expected to grow from $18 million in 2000 to $68.4 million in 2005, according to a 2001 industry study by the independent analysis firm Cahners In-Stat Group. In its latest survey on venture capital activity, PricewaterhouseCoopers reported that life sciences and health care were among the few sectors nationally to see an increase in VC funding.
VC funding in general fell this year, the accounting service reported in its MoneyTree Survey. Equity investments by VC firms totaled $8.2 billion in the second quarter, down from $10.4 billion in the first quarter.
MicroCHIPS is designing a “smart” drug delivery system that uses a silicon or polymeric chip etched with up to 1,000 reservoirs that can hold selected amounts of drugs. The reservoirs are capped with a thin sheet of gold that dissolves when an electric charge is administered from an accompanying chip. The release may one day be controlled by a microprocessor, a biosensor or remote control.
“In terms of raising money, we are fortunate,” Santini said. “We have products that are in demand, MEMS as a whole are in demand, and medical devices are in demand. We’re fortunate that we are situated at the intersection.”
In the end, the VC firms are the biggest winners in a down economy, Santini pointed out. “We’re at a disadvantage for negotiating,” he said. “It’s a buyer’s market.”
It was mostly a selling market Monday on Wall Street. The Dow dropped 679 points, closing at 8,920.70. The Nasdaq composite index fell 116.09 points to 1,579.28. That is the first time the Dow has dipped below 9,000 since December 1998, and the lowest close for the Nasdaq since October 1998.
The steep drop occurred Monday despite the Federal Reserve’s move to lower a key interest rate by a half percent age point. The Fed cut the federal funds rate, the interest rate banks change each other for overnight loans, from 3.5 percent to 3 percent.
MEMS start-ups in Europe expect to feel few if any ramifications from economic troubles in the United States, said Jeremie Bouchaud, an analyst with Wicht Technologie Consulting in Munich, Germany. The markets and investment environment in Europe differ from that of the States, he said, which tends to insulate the companies.
Wicht Technologie’s clients in Germany and France focus on automotive and medical MEMS applications. “These markets are going very well in Europe,” he said. He added that Europe has far fewer optical MEMS and RF (radio frequency) MEMS companies competing in what has become a depressed telecommunications market.
European MEMS start-ups often grow from a university-based research project that is funded and nurtured by the state, with possible support later from institutes such as LETI, the atomic energy commission’s technology laboratory in Grenoble, France, Bouchaud said. The companies tend to have a product developed before launching into the venture capitalist arena.
“They are growing slowly,” Bouchaud said. “It’s not a fast growth but a sound growth.”
But while the companies themselves may be insulated during their early formation, their national economies are often closely linked with the rest of the world. For instance, the Fed’s lowering of interest rates sparked similar rate cuts internationally, including moves by the Bank of Canada, the European Central Bank and the Swiss National Bank.
The European Central Bank said in a statement that it was concerned that reduced growth in the United States would adversely affect European investors and the region’s short-term economic growth.
Sung Won Sohn, chief economist with Wells Fargo Bank in Minneapolis, predicted the global economy will weaken, and nations whose fiscal structures already are teetering should brace for recession. But the United States itself, with its diversified economy, eventually should rebound.
“On balance, I’m hoping this terrorist attack will end up helping technology,” Sohn said. “It will accelerate hitting bottom sooner.” Stock analysts contend buying will kick in once investors believe the market has leveled out.
Technology companies will emerge as one of the winners, he said, because “before the attack almost all (techs) were losers.” Early gainers should include high-tech companies with security and defense applications, which should attract some of the $40 billion the federal government said it will spend on the World Trade Center and Pentagon cleanups and measures to prevent similar attacks.
Cepheid Inc. of Sunnyvale, Calif., was a case in point. The company manufactures and markets microfluidic and microelectronic devices, mostly as portable test systems for DNA analysis. Cepheid’s stock rose 89.54 percent on Monday, up $1.34 to close at $2.90.
On Aug. 13, Cepheid signed a deal with Environmental Technologies Group Inc. in Baltimore to develop technologies for detecting biological agents. The companies said the devices could be used for military applications, such as biowarfare, and for domestic preparedness, such as terrorist attacks.
“People are looking for stocks in areas that can benefit from buying from government,” Catherine Smith, Cepheid’s chief financial officer, said during Monday’s rally. Environmental Technologies Group, a branch of Smiths Aerospace in London, will incorporate Cepheid’s subsystems into a fully automated biodetection device.
As part of the deal Cepheid will receive royalties from ETG beginning in the middle of 2002, Smith said. Nonetheless, Cepheid considers its DNA testing its core technology and expects that to remain its focus despite the recent interest in security and defense technologies.
“Probably our most lucrative area will be in DNA,” she said.
Reuters and the Associated Press contributed to this report.
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CONTACT THE AUTHOR:
Candace Stuart at [email protected] or call 734-528-6290.