What India Can Learn From The Evolving Global Nanotech Landscape

1. What India Can Learn From The Evolving Global Nanotech Landscape Jaideep Raje Analyst Presented at the 2nd Bangalore Nano Conference December 11, 2008

2. Lux Research profile • Primary research methodology: Focus on proprietary interviews and site visits • > 1,400 interviews last year • Site visits in 18 countries, China to Dubai • Clients on five continents • Delivers value via analyst inquiry, weekly intelligence reports, and semi-annual State of the Market reports • Retainer-based services in solar, energy storage, nanomaterials, water and life sciences • Source proprietary ideas from Lux Research Network of execs + scientists • Diverse, 45-person team; Ph.D scientists to market researchers Josh Wolfe,Director, Lux Research 21st Century R&D Act signing in Oval Office LR Chairman Peter Hebert on CNBC LR President Matthew Nordan testifying before U.S. Congress

3. Nanotech started off the decade fast… US$ millions

4. …but some high-profile flops have lead to cynicism

5. However, nanotech’s fundamentals remain strong

6. Why the disconnect? • Nanotechnology enters early in value chains – and often isn’t visible in final products

7. Nano-enabled products Nanomaterials Nanointermediates Nanoscale structures in unprocessed form Intermediate products with nanoscale features Finished goods incorporating nanotechnology Nanoparticles, nanotubes, quantum dots, fullerenes, dendrimers, nanoporous materials… Coatings, fabrics, memory and logic chips, contrast media, optical components, orthopedic materials, superconducting wire… Cars, clothing, airplanes, computers, consumer electronics devices, pharmaceuticals, processed food, plastic containers, appliances… The nanotechnology value chain

8. Nanotechnology value chain for fuel additive Nano-enabled product Nanomaterials Nanointermediates

9. Why the disconnect? • Nanotechnology enters early in value chains – and often isn’t visible in final products • Nanotech’s impact is much broader than anticipated, if not as deep in any one product

10. Agenda • What’s the current global nanotech landscape? • What’s it (i.e. strategies and outlook) evolving into? • What are the lessons for a relative newcomer like India?

11. Agenda • What’s the current global nanotech landscape? • What’s it (i.e. strategies and outlook) evolving into? • What are the lessons for a relative newcomer like India?

12. Not “nano by accident”: • Ancient Egyptian pottery • Stained glass • Cat litter Really small Not just “small;” “small and different” What’s nanotechnology? “The purposefulengineering of matter at scales of less than 100 nanometers (nm) to achieve size-dependent properties and functions.”

13. By region By source US$ billions US$ billions Nanotech funding continues to grow – with private funding eclipsing public spending Growth from 2006 to 2007 +30% -5% +12% +12% +23% +8% +17%

14. The number and value of nanotech deals fell in 2007 Nanotech VC by number and value of deals, 1995 to 2007 Value of deals(US$ millions) Number of deals

15. Energy and environment sector topped the charts for the first time in 2007 Nanotech VC by sector, 1995 to 2007

16. Application companies edged platform companies Nanotech VC by platform vs. application focus, 1995 to 2007

17. Most start-ups haven’t yet reached an exit Number of companies by fate Value invested by company fate

18. VC investments aren’t informed by exits Share of cumulativereturns to VCs by sector Share of total valueof 2007 deals by sector

19. Application-focused companies outperform platform ones at exit

20. VC investments aren’t informed by exits Share of cumulativereturns to VCs by sector Share of total valueof 2007 deals by sector

21. Nanotechnology venture capital takeaway VC firms are not putting their money where the exits are. While most nanotech IPOs and acquisitions have been for application-focused life sciences start-ups, VCs disproportionately fund companies in other sectors, as well as those developing platform technologies.

22. Agenda • What’s the current global nanotech landscape? • What’s it (i.e. strategies and outlook) evolving into? • What are the lessons for a relative newcomer like India?

23. Agenda • What’s the current global nanotech landscape? • What’s it (i.e. strategies and outlook) evolving into? • Corporate strategies • Start-up strategies • EHS outlook • Commercial impact • What are the lessons for a relative newcomer like India?

24. Agenda • What’s the current global nanotech landscape? • What’s it (i.e. strategies and outlook) evolving into? • Corporate strategies • Start-up strategies • EHS outlook • Commercial impact • What are the lessons for a relative newcomer like India?

25. Corporate nanotech leaders cite growing cynicism “What are the challenges facing nanotech development and commercialization today?” n=31 Mean revenue = $48 billion Mean headcount = 81,000

26. However, nanotech R&D and products are still growing, if more slowly Percentage of R&D budget going to projects working at the nanoscale Percentage of products by revenue that incorporate nanotechnology

27. Companies increasingly turn to an “open innovation” approach “Do you work with the following external organizations as part of your nanotech efforts?” Why? • “Leverage outside expertise” – cited by 74% • “Can’t (or don’t want to) do research all in-house” – 58% • “Screen/survey outside opportunities” – 55% n=30

28. Agenda • What’s the current global nanotech landscape? • What’s it (i.e. strategies and outlook) evolving into? • Corporate strategies • Start-up strategies • EHS outlook • Commercial impact • What are the lessons for a relative newcomer like India?

29. Nanoparticle specialists on technical expertise 2004: “We can make smaller particles, with better control over particle size, than all those other guys” 2006: “What we can do that’s different is provide good dispersions of our nanoparticles.” 2008: “We understand the formulation chemistry for these specific applications.”

30. Case study: SDC Materials creates catalysts • Process: SDC’s DC plasma process creates nanoparticles of metals and non-oxide ceramics, and can also deposit metals on ceramic supports • Applications: Has shown improved performance for alumina-supported PGM catalysts, and believes its carbide catalysts can replace PGMs • Expertise: Varies metal nanoparticle size to tune selectivity and varies loading of particles in dispersion to independently control activity; offers rapid screening and catalysts optimized for 10 common reactions • Lux take: “SDC offers a strong value proposition in its process for tuning key parameters for catalysts separately – clients should engage soon, before growth kicks in.”

31. Nanoparticle specialists on business models 2004: “We’re a materials supplier – customers will pay us a premium because the unique properties of our particles allow them to save money or command a higher price.” 2006: “We’re moving down the value chain to capture more value and provide our customers with ready-to-use drop-in additives.” 2008: “We’re working with customers to co-develop integrated solutions for their particular applications.”

32. Case study: Nanophase targets wood coatings • Process: Nanophase uses plasma processes to make metal oxide nanoparticles, treats the nanoparticles with novel polymer coatings • Applications: Focuses on very specific applications – e.g., UV protection in exterior wood coatings – and goes “a mile deep” in each of them • Expertise: By adjusting or functionalizing the polymer capsule, Nanophase can customize the particles for particular applications – approaching companies with particles pre-tailored to their formulations • Lux take: “More nanomaterial specialists will need to develop this sort of deep expertise in target applications, as activity moves beyond sophisticated early adopters like BASF to become more mainstream.”

33. Nanoparticle specialists on EHS 2004: “…” 2006: “We’re comfortable with our products’ EHS profile because the materials we’re working with are GRAS, and we take care to make sure workers aren’t exposed.” 2008: “We have a testing program in place with the local university and can provide customers and the public with detailed information on our materials’ safety.”

34. Case study: Nanoscale offers EHS benchmarks • Process: NanoScale creates agglomerate of ceramic nanoparticles with high surface area • Applications: High surface area of the materials enables uses in odor control, environmental remediation, and toxic chemical clean-up • Expertise: NanoScale has done extensive inhalation, oral, and dermal tests for toxicity of its nanomaterials, taking advantage of collaborations with local universities to get testing done economically. • Lux take: “NanoScale has one of the most solid and comprehensive programs for dealing with environmental, health, and safety issues of any start-up we’ve spoken with... more start-ups should take the sort of strong proactive approach to EHS that NanoScale employs”.

35. Agenda • What’s the current global nanotech landscape? • What’s it (i.e. strategies and outlook) evolving into? • Corporate strategies • Start-up strategies • EHS outlook • Commercial impact • What are the lessons for a relative newcomer like India?

36. Real risks Regulations Perceptual Risks Nanomaterials might have negative effects on people or the environment Nanotechnology might come to be seen as unsafe – irrespective of actual harm Regulations might – rightly or wrongly – slow or block commercialization Rat exposed to cobalt nanoparticles on the left side, bulk cobalt on the right side Protest of the use of Nano-Tex fabric treatment outside an Eddie Bauer store Text of the Environmental Protection Agency’s Toxic Substances Control Act Best case: Nanomaterials prove to be more dangerous than ordinary substances in only a handful of cases Best case: Consumers appreciate the benefits nanomaterials can offer and embrace the technology Best case: Existing regulatory frameworks case be painlessly adapted to manage nanomaterials Worst case: Studies show that many nanomaterials have elevated hazard and are more difficult to control Worst case: Nanotech comes to be seen as synonymous with danger and consumers are reluctant to accept it Worst case: Risks drive regulators to impose stringent testing requirements on all nanomaterials Firms need to handle three aspects of nanotech EHS… Source: May 2006 Lux Research Report “Taking Action on Nanotech Environmental, Health, and Safety Risks”

37. … and the jury’s still out on all three • Real risks research continues to grow • Getting more standardized and focusing on new materials • Significant emphasis on nanosilver and titanium dioxide • Perceptions remain up for grabs • Public awareness studies show mixed, but not negative, opinions • The May 2008 study comparing carbon nanotubes and asbestos was, by and large, properly reported, with low sensationalism • Labor unions becoming a more important part of the debate • Regulatory agencies are looking for data before making any nanotech-specific regulations • Voluntary schemes the order of the day, but U.K. DEFRA, and (less so) U.S. EPA schemes have been a flop • NGOs and companies feel the uncertainty

38. Agenda • What’s the current global nanotech landscape? • What’s it (i.e. strategies and outlook) evolving into? • Corporate strategies • Start-up strategies • EHS outlook • Commercial impact • What are the lessons for a relative newcomer like India?

39. Nanotech will touch $3.1 trillion worth of products across the value chain in 2015 • Nano-enabled products account for vast majority of revenues at $2.7 trillion • Nanointermediates reach $432 billion • Nanomaterials just $3.0 billion in sales US$ billions

40. From 2004 to 2007, nanotech saw initial commercial adoption in many industries Revenue, all value chain stages • Nano-enabled sales nearly double on average each year • Materials and manufacturing sector predominates – 66% of all revenue in 2007 • Electronics grows most rapidly, reaching 24% of all revenue US$ billions

41. Early nanotech applications came with lots of fanfare

42. From 2008 to 2011, nanotech’s impact broadens… Revenue, all value chain stages • Sales grow from $238 billion to $833 billion across the value chain • All sectors grow roughly evenly as nanotech broadens into more product categories • Nanointermediates and final products grow roughly evenly US$ billions

43. Nanotech makes its way into a greater breadth of applications

44. …then deepens from 2012 to 2015 Revenue, all value chain stages • Total sales of $1.2 trillion to $3.1 trillion at 39% CAGR • Electronics forecasted for the highest growth at 48% CAGR • Nanointermediates grow most rapidly by far as nanotech’s impact on each product deepens (61% CAGR) US$ billions

45. Nanotech’s deepening impact 2015 2008

46. Conclusions • Cynicism about nanotech isn’t justified, given the field’s strong fundamentals • However, the diverse nature of nanotech’s impact means that individual firms have to choose efforts carefully to profit • Past 2011, nanotech’s impact will deepen, making it increasingly essential – but increasingly routine

47. Agenda • What’s the current global nanotech landscape? • What’s it (i.e. strategies and outlook) evolving into? • What are the lessons for a relative newcomer like India?

48. In the Indian context… • The national government should develop a cohesive centrally-coordinated framework for government nanotech funding • U.S.’ NNI is a good model; coordinating funding from various sources, establishing nanotech research centers at univs. and national labs, and fostering commercial activity via SBIR grants • Nanofab facilities might be the way to drive start-up activity to the pilot stage • VCs are placing larger bets on companies that have emerged from the treacherous early stages – later-stage rounds took a bigger share of investment dollars

49. In the Indian context… • EHS must be front and center for all stakeholders from Day 1; proactively share safety testing data • EU, the biggest source of nano-revenue over the next decade, will also be the earliest adopter of the most stringent EHS regulations • A nanotech EHS industry (Gradient, Intertox, Environ) will flourish • Innovators and venture capitalists should choose focus areas keeping in mind the emerging global corporate strategies • Large corporations are increasingly seeing collaborations with universities, government labs, or start-up companies as very attractive alternatives to in-house basic research • Avoid a strategy focused on selling nanomaterials • Hire in the experience and emphasize target industry knowhow, both in technical and business development roles

50. In the Indian context… • Do not go looking for the glitzy stuff • For the foreseeable future, nanotech’s commercial output will be via mundane applications – coatings, encapsulants, catalysts, etc. • Look for process innovations that reduce cost, not industry-changing breakthroughs • Set price expectations based on industry comparables • Corporations light on nanotech resources should focus on product-oriented joint ventures • Leverage your own industry expertise and channels to market • Study your would-be partners’ playbooks and steer them towards more promising – and favorable – business models