Nano-Terra Envisions Moneymaking Nanotech Ideas for Batteries, Kitty Litter, & More

Nano-Terra is sticking to its original strategy: Let other companies spend the money on manufacturing and marketing products that arise from its inventions, while making its money from licensing its nanotech creations and pulling in royalties on product sales. Now the Cambridge, MA-based startup is considering spinning off separate businesses to pursue more applications, including one to commercialize a novel particle to combat counterfeiting, Nano-Terra CEO Myer Berlow tells Xconomy.

Berlow’s company has attracted international attention for its suite of nanotechnology patents licensed mostly from Harvard University. This latest potential spin-off gives a glimpse at a new way the intriguing technology could be put to practical use in the marketplace.

The potential spin-off company would make the nano-sized particles for companies that would put trace amounts of them into products such as perfume, Berlow says. These particles, which Berlow says cannot be replicated, could be quickly detected in a bottle of perfume with a handheld device to show whether the product is a fake. And the structure of the particles—which are way too small to see with the naked eye—can be altered over time to throw off counterfeiters.

“What you have to be careful of—even though we are thinking about a number of [potential spin-offs]—is you have to make sure that you are staying within your area of expertise,” says Berlow, who is a former president of global marketing for Internet company America Online.

Spinning off companies would be a new approach for Nano-Terra to commercialize its technology. The firm, founded in early 2005, typically seeks corporate partnerships to apply its innovations in surface chemistry and materials science, many of which originated from lab of renowned Harvard chemist and company co-founder George Whitesides. The goal is to improve products for a diversified group of corporate partners. Those partners include Germany-based chemical and drug company Merck KGaA, the pet division of Swiss consumer products firm Nestle, battery and energy storage device maker Exide Technologies (NASDAQ:XIDE), and industrial equipment provider Pentair (NYSE:PNR). In those deals, Berlow says, the companies pay Nano-Terra enough to cover its R&D expenses. Nano-Terra’s profits are expected to come mostly from royalties on sales of products developed through the partnerships.

Nano-Terra officials are searching for potential manufacturing sites for the proposed particle spin-off. One of the officials involved with the spin-off plans, vice chairman Hayat Sindi, is currently scouting potential locations in the Middle East, Berlow says. Yet the firm hasn’t decided on which region the plant would be located. (Sindi has previous connections to Whitesides, having been a visiting scholar in his lab, and working with him and colleagues to launch Diagnostics For All, a nonprofit developing paper-based, affordable medical diagnostics for patients in the poorest countries on the planet.) Sindi spends most of her time in Saudi Arabia, Berlow says, and she is also involved in helping Nano-Terra land partnerships with companies in the oil industry.

The plan is to make a call on whether to spin off the perfume anti-counterfeiting business within the next six months, Berlow tells me, and the decision will be mostly based on interest from potential customers. Nano-Terra suspects there will be demand for the technology, because the perfume industry loses billions of dollars annually due to sales of copycat products.

Nano-Terra keeps many details of its research projects under wraps, sometimes to conform to its partners’ desire to keep technical information confidential. Xconomy contributor Neil Savage aptly described Nano-Terra’s key technologies such as methods for soft lithography when he profiled the company nearly two years ago. Berlow, however, did share a funny story with me about how nervous he felt when he told Whitesides about Nano-Terra’s talks with Nestle about improving the surface chemistry of ingredients used in kitty litter. Whitesides—a co-founder of biotech powerhouse Genzyme (NASDAQ:GENZ) whose inventions have addressed major needs in healthcare—surprised Berlow by saying that the kitty litter project posed interesting technical challenges. (Berlow wouldn’t discuss those kitty litter challenges on the record.)

I also got some insight into Nano-Terra’s finances. Berlow says that he and Whitesides have provided most of the money invested in the company, which has also attracted some $3 million in investments from four other angel backers. (Another notable co-founder of the company is Carmichael Roberts, who about a year and half ago became a venture capitalist with North Bridge Venture Partners in Waltham, MA.) Berlow expects the company to become profitable next year, but the profitability of the company depends somewhat on receiving royalties on sales of products it has helped develop. So far, Nano-Terra has no revenue stream from royalties, because none of the company’s corporate partners have begun sales of such products. Some of the products could be launched on the market next year, Berlow says, and soon start throwing off cash.

Nano-Terra could get its first royalties from its work with the chemical division of Merck KGaA, Berlow says. His firm has developed a process for etching surfaces that eliminates most all of the dangerous chemicals used in the current process. Though he declines to discuss technical specifics of the process, he notes that the project has been completed and the two companies are now discussing potential commercial applications. (Merck KGaA already markets industrial etching chemicals used to modify the surfaces of metal, glass, and other materials.)

“One of the great things about our business model is that you pick a number of partners in a number of different [industry] categories,” Berlow says, “and since we make our money on royalties, we pick companies that can take things to market.”

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