Notes from Cleantech Panel Discussions at BioFinance

As mentioned in my prior post, there was a first at BioFinance this year – a panel on Cleantech, and a number of Cleantech presenting companies.

The discussion began with the question: Is cleantech the future of life science? (maybe for investors looking for quicker and more reliable returns on investment?! take a look where the dollars are going! The Cleantech sector is now outperforming other sectors, it is the best sector in US stock market and was up 46% last year.

Deloitte is compiling the “Green 15”, from 150 candidates who have submitted profiles this year. Interestingly, some companies seem to be waivering between life sciences and cleantech – they just can’t decide where they are or where they should be. After all, if they call themselves a life science company, investors approach cautiously … but that’s just me being cynical.

Susan McLean, a Senior Manager of Business Development at the TSX, gave an interesting overview of the sector. The TSX had 94 cleantech issues in 2007, and it is growing. In fact, there was a tripling of activity from 2005 to 2007, progressing well in 2008; there were 2.5 billion shares traded in 2007. It is looking at pure-play companies and integrated companies. Some sub-sectors of listed companies include solar, wind, hydro, geothermal, fuel cell, waste to energy, and others. Now, for the best part – companies even at the $50 million value are getting analyst coverage – something unseen for many “small” companies on US exchanges.

Another panelist was a well-recognized member of Bay Street, Steven Winokur from Canaccord Adams. A few high-level points came out of his talk. He recognized Cleantech to be the best performing sector. There are a number of biotech applications in Cleantech that he mentioned:

  • Agriculture: genetic crop technologies, organic fertilizers, water/waste remediation
  • Nanotechnology for desalinization
  • Biofuels – lignol, syntec biofuel
  • Green Building – a noted possibility

Canaccord Adams puts out a newsletter with quality research reports each month, and they are a highly recommended read by Duncan Stewart, from Deloitte.

Climate is Changing Now, Business Opportunities

The latest report from the Intergovernmental Panel on Climate Change (IPCC) is one of the first to use observations of the Earth’s climate, as opposed to theoretical models to predict what might happen in the future. The data shows that climate change is real and is happening right now.

Source: IPCC. (Click to enlarge)

Take a look at the different key areas being affected here: water, ecosystems, food, coasts and health. There might be some business opportunity in the new wave of cleantech, biotech, or Blue Gold!

Pharma and Biotech Update

Pharma seeking patents on old drugs, and a 40x increase venture capital spent on biofuel-related companies:

An article from CNN talks about big pharmaceuticals looking to acquire new patents on old drugs to fend off generic competition. They are using the creative minds of their in-house, legal teams to try to “work the system” to their advantage… see Big Pharma teaches old drugs new tricks for the full story.

On the biotech side, there was a report today that discussed a 4000% year-over-year increase in the amount of venture capital spent on biofuel companies from 2005 to 2006. The majority of the funds were geared toward genetically engineering enzymes in the production of bioethanol.

Biofuel Investment Jumps 4000%

Dramatic increases in Venture Capital in the area of Biofuels was realized in 2006. I just caught wind of an article from the Associated Press, Biotechnology that highlights one of the largest one-year increases in venture-backed funding I have ever seen.

An interview at Associated Press with Ron Pernick, who co-founded Clean Edge (a company tracking venture capital investment), said that “Venture capital investment in biofuels has increased from less than $1 million in 2004 to $20.5 million in 2005 to $813 million last year [in 2006]. Much of that investment is flowing to biotechnology companies that genetically engineer microbes that produce enzymes needed to break down crops into alcohol.” If we’re cracking out the calculator, that’s about a 4000%, or 40x increase year-over-year! Now, it is extremely helpful to the venture investors, and the companies, that the US Department of Energy (DoE) has awarded $385 million over the last four years (to six companies, albeit) to develop ethanol.

Please see Biofuels Spark Biotech Rally for the full article.

Some other relevant links include: Biotechnology Industry Organization, and US DoE.

Are you investing an a Biofuel company yet? Maybe you should jump on that wagon before it leaves town…

Subprime Melt Down Effects on Biotech

I was going through my email today when I came across some really insightful comments made by Jayson Parker, who is an associate professor of my Biotechnology program. With his expressed consent, please review some key points that highlight the effects of the US “subprime melt down” that is taking place and their relevance to the biotechnology industry.

He explains that there are two basic outcomes:

1. Core inflation is priority. If interest rates go up, it hurts biotech (as it is capital intensive and increases the cost of money for loans).

2. The housing market continues to meltdown in the US. If interest rates go down in response to a recession precipitated by the housing meltdown it will also hurt biotech (money is cheaper, but investors will assign a much higher risk to stocks and the flow of money will decrease).

Recapping some events that have take place so far:

  • The US economy has defied gravity for the past several years given the unexpected strength of consumer spending.
  • Consumer spending has been made possible by unprecedented appreciation in housing values and historically low interest rates – consumers have borrowed against this to maintain their purchases.
  • Unlike previous market bubbles, a substantial portion of consumers have leveraged themselves to be part of this current bubble – the housing market.
  • Some consumers have borrowed heavily enough against the price appreciation of their homes – that a strong market correction could leave them owing more money on their homes (negative equity).
  • In a historically low interest rate environment, some mortgage companies have offered loans to high risk clientale (e.g. NINJA – loans to folks with no income, no job and no assets) assuming far greater risk in their client base than is normally prudent.
    These risky loans have been “securitized” – meaning the debt has been repackaged – and through a series of events I don’t follow – have been included in other investment vehicles that affect more broadly the retail market.
  • The housing market in the US – which has seen more growth than in Canada – is the “canary” of US economic outlook – recent interest rate increases have seen an increase in bankruptacy rates among homeowners who cannot make their monthly payments.

Currently, the US federal reserve is meeting over the next two days to decide on whether interest rates will climb – the expectation is that it will remain status quo. Core measures of inflation (excluding indices of energy), indicate that inflation may be a concern which will eventually demand an interest rate increase. Finally, giving the “recap” above, the Federal reserve will likely will be more focused on the Housing market and in keeping bankruptacies to a miniumum by keeping interest rates as low as possible to avoid a recession. Keep your eyes on the subprime meltdown in the US over the next quarter. If we enter into a recession, there will be harder times for biotech.

Once again, I would like to thank Jayson for his insightful comments!