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.

Cleantech Spending

Amidst a flurry of chatter about cleantech and investment from VCs, there is some interesting results coming from a recent report from Lux Research. As the graph at right shows, there is about a 50/50 split between government and corporate funding of cleantech investment, with only a minor contribution from venture capitalists. At least we are seeing an increasing trend …

Below we see the cleantech investment by segment in total, and from VC funding. In the past three years we can see quite clearly that VCs have been investing in energy and sustainability which matches overall spending patterns.

What will 2007 bring? Leave your opinion …

Water, Water Everywhere, But Where to Invest?

Okay, so chances are that you already know that the global water supply is in jeopardy. You probably also know that global warming is going to impact current water conditions in two ways among many. Glacial water run-off, and land-based aquifers are slowly declining in their supplies and the trend looks like it is going to continue.

The harsh reality is that this is going to happen for at least 15-20 more years, and as a consequence, Blue Gold is going to increase in value. So, how are you going to capitalize on water? Do you know your investment opportunities? Quite Contrarian produced a nice little summary entitled Investing in Water Stock: Options for Profiting from ‘Blue Gold’ that discusses a few ways in which you can position yourself to capitalize on water stocks, utilities or ETFs (exchange traded funds). Get in the know.

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!