Nanotech Disappoints in Europe

Faced with struggling startups and a divide between research and innovation, the science of the small has yet to make it big in the EU

by Jennifer L. Schenker

Anxious investors are but one of the problems plaguing nanotechnology, the cutting-edge science of manipulating materials and microscopic devices at the atomic level.

Consider the story of Oxonica, Britain's highest-profile publicly traded nanotech startup. It revealed in late April that one of its key products—a catalyst designed to cut vehicle emissions when combined with high-sulfur diesel fuel—didn't work as expected, leading to the cancellation of a big supply deal with Turkish oil retailer Petrol Ofisi.

Oxonica shares were suspended until June, but when trading began again, the price plunged nearly 75%, wiping out $80.7 million in Oxonica's market capitalization. To save face, the company noted that Petrol Ofisi had agreed to work with it on another project involving low-sulfur diesel. But the damage was done, and Oxonica's share price is still only half what it was in April.

Research Over Real World

In many ways Oxonica is emblematic of Europe's nanotechnology sector: a story of early promise, huge hype, and dashed hopes. The Continent's single market and long history of scientific excellence suggested a natural role in the development and exploitation of nanotechnology, which could revolutionize manufacturing and medicine in coming decades. Experts say the worldwide market for engineered nanotech products could hit $1.5 trillion by 2015.

Yet despite massive injections of government money, analysts say Europe is actually doing a worse job of commercializing nanotech than other regions. According to Tim Harper, a nanotechnology specialist at London consultancy Cientifica, while European firms have emphasized research into materials such as nanotubes and nanopowders, U.S. startups have focused more on real-world applications for the technology.

In layman's terms, that has translated into a handful of U.S. products that frankly seem almost trivial, such as stain-resistant trousers and more durable tennis balls. But the U.S. also is laying the groundwork for success in years to come by wringing out about twice as many nanotech patents as Europe has from roughly similar levels of public research funding, says Spinverse, a Finnish consultancy that advises governments and startups on nanotechnology.

After 10 Years, Some Success

The field has so far proved to be a bit of a disappointment everywhere. As of the end of 2006, governments worldwide had sunk around $24 billion of taxpayer money into nanotech research and development—roughly the same amount, in inflation-adjusted terms, spent by the U.S. on the Apollo space program. Yet eight years into Apollo, the program had already achieved its first manned flight around the moon, surely a more momentous achievement than stain-resistant slacks, quips Cientifica's Harper.

To be sure, Europe has produced some nanotech success stories. Many large companies have been looking at the science for 10 or more years and have well-developed internal programs. German chemical giant BASF (BF), for instance, has developed scratch-proof coatings made with nanoparticles. Bayer (BAY) makes nanotubes and is looking into new applications in areas such as medicines, composite materials, and surfaces. French cosmetics maker L'Oréal is using nanotechnology to make improved sunscreens, hair conditioners, and skin creams.