Altair Nanotechnologies, Inc.: Charging toward a future of small particles
Nanotechnology is still a business of the future. Although great strides have been made in creating the technology of the ultra small, very few commercial products have yet made any money for their developers. Altair Nanotechnologies, Inc. (Nasdaq: ALTI) is a case in point. The Reno, Nev.-based company has so far delivered just 61 products — lithium ion batteries for electric cars — and those cars have yet to hit the market.
But the company has several development contracts and joint ventures with big corporations in the works, including paint maker Sherwin-Williams Company (NYSE: SHW) and drug makers Eli Lilly & Co. (NYSE: LLY) and Spectrum Pharmaceuticals, Inc. (Nasdaq: SPPI). If those ventures play out successfully, its tiny particles could prove to have a very big future.
Altair was founded in 1973 under the name Diversified Mines Limited, acquiring and exploring mineral properties. For three decades it was a lackluster business. So in late 2003 it restructured with an eye on the future of Nanoparticles. CTO Bruce Sabacky, who has been with Altair since 1999, the year the company went public, began developing products based on nanomaterials.
In 2004 the company brought in a new CEO, Alan Gotcher, from Avery Dennison Corporation (NYSE: AVY), where he had led the development and commercialization of the “Duracell On-Cell” tester for the popular batteries. He has been moving the company’s new technology into commercial products.
From a peak of nearly $8 per share in 2000, the stock dropped to penny stock territory by mid-2003. It has steadily recovered since then, closing at $4.43 on Monday, with a market cap of $312 million, and is now flirting with the low end of analysts' targets. Three brokers polled by Thomson/First Call have price targets ranging from $5 to $6. Its 52-week high is $5.45, reached in October, and the low was $2.48, reached in January.
In early November, it reported a quarterly loss of $6.1 million ($0.09 a share), up from a $4.1 million loss a year ago, on revenues of $3.4 million, up from $750,000 a year ago. Analysts had expected revenues of only $2.7 million, and a loss of $0.08. The stock dropped from $5.45 to about $4 on the news, but has been rising again since mid-November.
The product furthest along is lithium ion batteries with electrodes made from lithium titanate oxide (nLTO) nanoparticles rather than graphite. Standard lithium ion batteries are known to occasionally explode and burn up cell phones and laptop computers. Altair's batteries can operate at a temperature of 100 degrees Celsius higher than standard batteries, can recharge in as little as 10 minutes rather than two to six hours, and have a battery life of 15 to 27 years.
Altair’s batteries are targeted not at laptops, but at electric vehicles — and big ones at that. Its first contract is with Phoenix Motorcars, in which Altair has a 16% ownership stake. Phoenix is creating all-electric sport utility trucks for Pacific Gas & Electric (PG&E) and other California municipalities. Altair has so far delivered 14 of its $75,000 battery packs to Phoenix, but Phoenix plans to produce 500 vehicles in 2008 and 6,000 in 2009.
Altair is also developing battery packs for Alcoa AFL Automotive’s medium-duty hybrid trucks and has a joint development agreement with ISE Corp., which makes electric and hybrid drive systems for heavy-duty vehicles such as garbage trucks and buses. It also recently signed deals with the U.S. Navy and The AES Corporation (NYSE: AES) to deliver huge one-megawatt batteries for power stations.
Brion Tanous at Merriman Curhan Ford & Co. recently downgraded the stock to “neutral” from “buy” because of delays at Phoenix, which he estimates may be able to produce just 325 vehicles next year. But, he adds, “Altair’s technology is extremely promising, and they’ve done a good job of diversifying into other products,” such as the power plant batteries.
ThinkEquities analyst Michael Lew believes that relationships with companies like Toyota Motor Corporation (NYSE: TM) or Honda Motor Co., Ltd. (NYSE: HMC) are not out of the question, and believes Altair could get $36 million in revenues from Phoenix next year. “From an investment perspective, the upside is that over the next 12 months we’ll see a lot of products get commercialized. The catalysts are all lined up for 2008 and 2009.” His price target is $6, based on a 10 times multiple of 2008 revenues and a sum-of-the-parts analysis that values the company at $6.18 per share.
One of those catalysts is nano-sized titanium dioxide particles for use as pigment in paints. The particles have a coating strength 2½ times stronger than traditional TiO2 particles. It has a joint venture with Sherwin Williams, called Alsher Titania, to use the pigment technology for not only paints, but water treatment, air-pollution control and corrosion protection.
Altair has also created nano-sized metal oxide particles, called TiNano Spheres, for pharmaceuticals. Hard-to-dissolve drugs can be placed in the spheres or deposited on the surface, where they can be released gradually when ingested. It is working with Spectrum Pharmaceuticals to develop RenaZorb, a treatment for kidney disease in humans, and with Eli Lilly & Co.’s (NYSE: LLY) Elanco Animal Health Division to develop Renalan, to treat kidney disease in cats and dogs.
These products may take years to develop. For that reason, Lew expects the company to report a loss of $15 million on revenues of $19 million in 2007, and a $5.9 million loss on $40.4 million revenues in 2008. That makes ALTI a stock for investors willing to be on the future of nanotechnology. It's a matter of getting those other corporate relationships to pay off, and Altair may be able to make that future finally arrive.
