Business Weekly - Cambridge, UK

Owlstone Nanotech, the Cambridge University spin-out that has developed tiny low-cost nanotechnology-based sensors capable of detecting the faintest of traces of chemicals in the atmosphere, is undertaking its biggest funding round to date as it prepares to launch its first stand-alone product, Lonestar.

Owlstone is targeting a round of $8.5 million (£4.22m), which Owlstone's majority shareholder, Advance Nanaotech, says would be used for working capital and general corporate purposes, including further development of Owlstone's chemical detection products.

This largely refers to Lonestar, which will be launched at the International Society for Ion Mobility Spectrometry (ISIMS) Conference in Finland at the end of next week.

Orders for Toursit have consistently flooded in since it launched in 2006, including a recent repeat order totalling $266,000 (£130k) from a leading UK-based defence contractor. The company now plans to build on these initial partnerships to secure contracts with the fully developed Lonestar solution.

"This is our first scaleable product offering, the first stand alone instrument," added Owlstone co-founder and company president, Billy Boyle. "We will be talking to existing clients about whether they want to take Lonestar and sales should follow pretty soon after that."

As well as the marketing effort needed for its commercialisation, Owlstone is in discussions with manufacturers about the potential need to scale up operations, though as Boyle points out, this depends on the Lonestar order book.

 Lonestar is the nextgeneration chemical detection system from Owlstone and its second product line following on from its test evaluation platform, Owlstone Tourist™. It is also of significant importance to both Owlstone and Advance's future.

 Advance has undertaken a number of restructuring projects recently and is on verge of dropping out of the Centre for Advanced Photonics and Electronics initiative at the University of Cambridge. Owlstone is currently Advance's only source of income.

The Lonestar chemical detection system is based on the Field Asymmetric Ion Mobility Spectrometer (FAIMS) technology and builds on Tourist to provide a sensor with greatly improved sampling and electronics to provide superior detection capability.

It is configured to operate in ambient, or 'open air' environments and is designed to meet a broad range of customer applications in the multi-billion dollar homeland defence and industrial process control markets and is capable of detecting airborne gases down to levels of a few parts per billion.

 Lonestar will target the Homeland Security market, one identified by Owlstone's majority stakeholder, Advance Nanotech, as in need of an "urgent operational requirement for a miniaturised, low power, low false positive chemical and explosive detector to be used by military personnel and first responders to detect chemical agents and toxic chemicals."

 Tony Goncalves, CEO of Advance, said: "Based on the strong, positive response to the Tourist system since its debut in August 2006, we expect Lonestar will rapidly have a major impact on the industrial and homeland security markets.

 "The Tourist introduced our innovative proprietary technology to the market; Lonestar takes that technology to a significantly higher level of performance and marketability."

The fundraising is a selfdirected private placement of up to 8,500,000 shares at an offering price of $1.00 per share, which is scheduled to end on September 28, 2007.

Somewhat of a serial fundraiser, Owlstone already closed four rounds of financing during 2006 with a purchase price of $2.50 a share, worth a total of $1.93m, including one in September worth $1.25m in which Advance invested $380,200.

During the three months ended March 31, Owlstone closed a further five rounds in which Advance did not participate, again at $2.50 a share and raising $662,500.

Advance has the right to participate fully in the latest share offering. If it doesn't participate and Owlstone raises the maximum under the total share offering, Advance's current stake of 63.27 per cent ownership would be approximately 37.1 per cent on a fully diluted basis.