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13 December, 2006 - 14:46 By Staff Reporter

Owlstone set to fly from troubled US parent’s nest

A young Cambridge nanotech company is preparing to break free from its troubled US parent by launching an IPO in the New Year, Business Weekly can reveal.

Owlstone Nanotech, which is developing tiny, low-cost chemical sensors for a range of applications, is one of a host of ventures and research projects in the Cambridge area to be part-owned, wholly-owned or funded by nanotech commercialisation specialist, Advance Nanotech.

Cambridge University spin-out Owlstone shelved plans for a float earlier this year, but has matured significantly as a company in the ensuing 10 months and is the only venture in Advance Nanotech’s portfolio to be generating significant revenues.

With Advance Nanotech degenerating into a state of disarray over the same period, it is understood that Owlstone is very keen to fly the nest. In Advance’s last reported results, Owlstone was shown to have single-handedly generated all of the company’s recordable revenues of $30,459 (£15,500), with a further backlog of sales totaling $130,980 (£67,000).

And within the last few days, Owlstone has secured a further development contract with a unnamed “leading UK company,” worth $250k (£127k) and evidence of the ongoing traction it is gaining.

This contrasts dramatically with Advance Nanotech’s fortunes. 2006 has seen its shares fall from over $2 (£1.0) to 78c (40p) at the time of going to Press, slump ignominiously from NASDAQ’s main market right down to the decidedly low profile over-the-counter bulletin board and move former CEO, Magnus Gittins aside in favour of Antonio Goncalves, Jr.

With commitments greatly outweighing cash reserves, it is currently engaged in a close to desperate cost-cutting and fund-raising exercise.

As of September 30, Advance Nanotech had $1.3m (£670k) in cash, with balance sheet liabilities of $3.3m (£1.7m) and contractual research obligations of $7m (£3.6m) due in the next 12 months.

Advance Nanotech is unashamedly a technology development company, with a business model based around funding cutting-edge research projects within University labs.

Even a cursory look around the company, however, reveals that it is over-stretching itself, with 23 distinct research projects currently underway.

This includes a £2.5m funding commitment to the University of Cambridge as part of a seven project tie-up, two of which have already been culled.

Advance Nanotech acquired a 60 per cent holding in Owlstone in June 2004, as part of a $2m investment. It now holds 56.1 per cent, with the remaining shares held by founders, Billy Boyle, Andrew Koehl and David Ruiz-Alonso and third party investors.

A recent filing by Advance Nanotech stated: “Management is actively exploring various debt and equity financing transactions. Plans to generate revenue from operations could include co-development and co-funding of our products, licensing our products for upfront and milestone payments, and government grants.

“We have initiated cost reduction programs and will continue to control and reduce expenses until sufficient funding is in place. The company is also evaluating strategic funding initiatives in Europe, the Middle East and Southeast Asia regions.”

Owlstone, Innovation champion in Business Weekly’s annual Awards, opened two new operations in the US in August – a sales office in New Jersey and an R & D base in Cambridge, MA, a ramping up of operations seemingly at odds with a company intent on operating on a budget for any extended period of time.

It is not known which side of the Atlantic Owlstone intends to float, but the creation of two new US bases in addition to its nominal headquarters, may indicate that NASDAQ is the front-runner.

Sources indicate that both Owlstone, which is reliant on Advance for funding, and Advance itself, which could see a considerable rate of return on its original investment, see a near-term IPO as mutually beneficial.

Owlstone’s lead product is the ‘Tourist,’ chemical detection technology that is significantly smaller and less expensive than existing equipment.

In addition to offering its own products, Owlstone plans to partner with OEMs to integrate its technology into a range of commercial applications detecting various chemical agents including contaminants, chemical warfare agents and potentially harmful gases.

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