Lumera Annual Stockholders Meeting 6/2/05
CAVEAT
I am an amateur investor and a human. Mistakes could happen. When in doubt check with someone who actually knows what they're talking about.
INTRODUCTION
Well, this was the first time I've been to a company's first annual stockholders meeting. Maybe someday they'll get to the thousand seat rooms and such but for today it was 50 seats and not all of them were full. Most of the people were employees or managers. There are only 38 or 40 (about 12 of whom are PhDs) employees so it's only just begun. By the way, the place was so upscale that their restaurant isn't used to seeing people pay with cash. I think the change for my bill came from someone's piggy bank. The room had three demos in back: bioarrays, electro-optical modulators, and smart antennas. An interesting aspect of nanotech is that the displays are much larger than the objects they talk about.
FORMAL MEETING
Tom Mino, (CEO and Pres.) ran the show. As with every other company I attend, everything passed. That took 10 minutes.
BUSINESS PRESENTATION
The CEO gave a very relaxed, comfortable and clear presentation of the company's philosophy, products and business plan. He was even good enough to point out that the meeting was directed towards educating existing and potential shareholders. That was a nice touch and one that I realized was missing from other meetings.
Basically the company is making smart plastics and is in Bothell because it is close to the University of Washington. The details come into how to make the smart plastics. Varying the conditions makes a big difference in electrical, chemical, optical and mechanical characteristics of the material. While it might seem that bioarrays, eletro-optical modulators and smart antennas are very broad and unrelated products, they all go back to the same basic platform. They've focused on those 3 (out of a potential 8) because they are all in billion dollar markets with near-term timelines.
BIOSCIENCE
Within bioscience there are three possible avenues: genomics, proteomics, and diagnostics. I didn't take notes fast enough to capture all of the details, but what it comes down to is simple. They can manufacture chips based with Lumera's materials using conventional manufacturing techniques. The chips contain reservoirs that hold or represent specific proteins or other chemicals. A lab can then wash a drug or other chemical across the slide. Some of the dots might react. Some might not. The chip is then read by a machine, optically I think. One example is that a chip could represent proteins from various organs. As a drug washed across the chip, a researcher might want to see that it reacted with the organ they were interested in and not with the others.
So if it was supposed to work on something in the lungs, it would be best if it didn't work on the liver too. That could give them an idea of whether there'd be side effects. Current systems can handle 1 to 4 tests at a time. Lumera's system can test 750 to 10,000 tests at a time. (my note - that sounds big and I'd like to hear an independent researcher weigh in on this. Is this the limiting factor in research or is this merely a very impressive convenience?) Two of the employees are on-site at the Institute for Systems Biology where the product is being tested.
ELECTRO-OPTICAL
This is based on a nano-switch which is a one nanometer chromophore molecule. Wrap the right environment and wires around it and light can come in one end, get modulated by an electrical (RF?) signal and out the other end comes basically ones and zeroes of light. This is handy and necessary for things like fiber optic telecom cables and data transfer within a computer.
The current standard for a switch is about 2.5Ghz. I think he said that an interested tech company demonstrated Lumera's product at over 200 Ghz. Lumera is also working on going up to the next step 1000 Ghz , otherwise known as 1 TeraHz (Thz). Evidently it operates on one-fifth the power of typical systems, but I don't know if that is at the same switching speed or in combination with a speed advantage.
The other application is within a computer. Current technology is based on chips talking to chips electronically. Above about 4.2 Ghz so much heat is generated that the electronics fry themselves. Lumera's technology basically removes that limit. Samples have been sent out, well received and they've exceeded Lumera's tested results.
There is work to do. The switch must be packaged in an oxygen-free environment, but they've already reduced the package size and are working on finding materials that eliminate the need for packaging. Current designs have 60% of the cost wrapped up in the packaging.
NEXT-GEN ANTENNA
Here's a device where the initial look at the market showed that there were lots of existing solutions that were effective and cheap. Rather than tackle that market, Lumera is focusing on the high profit margin custom design market where antennas are designed for specific frequencies. The benefit of Lumera's phased array approach is that the antennas can be steered electronically and with Lumera's materials technology the device provides much better coverage. There are fewer holes in the signal and stuff like that.
PRODUCT PIPELINE
This is an important part of the presentation but it was graphical. I know it was in the annual report. Maybe it is out on their web site as well. One item I can recall is that the pipeline is stuffed with products getting closer to production. There was nothing marked as "Basic Research", or whatever it called the very earliest pre-pre-prototype work. I'd like to see them do more of that, but am glad they are focusing on generating cash first.
MANUFACTURING
It was very refreshing to see a presentation on the assembly line end of things. So many companies are proud of their lab benches but never look up to recognize that you also have to be able to produce large quantities of your product if you are going to be successful. While many researchers are looking at this technology, it sounds like most of the them are happy to eventually make a fraction of a gram and get to play with it. Lumera's facility can make things in milligram up to kilogram batches within 24 hours (35 times faster than anyone else). He talked about providing an interested party with 500 grams basically within a day or two. They won't do everything in house though. They will outsource lots of the stuff, which is feasible because they are using existing semiconductor processes.
FINANCING
They have enough cash to execute their current business plan. I don't know if that means minimal financing events, enough for survival, or enough for profitability.
QUESTIONS & ANSWERS - paraphrased because I am lazy
> As of the end of the most recent quarter they have $27 million in cash and a burn rate of about $2.5 million per (month?, quarter?)
> They will not provide revenue guidance. They are going to meet three analyst firms in New York. Maybe they will make some numbers.
SUMMARY & MY CONCLUSION
The meeting took about an hour. The presentations were well done, but the demos could've used more layman's English. Luckily the Phds were there to help.
The Upside - As startups go, they are ahead of the curve if they truly are farther from the work bench and closer to the production line. If that is so, then the company is attractive. Lumera has only been in existence for about 4 years. To already be hitting the market is a quick spinup.
The Downside - Much of the potential good news is hard to evaluate. There are very few specifics in terms of partners, agreements, backlogs, and such. Non-disclosure agreements and competitors can explain a lot of that, but Lumera also has to deal with the heritage of Microvision, its parent company, which has had a compelling story for years but doesn't have compelling revenues to back it up. I know I wasn't the only investor sitting there that was willing to discuss the similarities.
The Squishy Side - I think they are legit. Their markets are driven by technical criteria evaluated by technical people and Lumera's products have significant technical advantages. They aren't dealing with consumer electronics or having to worry whether the packaging looks inviting. These things will live in clinical laboratories, on poles and inside electronics. Lumera might have an easier time selling their products. If they do, then revenues could show up in 2006 and I am willing to take that chance. But I probably won't buy more until I see more definitive news. And I am definitely staying tuned to what they do.
DISCLAIMER
LTBH by habit, but in this case it only means I've held the shares since a little while after the IPO. |
