Listen Up: Devising Commercialization Strategies for Next-generation Material PlatformsRoss Kozarsky

Senior Analyst

Lux Executive Summit Asia

October 21, 2015

Agenda

Commercializing multifunctional materials: How did we do?

Strategies for success in next generation material platforms

Will you listen this time?

2

Agenda

Commercializing multifunctional materials: How did we do?

Strategies for success in next generation material platforms

Will you listen this time?

3

Previous generations of materials primarily served a single function

0

1

2

3

Steel Aluminum Carbon fiber

Specific strength

(GPa/g/mL)

Protective/aesthetic coatings

Today’s advanced materials are expected to be multifunctional

5

Structural 3D printed components with embedded sensors measure strain, force, pressure, or temperature within plastic parts

Functional coatings offer value-added functionalities like hydrophobicity and anti-microbial beyond protection

Promise (and hype) of multifunctional materials epitomized by “wunderkind” carbon nanomaterials

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Carbon nanotubes (CNTs) Graphene

MWNTs developmental past offers case study in challenges of advanced material commercialization

Rocky history of MWNTs shows that a research and patent boom along with impressive technical performance is far from guarantee of commercial success

Too many players simultaneously scaled manufacturing to meet uncertain demand, resulting in a dramatic oversupply

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0

500

1000

1500

2000

2500

3000

3500

2010 2011 2012 2013 2014 2015 2016 2017

Forecast demand (tons)

Other

Li-ion battery electrodes

Conductive polymer composites

Structural polymer composites

Production capacity

Did graphene developers learn from the MWNT lesson?

Lux has long encouraged participants in the graphene space to view their MWNT predecessors as a lesson to be mindful of – a case study with trials and tribulations on display to be learned from rather than repeated

See our 2012 report “Is Graphene the Next Silicon...Or Just the Next Carbon Nanotube?”

Total graphene market will reach $349 million in 2025

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GNP demand has yet to exceed 15% of the current supply

This metric does not even include significant capacity expansions still in progress

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0

100

200

300

400

500

600

700

Americas Asia EMEA

GNP capacity (tons/yr)

2012 capacity 2015 capacity

Most GNP developers are long shots with unproven technical value and business execution

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Lack of concrete performance metrics demonstrating true value proposition in most segments

Overall, valuable lessons have been ignored and GNP developers are paying the price (see our 2015 report “Case Closed: Graphene is the Next Carbon Nanotube”)

While it’s too late to save graphene, let’s turn our attention to the next wave of materials innovation:

Smart materials change their properties in response to environmental stimuli and provide dynamic rather than static functionality

Metamaterials derive unusual mechanical, electromagnetic, or acoustic properties from a carefully controlled microstructure or nanostructure

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We need to do a better job of learning from the past to

accelerate successful commercialization of next

generation advanced materials

Agenda

Commercializing multifunctional materials: How did we do?

Strategies for success in next generation material platforms

Will you listen this time?

12

Platform technology materials push model has pitfalls

Part of the allure of platform technologies is the myriad potential applications, but our data shows the challenges associated with such a materials-push model

But relying solely on a market pull model also isn’t the answer, as avoiding technology push altogether would miss out on really big opportunities

With advances in materials becoming more functional and smart, the number of potential applications will only get bigger

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$0

$50,000

$100,000

$150,000

1 2 3 4 5 6+Target applications

Revenue/employee

00.10.20.30.40.5

1 2 3 4 5 6+Target applications

Profitability

*Data collected from Lux Research Member Site Advanced Materials 2015 Company profiles (n = 80)

Agenda

Commercializing multifunctional materials: How did we do?

Strategies for success in next generation material platforms1) Partnership vs. application focus

Will you listen this time?

14

Top emerging developers consistently stand out on strength of partnerships – graphene

15

CG2 NanoCoatings

Diamon-Fusion International

GXC Coatings

HeiQ MaterialsHZO

ISurTec

Nanogate Technologies

Nanovere

NBD Nano

NeverWet

P2i

Picodeon

SurfactistripleO

Aculon

Applied Thin Films

C-Voltaics

Clearbridge Technologies

Enki TechnologyLin Group

Lotus Leaf Coatings

NEI Corporation

Nanokote

Nelum SciencesNanopool

1

3

5

1 3 5

Tech

nica

l Va

lue

Business Execution

5.0

4.0 - 4.9

3.0 - 3.9

2.0 - 2.9

1.0 - 1.9

Strong Caution

Caution

Wait and See

Positive

Strong Positive

Lux TakeMaturity

Dominant

Undistinguished

Top emerging developers consistently stand out on strength of partnerships – hydrophobic coatings

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Top emerging developers consistently stand out on strength of partnerships – advanced ceramics

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Nuenz

Free Form Fibers

Diamorph

Ceralink

ANF Technology

HydroAlumina

Starfire Systems

Xi'an Golden Mountain Ceramic Composites

CovaronAdvanced Ceramic

Fibers

Matech

Kion Defense Technologies

Lancer LP

Carbon Composites

1

3

5

1 3 5

Tech

nica

l Val

ue

Business Execution

High-potential

Long-shot

Dominant

Undistinguished

5.0

4.0 - 4.9

3.0 - 3.9

2.0 - 2.9

1.0 - 1.9

Strong Caution

Caution

Wait and See

Positive

Strong Positive

Lux TakeMaturity

LiquiGlide edges SLIPs in liquid-infused coatings due to stronger application focus

These technologies utilize a porous or textured surface to store liquid – trapped liquid layer creates a low-friction surface that causes other liquids to flow off

LiquiGlide has established downstream partnerships with packaging companies Elmers and Orkla, while SLIPS has formed an upstream partnership with BASF but is unproven in applications

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38%

24%

38%

Total patent applications: 21Three granted

Processes Surfaces Applications

32%

48%

20%

Total patent applications: 25None granted

Processes Surfaces Applications

Lux Take:Positive

Lux Take:Wait and see

Strategic playbook

1) Partnership focus > application focus

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Agenda

Commercializing multifunctional materials: How did we do?

Strategies for success in next generation material platforms1) Partnership vs. application focus

2) Product push vs. material push

Will you listen this time?

20

Graphene film developers aim to spur revenue growth by pivoting from TCFs to sensor products

Most hype and attention on graphene application development initially focused on TCF segments like displays and touchscreens

Commercialization progress has been slow due to high cost and deposition area limitation challenges

Pivot among leading developers to sensors should reduce product integration complexities and increase revenue potential over pure play materials business model

Graphene Frontiers and Bluestone Global Tech developing FETs for sensor applications

Graphenea working on sensor applications with Nokia and Infineon

Graphene FrontiersGraphene films for sensor applications

Technology and differentiators: Using chemical vapor deposition (CVD) process to grow graphene films at atmospheric pressure

Can fabricate 4,000 field-effect transistors (FETs) with 10 µm channel width on a six-inch wafer; intends to increase FET density moving forward

Strategy and markets:Working on functionalizing both graphene surface and FET channels for biosensor and chemical sensor applicationsMajor strategy shift over past year from graphene film material sales to sensor application development

Lux take:Lab-scale production costs one of the lowest among graphene film developers; value proposition of sensor application remains unclearDecision to position itself as a sensor developer increases revenue and margin potential over pure-play materials business model, though technical and medical industry challenges will mean commercial revenues are far off

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Summary information

Founded in 2010

Location Philadelphia, PA

Employees 5

Key partners and backers

None on the record

Lux Take:Wait and See

Key metrics

Capacity 70-120 m2/yr

Cost$30,000-$50,000/m2

Mechanical metamaterial start-ups position themselves as solution providers

Rather than relying on (and pushing) the hype of metamaterials as a material class, these start-ups have achieved initial commercialization successes by developing products that provide solutions

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Lux Take:Positive

Employees Revenue

7 $1.4M

High-friction adhesives Antimicrobial patterned films Patterned surfaces for friction reduction

Lux Take:Wait and See

Employees Revenue

10 $2MLux Take:Positive

Employees Revenue

6 $2.5M

Strategic playbook

1) Partnership focus > application focus

2) Product push > material push

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Agenda

Commercializing multifunctional materials: How did we do?

Strategies for success in next generation material platforms1) Partnership vs. application focus

2) Product push vs. material push

3) Open innovation model

Will you listen this time?

25

Today’s leading 3D printer companies seek to monopolize materials

Printer/cartridge business model hinders 3D printable materials development and slows growth of the entire space

0

200

400

Printers Services and materials

Sales(US$

millions)

3D Systems EOS Stratasys

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3D Systems stock price Stratasys stock price

…and are struggling

Developed electron beam melting, a 3D printing process which builds up metal parts layer by layer by selectively melting a powder using an electron beam

Open materials model facilitates adoption in production applications

Business model has helped accelerate Arcam’s traction in production applications in medical and aerospace

Employees Revenue (2014)

228 $41.3M

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ArcamElectron beam melting 3D printers

Autodesk playing the long game with its open innovation approach to 3D printing

Autodesk’s “Spark” initiative – a 3D printing collaboration with partners such as Matterfab, Voxel8, Local Motors, and HP – has the goal of improving 3D printers, materials, and services

Autodesk has supplied the program with a $100M investment fund

Invested $10M in start-up Carbon 3D

In April 2015 Autodesk, which develops the “Ember” desktop 3D printer, released the formula to its photopolymer resin

In return for this small investment of materials IP, Autodesk stands to reap significant dividends since accelerating adoption of 3D printers will increase the use of design software, Autodesk’s core offering

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Strategic playbook

1) Partnership focus > application focus

2) Product push > material push

3) Open innovation model enables focus on core expertise and maximizes long-term revenue potential

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Agenda

Commercializing multifunctional materials: How did we do?

Strategies for success in next generation material platforms

Will you listen this time?

30

BMS (now Covestro) is a leading material company and previously one of the most reputable sources for MWNTs

However, MWNT market oversupply made large sources of demand hard to find

BMS was forced to focus on “long-shot” projects like building the first solar-powered aircraft to circumnavigate the globe

Prospects and timing for profitability of MWNT unit long unclear…Bayer shut down its CNT activities in May 2013

“…the potential areas of application that once seemed promising from a technical standpoint are currently either very fragmented or have few overlaps with the company's core products and their application spectrum.” (BMS CEO)

Don't listen at your own peril...you could be the next Bayer MaterialScience in MWNTs

But if you learn to successfully apply these strategies, significant

new materials revenue streams could be opened

3D printing can reinvigorate “old” materials by enabling new material combinations and structures

Conventional photopolymers artificial bone

Porous metals

Functionally graded materials

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Combining metamaterials with advanced traditional material solutions will enable truly novel products

Metamaterials see limited adoption

Medium-term penetration of cheaper metamaterials

Metamaterials compete with existing material solutions as prices fall

Metamaterials supplement traditional material solutions and enable truly novel products

Price/Value

Performance

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Dynamic functionality can enable a single material to replace a multimaterial part or system of parts

Smart material class Stimulus Response

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Conclusions

Multifunctional materials have great promise, but technology commercialization pitfalls have been prevalent

Next wave of materials advances in smart materials and metamaterials will further raise the level of innovation potential, but also intensify the challenges in bringing such materials to market

Strategies for success in next generation material platforms1) Partnership focus > application focus

2) Product push > material push

3) Open innovation model

The choice is yours…I hope you’ll listen this time!

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Lux Research Asia-Pacific PTE, LTD · www.luxresearchinc.com 75 Tanjong Pagar Road, #03-01 Singapore 088496 +65-6592-6978Kanda Park Plaza, 5th Floor · 2-2-2 Kaji-chou · Chiyoda-Ku, Tokyo 101-0044, Japan +81-3-4520-5490

Thank you

Ross KozarskySenior Analystross.kozarsky@luxresearchinc.com+1 857 284 5687