See This Goop? It Kills Anthrax And the tiny biotech startup that invented it has been thrust into a national crisis that is upending its business.
By Julie Creswell

(FORTUNE Magazine) – Inside the plain little container I'm looking at may just be our best stopgap against bioterror. Dr. James Baker, chief scientist at the Ann Arbor, Mich., biotech firm NanoBio, holds up the bottle and twists off the cap. "A little of this rubbed into the hands can protect postal workers from anthrax," he says, peering at me over his glasses. Oh, sure, I think, that's great--until it starts eating away their skin, right? Before I can ask about side effects, Baker shoves his finger into the bottle, removing it to show the bio killing agent, which, strangely, looks a lot like sunblock. "Plus, it's a great moisturizer," he says, grinning, as he rubs the lotion into his hands.

Germany's Bayer, which manufactures the antibiotic Cipro, isn't the only company swept up in America's grim scramble to fend off germ attacks. The dawn of international bioterrorism is challenging companies like NanoBio too. Like Bayer, this tiny startup is caught in a dilemma it never foresaw: how to meet the public's needs without sacrificing its own financial goals. Two months ago, NanoBio was an obscure seven-person company spawned by the University of Michigan, where Baker is director of the Center for Biologic Nanotechnology. Its research was funded primarily by an $11 million grant from DARPA, the Pentagon's Defense Advanced Research Projects Agency. Its offices were in the basement of a bank in downtown Ann Arbor; its employees sat on 12-year-old used furniture. Though NanoBio's digs were dull, its claim was startling: It had created a nontoxic agent that can destroy most every virus, bacterium, and fungus around, from influenza to E. coli to tough-to-terminate anthrax. (The product can help prevent people from contracting anthrax but can't cure them after they've become infected.) NanoBio's plan was to license its microbe-zapping formulas to drug and consumer goods companies, making money by collecting royalties on its patents within a couple of years.

Then bioterror struck. Today, NanoBio is desperately seeking anonymity. It moved to a bland corporate park where its office has no name on the door. It yanked its street address off its Website, whose hit rate jumped from 350 a month to 1,000 a day. And it is struggling to adapt to a biodefense business model that may put the company's commercial--and financial--aspirations on hold. Among the firm's worries: that close association with anthrax will cause customers to overlook other potential commercial applications for its products, and that investors won't want to back a company whose largest customer is Uncle Sam. "We want to be good citizens and do what we can to help in the crisis," says CEO Ted Annis. "But there is definitely an opportunity cost."

What's in NanoBio's amazing bio fighting agent, anyway? Just soybean oil floating in water with nontoxic detergents. "It can be rubbed on the skin, eaten, or put into liquids like orange juice," claims Annis. "I even put it in my hot tub."

What makes the stuff potent is how it is made. Think about what happens when you shake up salad dressing. Bubbles of oil are dispersed in the vinegar. Those bubbles contain energy that is stored as surface tension; the energy is released when the droplets coalesce again. NanoBio's technology--called an anti-microbial nanoemulsion--forms these bubbles at the supertiny nano level. A nanometer is one-billionth of a meter, or about 100,000 times narrower than a human hair. The nanodroplets, stabilized by the detergents they float in, are small enough to literally bombard the lipids, or fats, found in bacteria and viruses, blowing the bugs up. NanoBio's formula convinces a dormant anthrax spore that surface conditions are ripe for it to germinate into an active anthrax bacterium. As it germinates, the spore forms a lipid layer, which the nanoemulsion promptly assaults. Within a couple of hours, the anthrax is dead.

The day after the Sept. 11 attacks, CEO Annis called together the NanoBio staff. "Nobody mentioned anthrax specifically at the meeting, but we thought it was likely that the terrorists' next punch was already planned and that it would be a bio event," he says. Realizing that the company's initial product-rollout timetable was about to be put into hyperdrive, Annis began gathering the paperwork needed for fast-track EPA and FDA approvals. And he braced for a barrage of interest from reporters, following a local newspaper story on the company; the media soon dubbed NanoBio's decontaminant "the salad-oil cure."

NanoBio's product isn't the only promising anthrax killer. A foam developed by New Mexico's Sandia National Laboratories supposedly neutralizes pathogens and chemicals; it was recently used to decontaminate some NBC offices. In mid-October, Johns Hopkins University tested bio killing products from both companies, but it hasn't yet made its findings public. A DARPA spokesperson says other tests on the NanoBio formula have shown "good initial results."

Now NanoBio hopes to get $5 million in emergency federal funding to hire more people, do more tests, and start contracting out the manufacture of large quantities of the substance. Annis expects a thumbs-up within days. If NanoBio's product wins fast-track regulatory approval, it could be available to the military and the public for use on buildings, and perhaps even on the skin, within six months. The company says it would need another $20 million and 24 months to develop preventive nasal sprays.

All this is a race NanoBio didn't want to compete in. "Our future isn't going to be in government applications. A lot of what we're doing for the government is going to be done at cost," says Baker. "Our future is going to be with all the commercial customers that we can't let drop off while we're dealing with this other stuff."

But in the back of NanoBio's office sit two dozen empty white 55-gallon barrels. A few days before, DARPA had asked Annis and Baker if they could make enough decontaminant to clean several anthrax-tainted offices in the Senate. NanoBio's small lab mixers will have to run day and night to fill the barrels. "This is not the way we want to do this," sighs Annis, shaking his head. "This is all a duct-tape solution."