{"id":3619,"date":"2013-12-17T15:55:14","date_gmt":"2013-12-17T20:55:14","guid":{"rendered":"http:\/\/www.cusjc.ca\/ottawainsight\/?p=3619"},"modified":"2017-11-19T20:25:50","modified_gmt":"2017-11-20T01:25:50","slug":"nordion-revewing-options","status":"publish","type":"post","link":"http:\/\/www.cusjc.ca\/ottawainsight\/?p=3619","title":{"rendered":"Nordion revewing options"},"content":{"rendered":"

Nordion inc. is facing some tough decisions.<\/strong><\/p>\n

Should it put itself up for sale, buy a new business, or remain the same? A strategic review will ultimately determine Nordion\u2019s fate.<\/p>\n

The decision comes at a difficult time for the nuclear medicine industry in which Nordion is a major player. It faces challenges ranging from an aging vital reactor that produces its isotopes to a maturing industrial sterilization market.<\/p>\n

At the beginning of this year, company officials announced a \u201creview of strategic alternatives.\u201d To help with that, Nordion hired Jefferies & Co., a global investment banking firm. Nordion officials are currently in a quiet period with the release of its most recent financial results pending and would not comment for this story.<\/p>\n

Nordion, an Ottawa-based health science company that provides products for the prevention and treatment of diseases, has two main businesses: sterilizing products with radiation, and producing isotopes used in medical imaging to treat cancer.<\/p>\n

Isotope suppliers<\/strong><\/p>\n

\u201cThere is a very serious issue around sustainable suppliers,\u201d said Lennox Gibbs, an analyst at TD Newcrest in Toronto. \u201cIts medical isotope business could be as much as 35 per cent of their profitability. So, it is very difficult to see how they are going to sustain their revenues.\u201d<\/p>\n

Nordion depends on raw materials refined at Atomic Energy of Canada\u2019s facilities at Chalk River, Ont., for its medical isotopes. That aging reactor has been in use since 1957 and is one of the only reactors that can produce the amount of material Nordion needs. The reactor\u2019s looming 2016 shutdown casts doubt on the company\u2019s future medical isotope supply.<\/p>\n

That is a looming financial problem for the company. In 2012, Nordion\u2019s reactor isotopes revenue totalled US $77.4 million, a decrease of US $7.7 million from 2011 due to the low volume and price of molybdenum-99. The company took another hit in 2012, when Nordion was denied compensation for AECL\u2019s decision to cancel the MAPLE reactor project.<\/p>\n

In 2008, AECL announced its decision to cancel the reactor project that would replace the NRU reactor and provide Nordion with a 40-year supply of medical isotopes. This summer, Nordion announced the settlement of its long standing legal battle with AECL. Nordion dropped its US $244 million claims and settled for US $15 million in cash from AECL.<\/p>\n

Partly due to the legal battle, Nordion has suspended the payment of its quarterly dividend since 2012.<\/p>\n

The unstable future of its medical isotope business helped push Nordion to review its options. With the uncertainly attached to that market, Gibbs does not believe there are many able or willing to make an offer to Nordion.<\/p>\n

A deal with Russians<\/strong><\/p>\n

Meanwhile Nordion is trying to obtain a Russian supplier deal.<\/p>\n

\u201cThere is a risk that if acquirers do not surface at some point, the market will cease and then the whole acquirer speculation looses credibility,\u201d said Gibbs.<\/p>\n

The company\u2019s shares have continued to climb this year and currently sit at around $8.70, a steep increase from about $6 in early January. The price rise followed the AECL settlement, and the launch of Nordion\u2019s strategic review.<\/p>\n

Although the idea of an acquisition or sale has pushed up the shares positively, Gibbs said, that will not last long.<\/p>\n

\u201cIf nothing else starts to get sold or happens, then that idea starts to get old and tired,\u201d said Gibbs. \u201cIf people stop believing that the remaining businesses are going to get sold, then the stock will drift down because the hope that it will be taken out is sustaining the stock.\u201d<\/p>\n

Divisions for sale<\/strong><\/p>\n

In mid July, Nordion sold its third business, TheraSphere, a division focused on the treatment of liver cancer. for US$182 million to BTG Plc.\u00a0 The deal helped boost quarterly profits for Nordion and gave it the capital to purchase a new enterprise. Gibb said it was a step in the right direction but its other businesses will be harder to sell.<\/p>\n

Analyst, Alan Ridgeway of Paradigm Capital Inc. agrees the sale was smart because it helped move the company away from risk.<\/p>\n

“It’s an area where there was questions whether Nordion had the expertise to develop that product for that market,\u201d said Ridgeway. \u201cTo sell it for cash today takes all of that risk off the table.”<\/p>\n

In 2013, Nordion\u2019s third quarter generated US $71.7 million in revenue, a seven per cent increase from its third quarter in 2012. The sale of TheraSphere spiked Nordion\u2019s net income to US $180.4 million in the 2013 third quarter, a sharp increase of US $168.1 million from the same quarter last year.<\/p>\n

Investor caution<\/strong><\/p>\n

Although the company is attempting to reduce its other risks, Gibbs said investors should be skeptical. \u201cI would not recommend investing in Nordion,\u201d he said due to Nordion\u2019s unstable markets.<\/p>\n

The company\u2019s sterilization business also faces challenges and has grown very little ion recent years. However, Ridgeway said it is remains a profitable business.<\/p>\n

In 2012, Nordion maintained a global leadership position in the gamma sterilization market.<\/p>\n

With the looming uncertainty around the future of its medical isotope business, Nordion\u2019s best move may be to focus on its other business.<\/p>\n

“I believe that the company should look to reinstate its dividend and become a long term cash distributor off of the sterilization business because that is really a nice cash flowing business,” said Ridgeway.<\/p>\n","protected":false},"excerpt":{"rendered":"

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