Nordion: Glowing, But Not Hot

Nordion (NDN.TO) is Canada’s leading supplier of isotopes for medical use with a solid business focused on the supply of cobalt-60, for sterilisation, and medical isotopes, principally Molybdenum-99. However, its main source of 99Mo supply is a Canadian government research reactor that is likely to close in 2016. Nordion is negotiating with Russia’s Rosatom to secure an alternative 99Mo supply. A deal could catalyse a recovery in the shares, which have been hit by the loss of an arbitration seeking damages from the Canadian government and the suspension of the dividend.

Medical isotopes
9M sales of medical isotopes fell 18% at $64.5m. The core product is molybdenum 99 (99Mo) used to produce Technetium-99m (99mTc, t½ of 6hr), a γ emitter widely used in medical imaging. The current supply source will end in 2016; while the isotope’s short half life (t½) of 66hr means that new supplies are constantly needed. Negotiations are underway with Russia’s Rosatom to secure an alternative source of supply; a deal could catalyse a share price recovery.

Spheres and sterilisation stagnant
Various market factors caused revenue falls for sterilisation (9M sales $63m, -17%) and targeted therapies ($43m, -7%). Sterilisation is conducted with 60Co; (t½=5.27yr) which emits high energy γ rays. Targeted therapies is principally TheraSpheres (9M sales $36m, +15%), glass microbeads containing the strong β emitter Yttrium-90 (90Y, t½=64hr), that are delivered to treat cancer in the liver. They compete with SIRSpheres (Sirtex Medical) and are in three Phase III studies: in combination with, as well as versus sorafenib, in HCC, and one in lever metastases associated with mCRC. These studies should report in 2016-17. 90Y is derived from Strontium-90, derived from uranium fission, but its long t½ of 29 years means it can be stored.

Valuation: New 60Co supply could trigger a recovery
With the dividend suspended and supply uncertainties for one of its largest divisions, the market is unsurprisingly taking a cautious view. Confirmation of a new supply source for 99Mo supply could secure the future of what is otherwise a very solid business. Cash is c $82m, so provides the opportunity for dividends to resume.

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