New Regulations To Phase Out HEU Radioisotopes May Phase In Money For Investors

Includes: ADMD, MDT, NDZ
by: The Swiss Trader

There have been growing concerns and issues as of late surrounding the manufacturing and supplying of radioisotopes for medical procedures. Though absolutely critical to the field of healthcare and diagnostic medicine, the fact is that production of isotopes is waning and supply shortages remain, with aging nuclear reactors throughout the world on their last leg, soon unable to continue operations. The other big dilemma has been utilizing isotopes derived from bomb-grade or highly enriched uranium [HEU] materials, a looming and ominous notion due to the plausible adaptation of such materials into weapons of mass destruction.

With the prospect on the horizon of not being able to meet the country's diagnostic medical needs and simultaneously balancing this fact with keeping our country safe from terrorist threat, the White House has taken steps to ensure a reliable and safe supply of medical radioisotopes in the future. The government's objectives include limiting or eliminating the importing/exporting of any HEU materials, as well as rewarding healthcare providers for using non-HEU isotopes, though some healthcare officials are debating that the increased cost to do so is not worth it.

Furthermore, as what can be seen as the first major victory in the regulatory overhaul, Congress officially passed a bill that would affirm a safe and reliable domestic supply of radioisotopes: The American Medical Isotope Production Act (S.99). The bill was signed into law on January 2, 2013.

The bill will establish a technology-neutral program to support the production of Mo-99 for medical uses in the United States by non-federal entities. It also calls for the United States to phase out the export of highly enriched uranium for the production of medical isotopes over a period of seven years.

As an investor, one can capitalize on this shift and new direction in regards to the production and use of isotopes. Worldwide there are 30 million procedures a year using radioisotopes (mostly technetium-99m or Tc-99m, a derivative of molybdenum-99 or Mo-99), in over 10,000 hospitals. It is easy to see the potential money to be gained with an investment in the field, especially since competition in producing these valuable isotopes is decreasing due to depleted and aged facilities (as stated earlier). Additionally, these numbers are expected to grow at 10% annually. Over 90% of the medical diagnostic procedures use Tc-99m.

There are relatively few, viable reactors at this time, with most still producing HEU materials-contrary to the outline of the new S.99 bill. The United States imports 90% of its isotopes with only 10% created domestically, in spite of the great importance they serve. A great deal of the world's Mo-99 supply comes from only a few aging reactors around the world, including: The Osiris reactor in Saclay, France; Canada's NRU reactor at Chalk River (supplied via Nordion); South Africa's NECSA (South African Nuclear Energy Corp.) Safari-1; Australia's OPAL reactor; and the Dimitrovgrad reactor in Russia.

However, there is an emerging company that just might be the key in this whole dilemma-one that is based in the United States. This is a company that is jumping on the chance to supply the country with safe and reliable Mo-99 (in order to create Tc-99m), and right from the country's backyard in the Pacific Northwest.

Conveniently located in Kennewick, WA is nano-cap company Advanced Medical Isotope Corp. (ADMD.OB), which may benefit tremendously from the new government regulations. With a modest market cap of about $10.6 million at the time of writing this, the company is preparing to blaze a trail in production and distribution of isotope of all kinds. The company is also an innovator of other medical isotope technologies.

The company's CEO, Robert E. Schenter, stated in an article that,

the supply of Mo-99 and other radioisotopes has been unreliable at best [in the United States].

Mr. Schenter proceeds to state the company's solution:

…We hope to commercialize a proprietary compact Mo-99 production method that involves a meter-long contraption containing heavy water (deuterium oxide) and uranium. Shooting a beam of high-energy electrons at the container produces photons that rip apart deuterium, releasing neutrons that cause uranium to fission, producing substantial quantities of Mo-99.

The firm recently signed a licensing agreement with the impressive Battelle, to produce the highly innovative weapon against cancer known as "radiogel". The exclusive agreement includes 8 patents for the treatment. Radiogel is an injectable, targeted radiation treatment against cancerous tumors. It works by injecting a patient with the liquid-which contains another radioisotope, yttrium-90 (Y-90)-and the liquid warms with the body temperature to attain a gel-like state. The Y-90 microspheres contained within the gel are kept in place, blasting the cancer cells with high-energy beta particles. This minimizes damage to surrounding healthy tissues while targeting cancer cells. The treatment cleverly delivers high-dose radiation to tumors that cannot be surgically removed. Additionally, it is intended to treat radiation-resistant solid cancers, including brain, liver, kidney, and pancreas.

Advanced Medical Isotope estimates that potential sales for radiogel could be in the range of $5 to $15 million a year; and estimated future sales could potentially be $75 to $100 million or more.

The stock is currently in a slump, nearer its 52-week low, and currently at about $0.13. A nano-cap company with no earnings is always a bit risky, though the rewards can be huge. This company is worthy of consideration as it's business model is diverse. Such is the nature of high reward and high risk companies.

Advanced Medical Isotope produces a variety of isotopes (including flourine-18, strontium-82, germanium-68, and actinium-225) as well as tackling brachytherapy with its radiogel and an other brachytherapy process utilizing radioactive metal "seeds" containing gamma / x-ray emitting isotopes surgically inserted into the prostate.

Advanced Medical Isotope Corp. reveals some important potential at this time as it claims to be able to fill the gap in the medical isotope supply. If you are willing to invest with risk in mind, knowing that this company is taking strategic advantage of the White House's stance on domestically produced, non-HEU radioisotopes, then this is the long-term investment for you.

Nordion, Inc. (NYSE:NDZ) is a well-established player in the field. However, the company faces impending problems as its Canadian NRU reactor at Chalk River is facing a permanent shut down in 2016. Furthermore, the company's partner and supplier, JSC Isotope, provides isotopes derived from HEU materials. With the government's new bill, investors may wonder how this will affect Nordion.

It is evident that Nordion must find alternate means to acquire isotopes that are not produced with HEU. Nordion claims that the company's partnership with JSC Isotope involves a plan to convert to the use of low-enriched uranium [LEU]. Until then, the company may need to seek other means, sooner than later.

It should be noted that Nordion's stance on the subject is contrary to the trend that the government is implementing. The company's position is that there could be a widespread negative impact on a large population of patients throughout the world if access to HEU-based isotopes is cut prematurely. In any case, the law rules: If Nordion cannot acclimate to the new regulations and start utilizing LEU-produced isotopes, it may see some serious negative impact on its medical isotope business.

However, Nordion is a large company with a well-diversified business, and its hands in many branches and departments. With a market cap of $407 million, this company's business includes designing, constructing, and maintaining commercial gamma sterilization systems; it is also the world's leading supplier of cobalt-60, an isotope that destroys microorganisms, as it generates gamma radiation. Nordion's arsenal also includes targeted therapies to fight cancer-one being an yttrium-90 microsphere therapy dubbed TheraSphere®, used in the treatment of inoperable liver cancer.

Nordion is trading towards the lower end of its 52-week pattern, currently at $6.58. When considering this stock, carefully track the company's progress through this transitional phase as it relates to the adopting of LEU isotope sources.

With the biggest of the three featured companies, the colossal Covidien (COV), with a current market cap of an even $31.00 billion, has nothing to prove. This company, based in Dublin, Ireland, is a healthcare product developer, manufacturer, and distributor, and one of the largest producers of medical isotopes in the world. The company has preemptively initiated procedures to begin a conversion from HEU to LEU isotopes, with a plan in place to convert the Netherlands' Petten Mo-99 processing facility to LEU.

The company receives its isotopes from nuclear reactors in Poland, France, South Africa, and Belgium-though Covidien states it is years away from reaching its conversion goal. Currently the company is dependent on HEU materials for its Mo-99 isotopes.

Fortunately for this large company, because of its diversity it will be little affected by the upcoming reactor shutdowns, increased shortages, or the implementation of the American Medical Isotope Production Act by the government. Covidien has simply proven and solidified itself through rigorous R&D, a strong sales force, and a growing and reinforced product line and services.

Currently, the company is trading at $65.42, very near its 52-week high of $66.20. I encourage investors to do their due diligence (as always) and look into this tried and true force of the medical arena.

This is a tumultuous, fragile, and even exciting time for the medical, diagnostic, and isotope businesses. The $5 billion and beyond (and growing) medical isotope business is being shaken up a bit, with the looming reality of aging reactors coming to the end of their usefulness, and the American Medical Isotope Production Act being passed into law. The larger companies in the field-like Nordion and Covidien-may be most impacted by change in the isotope business. Though they have plans in place to account for changing events, they are also able to focus on other profitable areas of their business, while minimizing the their losses. However, it is very possible that the companies that may most be impacted in a positive way-companies that can jump aboard the developing opportunities-might just be companies of the smaller variety, based in the United States, ready and able to supply the country with critical, life-saving Mo-99, in addition to an array of other useful isotopes…a company such as Advanced Medical Isotope Corp.

Disclosure: I am long OTCPK:ADMD, COV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.