Last week I received an article from the Vancouver Sun which I found very interesting. It was a piece that discussed the trends of medical isotopes and their transition from being used primarily as a form of diagnostics to becoming more focused on cancer therapies and, even more specific, the targeting of cancers in the body. Medical isotopes have been in the news a lot lately, and this is a subject that I find particularly interesting. The newfound attention is a result of the issues with supply shortage, aging nuclear reactors, and the possibility of significant shortages for currently approved therapies and stalled trials for candidates that are otherwise affective, making it a problem worth noting.
You might be wondering how medical isotopes have anything to do with choosing an investment. Well, medical isotopes are the building blocks to nuclear medicine for the treatment and diagnosis of diseases. In the U.S. there are 18 million nuclear medical procedures per year, with 30 million worldwide. Over 10,000 hospitals use medical isotopes and several high-profile therapies rely solely on its production. Without medical isotopes, these therapies would not exist or would experience shortages at the very least. If the current problems surrounding medical isotopes do not improve, we could quickly regress in the progress that's been made over the last few years in several key industries such as oncology and medical imaging.
Furthermore, we would see major losses of revenue and market value for biotechnology companies with radiation-based therapies, diagnostic imaging technologies based on isotopes or other fields in which radioactive tracers are utilized. Although beyond the scope of this article, the therapies possibly affected due to isotope shortages include Spectrum Pharmaceuticals' Zevalin (using Y-90), Theragenics' (TGX) I-seed (using I-125), IsoRay's (ISR) GliaSite (using CS-131) and AREVA's Pb-TCMC-Trastuzumab radioimmunotherapy (using Pb-212), among many others both approved and in clinical trials.
In my search to learn more and educate myself about the problems and future of radioisotopes, I contacted Dr. Robert Schenter who has more than 40 years of expertise in research and development in neutron cross-section and decay. He is a world authority on isotope production, and in the U.S. he is also a leading expert on fission reactor and charged particle accelerator production of isotopes, having served as the Site Director/Deputy Site Director in the Isotope Program Office for Westinghouse Hanford Company (WHC) and Pacific Northwest National Laboratory (PNNL), and as a member of the Nuclear Regulatory Commission (NRC) Advisory Committee on the Medical Use of Isotopes (ACMUI). He is currently the Chief Science Officer at a small start-up company, Advanced Medical Isotope Corporation (ADMD.OB), a company that has increased in value by 200% in the last three months. These credentials make him an excellent person with a wide range of experiences in the field and an authority in the technology. He is the ideal person from which to learn more about the space and how recent developments and current issues could affect the future.
My goal in contacting Dr. Schenter was to validate the security of my investments, and honestly determine some direction of growth for Spectrum Pharmaceuticals' (SPPI) Zevalin therapy, which has failed to achieve the level of growth I anticipated and uses one of the most common isotopes, Yttrium-90.
I often contact executives at small companies, as they are typically not politically correct, are usually willing to talk, and are genuinely personable, making them good sources for information. Dr. Schenter was willing to talk and did not appear to try to sell me on his company, unless I specifically asked (which I also found very interesting). I thought the information was useful, and because of his knowledge, I am sharing some of the information I learned, as I believe the future of medical isotopes will play a big role in many clinical developments. Therefore, I asked him to explain why the use of nucleur medicine is so common, yet the shortage and the fear of a continued shortage appears to be a major issue. He responded by saying:
"In the past, major producers were fission reactors. However, they have aged, shutdown, and have not been replaced. There is no reason, the U.S. government has failed miserably in this area and their effort to solve the problem is about 1% effective. There are only certain types of fission reactors that can effectively make medical isotopes, and electricity- producing reactors simply do not have this capability."
Basically, there is no pressure on the U.S. government, nor does the government feel obligated, to rebuild or at least update these older facilities. With medical isotopes being so important to the future of disease treatment, the government appears focused on only those that are used most often (based on active reactors), but not the facilities that are used for research purposes which have been left to degrade or shutdown. Even the most prevalent individuals in the medical field face the same challenges of isotope shortages. Dr. Schenter puts this issue into perspective by explaining, "In the U.S,. a 100 patient bone cancer study was canceled, not because of a lack of effectiveness, but rather due to a shortage of medical isotopes." Events such as this not only cost the company but also patients who might have survived if not for the shortage. The reason is because the best treatments are made from isotopes generated in aging nuclear research reactors, not power reactors or accelerators, thus putting the life of cancer patients in need of effective treatment in jeopardy. Over the last few years, the problem has gotten significantly worse-- so bad that even medical tests are being put on hold, which include cardiac and cancer scans that could ultimately catch disease in its infancy and treat it before it becomes aggressive.
Over the last few years I have studied the advancements in oncology thoroughly, and with immunotherapy vaccines and other new forms of treatment showing success, perhaps the need for medical isotopes is diminishing. Therefore, I wanted to ask Dr. Schenter about the connection of medical isotopes or its relevance to the newest cutting edge technologies in cancer treatment. I asked him to explain medical isotopes in laymen's terms and the connection between even the most innovative cancer treatments and the foundation of radiation therapy, subjects all based in isotopes. I emailed him following our conversation, and he responded with the following:
"Radioimmunotherapy is a type of treatment where doctors inject antibodies that have isotopes attached like little backpacks (keep in mind the wide-spread usage of antibodies in cancer treatment and research). The antibodies then flow through the bloodstream and attach themselves to the cancer cells. The energy from the medical isotopes is thus targeted straight to the cancer. This type of treatment is showing great promise for blood cancers such as leukemia, lymphoma, and multiple myeloma, but most Radioimmunotherapy treatments are still in clinical trials."
"Medical isotopes can also be directed to cancer cells by a carrier that has an attraction to a certain part of the body. Chemical phosphonates can be paired with medical isotopes and sent to the bone, since phosphonate is a natural building block of bone matrix. FDA approved treatments for pain associated with cancer that has spread to the bone are based on this delivery system. For example, the medical isotope Iodine has been used for thyroid treatment for years because the isotope itself is naturally attracted to the thyroid. The list goes on and on."
I found his responses very interesting because it relates to how biotechnology companies are pairing isotopes and how the industry continues to innovate despite uncertainty for the future. His answer made me think of Nordion (NDV), a company that along with Covidien (COV) controls the space, but has focused much of its development on special designer molecules. This is the process of designing a molecule or combination of molecules to be more effective in its purpose, as Dr. Schenter explained. Nordion, a company that has posted significant revenue loss, but hasn't necessarily lost market share, has had to change its business strategy, which just so happens has created a better biotechnology market for cancer treatments, therefore making its isotopes much more efficient "backpacks". Nordion also appears to have timed its transition well, as the market for isotopes is currently shifting from diagnosis to treatment, therefore possibly presenting a good investment opportunity over the next few years assuming that government will address the demand.
The bottom line is that this is an ugly space, and companies such as Nordion and Covidien are faced with some headwinds as we progress into the next few years. Yet, both have made changes that could result in success, making it a space full of uncertainties and questions. Additionally, already-approved drugs from companies such as GlaxoSmithKline (GSK) and SPPI's Zevalin may have problems in the future with obtaining medical isotopes due to the shortage. Therapies in clinical studies could experience the same fate, or possibly be unable to complete clinical studies due to the lack of isotopes. With that being said, and considering the other issues that surround the space (no real plan to end the outages or correct the supply issues within the industry, and so many questions that exist), I had to ask Dr. Schenter why he would want to stay in and develop in the space. He responded by saying:
"There are a lot of factors in the equation: Nordion is a Canadian company and Mo-99, for example, has lost the support of local government. Covidien is a large company but has very small production capabilities."
"The problems are serious. There are only a handful of organizations and websites that are concerned about the shortage of medical isotopes. The healthcare sector doesn't have the time or the expertise to solve the problem. It doesn't mean that physicians aren't concerned, but they just don't know what to do."
"Almost all radiation based therapies rely on radioisotopes, and the isotopes being used in newer treatments are very powerful localized cancer killers that use high-energy radiation and do not harm healthy cells. Cancer rates continue to rise, and the future costs for the U.S. will be in the multibillions. Studies show the superiority of medical isotopes over many other cancer treatments. For example, at this year's Nuclear Medicine Meeting over 2,400 papers from all over the world were given in which many dealing with cancer treatments and cures were with medical isotopes, showing a change in the industry, and a focus back towards using medical isotopes to develop more effective treatments."
"As far as us (Advanced Medical Isotope Corp.), we have great relationships and major ties with both reactors and clinical development. There is a critical shortage of Molybdenum-99, one of the most commonly-used radioisotopes in the world that is used in 50,000 diagnostic medical procedures per day in the U.S. alone, and it is being produced by one of these aging nuclear reactors that we've already discussed. The NRU reactor in Canada produces half of the world's total Mo-99. When it closes in 2015, it will leave a huge hole that the government will not be able to ignore. With the U.S. consuming the most in terms of medical isotopes, it leaves the market open and with our joint venture with MURR along with our facilities in Washington [state], we plan to address this need.
In the end, I think Dr. Schenter’s assessment of the market for isotopes is fair and provides good insight from a person who has worked in the space for 40 years; his opinion should be respected and not taken lightly by investors interested in the space. Personally, I have never followed his company, as it is a fairly new start-up in its infancy. However, he was confident in his belief that ADMD could control 50% of the Mo-99 market in the next five years, as a transition occurs within the space and reactors become U.S.-based, and that radiogel will hit the market in 2013/2014 -- therefore, showing his confidence that the industry itself will become stronger in the years that lie ahead.
The radiogel technology does appear to be yet another step in the right direction for the innovation of isotopes and radiation as companies have had to evolve with the shortage and learn to operate more efficiently, such as Nordion. Medical isotopes appear to be experiencing more success now with the targeted administration techniques than before, when they were primarily the newer, more transcendent cancer treatments. That is interesting, because it shows that despite a shortage, companies have drastically improved efficiency.
Currently, there is a lot of concern in biotechnology surrounding supply issues, as over the last year we have seen several high profile cancer therapies faced with these concerns. Overall, the market for medical isotopes seems to be changing at the pace of innovation in cancer therapy, because it has no choice but to do so. Of course, there is some political stigma that is created with the use of active nuclear reactors. However, it seems as though it is a necessary evil for the future of cancer treatments, and that sooner or later these reactors will have to be rebuilt, properly funded, and given proper support to meet demand; or else there will be a completely inactive $5 billion industry and several biotechnology companies will see revenue drastically decline along with clinical studies abruptly ending for effective clinical stage candidates using the newest innovating therapies. As a result, it is a need that government simply can not ignore.
The question is if medical isotopes are like all industries, when supply is cut, do we see a slowdown of innovation? And also, what will happen in 2015 when the Mo-99 reactor is no longer operational? What happens if and when Y-90 and other important medical isotopes experience similar threats, and if government does not correct the issue with funding? The answer is that it would drastically affect the treatments of cancer, and even diagnostics of medical conditions. However, it could perhaps be good for the U.S. as Canada-based Nordion does control much of the space and is already seeing significant declines in revenue. Therefore, it is realistic to suggest that these ever important nuclear reactors could become U.S. based, which could correct some of the shortage issues we are currently experiencing, allowing many companies to thrive and for patients to receive proper treatment.
As an investor, it is a concern and an issue worth watching, because there are several important reactors that will be shutting down in the next few years, meanwhile demand is expected to grow by more than 40% through 2015. The question to ask is if it could present an opportunity for American based companies such as Dr. Schenter and his company ADMD, or if governments will continue to ignore the problem, and hope that someone else picks up the slack. Either way it has to be addressed, and there are other companies, that are preparing with partnerships and agreements to benefit, while others such as Nordion are trying to innovate and create much more effective medical isotopes that make up for the shortage. It's a confusing scenario, full of many questions, with some poised to benefit, and others that are positioned to lose. Meanwhile, the most important factor, the patients, are left wondering and hoping that their life-saving innovative treatments will continue and will not be discontinued or disrupted due to the negligence of government oversight. Personally, I think the problem will be corrected, and that the U.S. will aid in this change, my reason for this belief is simple: The U.S. has no choice if it wishes to keep its healthcare system in tact, it's simply necessary.
Disclosure: I am long SPPI.
Additional disclosure: The opinions expressed in this article are of the author and should not be used to determine an investment decision. Proper due diligence and guidance from a financial advisor is required before acting on any investment