There are two main obstacles that will affect medical grade isotope production: the aging nuclear reactors that produce the isotopes and the U.S. government's stance on foreign producers utilizing HEU (highly enriched uranium) used to produce medical isotopes. Earlier this year, a coalition of U.S. public health, medical, and nuclear nonproliferation experts urged Congress to restrict the use of imported Russian medical isotopes produced with HEU, which is bomb-grade uranium, and to block them completely within about five years:
We write to urge you to amend S. 99, the American Medical Isotopes Production Act of 2011, which was passed by the U.S. Senate on 17 November 2011. The amendment is necessary to achieve the bill's two stated objectives: (1) minimizing global commerce in bomb-grade, highly enriched uranium (HEU) to reduce risks of nuclear terrorism and nuclear proliferation; and (2) ensuring a reliable supply of medical radio-isotopes derived from molybdenum-99 (Mo-99) -- which account for 80 percent of our country's 20-million nuclear diagnostic procedures annually -- by fostering domestic production without HEU.
The coalition criticized Russia for expanding its use of HEU to produce medical isotopes so that it can dominate that particular sector of the U.S. health-care market. Their concerns were that, if successful, the Russian initiative would undermine Washington's efforts to promote domestic production of medical isotopes without HEU and to phase-out global commerce in such uranium.
According to the coalition, Russia's plan threatens to render the domestic "supply of these vital isotopes vulnerable to air-traffic interruptions, such as from recent volcanic eruptions," while also "escalating risks of nuclear terrorism." The experts urged Congress to amend a bill recently passed by the Senate, called The American Medical Isotopes Production Act, to require "preferential procurement" of medical isotopes produced without HEU.
Apparently, the Executive Branch was listening. In a press release from the White House dated June 7, 2012, the Obama administration made it clear that they are more than encouraging reliable supplies of medical grade isotopes produced without HEU. In discussing the need for locally developed medical isotopes produced without HEU -- mostly molybdenum-99 (Mo-99), which is the most widely used isotope for medical purposes -- the release stated:
Over the past few years, the supply of the short-lived medical isotope Mo-99 and its daughter product, technetium-99m, have encountered periods of shortage and unreliability, as Mo-99 is produced in only a few facilities around the world, most of which are reaching the end of their projected life, and none of which are located domestically. Moreover, most of the facilities that currently produce large-scale quantities of Mo-99 use HEU targets in the production process… United States is announcing steps to ensure the reliable supply of medical isotopes while minimizing the use of highly enriched uranium for civilian purposes. In order to maintain access globally to reliable supplies of the isotope Mo-99 for legitimate medical purposes, the United States is accelerating commercial projects that produce Mo-99 domestically without the use of HEU.
With the shift in U.S. anti-proliferation, the U.S. Department of Health and Human Service (HHS) has announced its intention to pay $10 more per procedure, starting next year, to hospitals that use isotopes produced with less dangerous, low-enriched uranium [LEU]. The proposed plan would apply to outpatient diagnostic procedures covered by Medicare.
So how does an investor act upon such information? What companies may be the winners or losers in such government action? It is important to understand that 18 million medical procedures in the U.S. use medical isotopes annually, while in Europe, the number is 10 million, and those numbers are expected to grow at 10% annually. Over 90% of the medical diagnostic procedures annually use the type of isotope derived from Mo-99.
In the United States, 90% of all the medical isotopes are imported, and the remaining 10% are, for the most part, from companies producing a single isotope instead of a wide variety. That becomes a major problem when one considers the shortcomings and unreliability in the supply of medical isotopes. Most of the world's supply of Mo-99 comes from five aging nuclear reactors that are 43 to 52 years old. Moreover, two of them are due to shut down in a few short years -- the Osiris reactor in Saclay, France is due to shut down in 2015, and Canada's NRU reactor is scheduled to be shut down by 2016.
During the 2009-10 supply crises, South Africa's 47-year-old (NECSA) Safari was able to supply 25% of the supply of Mo-99. Australia's Opal reactor has the capacity to produce half the world supply, but a much larger Mo-99 production facility would be required. Also, the processing and distribution of isotopes is complex and time sensitive, which can be critical when the isotopes concerned are short-lived. Clearly, there is a need for increased production capacity and more reliable distribution of Mo-99.
Canada's Nordion Inc. (NDZ), one of the leading providers of isotopes, via a network of global suppliers and partners (though it acquires most of its isotopes through Canada's 58 year old NRU reactor), recently signed a supply agreement with the Russian company, JSC Isotope, which is scheduled to run through 2020. JSC Isotope operates three reactors in Dimitrovgrad, Russia. Several challenges are facing Nordion's isotope business. Not only is Canada's NRU reactor at Chalk River scheduled to be shut down by 2016, but its supply partnership with JSC Isotope uses HEU to process its isotopes. The question is, "How will the change in U.S. policy affect Nordion's bottom line?"
Clearly, if Nordion wishes to continue selling isotopes to companies in the U.S., it is going to need a supplier that does not produce the isotopes with HEU. According to Nordion, its partnership with JSC Isotope for a supplemental supply of Mo-99 includes "provisions for LEU (low-enriched uranium) conversion," which has been successfully adopted on a limited scale by isotope producers in South Africa, Argentina, and Australia.
However, in a recent statement, Nordion said it believes that "the premature elimination of access to HEU-based isotopes could have a detrimental effect on tens of thousands of patients around the world." If Nordion is unable to acquire LEU-produced isotopes in the future, it may have a detrimental effect on its medical isotope business.
On the positive side, Nordion is not just a one-product company. The $597.49 million dollar market cap company designs, constructs, and maintains commercial gamma sterilization systems, and is the world's leading supplier of cobalt-60, the isotope producing gamma radiation required to destroy microorganisms. It also produces targeted therapies for a variety of cancers, including TheraSphere® yttrium-90 microsphere therapy, which is used in the treatment of inoperable liver cancer. Nordion is just shy of its 52 week high of $10.31 per share, and the market doesn't seem too concerned about its possible loss of the U.S. medical isotope business.
Covidien (COV), a giant Dublin, Ireland-based healthcare product developer, manufacturer, and distributor with a market cap of $27.3 billion dollars, is one of the largest producers of medical isotopes. Covidien, which receives its isotopes from nuclear reactors in Poland, France, South Africa, and Belgium, has already taken steps to begin a conversion from HEU to LEU to produce medical isotopes, with a development program to convert the Netherlands' Petten Mo-99 processing facility to LEU. However, the company states it is years away from completion, and HEU is still required to produce the Mo-99 isotopes. Because of the diversification, this $12 billion dollar company will probably not feel the effects of either the aging reactors or the U.S. government's stance against production of medical isotopes using HEU. That is a testament to the company's focus in research and development, while bolstering its sales force and strengthening its product line. According to Morningstar, "Covidien has returned to prominence in the medical device arena." The company's common stock continues to trade just below its 52 week high of $57.68.
Advanced Medical Isotope Corp. (ADMD.OB), also known as AMIC, may be one of the beneficiaries of the government's push for domestic production of medical isotopes. The company is a nano-level market capitalization company out of Kennwick, Washington. With a market cap of $21.5 million dollars, the company is on the forefront of U.S. production and distribution of medical isotopes and medical isotope technologies.
In a July 11 article for The Scientist titled "Desperately Seeking Radioisotopes," CEO Robert E. Schenter wrote:
Unfortunately, the supply of Mo-99 and other radioisotopes has been unreliable at best. All of the Mo-99 used in the United States is imported, with the main source being the National Research Universal (NRU) reactor at Chalk River, Ontario. When the reactor shut down for repairs in May 2009, it contributed to a global shortage of radioisotopes. And while NRU has been back in operation since August 2010, it is scheduled for permanent closure in 2015, and no backup reactor will come online before then.
He did, however address a number of solutions, including one from his company:
At (AMIC)… 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.
Advanced Medical Isotope Corp. recently signed a licensing agreement with Battelle, a large private non-profit science and technology development company, to produce "radiogel," a targeted cancer radiation therapy using another medical isotope, yttrium-90. Radiogel technology does not require a catheter inserted in the patient's body, but is injected as a liquid form, then warms to the body temperature and becomes a gel, trapping the yttrium-90 microspheres in place while the high energy beta particles destroy the cancer cells, keeping nearby healthy tissue exposure to a minimum. Radiogel is designed to deliver a high dose of radiation to tumors that cannot be surgically removed, and to treat radiation-resistant solid cancers, such as brain, liver, kidney, and pancreas.
The company estimates that once radiogel is marketed, sales should reach between $5-$15 million dollars (annually) with estimated future sales well in excess of $75-$100 million dollars. The stock has risen significantly since its early June lows of $0.08, and is also just below its 52 week high of $0.29. Being a nano-cap company with no earnings, this can be a very volatile stock. However, like the big players, ADMD is not a one-product line business. The company produces a number of medical isotopes, and with its licensing agreement with Battelle, and the U.S. government's stance on developing homegrown medical isotopes; ADMD may be good long-term bet.
Clearly with aging reactors and the White House's position on bomb grade uranium used to produce medical isotopes, the $5 billion dollar plus medical isotope business has been thrown into its own centrifuge. While companies like Nordion and Covidien will take the brunt of the loss in the isotope business, they appear to have foreseen the future and have focused on other profitable areas of their business, minimizing the companies' downside. However, it seems that the beneficiaries might just be a handful of small U.S. companies, like Advanced Medical Isotope Corp., which have entered the medical isotope business by creating the much needed Mo-99, among other isotopes, in the U.S.