Nordion steps up hunt for buyers

Kanata firm amends lawsuit against AECL

Perhaps it is just Nordion Inc.’s fate to be in a permanent state of tumult. On Monday, following yet another year of exceptional stress, the Kanata firm said it had hired Jefferies & Co. to advise it on “strategic alternatives” that could involve the sale of some or all of its businesses.

This is the same company that less than three years ago unloaded two large business units — pharmaceutical services and analytical technologies — and changed its name from MDS to Nordion. In just the past five months, Nordion has lost a major arbitration hearing and launched an internal inquiry to determine if a foreign supplier “and related parties” complied with anticorruption legislation in the U.S. and Canada.

Now, more uncertainty looms over Nordion’s remaining business units. These specialize in (a) nuclear medicine for diagnosing and treating cancer (b) products that use Cobalt 60 to sterilize medical instruments and food and (c) targeted therapies (TheraSphere) that employ radiation to treat inoperable liver cancer.

The Kanata firm has been exploring a potential sale of these units since last September, when Nordion lost a suit against Atomic Energy of Canada Ltd. Nordion was seeking $1.6 billion in damages against AECL and its owner, the federal government, for having terminated the project to build Maple reactors (Nordion reports in U.S. dollars). The latter were to have provided Nordion with a long-term supply of isotopes essential for its nuclear medicine business.

Nordion may still be on the hook for a portion of the $46 million in arbitration-related costs submitted by AECL. A tribunal is expected soon to schedule hearings related to this claim.

But last week Nordion launched an amended suit against AECL for $243.5 million citing the original 1996 isotope supply agreement, rather than the 2006 interim deal that was the focus of the first lawsuit.

Nordion is alleging negligence and breach of contract. If this action gets to trial, it would not begin until mid-2014 at the earliest, chief executive Steve West said Monday. Even if the company wins its latest claim, it would not be enough to recoup the $350 million Nordion invested in the Maple project prior to its abandonment by AECL.

Meantime, Nordion relies heavily on AECL’s aging National Research Universal reactor for isotopes — an unsatisfactory arrangement given that NRU must shut down regularly for scheduled maintenance, including for a month starting in April. Nordion is attempting to secure a steady supply of isotopes from Russia. “The whole industry is a little challenged on supply,” said West.

All of this activity somewhat overshadowed the release Monday of Nordion’s financial results for the quarter and year ended Oct. 31. The company reported fourth-quarter revenues of $74.7 million, up one per cent year-over-year. Net loss for the quarter was $43.5 million, reflecting in part, litigation expenses. This compared with a net profit of $6.9 million during the fourth quarter of 2011.

Revenue for the year was $244.8 million, down 11 per cent from 2011. Net loss was 47 cents per share compared to a profit of 26 cents per share in 2011.

Nordion’s balance sheet is still healthy — with no longterm debt and $109 million worth of cash as of Oct. 31 — and management seems determined to keep it that way. Nordion has suspended its dividend, which cost it nearly $19 million annually. Not coincidentally, that will make up for some extra expenses in fiscal 2013. The company expects pension expenses to jump by $7 million this year. But, more important, Nordion anticipates that spending on its internal anti-corruption investigation will reach $10 million.

Nordion’s most promising business, at least in terms of growth, is targeted therapies — a bit of a misnomer given that it includes a single cancer-fighting product, TheraSphere. Fourth-quarter revenues were up 10 per cent year-over-year to $12.0 million. However, West and chief financial officer Peter Dans acknowledged that heavy investments are required to market the product and shepherd it through various regulatory hurdles in coming quarters. As a result, they said, TheraSphere is unlikely to be profitable for at least the next year.

West predicted revenues associated with his firm’s sterilization business will be roughly flat in 2013 while Nordion’s medical isotopes unit will see a decline in revenues of about 20 per cent. All in, the company’s revenues seem set to slip marginally. Any way West cuts it, Nordion could be a tough sell.