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A Nordion Cobalt storage pool: Nordion uses Cobalt-60 isotopes, used in Nordion’s devices that sterilize food and single-use medical products.

Daniel Rogall/Nordion

Nordion Inc., the Canadian medical isotope provider, is at a crossroads. The company is in the midst of a strategic review that could see it sell off some or all of its operations, use its stash of cash to buy a new business, or continue as a going concern.

It is not clear which route it will take, but while Nordion mulls those decisions, its stock has been on a solid upward trajectory, rising almost 35 per cent over the past year.

Nordion was created in 1946, operated for a time as a division of Atomic Energy of Canada Ltd. (AECL), then was part of MDS Health Group before becoming a standalone public company in 2010. Now it has two core businesses: selling systems that use radiation to sterilize medical devices and foods, and the processing of medical isotopes for the diagnosis and treatment of diseases.

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Until last year Nordion was, for investors, a solid dividend play with a yield of around 4 per cent. Then, in September, 2012, it lost a crucial arbitration case against AECL, which still supplies it with isotopes.

The arbitrator ruled that Nordion deserved no compensation for the 2008 shutdown of AECL's program to develop a new nuclear reactor called Maple, which was supposed to replace its aging reactor. Nordion had invested $350-million in the project, and was asking for $1.6-billion in compensation.

After losing the case, Nordion cancelled its dividend, and the stock plunged by more than one-third.

Since then, however, Nordion has cleaned up many of its legal issues – including settling its disputes with AECL. It also sold off its smallest unit, the "targeted therapies" division that sells radiation-based treatments, for $200-million (U.S.). And in January of this year, it launched its "review of strategic alternatives." The stock responded, moving from around $6 after the arbitration ruling to more than $8.50 today.

But Nordion chief executive officer Steve West has been coy about the review and whether it may mean a sale of some or all of the businesses, buying something with the proceeds of the targeted therapies sale, or some other action. He told analysts on a conference call in September only that the process is "ongoing and we continue to evaluate opportunities."

That makes it hard for investors to decide on what the company is worth, analysts say.

"With these strategic processes, you just never know what they are going to do," said Alan Ridgeway of Paradigm Capital, who has a "hold" and $9 target on the stock. The universe of potential buyers for Nordion would likely be limited, Mr. Ridgeway noted, because the company "plays in the nuclear world," which is highly regulated.

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The medical isotopes arm still has uncertainty hanging over it, Mr. Ridgway noted, because AECL plans to shut down its old reactor in 2016 and Nordion will have to come up with another supplier. It has been in talks with a possible Russian source, but the outcome there is still uncertain.

The sterilization business, meanwhile, throws off solid cash flow, but doesn't have huge expansion prospects. "It's a low-growth cash cow," he said.

Analyst Neil Maruoka of Canaccord Genuity Corp. also feels it is "hard to handicap what's going on" at Nordion. The medical isotopes business has "a lot of hair on it," he said, because of the uncertainty over isotope supply, so it could be hard to sell.

The sterilization business is worth far more, he said, and indeed it generates enough cash for the company to reinstate its dividend.

But the company appears reluctant to consider bringing back the payout until the strategic review is complete. A Nordion spokeswoman said in an e-mail that: "Currently we do not have any plans to reinstate the dividend." The company will assess its cash requirements as part of the strategic review, she said.

Mr. Maruoka said Nordion has a significant amount of cash in the bank – as much as $4 per share – from the sale of the targeted therapeutics business. But that stash, too, looks like it will stay put at least until the review is done. Including that cash, Mr. Maruoka values Nordion at more than $10.50 a share, and he has a "buy" on the stock.

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Jason Whiting, vice-president of Trimark Investments and manager of the Trimark Canadian Small Companies Fund, said he bought into Nordion a year ago shortly after the company's shares plunged. The fund now holds about 1.9 million shares.

He praised Nordion's management for its efforts to "tidy things up" by settling legal issues and focusing the company on the two central businesses. But he'd like Nordion to return its cash to shareholders, and would also like to see a dividend again. Still, if the managers can get a good price for selling all or part of the business "they should take it," he said.


Nordion's two key businesses

1. Medical isotopes

The company processes isotopes (radioactive versions of specific chemical elements) for use in medical testing and treatment. These isotopes, which decay quickly and must be delivered in a very time-sensitive manner, are the key ingredients used in scanning devices that diagnose heart problems and other diseases. Some are also used in radiopharmaceuticals – medicines that target specific organs. The most important isotope is molybdenum-99, which is produced at only six nuclear reactors around the world. Nordion's supply comes mostly from the aging National Research Universal (NRU) reactor in Ontario.

2. Sterilization technologies

Nordion makes devices that are used to sterilize single-use medical products such as syringes, medical gowns and masks. These sterilization devices can also be used to irradiate food, reducing spoiling and insect infestation. In these machines, gamma radiation emitted from the Cobalt-60 isotope kills germs and other organisms. Cobalt-60 is produced in several nuclear reactors in Canada, Russia, China and Argentina.

Richard Blackwell

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Reporter, Report on Business

Richard Blackwell has reported on Canadian business for more than three decades. At the Financial Post and the Globe and Mail he has covered technology, transportation, investing, banking, securities and media, among many other subjects. Currently, his focus is on green technology and the economy. More


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