AECL victory over Nordion pushes down nuclear medicine company's stock

OTTAWA – Shares of Nordion Inc. (TSX:NDN) plunged more than 35 per cent on Monday after the Ottawa-based nuclear medicine company lost a long-standing battle with Atomic Energy of Canada Ltd.

An arbitrator ruled against Nordion by a two-to-one margin, ending the three-year fight over the Maple nuclear reactors that AECL decided to mothball, citing a design flaw that Nordion argued was manageable.

“It was our clear objective to protect our shareholders’ investment in the Maple facilities,” Nordion chief executive Steve West said in a statement that noted the company may also be responsible for a portion of AECL’s costs as a result of the decision.

“We intend to fully examine the implications of the decision and assess options for our future courses of action regarding this matter and long-term supply.”

Following the decision, Nordion said it would suspend its quarterly dividend and stop buying back shares on its stock buyback plan.

Nordion also cautioned that while the arbitration decision does not prevent its ongoing lawsuit against AECL under its Isotope Production Facilities Agreement, a majority on the arbitration panel found there was no breach of contract.

As a result, the IPFA court claim may be substantially less than the $1.6 billion Nordion is currently claiming, the company said.

Nordion shares closed down $3.82 at $6.64 on the Toronto Stock Exchange after trading as low as $5.38.

RBC Capital Markets analyst Douglas Miehm cut his rating on Nordion’s stock to underperform from outperform and slashed his price target to $8 from $11.

“The arbitrators decision was surprising, but the full terms of the 2006 agreement were never fully disclosed so it was always difficult to be completely confident in Nordion’s case,” Miehm wrote in a report to clients.

“While we were anticipating a ruling in favour of Nordion, the arbitrators determined that the specific terms of the agreement (unknown to public) precluded the claims against AECL.”

The twin Maple reactors had been planned as major source of isotopes used in medical imaging, once a highly profitable global business for Nordion.

However, the project was over budget and years behind schedule when AECL decided to pull the plug on the Maple reactors before they went into service.

Nordion problems got worse when AECL’s old NRU reactor was shut down for extensive repairs, cutting off the company’s main source of nuclear isotopes.

“AECL will be reviewing and analysing carefully all aspects of the decision to ensure a thorough understanding of the implications. Both AECL and Nordion are bound by confidentiality obligations relating to the arbitration process, including the details of the decision,” AECL said Monday.

Tamra Benjamin, Nordion’s vice-president for public and government relations, said the arbitration decision leaves Nordion open to pursue its ongoing lawsuit against AECL in the Ontario courts.

“Our strategic priority continues to be optimizing the medical isotopes business,” Benjamin said.

“We continue to plan to evaluate alternate sources of long-term supply and are now able to pursue those sources knowing that such isotope capacity will not be coming on line from the Maple reactors.”

Nordion is Canada’s seller of medical isotopes that are used in cancer tests and treatment as well as medical imaging.

The company’s main supplier of medical isotopes, Atomic Energy of Canada Limited’s National Research Universal reactor in Chalk River, Ont. returned to service in May after a planned 30-day maintenance shutdown.

There was a global shortage of medical isotopes when the federally-owned NRU reactor was shut down in 2009 because of a leak that took more than a year to repair.

The shortage caused a political furor and raised concerns by doctors and other health professionals about the availability of medical tests for Canadians.

For the three months ended July 31, Nordion reported a profit of $12.3 million or 20 cents per share on $67.1 million in revenue. That was up from a loss of $4.1 million or six cents per share on $66.8 million in revenue a year earlier.

In August, Nordion announced an internal investigation into potential improper payments or other possible violations of anti-corruption laws in the U.S. and Canada focused on a foreign supplier and “related parties.”