When most hear the words "nuclear reactor," they think about bombs, electric power, and an occasional radioactive monster terrorizing Tokyo. However, there is an entire field of nuclear medicine that relies on nuclear reactors to produce isotopes for medical use. Technetium-99m (Tc-99m) is the most widely used isotope in nuclear medicine with some 30 million procedures a year. It is utilized in 80% of all nuclear medicine procedures worldwide to diagnose and treat patients with such issues as heart disease and cancer. Nuclear medicine is big business: 18 million medical procedures in the U.S. use medical isotopes, while in Europe the number is 10 million; and those numbers are expected to grow at 10% annually. Over 10,000 hospitals worldwide use radioisotopes in medicine, and about 90% of the procedures are for diagnostics. Isotopes are useful in diagnostic tests because they emit easy-to-detect gamma rays, and they break down very quickly usually giving only a small dose of radiation to the patient.
The current supply of the much needed isotopes used in nuclear medicine is being threatened, not just by aging and decaying nuclear reactors, but by governments insisting that medical isotopes no longer be developed with bomb-grade highly enriched uranium (HEU). Instead, the supply must be produced with low-grade enriched uranium (LEU). Tc-99m's production requires another isotope, molybdenum-99 (Mo-99). Mo-99 is now made in nuclear reactors using HEU. In June, the Obama administration made it clear that it is more than simply encouraging reliable supplies of medical grade isotopes produced without HEU by endorsing amendment S. 99 of the American Medical Isotopes Production Act of 2011, passed by the U.S. Senate. The amendment s objectives were to minimize global commerce in HEU in order to reduce risks of nuclear terrorism and nuclear proliferation -- and to ensure a reliable supply of medical radio-isotopes derived from Mo-99 by fostering domestic production without HEU. Domestic supply of isotopes is a growing problem considering that 90% of all the medical isotopes used in the USA are imported from five aging nuclear reactors, 43 to 52 years old, with two of them -- the Osiris reactor in Saclay, France, due to shut down in 2015, and Canada's NRU reactor-- scheduled to be shut down by 2016. S. 99 opens opportunities for U.S. companies to develop methods to produce Mo-99 in the USA. In the meantime, the Mo-99 shortage continues to be a concern.
General Electric (GE) seemed to have the answer to the Mo-99 shortage. In early 2010, GE came up with a solution that would utilize two of its previously built reactors. These reactors have tiny openings at the bottom, used for technicians to insert an instrument that counts neutrons, the sub-atomic particles that sustain a nuclear chain-reaction. GE and its partner, Hatachi (HTHIY), would place the isotope, molybdenum-98 (Mo-98), on the mechanism that usually holds the neutron-measuring instrument. Some of the Mo-98 would pick up an extra neutron and become Mo-99. "We've done this on a lab scale basis," said Kevin Walsh, the chief executive of Global Nuclear Fuel, a joint venture of GE, Hitachi, and Toshiba (TOSBF.PK). Unfortunately, earlier this year GE abandoned the project citing it was not commercially viable. Kevin Walsh, a nuclear-fuel executive at General Electric, said that the company would finish developing the system if the economics improved, but that for now, "We've put all the engineering aside." In a statement, GE noted that while the company was confident that "large quantities of molybdenum-99 could safely be produced" in one of their reactors, financial projections "do not support the remaining costs."
That has not stopped other companies, big and small, from looking for ways to produce Mo-99 using low- grade uranium and other means. In January 2009, Covidien (COV), a healthcare giant from Dublin, Ireland, teamed up with Babcock & Wilcox (BWC), a Charlotte, NC-based nuclear component and service provider, in developing tiny new reactors that would have roughly one ten-thousandth the power output of a commercial reactor and would run on uranium in a liquid form. The uranium would be the fuel providing the neutrons and the target of the fission process to produce Mo-99. The reactor would be shut down periodically, and the molybdenum isotope filtered out of it. The unused uranium would go back into the reactor via a recycling process that would minimize waste. The joint effort combines Covidien's radiopharmaceutical production and regulatory approvals with Babcock & Wilcox's patented liquid phase nuclear know-how. Covidien also has plans for converting its Mo-99 processing facility, based in Petten, Holland, to facilitate use of LEU unsuitable for bombs. However, the company states it is years away from completion, so HEU is still required to produce the Mo-99 isotopes.
Year to date, Covidien's stock has had an excellent run-up over 25%. In the past month, the stock seems to be taking a breather, and has traded in a narrow range just shy of its 52-week high of $57.31. This $27.36 billion market cap seems to be back in prominence in the healthcare industry. Even if its partnership with Babcock & Wilcox turns unfruitful in developing Mo-99, Covidien is well-diversified as a leading global healthcare company with a history of developing high-quality products in a cost-effective manner. One example is its new iDrive Ultra powered stapling system -- a first of its kind. It is a fully powered, battery-operated, reusable endoscopic stapler used during laparoscopic and open surgeries.
The downturn in the U.S. and European economy may put pricing pressures on the company, which could slow down the stock's growth. Covidien has a quarterly dividend of $0.225 per share. Analysts at Jefferies Group reiterated a "buy" rating, while Zacks has a target price of $59.00 with a "neutral" rating. This is a stock to keep an eye on and, if it dips, it might be a good time to buy.
Advanced Medical Isotope Corporation (ADMD.OB), a nano-cap company from Kennewick, WA, may be in an excellent position to be one of the companies to take the lead on Mo-99 production as it is actively becoming one of the few companies producing medical isotopes in the USA. In May 2010, ADMD entered into a License Agreement for the Patent Rights in the area of radioisotope production using electron beam accelerators for creating short lived radioisotopes, such as Mo-99 and Tc-99m, with the University of Missouri. ADMD is not relying on Mo-99 production alone; it is hedging its bet with a business model that has a three-prong approach. The company is actively producing short-lived and stable isotopes for PET procedures with a PULSAR Isotope Production system, the first compact linear accelerator (LINAC) in North America designed for the production of medical isotopes used in Positron Emission Tomography (PET) imaging. PULSAR sets a new standard for production of PET and other isotopes using proton beams. It is a more compact and a reliable alternative to cyclotrons, incorporating proven compact accelerator technology integrated with high production yield targets and advanced chemistry process units. Technology advances in medical isotope manufacturing allow ADMD to site build, and operate the LINAC isotope production centers at significantly lower costs than traditional cyclotron accelerators. This affords ADMD substantial cost reductions and enables the company to generate a broad product line.
William J. Stokes, CEO of ADMD, stated "Our goal is to empower physicians, medical researchers, and biotechnology companies by providing them with essential medical isotopes that heretofore have not been feasible or economical, in an effort to detect and cure human disease… With this compact linear accelerator (LINAC), the first of its kind in North America designed specifically for the production of PET isotopes such as fluorine-18, nitrogen-13, carbon-11, and oxygen-15, our team will also be able to produce other highly desired longer-lived isotopes, including actinium-225, iodine-123, and indium-111 for diagnostic as well as therapeutic applications." Being able to produce and deliver these isotopes, which are a billion dollar market, would provide a great opportunity for ADMD to position itself to profit as a major supplier of these, and other, isotopes. ADMD is currently shipping stable isotopes worldwide.
The third prong in its three-prong business model is its licensing agreement with Battelle Memorial Institute regarding its radiogel technology. Radiogel is a biodegradable polymer that delivers, not with a catheter but with an injection, yttrium-90 (Y-90) microspheres directly into the tumor killing the cancer cells. The polymer is a liquid when first injected to the targeted cancer site; but the liquid warms quickly to the body temperature and turns into a gel where the doctor injects it. The gel traps the yttrium-90 microspheres in place as the high energy beta particles irradiate cancer cells in the target mass. What makes radiogel stand out from other treatments is that little of the radiation reaches nearby healthy tissue, thus maximizing the overall radiation dose to cancer cells while minimizing exposure to nearby normal tissues. Because it can be administered through the skin or during surgery, the procedure has the ability to be delivered to solid tumors that cannot be removed safely. Radiogel appears to have numerous applications, including cancers of the liver, brain, head and neck, kidney and pancreas. It is also showing promise for eye tumors.
ADMD is a nano-cap company with a $19.6 million market capitalization at the time of this composition. It is trading at about $0.23 per share and has had an excellent YTD run of over 160%. There may be good reason for the run up; it appears ADMD continues to position itself with its isotope lines along with its radiogel technology to be the U.S. leader in isotope production and delivery. On Sept 11, ADMD bolstered its board by announcing it had has added Thomas J. Clement, one of the region's top medical device entrepreneurs, to the Board of Directors. Clement has over 30 years experience in product development engineering, engineering management, and senior management. He was a founding employee of Heart Technology, which grew to more than $100 million in revenue, and was later acquired by Boston Scientific. The market took the news positively as the stock rose 30%. However, just like so many small companies, there are questions and risks. Time will tell if ADMD and its staff can bring its products to the next level. Chances are, until another company actually implements a method of manufacturing Mo-99 with LEUs, and given that age of the 5 nuclear reactors, ADMD might just be in the right place at the right time with the right product. However, caution must be exercised: ADMD is an interesting and risky investment. One must remember that it has been shown time and time again when it comes to nano or micro-cap companies, one small piece of news can send a tiny company's stock in either direction. ADMD has shown that with its 30% run up on Sept 12. The question is, are there more isotopes in ADMD's tank to power an even larger run? It appears so as the company continues to grow and diversify. However, the company is a quasi-development phase entity although it does appear to have accelerated a bit in the last few months. Investors are advised to consider the risks and be willing to accept or anticipate the volatility in this promising investment.
Sentiment: Strong Buy