UPDATE: Nordion explores ‘strategic alternatives’ amid Q4 loss

Courtney Symons
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Shareholders of Nordion Inc. (NYSE:NDZ TSX:NDN) reacted favourably to news Monday that the Ottawa-based life sciences firm is pursuing strategic alternatives - a signal the firm could be sold or broken up.

Nordion's Steve West. (Photo supplied)

By market close on Monday, Nordion stock was valued at $6.90 on the Toronto Stock Exchange, a 7.3 per cent increase from the same time on Friday. At one point in the day, its stock had risen by more than 10 per cent.

The company also announced Monday that it is appointing Grant Gardiner as senior vice-president, general counsel and corporate secretary. Mr. Gardiner will serve as Nordion’s legal officer responsible for all global legal matters, beginning March 18, according to a company release.

Previously, Mr. Gardiner served on Research In Motion’s board of directors as corporate secretary, and he currently is RIM’s vice-president and associate general counsel.

On Monday morning, Nordion announced that it has hired global investment banking firm Jefferies & Co. to help it explore strategic alternatives, a sign the Ottawa-based life sciences company could be sold or broken up.

While the company posted a “solid” fourth quarter as Nordion CEO Steve West put it, the company’s conference call saw many analysts’ questions circling around the review of strategic alternatives.

During a conference call Monday, Mr. West said that no additional information about the strategic alternatives could be provided at the time.

“We are in the early stages and I think it would be inappropriate for us to make any further comments,” he said.

No indication was given as to how long the process will take, however Mr. West said the company is considering all options, including acquisitions and sales of certain business divisions.

A press release states that there is no guarantee that Nordion will enter into a transaction in the future as a result of the review, and that planned business activities will continue throughout the review process.

Nordion recorded a net loss of $43.5 million in its final quarter of fiscal 2012, a significant decline from net income of $6.9 million a year earlier.

A net loss of $28.9 million for fiscal 2012 comes in much lower than the net income of $16.8 million that Nordion recorded at the end of fiscal 2011.

A significant portion of the year’s costs came from Nordion’s arbitration and litigation fees incurred throughout the year during its legal battle with Atomic Energy of Canada Ltd.

Nordion’s revenues were “relatively flat” in the fourth quarter, up by one per cent year-over-year at $74.7 million, compared to last year’s $74 million.

For the full year, revenues totalled $244.8 million – an 11 per cent drop from fiscal 2011.

But it wasn’t all bad news for Nordion. The company’s targeted therapies division did well on the back of its technology to treat liver cancer. TheraSphere revenues increased by 14 per cent in fiscal 2012 due to adoption by new clinics. Today, it’s used in approximately 200 sites in 14 countries around the world, with 31 of those sites added on in 2012.

The strong performance led Nordion to decide to further invest in the technology in fiscal 2013, injecting funds into sales and marketing as well as research and development. Nordion says it will spend between $6 million to $8 million on clinical trial investment, and is currently in the process of clearing regulatory hurdles to enter the Asian and European markets.

“We’ve now reached a point where, frankly, historically we have not put the level of investment into it .. that others would have done,” said Mr. West. “We recognize that in order to create sustainable value for this product, additional staffing and investment are required. We see exciting opportunities for Nordion in Therasphere growth.”

As a result of the investment, the targeted therapies business division will likely operate at a loss or break-even basis for the next one to two years, said Nordion chief financial officer Peter Dans.

“Obviously for Therasphere, there’s a hump to get over,” he said.

Nordion’s sterilization business stream remained flat in the fourth quarter with revenues of $32.3 million. In fiscal 2012, revenues of $95.4 million were down 12 per cent compared to fiscal 2011, because the company did not sell any production irradiators in 2012 and because of a lower volume of cobalt-60 shipments. Nordion signed multi-year contract extensions with three of its major customers to supply cobalt-60, however.

The company’s medical isotopes stream saw its revenues decrease by one per cent in the fourth quarter, and 18 per cent for the entire fiscal year because of decreases in sales volume as well as unplanned interruptions at its production facilities in the second and third quarters.

The federally owned NRU reactor in Chalk River, Ont. will undergo a scheduled shutdown for one month during 2013, likely in April. Mr. Dans said Nordion will be working with its customers to bridge their demands during the shutdown period.

Nordion will continue to receive product from the NRU reactor operated by AECL until 2016, and the company continues to search for alternative facilities to supplement its needs.

“This is one of the significant headwinds we face with our clients, being able to supply them with a long-term supply strategy,” Mr West said. “It has been a struggle and it will be a struggle.”

After losing its arbitration battle with AECL in a September ruling, Nordion is still pursuing damages from the nuclear energy company – albeit 85 per cent less than it was originally seeking.

Nordion filed an amended statement of claim on Jan. 21 requesting damages in the amount of $243.5 million from AECL, down from the $1.6 billion Nordion originally sought.

The arbitration decision in September, which ruled against Nordion by a two-to-one margin, ended part of the three-year fight over the MAPLE nuclear reactors that AECL decided to mothball, citing a design flaw that Nordion argued was manageable.

Nordion’s legal costs associated with arbitration and the pursuit of the lawsuit against AECL are currently expected to be approximately $2 million in fiscal 2013, according to the company.

The local firm may also be on the hook for part of the $46 million in arbitration fees claimed by AECL. A decision on the matter will likely be made in the second quarter of fiscal 2013.

Nordion is the country's largest producer and seller of medical isotopes, used for the treatment, diagnosis and prevention of disease. Founded in 1946 with headquarters in Kanata, Nordion has 450 local employees.

Organizations: Atomic Energy of Canada Ltd.

Geographic location: Chalk River, Kanata

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