September 10, 2012 / 12:22 PM / in 5 years

Nordion suspends dividend after arbitration loss

(Reuters) - Nordion Inc NDN.TO, a Canadian provider of medical isotopes, said on Monday that it would suspend its quarterly dividend after an arbitration panel rejected its claim for damages from its main supplier, sending its shares into a tailspin.

Nordion had hoped to compel state-owned Atomic Energy of Canada Limited (AECL) to pay damages or complete mothballed reactors that would replace the ageing National Research Universal (NRU) reactor. The panel rejected Nordion’s claim.

“We are extremely disappointed with the outcome of the arbitration,” said Tamra Benjamin, Nordion’s vice president for public and government relations. “But regardless of that, we still have a strong business, we’ve got solid results, we’ve got good cash flow and margins.”

Benjamin said Nordion would need some time to look at the ruling and consider its next steps.

The company said it would stop buying back shares after completing or cancelling its current stock repurchases.

The arbitration decision allows Nordion to continue a lawsuit against AECL, but could substantially reduce its C$1.6 billion ($1.6 billion) claim in that suit. Nordion may also be required to pay some of AECL’s arbitration costs, which it said could be material.

In a brief, separate statement, AECL said it would review the panel’s decision.

The NRU reactor in Chalk River, Ontario, supplies raw material that Nordion uses to produce molybdenum-99. Nordion is one of the world’s leading producers of moly-99, used in medical imaging.

At issue in Nordion’s dispute with AECL are the MAPLE reactors, which AECL built to replace the NRU. The reactors never worked properly, and AECL shut down the project in 2008. Nordion has argued that AECL is legally required to complete the reactors.

Nordion’s stock plunged 43.5 percent to C$5.91 in early trading on the Toronto Stock Exchange. Before the ruling, the stock had risen 17.3 percent over three months, partly on hopes that the company would win in arbitration.

SUPPLY PROBLEMS

The NRU is one of the few reactors in the world that can supply the material Nordion needs to produce moly-99 at scale. But it has been operating since 1957, and while it is licensed to operate until 2016, beyond then its future is unclear.

Canada closed the facility because of safety concerns in fall of 2007 and again from May 2009 to August 2010, causing a worldwide shortage of moly-99 and encouraging many of Nordion’s customers to diversify suppliers.

Nordion is still feeling the effects of the shutdowns in the form of lower prices, and its efforts to secure another supplier in Russia are still in testing stages. Benjamin said it is on track to supplement supply by 2016.

Nordion has said that it expects future growth to be driven by its “targeted therapies” business, which includes TheraSphere, a liver cancer treatment. Last week it reported higher quarterly profit as revenue from that segment rose 15 percent.

The NRU shutdown spurred a search for alternatives, and Natural Resources Canada funded four groups of researchers in a competition to find a process to manufacture the needed isotopes without a reactor.

Nordion disclosed early in 2012 that was is in talks with one of the research groups on commercializing a new process, but characterized it as a way to supplement production, rather than replace reactors.

($1 = $0.98 Canadian)

Editing by Frank McGurty

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