Canadian isotope spat could cause price hike

November 17, 1993

Trouble is brewing again at a Canadian nuclear reactor that isthe source of much of the world's supply of molybdenum-99, theraw material for the nuclear medicine tracer technetium-99m. Thedispute could result in higher prices for a number of

Trouble is brewing again at a Canadian nuclear reactor that isthe source of much of the world's supply of molybdenum-99, theraw material for the nuclear medicine tracer technetium-99m. Thedispute could result in higher prices for a number of radioisotopes,including molybdenum-99.

At issue is a complex contractual agreement between the Canadiangovernment agency that runs the Chalk River Laboratories reactorin Chalk River, Ontario, and the private company that purchasesthe bulk of its output. While the situation will probably be resolvedwithout a disruption in supply, the dispute is sure to renew callsby U.S. nuclear medicine advocates for a domestic supply of radioisotopes.

The Chalk River reactor is run by Atomic Energy of Canada,Ltd. (AECL), a Canadian government agency, and produces over 80%of the world's supply of molybdenum-99. AECL sells Chalk River'smolybdenum-99 to Nordion International of Kanata, Ontario, a privatefirm that refines and distributes radioisotopes.

Attention focused on the Chalk River reactor last year afterreactor workers involved in labor negotiations with AECL threatenedto go on strike (SCAN 8/12/92). The negotiations were settledwithout a labor walkout, but the close call helped fuel agitationin the U.S. to develop a domestic radioisotope facility (SCAN11/3/93).

That agitation is likely to heat up again in light of recentevents at Chalk River. AECL and Nordion are haggling over theterms of a contract that governs the sale of radioisotopes fromthe Chalk River reactor. AECL wants to nullify the contract inorder to win the right to increase the prices it charges Nordionfor radioisotopes like molybdenum-99. Nordion is seeking to preservethe contract and hold AECL to a promise to build a back-up reactor.

THE ROOTS OF THE DISPUTE trace back to 1991. In that year AECL,which once owned Nordion, spun off the company by selling a majorityinterest to MDS Health Group of Toronto. As part of the sale,MDS inherited a long-term contract between Nordion and AECL thatsets radioisotope prices. The contract also specifies that AECLwould maintain a backup reactor to the one in operation at ChalkRiver.

In March AECL determined that the backup reactor, which hadbeen closed for repairs, could not be restarted. AECL then claimedthat the shutdown constituted a circumstance beyond its controlthat gave the agency the right to terminate its agreement withNordion. With the contract no longer in effect, AECL announcedthat it intended to increase radioisotope prices retroactive toSept. 27 to cover production costs.

MDS disagreed with AECL's interpretation of the contract, andthe two settled on arbitration to sort out the agreement, accordingto Doug Phillips, chief financial officer of MDS. MDS also filedsuit against AECL in an Ontario court to determine whether AECLis obligated to complete the Maple X reactor, a second reactornow under construction. MDS is asking that the contract be rescindedand that it be awarded $300 million (Canadian) in damages if AECLfails to fulfill the terms of the contract.

"We believe (the reactor shutdown) is not sufficient basisto cancel the contract," Phillips said. "When we boughtNordion, the contract had favorable terms. We wouldn't have paidthe same purchase price if we didn't think they would honor thecontract."

The price Nordion pays AECL for radioisotopes, however, probablydoes not cover the agency's production costs. Government agenciesand private companies in the radioisotope business have long encounteredproblems keeping their operations in the black when faced withthe astronomical maintenance costs inherent in running nuclearreactors.

Indeed, most of the private producers of radioisotopes haveopted to shut down their reactors rather than pay the millionsrequired to fix ailing facilities. This has led to a decreasingnumber of isotope producers, resulting in the monopoly situationthat exists today with radioisotopes like molybdenum-99.

AECL has seen funding from the Canadian government decreasewhile costs associated with construction of the Maple X reactorrise. Charging more for radioisotopes would be one way to reclaimsome of its expenditures.

"There are massive investments that need to be made tosupport nuclear medicine for the next 20 years," said oneindustry observer. "AECL is saying there isn't enough moneyfrom radioisotope sales this year."

HOW MUCH IS AECL PLANNING to raise radioisotope prices? The agencydeclined to give an exact figure, but some estimates are thatthe price of molybdenum-99 could double.

Nordion and AECL will probably enter arbitration in April orMay of next year, according to Phillips of MDS. The lawsuit Nordionfiled against AECL will proceed only if arbitration breaks down,he said.

Both sides say the dispute does not threaten the availabilityof molybdenum-99 or any of the other radioisotopes produced atChalk River, such as iodine-131 and iodine-125.

To nuclear medicine specialists in the U.S., however, the clashis yet another example of the perils inherent in relying on asingle foreign source for a radioisotope that is invaluable tonuclear medicine.

"Nobody realizes how fragile the whole system is,"said a source who declined to be identified. "At issue inall of this is whether it's prudent to depend on a single sourceof supply that can be interrupted for a variety of reasons."

Rep. Michael Synar (D-OK), who has held hearings on the radioisotopeavailability issue, is following the AECL-Nordion dispute, accordingto David Berick, a Synar aide. Synar has sent a letter to theCanadian embassy asking for more information about AECL's plansto supply radioisotopes.

Synar also plans to hold a hearing on radioisotope availabilitylater this year. A previous hearing was held in Synar's subcommitteeon environment, energy and natural resources in August 1992 (SCAN8/26/92).

In addition to the Canadian spat, the hearing will probablyreview the U.S. Department of Energy's derailed effort to createa domestic source for molybdenum-99 by starting up the Omega Westreactor at Los Alamos National Laboratory in Los Alamos, NM. TheDOE had initially predicted that Omega West would begin producingmolybdenum-99 this year.

A leaking coolant pipe under the reactor building has stymiedefforts to start the reactor, however. The leak was discoveredearly this year, but the DOE only last month received a permitto begin excavating the line and remedy the problem.