Company Making Strides in Tc-99m Development
Jeremy L. Dillon
RW Monitor
4/3/2015
After announcing a nearly $3 million operating loss for 2014, Perma-Fix Environmental Services CEO Lou Centofanti indicated this week that revenue in 2015 would be a little “lumpy.” Perma-Fix announced an operating loss of $2.99 million for the full-year 2014, an improvement from the $34.4 million operating loss it experienced in 2013. The company fared better in the fourth quarter of 2014 with a net income of $741,000, up from an operating loss of $30 million in the same period of 2013.
Perma-Fix suffered some setbacks in the beginning of 2014 that put the company in a deep hole to begin the year, but an increase in treatment and service business in the second half of the year helped reduce the operating loss for the year. “The period of 2012 through the first half of 2014 were among the most difficult periods our industry has faced,” Centofanti said in a statement. “We not only survived these challenges, but have emerged a much stronger company as evidenced by our strong performance in the second half of 2014. Our Treatment Segment backlog at the end of 2014 is stronger than last year and our Service Segment sales pipeline is improving as evidenced by recent contract wins and additional contracts we are actively bidding on. Overall, we believe we are well positioned to continue our growth and positive cash flow in 2015.”
Perma-Fix also said that due to the positive second half in 2014, the company was able to drop the “going concern” qualification from its financial statements, indicating a healthier financial status for the company. Perma-Fix first had to identify the going concern, an accounting term that signals trouble for a company, a year ago in its full-year 2013 financial results due to a string of poor quarters that put the company at risk of not being able to move forward.
Revenue ‘Lumpy’ Due to Waste Shipment Delays
Centofanti, though, said delays in waste shipments will affect the 2015 first quarter results, which could lead to the same “lumpiness” in revenue that occurred in 2014. “We continue to see our largest client, DOE, continue to be linked with several large projects, which are siphoning off waste dollars,” Centofanti said. “We have partially offset this weakness by focusing on other markets, including commercial and international. The strategy is working, but it is a slow process. It takes time to develop these markets, and in the meantime, our revenue continues to be a little bit lumpy.”
He later added, “We are encouraged by the outlook for ’15 given our sales pipeline, service segment and improved backlog within treatment segment which increased by 19.5 percent to $9.2 million at the end of the fourth quarter. Looking ahead, I remind everyone that the first quarter tends to be our weakest period and as we watch the first quarter, we have also seen some shipments being delayed. Nevertheless we expect to be around breakeven EBITDA or possibly a small loss in the first quarter.”
Despite Centofanti’s optimism, Perma-Fix stock dropped 9.39 percent the day of the company’s financial results announcement, dropping from $4.26 a share to $3.88 a share. At the time of publishing, shares were worth $3.76.
Tc-99m Design Making Progress
Meanwhile,Centofanti said that Perma-Fix has made progress in its technetium-99m production design, and it hopes to apply for Food and Drug Administration approval by the end of 2015. With Canada set to stop government spending in 2016 on the National Research Universal (NRU) reactor, one of the world’s largest suppliers of molybdenum-99 and technetium-99m, the medical isotope industry is expecting a shortage in the market in the coming years, opening a potentially lucrative opportunity to satisfy the market for the medical isotope used in millions of procedures annually. Centofanti estimated this week the total revenue for a generator of Tc-99m in this market could reach between $400 million to $500 million a year, and a gross profit in the 30 to 50 percent range. In order to achieve these levels of production, Perma-Fix has decided to scale up its production capabilities. “To date we have successfully developed and demonstrated a process to produce Tech-99 but our next step is to scale it up to commercial use,” Centofanti said. “We hope to complete a large scale version well before the end of 2015 at which time we will apply to the FDA.”
The company announced last year the successful demonstration of its technology to produce the medical isotopes used in millions of procedure annually, and Perma-Fix has been trying to raise funding to move its design through the regulatory process in Europe and the United States. Perma-Fix’s subsidiary, Perma-Fix Medical S.A., received a $2.8 million grant and a $1 million dollar investment from Digirad, one of the largest national providers of in-office nuclear cardiology imaging services, has helped the company move the technology forward. These investments, combined with previously announced investments from Poland, resulted in Perma-Fix holding a 64 percent share of the company, according to Perma-Fix Chief Financial Officer Ben Naccarato.
Perma-Fix plans to hire new senior management in the coming months to lead Perma-Fix Medical. Centofanti indicated the hires would come with extensive medical isotope industry experience. “The other milestone which should appear very shortly, we have been in the process of staffing up and hiring a new senior management team to run Perma-Fix Medical with experience in the Tech-99 market,” Centofanti said. “We are very close and expect to announce these appointments in the next several months as we go through some regulatory approval processes for the positions in the Polish company.”
