NYTIMES
Red Meat May Not Be Enough for Irradiation Companies
By JAMES STERNGOLD
Irradiation has become a way of life in the United States. Though not well
known, irradiation, or the use of small, tightly controlled doses of nuclear
energy to kill harmful bacteria, is an increasingly common way to sterilize
medical products.
In addition, roughly 30 percent of the spices used here are irradiated, as
are a growing number of cosmetics. Containers of all kinds, including many of
the tiny plastic cups used for milk at coffee shops, are irradiated. Various
fruits and vegetables, and poultry, are often irradiated, too.
But this small business received what could be its biggest boost last week,
when the Food and Drug Administration decided to permit the irradiation of red
meats. Nonetheless, analysts who follow the companies that perform the
irradiation are skeptical at best about the FDA move.
Their reasons center on consumer reactions and the cost of building new
facilities. More generally, while most of them believe some irradiation will
take place, there are big issues about how much and how fast.
"I guess that clearly this is good news because it opens a whole new
opportunity for these companies," said Anne Malone, an analyst at Smith
Barney. "But I'm very cautious. There are a lot of 'what-ifs' still."
Alan P. Jacobs, an analyst at Avalon Research, agreed. "The real issue is
that it's several years out. You can't put a bottom-line value on it."
Irradiation is usually performed not by the company producing the food or
item being sterilized, but by specialty companies. The three most prominent
public companies are the Steris Corp., which is in the business by virtue of
having recently acquired Isomedix for $142 million, Sterigenics International
and Food Technology Service.
Sterigenics had sales of $37.7 million last year, but Food Technology, with
just $200,000 in annual sales, is so small that there is little investment
interest.
Despite analysts' skepticism, these companies enjoyed a quick jump in their
share prices after the FDA announcement.
And few experts doubt that irradiation, whose safety and effectiveness are
accepted by many scientists, will eventually become an increasingly important
means of protecting consumers from bacteria and other microbes in the
country's food supply.
A growing share of Americans' food is imported, much of it from countries
that have lower standards for handling and testing food.
In addition, irradiation could become something of an insurance policy for
meatpackers, not only protecting consumers from microbes, but protecting the
companies from lawsuits.
And several recent incidents of food contamination in which many people
became sick, and in some cases died, have increased the appeal of irradiation.
Hudson Foods, a meatpacker, had to recall 25 million pounds of hamburger
recently because of suspected contamination with the bacteria E. coli; some of
that meat ended up at Burger King restaurants. Several years ago, there was a
similar problem at Jack in the Box restaurants.
Thomas J. Gunderson, an analyst at Piper Jaffray, said: "Because of what has
happened, the best target market is ground beef. The meat processors are for
this as a way of avoiding a new level of regulatory bureaucracy."
But despite the recent food poisonings, consumers seem to have only a tepid
desire for irradiation, and some even worry that the procedure may create its
own health problems. Some people say irradiation may affect how foods taste,
although a number of experts say this is not the case. These views are not
lost on some meatpackers.
Even if the irradiation of red meat catches on, one company's efforts to
prepare for that prospect point up the difficulties. James Williams, the chief
financial officer of Sterigenics International, which is based in Fremont,
Calif., said 8 of the company's 12 facilities were currently used for
sterilizing medical equipment and 4 for packaging, spices and cosmetics. It
will have to build many new facilities close to the meatpacking plants to take
advantage of the new business that may develop.
That is a problem because the facilities can take a long time to construct,
usually 12 to 18 months. The facilities require a hole at least 10 feet deep
and a protective concrete barrier roughly six feet thick. And special
approvals are needed to handle the cobalt or other radioactive materials used
to irradiate the products.
Williams said that to hasten the process, Sterigenics had developed what it
calls a mini-cell. The mini-cells can be built in 6 to 12 months, and thus can
quicken the company's move into the kind of business that Sterigenics needs to
grow.
"The nonmedical area is going to grow much more rapidly than the medical
side," Williams said. "There are no new entries we see into the medical area."
But Jacobs warned that, if the business did pick up quickly, more companies
could pour into it and cut margins. "This could become a commodity business,"
Jacobs said. "The barriers to entry are pretty low. The technology is not
really new and it is well understood. It just takes capital and time to build
the facilities."
Also, Steris and Sterigenics are not strong bets because they are trading at
full value, Jacobs said. The stock of Steris, which is based in Mentor, Ohio,
closed on Friday at $48.875, or 27 times its estimated earnings per share next
year. Sterigenics closed at $19.75, or 27 times 1998 estimated earnings.
Ms. Malone was far more upbeat, largely because of the prospects for slow
but steady growth in Steris' basic business of making infection-control
products for the health care industry. She said she expects its stock to rise
to about $60 within the next 12 months, adding that, if the company is able to
quickly build a business irradiating red meat, the stock price will get
another boost.
Gunderson said he was modestly optimistic about Sterigenics, which is
growing nicely and whose stock has already risen considerably from its initial
public offering of $12 a share in August. He said he expects Sterigenics to
rise to perhaps the mid- to high $20s over the next 12 months.
Sunday, December 7, 1997
Copyright 1997 The New York Times |
