SureBeam Up 36%, OMB Approves Food Irradiation Rules 

PAT MAIO / Dow Jones Newswires 18oct02

LOS ANGELES -- Shares of SureBeam Corp. rose 44% Friday after the White House's Office of Management and Budget approved federal rules that permits irradiation of imported fruits and vegetables to kill unwanted bugs.

The rules, called the Animal and Plant Health Inspection Service, or APHIS, were approved late Thursday by the budget office and will now be sent to the U.S. Federal Register for publication of the final rules.

The register is the government's bible of rules and regulations that outline the ins and outs of how federal programs are run.

The APHIS rules are significant to SureBeam because the San Diego company holds four letters of intent with international customers to sell its irradiation equipment pending the enactment of the rules, according to Stephen Levenson, analyst with Gerard Klauer Mattison.

Levenson also said that the company is in talks with 11 other potential customers that could turn into bona fide orders.

Larry Oberkfell, SureBeam's president and chief executive, said in a phone interview with Dow Jones Newswires that he couldn't discuss the potential parties that SureBeam is in talks with, but indicated that each machine would run between $6 million and $9 million each.

"The rules will allow us to expand our technology into major agriculture markets around the world," Oberkfell said.

Shares of SureBeam recently were up $1.12 at $3.64 on volume of 2.75 million, more than double the daily average volume.

Specifically, the APHIS rules would require developed countries to stop using methyl bromides, a known carcinogen, or cancer-causing agent, by 2005.

The rules were proposed this past spring and were rushed through the approval process because of government urgency to deal with potential bio-security threats that came in the wake of the Sept. 11, 2001, terrorist attacks.

The Bush administration's Office of Homeland Security had a finger in the rules because of the concerns over terrorists using insects to potentially attack U.S. crops.

"If you got an insect that is naturally occurring in another country but harmful to our farmers, it could devastate a crop," Oberkfell said.

"Our technology is 100% effective. It's not like a fumigant," he said.

Countries said to be considering purchases of the technology, according to Oberkfell, include Thailand, the Philippines, Indonesia, Malaysia, Brazil, Chile, Venezuela and Peru. The U.S. Agriculture Department estimates that $39 billion worth of fruits and vegetables are imported annually.

There is another process to treat fruits and vegetables besides irradiation. This so-called vapor treatment, or hot-water dip, simply boils fruit and vegetables in hot steam for 40 minutes or so, to get at the bugs that burrow beneath the surface of the skin to lay eggs. But this treatment can kill some fruits and vegetables.

Methyl bromides aren't effective at killing the bugs that burrow, only those that are on the surface.

SureBeam's technology uses electricity out of a wall outlet and uses an electron beam to kill harmful food-borne bacteria on meats such as E. coli, salmonella and listeria, as well as bugs in produce.

The new regulations will now expand the use of the electron beam technology.

Oberkfell said the company's financial guidance would remain unchanged with the approval of the APHIS rules.

The company said in July it expected 2002 revenue between $38 million and $42 million, and revenue in 2003 to fall between $75 million and $85 million.

Analyst Levenson said that if SureBeam is successful in booking additional orders from any of the 11 potential customers it is currently in discussions with, then current revenue and earnings per share forecasts for 2003 would "probably be conservative."

"The enactment of the APHIS rules is a pivotal point in SureBeam's history," said Levenson, who does not own SureBeam stock. His firm, Gerard Klauer, does have an investment banking relationship with SureBeam.

Earlier this week, SureBeam added two more supermarket chains to its fold of retailers that are using its technology to kill harmful food-borne bacteria on hamburger meat.

The addition of Hy-Vee Supermarkets in the Midwest, and Price Chopper in the Northeast, was said to push SureBeam's total store count where its technology is used to nearly 700 stores. Thousands are expected by the end of the year, and recent food recalls are said to serve as a catalyst in those efforts to sell the technology.

Company officials cited the Oct. 14 recall by Pilgrim's Pride Corp. (CHX) of 27 million pounds of cooked sandwich meat, as an example.

Tony Corbo, a legislative representative with Public Citizen, a consumer rights organization in Washington, D.C., had concerns about the APHIS rules.

"From a health standpoint, we are not convinced that irradiation is a safe technology," he said.

He cited ongoing research in German laboratories which indicates that some foods when irradiated can cause new chemicals to form. In tests with laboratory animals, these new chemicals have caused cancer and genetic defects, he said.

In other research, Corbo claims that the irradiation technology has depleted fruits and vegetables of some nutrients and vitamins, and even caused new breeds of pests to form in certain instances.

"If the rules come out (in the Federal Register) the way they were originally proposed, then 'No,' we won't like them," he said.

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