EPA’s proposed ethylene oxide regulations may cost sterilizers more than estimated: Moody’s

Capital spending and operating costs would increase for commercial sterilizers if the EPA's proposal becomes regulation, particularly for companies whose core business is sterilization, according to the Moody's analysts.

The EPA had estimated the 86 sterilization facilities in the U.S. would cumulatively need to spend $220 million in one-time capital investments and an additional $86 million per year in recurring costs to operate and maintain the upgraded equipment, but the total cost could exceed those estimates, the analysts wrote.

Some large medical device companies operate their own sterilization plants, such as Medtronic, Stryker, Baxter and Becton Dickinson. Steris and Sotera Health are two companies that focus on sterilization as their core business, accounting for 20% of facilities in the U.S.

Based on the amount that those two companies have already spent to upgrade their equipment, in anticipation of the new ethylene oxide emission regulations, "we believe the costs will be significantly higher than the EPA's estimates," Moody's analysts wrote.

Sotera and Steris have already spent more than $30 million each on equipment upgrades in the past two to three years, and are expected to need an additional $25 million to $35 million each in equipment upgrades to comply with the proposed regulations, according to Moody's. The analysts also expect the annual operating cost for each company to increase by $5 million to $10 million.

Both companies should be able to fund the additional spending with cash on hand, the analysts wrote, but the costs could be "untenable for small companies with just one or two sterilization facilities, especially if those facilities are old and operate at smaller scale," and may force some smaller companies to sell.

Companies have until June 27 to comment on the proposed rules. They will have 18 months to install the required pollution controls after the EPA issues a final rule.