Burning drugs is a green business

NEW YORK (CNNMoney.com) -- Burning drugs is good business. Just ask Stericycle.

The stock for Stericycle, Inc. (down $0.57 to $49.32, Charts) - a Lake Forest, Ill.-based waste disposal company - has surged 30 percent so far this year. The company converts garbage and junk into energy, specializing in the disposal of medical waste, blood banks and drugs.

Stericycle incinerates unwanted, expired and recalled drugs that it collects from pharmacies, and converts them - along with all sorts of cast-off biomass junk - into power. While pharmaceuticals make up a relatively small portion of the company's annual revenues (which totaled less than $800 million in 2006), it is Stericycle's fastest-growing area.

"The pharma recall business has been a nice addition to their core business," said Ed Snyder, analyst for FTN Midwest Securities Corp.

Snyder said that returned or recalled pharmaceuticals made up $1 million in 2004 revenues for Stericycle but grew exponentially to $12.5 million in 2005 and then $58.5 million in 2006. Snyder estimates that pharma-burning revenues will swell to $75 million in 2007.

Stericycle isn't the only waste disposal company to convert expired drugs from Big Pharma companies, such as Pfizer Inc. (up $0.04 to $24.78, Charts, Fortune 500) and Merck & Co., Inc. (down $0.42 to $50.40, Charts, Fortune 500), into profits by burning them. Covanta Holding Corp (down $0.64 to $22.00, Charts)., based in Fairfield, N.J., converts 15 million tons of waste into energy every year at some 30 facilities around the U.S. But according to Daniel Mannes, analyst for Avondale Partners, pharmaceuticals make up just a smidgen of Covanta's biomass waste.

Larry Hruska, president of the privately held Milwaukee-based company Capital Returns, said his business collects expired drugs from pharmacies and distributes them to waste-to-energy companies, including Stericyle and Covanta. The pharmacies are then credited for their drugs by the drugmakers.

"We've got to guarantee that the product we're disposing does not end up in a landfill or contaminate the water table," said Hruska. "The best way of doing that is putting it into a facility and burning it."

Hruska would not reveal his company's sales but said that Capital Returns (a division of GENCO) controlled 27 percent of the pharma returns market.

Hruska said no more than 2 percent of all drugs are returned to the manufacturer, though this can add up. Last year, Capital Returns collected 6.5 million pounds of pills for incineration in 2006, which generated about two million kilowatt hours of electricity. With the average U.S. home using 11,256 kilowatts per year, according to Department of Energy, Capital Returns was able to power 177 homes with medical waste last year.

Hruska said that converting the unwanted drugs into Kilowatt hours - and revenues - is a much greener means of disposal than alternatives like landfills. Incinerating one year's worth of drugs collected by Capital Returns conserved about four acres of landfill space, according to the company.

But the drugs-to-energy industry is still relatively small. With Capital Returns controlling about one-fourth of the market, that means the entire industry is powering about 700 homes nationwide, and saving 16 acres of landfill space.

For now, Capital Returns deals strictly with other businesses, but someday private citizens might be able to return their unused pharmaceuticals for power-generating incineration. Hruska said his company is working with the Drug Enforcement Administration to try and change laws that prevent companies from collecting expired drugs from individual patients.

"Today, the majority of that product is getting dumped in the trash or flushed down the toilet, which isn't good for the environment," said Hruska.