MDS trims down Pharma Services to cut costs

The bulk of the job cuts will come from contract research organisation (CRO) MDS Pharma Services business, and represent just under 4 per cent of MDS’ total workforce of 5,500.

The move is the latest in a broad-ranging restructuring programme at MDS’ pharmaceutical services business put in place after a US Food and Drug Administration (FDA) probe into tests on generic medicines carried out at the division’s Montreal facility. A major piece f that programme was completed when it sold off its laboratory division in Canada last year for $1.3bn.

The Canada-headquartered company also said that it would take a $10m charge this year as it closes down an MDS Pharma Services facility in Montreal which was at the heart of the FDA investigation. The combined cost of the restructuring exercise will be around $28m this year, mostly being recorded in the third quarter.

While MDS Pharma Services has been enjoying something of a resurgence in fortunes after the FDA probe was laid to rest last year, the group as a whole has had a patchy period of late.

MDS’ second-quarter results were held back by “softening​” high-end instrument sales at its MDS Analytical Technologies unit, and the firm has also cut back its revenue predictions for 2008 marginally to $1.25bn-$1.29bn, down from $1.25bn-$1.3bn.

Meanwhile, MDS has also become embroiled in a lawsuit with Atomic Energy of Canada Ltd and the Canadian government after work on two reactors used to develop radioactive material for healthcare applications was halted, threatening long-term supplies.

MDS’ Nordion unit is a major world supplier of medical radioisotopes and is concerned that its ability to serve that function will be compromised if the AECL project does not go ahead.

Perhaps more serious for MDS though is an effort by a section of its shareholder base headed by New York hedge fund Obrem Capital to achieve a break-up of the company, on the grounds that the constituent parts would be worth more than the conglomerate whole.

In April, Obrem disclosed that it held a 5.1 per cent stake (now 5.3 per cent) in MDS and was seeking spin-off or sale of one or several of the company's business units. In June the shareholder sent a letter to MDS management suggesting that MDS Nordion should be sold and could raise $1bn for the company.

Since April MDS shares have fallen from around $20 to their current level of around $14.50. Obrem contends the company could be worth $23 or more per share if broken up.