MDS Pharma Services under pressure in Q4

22-Dec-2008 - Last updated on 22-Dec-2008 at 11:31 GMT

Canadian contract services company MDS Pharma Services reported disappointing results in its fiscal fourth quarter, with revenues dropping 9 per cent to $112m.

The results, which provide further evidence that outsourcing companies serving the pharmaceutical sector are starting to felt the effects of the economic downturn, also prompted one shareholder to press for a sale of business units by parent company MDS.

MDS itself is predicting sales of $1.21bn-$1.22bn for fiscal 2008, roughly $100m shy of earlier predictions. Earnings guidance has also been trimmed back to $148m-$154m from its earlier level of $160m-$170m.

Part of the reason for the decline is a write-down of goodwill at MDS Pharma Services – to the tune of $270m-$370m – which the company said was a result of “the decline in overall contract research organisation stock market valuations, current economic uncertainty and the delay in profit recovery.”

The final amount of this write-down will be released in January when the company releases its audited financial statements.

MDS Pharma Services’ late-stage clinical research business seemed to bear the brunt of the downturn, with revenues falling 18 per cent to $47m. There were delays in Phase II-IV studies, as sponsor companies are reviewing their pipelines and making tough decisions over which projects to bring forward, according to MDS CEO Stephen DeFalco.

The early-stage business did a little better, but still saw sales fall 2 per cent to $65m.

MDS Pharma Services said earnings before interest, taxes, depreciation and amortization (EBITDA) came in at $8m for the quarter, well up on the fourth quarter of 2007, which was largely the result of cost-cutting efforts which have seen the firm’s headcount cut by around 150.

The results follow a call by a major shareholder last month to hive off some of MDS business units in order to increase shareholder value. In addition to the pharma services division, MDS also specialises in analytical instruments and molecular imaging.

Meanwhile, the MDS group as a whole reported a net loss of $255m on quarterly revenues of $295m. The damage was mainly done by a $246m writedown for its Maple nuclear medicine reactor project in Ontario, which was due to supply radioactive materials for healthcare applications.

The company remains embroiled in a lawsuit with Atomic Energy of Canada, Limited (AECL) and the Canadian government, after work on the Maple reactors was halted.