MDS predicts lower sale proceeds from early stage biz

27-Jan-2010 - Last updated on 27-Jan-2010 at 08:27 GMT

MDS believes its early stage business is likely to sell for less than previously expected because of the continued deterioration of market conditions and its declining customer base.

The company has been selling off business segments to allow it to focus on its Nordion division. This strategy was devised during a strategic review and MDS believes it is the best way to unlock the value of the businesses in the short-term and provide returns for investors.

However, MDS’ annual report states the sale proceeds from the early stage business may be insufficient to fund a distribution to shareholders. This change in thinking is underpinned by various events that have occurred since MDS made its calculations in October 2009.

"The CRO industry is experiencing ongoing soft demand in the early stage market”, MDS Pharma Services President David Spaight explained in a statement to Outsourcing-Pharma.

“As market conditions evolve, we continue to have ongoing discussions with parties interested in the MDS Pharma Services asset and are working to achieve the best outcome for the company and its shareholders."

MDS gave three key reasons behind the change in valuation, two of which are deteriorating market conditions and declining customer base. The final factor relates to the ongoing review process, including “recent discussions with interested parties”.

In the fourth quarter of its fiscal 2009 MDS recorded an estimated pre-tax loss of $13m (€9.2m) on the sale of early stage. Following the events detailed above, MDS believes an additional loss in the range of $30m to $60m is possible.

Despite these challenges MDS said “it is probable that a sale of early stage will occur”. In “the unlikely event that a transaction does not occur” MDS currently intends to retain and invest in building the business.

Financial results

The early stage business generated revenues of $244m in fiscal 2009, a drop of 17 per cent compared to the $296m the previous year. Similarly, revenues from the central labs segment declined by 19 per cent to $110m.

MDS has now sold the central labs and Phase II-IV segment, leaving early stage as the sole pharma services business under its control.