MDS Reports Second Quarter 2009 Financial Results

Thursday, June 11, 2009 7:51 AM

(Source: Canada Newswire) tracking

TORONTO, June 11 /CNW/ - MDS Inc. (TSX: MDS; NYSE: MDZ), a leading provider of products and services to the global life sciences markets, today reported financial results for the three- month period ended April 30, 2009. On a GAAP basis, MDS reported total revenue of $282 million, a net loss of $17 million and a loss per share of $0.15 for the second quarter of 2009. These results include a non-cash asset write-down of $16 million. Net revenue was $257 million and adjusted EBITDA was $31 million, compared with $326 million and $34 million in the prior year, respectively. For the quarter, the Company announced adjusted earnings per share of $0.03, compared with $0.08 in the corresponding period a year ago.

Quarterly Highlights

- Net revenue of $257 million, down 21% from $326 million in the prior

year. Excluding the impact of foreign exchange, acquisitions and

divestitures, net revenue decreased 10%.

- Adjusted EBITDA of $31 million with 12% margin, versus $34 million

with 10% margin in the prior year, as $15 million in restructuring

and productivity savings largely offset market declines.

- Adjusted earnings per share of $0.03, compared with $0.08 in the

prior year, primarily driven by lower adjusted EBITDA and higher

interest expense.

- Period-end cash position increased $94 million to $243 million.

- New product introductions to provide customers with advanced

technology and improved performance, including the AB SCIEX TOF/ TOF

(TM) 5800 system, a new administration system for TheraSphere(R), a

suite of iMethods tests, and MetaXpress(TM) analysis software.

"With a vigilant focus on productivity, we offset declines in a soft market, and delivered solid margins and strong cash flow within the quarter," said Stephen P. DeFalco, President and Chief Executive Officer, MDS Inc. "We continue to maintain a balance of disciplined cost control and strategic investments to make the Company more competitive during this challenging economic period."

Operating Segment Results

MDS Pharma Services

% Change

(millions of U.S. dollars) Q2 2009 Q2 2008 Reported

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Net Revenue

Early Stage $ 56 $ 68 (18%)

Late Stage 49 60 (18%)

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105 128 (18%)

Reimbursement revenue 25 24

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Total revenue $ 130 $ 152

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Adjusted EBITDA $ 3 $ (1) n.m.

3% (1%)

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n.m. - not meaningful

For the second quarter, MDS Pharma Services reported adjusted EBITDA of $3 million, compared with a loss of $1 million last year. This $4 million year-over-year increase was largely due to productivity gains and restructuring savings, partially offset by lower volumes. Net revenue decreased 18% over the prior-year period with foreign exchange negatively impacting revenue by $9 million. In the second quarter, Late Stage declines were primarily due to lower demand in Central Labs. In Early Stage, declines were largely driven by lower revenues in bioanalytical services.

MDS Pharma Services recorded new business wins totaling $114 million, a sequential increase of 10%, compared with new business wins in the first quarter, but down 31% compared with $165 million of new business wins last year. The sequential improvement was primarily driven by solid orders in Phase II-IV and Early Stage bioanalytical services. The year-over-year decline was largely due to the impact of foreign exchange and slower market demand as customers reprioritize their research and development (R&D) projects. Period-end backlog was $442 million, down 11% from $496 million in the prior year. This decrease is primarily related to changes in foreign exchange and declines in Late Stage, partially offset by a 10% increase in Early Stage backlog.

As part of the Company's quarterly balance sheet assessment, a non-cash write-down of $16 million was recorded in the second quarter to reflect the current fair value of MDS Pharma Services Central Labs fixed assets.

Subsequent to the quarter, as part of its ongoing strategic review process, MDS announced that it will strategically focus MDS Pharma Services on the delivery of Early Stage (Discovery through Phase IIa) services where the Company has a top-three market position. As a result, MDS intends to sell its Late Stage (Phase II- IV and Central Labs) operations. On June 1, 2009, the Company announced an agreement to sell its Phase II-IV operations to INC Research, Inc. for approximately $50 million, including certain transition services and customary post-closing contingencies and adjustments. This sale is expected to close during MDS's fiscal third quarter of 2009 (the three months ending July 31, 2009). A suitable buyer is being sought for Central Labs.

To further improve operating performance in a challenging economic environment, to sharpen the Company's focus on Early Stage, and to reduce overhead associated with the exit from Late Stage, MDS Pharma Services has initiated restructuring actions in the third quarter of 2009. MDS estimates the cost of this restructuring to be approximately $4 million, impacting some 180 people and generating roughly $9 million in annual savings. As the Company plans to sell these operations, Late Stage will no longer be classified as part of continuing operations for financial reporting beginning in the third quarter of 2009.

To further build core competencies in Early Stage, MDS Pharma Services initiated a project in the second quarter to renovate and expand its preclinical operations in Taiwan. The expanded facility will double the previous capacity to better serve emerging demand for services in the Asia-Pacific region.

MDS Nordion

% Change

(millions of U.S. dollars) Q2 2009 Q2 2008 Reported

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Net revenue $ 65 $ 80 (19%)

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Adjusted EBITDA $ 23 $ 24 (4%)

35% 30%

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MDS Nordion reported adjusted EBITDA of $23 million in the second quarter, down 4% compared with last year, and included an embedded derivative gain of $3 million, versus a gain of $2 million last year. Excluding divestitures and foreign exchange, adjusted EBITDA increased 12% compared with last year. Revenue for the second quarter was $65 million, compared with $80 million last year. Excluding the $10 million negative impact of foreign exchange and $10 million related to the divestiture of certain product lines, revenue increased by $4 million, or 6% year-over-year. Excluding the divestitures and foreign exchange, year-over-year improvement in revenue and adjusted EBITDA was primarily driven by strength in medical isotopes.

During the quarter, MDS Nordion launched an improved TheraSphere(R) administration system for physicians. TheraSphere(R) is a targeted internal radiation therapy for patients with inoperable, primary liver cancer. The new administration system allows for safer, faster, and more efficient administration of TheraSphere(R), providing better treatment delivery for patients.

Subsequent to the quarter, MDS Nordion commenced the manufacture of Cardiogen-82(R) (Rubidium-82 generators) for Bracco Diagnostics Inc. (Part of Bracco Group). CardioGen-82 is the only generator- based, cardiac Positron Emission Tomography (PET) perfusion imaging agent approved by the United States Food and Drug Administration (FDA). PET is a highly sensitive medical-imaging technique that produces a three-dimensional image of the functioning heart, allowing the cardiologist to identify regions of the heart muscle receiving poor blood flow.

After the end of the quarter, in May 2009, Atomic Energy of Canada Limited (AECL) announced that its National Research Universal (NRU) reactor would be out of service for at least three months. Based on historical EBITDA trends related to NRU-supplied isotopes, MDS expects the financial impact of this shutdown to reduce MDS Nordion's adjusted EBITDA by approximately $4 million for every month the NRU is out of service. MDS is assessing plans to reduce costs over the extended shutdown period. MDS Nordion continues to deliver positive EBITDA from sterilization technologies and radiopharmaceutical product and service lines.

MDS continues to work to secure a long-term reliable supply of medical isotopes. In 1996, MDS Nordion contracted with AECL to complete and commission the MAPLE reactors, which were intended to replace the NRU. In May 2008, this project was unilaterally discontinued by AECL and the Government of Canada. MDS invested over $350 million in the MAPLE project, and believes that the completion of the MAPLE reactors is the best solution to provide global medical isotope supply. More recently, MDS Nordion urged the AECL and Canadian Government to consult with international experts and obtain their assistance to activating the MAPLE project to address the current medical-isotope supply shortage. In addition, MDS Nordion is examining longer-term supply alternatives and announced in the second quarter its collaboration with TRIUMF, Canada's national laboratory for particle and nuclear physics, to study the feasibility of producing a viable and reliable supply of photo fission-based Molybdenum-99.

MDS Analytical Technologies

% Change

(millions of U.S. dollars) Q2 2009 Q2 2008 Reported

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Net revenue $ 87 $ 118 (26%)

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Adjusted EBITDA $ 13 $ 17 (24%)

15% 14%

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In the second quarter, MDS Analytical Technologies reported $13 million in adjusted EBITDA, compared with $17 million in the corresponding quarter last year. Excluding $5 million of unfavorable impact from foreign exchange, primarily as a result of hedge positions established in 2008, adjusted EBITDA increased $1 million or 4%, driven by restructuring and productivity savings, which were largely offset by pricing and lower volumes.

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