(Source: PRNewswire)
TORONTO, Sept. 10 /PRNewswire-FirstCall/ - 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 July 31, 2009. MDS reported total revenue of $199 million, a net loss of $62 million and a loss per share of $0.51 for the third quarter of 2009, compared with $252 million in total revenue, a net loss of $10 million and a loss per share of $0.08 for the same period last year. Current quarter results include non-cash write-downs for goodwill and fixed assets of $37 million and $7 million, of which $12 million was reported in discontinued operations. From continuing operations, MDS reported a net loss of $48 million and a loss per share of $0.40, versus a net loss of $5 million and a loss per share of $0.04 in 2008.
Quarterly Highlights
-__ Net revenue of $192 million, down 21% from $244 million in the prior year. Excluding the impact of foreign exchange and acquisitions, net revenue decreased 16%.
-__ Adjusted EBITDA of $8 million, versus $42 million in the prior year.
Adjusted EBITDA includes an embedded derivative gain of $11 million, partially offset by a negative $3 million year-over-year impact of foreign exchange.
-__ Adjusted loss per share of $0.15, compared with earnings per share of $0.07 in the prior year, primarily driven by lower adjusted EBITDA.
-__ Period-end cash position increased $55 million to $298 million as of the end of the third quarter.
-__ Continued actions in an attempt to establish a long-term supply solution for Molybdenum-99 include (i) feasibility studies in a collaboration with TRIUMF, Canada's national laboratory for particle and nuclear physics; (ii) an agreement with the Karpov Institute of Physical Chemistry in Russia to assess capability as a potential supplier; and (iii) submission to the Government of Canada's Expert Review Panel on Medical Isotopes and Technetium-99m to receive expertise and guidance from the South African Nuclear Energy
Corporation to bring the MAPLE reactors online.
"The economic downturn, further softening in demand for contract research organization services and the unexpected and prolonged shutdown of AECL's National Research Universal (NRU) reactor created significant challenges for our business," said Stephen P. DeFalco, President and Chief Executive Officer, MDS Inc. "We believe the announced strategic repositioning of MDS will unlock the value of our businesses in the near-term, and provide greater opportunities for each of our businesses going forward."
Strategic Repositioning
On September 2, 2009, MDS announced it had entered into an agreement to sell its MDS Analytical Technologies business to Danaher Corporation (NYSE: DHR) for $650 million in cash, and that it currently intends to return approximately $400 million to $450 million of the sale proceeds to its shareholders. Transaction and restructuring costs, associated with the sale, are expected to be in the range of $45 million to $55 million on a pre-tax basis, and no cash income taxes are expected. The completion of the sale is subject to shareholder and regulatory approval, and other closing conditions. In addition, the Company also announced that it intends to sell its MDS Pharma Services business, and upon the completion of these transactions would be focused solely on its MDS Nordion business.
These decisions follow a comprehensive strategic review by a Special Committee of independent directors working with Management and financial and legal advisors. The MDS Inc. Board of Directors believes these actions are in the best interests of the Company and its shareholders, and unanimously recommends that shareholders vote in favor of the sale of MDS Analytical Technologies. A Special Meeting of Shareholders to seek approval of the proposed sale will be held on October 20, 2009 in Toronto. MDS anticipates that a management proxy circular will be mailed later this month to shareholders of record, as of September 14, 2009.
Operating Segment Results
MDS Pharma Services
Q3 2008(1) % Change
(millions of U.S. dollars)__ Q3 2009__ Restated__ Reported
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Net revenue__ $49__ $68__ (28%)
Reimbursement revenue__ 7__ 8
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Total revenue__ $56__ $76
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Adjusted EBITDA__ $(14)__ $1__ n.m.
__ (29%)__ 1%
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n.m. - not meaningful
(1) The comparative figures have been restated to conform to the current
year's presentation of discontinued operations.
On June 1, 2009, MDS announced the sale of its Phase II-IV operations to INC Research, Inc. and its intention to sell the Central Labs operation. As a result, Late Stage operations were reclassified as part of discontinuing operations for financial reporting beginning in the third quarter of 2009. As of the third quarter 2009, MDS Pharma Services results reflect only Early Stage performance, which now includes certain functional costs previously allocated to Late Stage operations.
For the third quarter, MDS Pharma Services reported net revenue of $49 million, a decrease of 28% compared with $68 million last year. The year-over-year decline was primarily due to lower demand for Phase I and bioanalytical services as customers continue to reprioritize research-and-development project pipelines. Adjusted EBITDA was a loss of $14 million. This $15 million year-over-year decrease was driven by a reduction of revenue and $1 million negative impact from foreign exchange.
As Early Stage contract research services are shorter term in nature and do not generate the same degree of backlog as longer term Late Stage contracts, the Company has discontinued reporting backlog figures. With respect to orders, MDS Pharma Services recorded new business wins totaling $52 million, a sequential decrease of 15% compared with new business wins in the second quarter, and down 31% compared with $75 million of new business wins last year. Sequential and year-over-year declines in new business wins were primarily due to further softening in customer demand for Phase I services as customers continue to reprioritize their R D pipelines in relation to economic pressures, pharmaceutical company mergers, reduced biotech funding, and customer concerns regarding uncertainties created by the Company's strategic review process.
As part of the Company's quarterly balance sheet assessment, non- cash write-downs for MDS Pharma Services totaling $32 million were recorded in the third quarter, which included write-downs for goodwill and fixed assets of $25 million and $7 million, respectively.
As previously announced, MDS Pharma Services initiated restructuring actions in the third quarter of 2009, which are expected to impact approximately 200 people and generate roughly $9 million in annual savings. A $5 million restructuring charge was recorded in the third quarter. To date, approximately 50% of the restructuring actions were completed in the third quarter of 2009. Additional cost reduction and restructuring actions are under review.
As part of its strategic repositioning, MDS announced that it is actively seeking a buyer for its MDS Pharma Services business, which is expected to provide opportunities to build market leadership and to position the business to better serve global customers in an increasingly competitive contract research market. There can be no assurance that MDS will complete a transaction involving MDS Pharma Services. If MDS determines that there is not an acceptable transaction for MDS Pharma Services, it intends to retain and invest in building the business in the attractive market that it serves.
MDS Nordion
% Change
(millions of U.S. dollars)__ Q3 2009__ Q3 2008__ Reported
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Net revenue__ $49__ $72__ (32%)
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Adjusted EBITDA__ $21__ $23__ (9%)
__ 43%__ 32%
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MDS Nordion reported revenue of $49 million in the third quarter, down 32% compared with last year. The year-over-year decline in revenue was primarily due to the shortage in medical-isotope supply as a result of the AECL shutdown of the NRU reactor announced May 18, 2009, and the timing of cobalt shipments. Based on current supply and demand, the Company expects to see an increase in cobalt volumes in the fourth quarter of 2009. Adjusted EBITDA for the third quarter was $21 million, including an embedded derivative gain of $11 million, which resulted from amendments to the Russian Cobalt Supply contract and the strengthening Canadian dollar this quarter. There was no impact from embedded derivatives on adjusted EBITDA last year. Excluding the impact of foreign exchange and the embedded derivative, adjusted EBITDA decreased $14 million or 61%, compared with last year, driven by the shortfall in medical isotope and cobalt revenues.
TheraSphere(R), a targeted internal radiation therapy for patients with inoperable, primary liver cancer, continued on its growth trajectory generating 23% year-over-year revenue growth this quarter.
As part of its strategic repositioning plan, MDS intends to have MDS Nordion as its sole operating unit with a goal to remain an innovative market leader delivering strong financial performance.
As previously reported, AECL announced that its NRU reactor would be out of service to repair a heavy water leak discovered in May 2009. On August 12, 2009, AECL further clarified that the NRU would be out of service until at least the first calendar quarter of 2010. 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 Nordion continues to deliver positive EBITDA from sterilization technologies and radiopharmaceuticals.
MDS continues to move on alternative paths intended 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 AECL's NRU. In May 2008, this project was unilaterally discontinued by AECL and the Government of Canada. MDS has 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. MDS Nordion continues to urge the AECL and Canadian government to consult with international experts and obtain their assistance to activate the MAPLE reactors. In this regard, MDS Nordion submitted a proposal to the Government of Canada's Expert Review Panel on Medical Isotope and Technetium-99m Generator Production. The proposal outlines how expertise and guidance from the South African Nuclear Energy Corporation, owner and operator of the SAFARI-I reactor, could help achieve a technically sound and regulatory-approved solution within an estimated 24 months. In addition, MDS Nordion is examining alternative sources for long-term supply and announced two new collaborations in the third quarter. MDS Nordion is working 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 Mo-99. MDS Nordion is also collaborating with the Karpov Institute of Physical Chemistry in Russia to study the feasibility of the Karpov Institute providing a viable and reliable supply of Mo-99.
MDS Analytical Technologies
% Change
(millions of U.S.
