Canadian Life Sciences company MDS has applied radical surgery to its troubled US-based contract research unit, MDS Pharma Services, divesting the business’ Phase II-IV operations to INC Research for US$50 million and putting its Central Labs arm up for sale.

The decision to focus MDS Pharma’s operations on discovery research through to Phase IIa will “support the company’s efforts to advance its leadership position in the delivery of Early Stage CRO services, where it has a top-three market position”, MDS said.

The announcement confirmed speculation earlier this year that the company might sell off all or part of MDS Pharma Services, after it established a committee of independent directors “to support the Company’s continuing process of reviewing alternatives to improve shareholder value”. The waning fortunes of MDS Pharma Services led to a restructuring programme and a US$320 goodwill write-down in the fourth quarter of 2008.

Tougher economic conditions for the CRO sector as a whole were aggravated in MDS Pharma’s case by the reverberations of US concerns over bioequivalence studies conducted at two of the company’s facilities in Quebec, Canada. Nonetheless, MDS Pharma was showing some signs of recovery in the first quarter, when its adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) climbed 33.3% year on year to US$8 million.

According to David Spaight, president of MDS Pharma Services, the Phase II-IV operations “have been significantly strengthened in recent years through global expansion and investments in process improvements that have made it an attractive acquisition target”.

The US$50 million deal with INC Research, a US-based CRO that offers Phase I to IV services with a particular emphasis on the central nervous system, infectious diseases, oncology, women's health and paediatrics, is expected to close in the third quarter of MDS’ current fiscal year, which ends on 31 October 2009. The MDS Pharma Phase II-IV operations include nearly 800 clinical research staff conducting large, multi-site clinical trials in more than 25 countries worldwide.

Exceptional fit

INC said the acquisition provided an “exceptional fit” with its own services and culture that should deepen the company’s therapeutic expertise through leadership in vaccine, respiratory, cardiovascular and endocrinology clinical research, as well as filling out its global presence in emerging regions including South America, Asia Pacific and Africa. The deal will expand INC’s global footprint to nearly 2,000 employees and operations in 40 countries.

The MDS Pharma Phase II-IV business conducted more than 700 clinical projects involving over 42,000 sites and nearly 300,000 patients in a wide range of therapeutic areas between 2000 and 2008, INC noted. It has also ranked consistently among the top five CROs for various service attributes in CenterWatch surveys of investigators from 2001 to 2008.

"We are taking action to enhance shareholder value by focusing our business portfolio on areas where we believe we can expand market leadership,” commented Stephen DeFalco, president and chief executive officer of MDS Inc.

“While our investments in MDS Pharma Services’ Late Stage have significantly strengthened the business, further success requires greater scale. By divesting our Phase II-IV operations, we will be better able to take advantage of our core competencies in Early Stage.”

The company is now casting around for a suitable buyer for MDS Pharma Services’ Central Labs business, which includes more than 600 employees across six sites in Europe, North America and Asia.