Having announced a US$28 million restructuring plan in July to improve the bottom line at its troubled contract research organisation (CRO), MDS Pharma Services, and life-sciences tools subsidiary MDS Analytical Technologies, Canada’s MDS Inc has further tempered its financial guidance for 2008, citing “slower than expected ramp-up of revenue” at MDS Pharma.

The CRO reported net revenues of US$122 million for the third quarter ended 31 July 2008, just 3.4% more than in the same period last year. Its operating losses swelled to US$31 million from US$5 million in the third quarter of 2007. In terms of adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA), MDS Pharma Services turned in a Q3 loss of US$2 million compared with a US$4 million gain in the year-before quarter.

On a brighter note, the CRO delivered another strong quarter of new business wins, which jumped by 42% year on year to US$169 million. New orders were up from US$165 million in the second quarter of the 2008 financial year and the period-end backlog rose by 12.8% on a sequential basis to US$486 million.

At the net revenue level, MDS Pharma Services gained around US$6 million or 5% in the latest quarter from foreign exchange rate fluctuations since Q3 2007. Otherwise, growth was driven by the CRO’s early-stage business, with net revenues (i.e., excluding reimbursed expenses) improving by 9.7% to US$68 million as a result of increased Phase I activity at a new facility in Phoenix, US and higher demand for bioanalytical services.

Net revenues in the late-stage segment declined by 3.6% to US$54 million, mainly due to delayed project starts in both the central laboratory and the Phase II-IV businesses during the third quarter.

The operating loss of US$US$31 million included a US$8 million restructuring charge aimed at improving profitability at MDS Pharma Services, against a US$1 million charge in Q3 2007. There was also a US$11 million asset impairment charge related to the bioanalytical facility in Montreal, Canada that was the subject of an audit request from the US Food and Drug Administration (FDA) in January 2007, and a US$1 million loss on sale of business.

MDS Pharma Services already took a restructuring charge of US$26 million in the second quarter of 2007, for a programme that included substantial redundancies in Montreal and at other sites. Implementation during the latest quarter of the restructuring plan announced last July included further redundancies and the closure of several offices, the Canadian parent noted. It expects to incur additional restructuring charges of around US$6-US$8 million related to these activities during the fourth quarter of 2008.

MDS Inc has lowered its guidance for net revenues in 2008 from US$1,250-US$1,290 million as of June 2008 to US$1,230-US$1,250 million now. The forecast for adjusted EBITDA in the full year remains unchanged at US$160-US$170 million.