MDS Pharma Services, the contract research organisation (CRO) plagued by US concerns about bioequivalence studies conducted at two of its facilities in Canada, was showing signs of recovery as its Canadian parent, MDS Inc, published results for the third quarter of 2007.

The CRO sustained an operating loss of US$5 million for the quarter, compared with a US$16 million loss for the third quarter of 2006. In the second quarter of this year, operating losses swelled from US$45 million to US$97 million, aggravated by restructuring charges and a US$61 million provision to cover client costs for the review of pharmacokinetic studies ordered by the US Food and Drug Administration (FDA). Consequently, MDS Pharma’s operating losses for the year to date were still riding high, at US$118 million against US$24 million in the first nine months of 2006.

Revenues for the third quarter climbed 4% to US$118 million, driven by 12% growth from MDS Pharma’s late-stage businesses. Late-stage revenues were US$56 million, while the slightly larger early-stage operations were 2% down at US$62 million as a faltering performance from the early clinical and bioanalytical businesses more than offset otherwise strong growth in drug safety and discovery/preclinical revenues, MDS reported.

Invitations to propose on an increasing number of generic drug studies nonetheless brought “some strength in new orders” to the early-stage businesses during the three months, it noted. Moreover, bioanalytical revenues were “modestly higher” on a quarter-by-quarter basis following three consecutive quarters of decline. “We believe that these are positive signs of stability returning to our early-stage businesses, and an indicator that some of the prior customer uncertainty created by the FDA issues is being resolved,” MDS commented.

The average monthly backlog for the third quarter was US$420 million, up by 5% on the same period last year. However, a significant cancellation in late April and delays in signing contracts whittled the backlog down to US$410 million as of 31 July 2007.

Implementation of the CRO’s restructuring plan continued during the quarter, as MDS Pharma started to ‘resize’ its bioequivalence facility in St Laurent, Quebec and announced the closure of a UK facility in Sittingbourne. As a result, some 200 staff have been made redundant to date and MDS Pharma has used up US$5 million of the US$26 million restructuring provision announced in the second quarter.

Audit progress

The CRO also reported “significant progress” in helping its generic clients complete the study audits required by the FDA. As things stand, MDS Pharma has been in contact with sponsors responsible for around 85% of the 217 abbreviated new drug applications (ANDAs) that came under scrutiny. “Based on our communication with customers and on the work done at our facility since January, 150 ANDA submissions have been subjected to third-party audits,” it added. The FDA imposed a six-month time limit on completing the audits in its 10 January letter to ANDA sponsors.

The US agency also requested information on New Drug Applications (NDAs) containing data from bioanalytical studies conducted between January 2000 and December 2004 at MDS Pharma’s St Laurent and Blainville facilities in Quebec. “As of today it is difficult to estimate the full extent of the FDA’s intent relative to innovator studies,” the CRO commented. “To August 29, 2007, we have assisted on 38 study audits for a smaller number of NDA submissions for which the FDA has requested additional review.”

During the third quarter, MDS Pharma used up US$5 million of the US$61 million reserve established during Q2 for reimbursing audit costs. As experience to date has been that clients bill for the audit expenses once their work is complete, the CRO expects a significantly larger chunk of this reserve to go in the fourth quarter and 2008.