Speculation that either the whole or part of Canadian life sciences company MDS Inc are up for sale has mounted after MDS announced it had established a committee of independent directors “to support the Company’s continuing process of reviewing alternatives to improve shareholder value”.

One of those constituent parts is the troubled contract research division MDS Pharma Services, whose waning fortunes prompted a US$320 goodwill write-down in the fourth quarter of 2008 to reflect “the decline in overall contract research organisation stock market valuations, current economic uncertainty and the delay in profit recovery”.

Preliminary results for the fourth quarter, disclosed in late December, showed that net revenues at MDS Pharma Services dropped by 8.9% year on year to US$112 million. Adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) at the US-based contract research unit jumped 700% to US$8 million, albeit from a low base of US$1 million in the fourth quarter of 2007.

Recently MDS has come under renewed pressure from US-based hedge fund Obrem Capital Management and other activist shareholders to unlock value by divesting parts of its business, including MDS Pharma Services. Last November Reuters cited a research note from CIBC World Markets analyst Maxime Paris that saw “tremendous upside potential” in breaking up MDS. Paris estimated the Pharma Services unit would be worth between Can$500 million-Can$600 million (US$403 million-US$484 million).

MDS remains tight-lipped about its intentions, though. “With the assistance of management and advisors, the Board of Directors continuously reviews the performance of MDS, and looks for options to improve returns to shareholders, including an annual strategic review,” it stated. “The Board has determined that constituting a committee to work closely with management and the company's advisors is now appropriate.”

No timetable has been set for the completion of the review, which will focus on “assessing strategic alternatives”, MDS said. Moreover, there can be “no assurance that this process will result in any specific strategic or financial transaction - especially given the uncertain market and economic conditions”, it stressed.