Canadian life sciences company MDS has found buyers for the rest of its MDS Pharma Services unit, rounding off its exit strategy for the contract research sector.

MDS will divest the remaining Early Stage components of its US-based contract research organisation (CRO) to Ricerca Biosciences and private investors for US$45 million as well as a minority interest in a new corporation being set up for the transaction.

The deal, which is expected to close within two months, does not include MDS Pharma Services’ Early Stage Development facility in Montreal, Canada, which will be closed down with the loss of some 225 jobs.

Also excluded are the MDS Pharma Services headquarters in King of Prussia, Pennsylvania. While the majority of the company’s employees are expected to move to Ricerca or the new corporation, MDS “anticipates that around 50 people will not be part of the deal”.

Specifically, MDS will divest its Discovery and Pre-Clinical operations in Bothell, Washington (US), Lyon, France and Taipei, Taiwan to Ricerca Biosciences, a leading provider of early-stage contract research services based in Concord, Ohio.

The Early Stage Development operations, consisting of Phase I clinics and bioanalytical laboratories as well as MDS Pharma Services’ Development and Regulatory Services consultancy, will be sold to a new corporation primarily owned by private investment firms Bain Capital Ventures and SV Life Sciences.

Both of these have “long and successful tracks records of building market-leading companies in healthcare and the life sciences sector”, MDS noted. The two firms’ established holdings in the life sciences sector include Ricerca Biosciences. Dr Susan Thornton will head up the new corporation as chief executive officer.

Five Early Stage Development facilities are part of the package. These are located in Belfast, Northern Ireland; Lincoln, Nebraska (US); Neptune, New Jersey (US); Phoenix, Arizona (US); and Zurich, Switzerland.

Minority interest

MDS will maintain a minority interest in the new corporation, comprising a five-year, US$25 million note and a 15% equity stake. The overall deal with Ricerca, Bain Capital Ventures and SV Life Sciences includes the US$25 million note and US$20 million in cash, which will be adjusted for working capital and other items.

Following these adjustments, the US$20 million payment is projected to deliver net cash proceeds of around US$7 million.

The parent company also expects to retain certain liabilities and obligations relating to the Pharma Services Early Stage business, including litigation claims and other costs associated with the US Food and Drug Administration’s review of the company’s bioanalytical operations in Montreal.

In addition, MDS will retain lease obligations for the Montreal facility, the King of Prussia office and one office building in Bothell, Washington.

Ricerca, whose chairman and chief executive officer (CEO) Ian Lennox was previously president & CEO of MDS Pharmaceutical & Biotechnology Markets, said it was “evolving to meet the needs of our clients”.

The expansion, together with Ricerca’s existing infrastructure, “puts us on the forefront of providing comprehensive discovery and preclinical services, from intellectual property to investigational new drugs, to the biopharmaceutical industry”, Lennox commented.

Last milestone

The agreements to divest the MDS Pharma Services business are “the last major milestone in the repositioning of the Company”, noted MDS CEO Steve West. The parent company is paring down its business to the MDS Nordion medical isotopes operation.

“While the sale agreements have been struck in a difficult environment, we believe we are doing what’s necessary to allow us to focus on building MDS Nordion to create shareholder value over the long term,” West added.

MDS had been hit hard by the prolonged shutdown of Atomic Energy of Canada’s National Research Universal reactor in Ontario, which supplies radioactive materials for the Nordion arm.

At the same time, the worldwide recession had cut into other businesses such as MDS Pharma Services, which was already coping with the reverberations of US concerns over bioequivalence studies conducted at two of the company’s facilities in Quebec, Canada.

Last June, MDS divested the Pharma Services Phase II-IV operations to INC Research for US$50 million. In October 2009 it agreed to sell the business’ global central laboratory operations to Czura Thornton, the private investment group that owns UK-based CRO Chiltern International.