Operating income at MDS Pharma Services climbed by 33% in the first quarter ended 31 January as a restructuring programme took root at the troubled US-based contract research unit of Canadian life sciences company MDS.

Still feeling the reverberations from US concerns over bioequivalence studies conducted at two of its facilities in Quebec, MDS announced a restructuring plan involving total charges of around US$28 million last July. Some 210 staff were to go as part of that package.

MDS Pharma Services had already taken 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.

In its latest results announcement the parent company said that, as of 31 January, its contract research unit had implemented “the majority of the workforce reductions” associated with the restructuring initiatives announced during the third quarter of 2008. A restructuring charge of US$1 million was recorded for the first quarter of 2009.

Adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) were US$8 million at MDS Pharma Services during the latest quarter, a 33.3% improvement over Q1 2008 that MDS put down largely to productivity gains from the restructuring actions taken last year.

These benefits were partly offset by lower revenue, exacerbated by the negative impact of foreign exchange. Net revenues fell by 11.7% to US$106 million in the first quarter, with currency translation shaving US$7 million off the total.

In MDS Pharma Services’ early-stage segment, net revenues dipped 7.9% to US$58 million, with growth in Phase I revenues undermined by softness in preclinical and bioanalytical services. Client delays continued to affect the late-stage segment, where net revenues dived 15.8% to US$48 million.

New business wins in the first quarter came to US$104 million, down by 41.2% on the US$177 million of new business wins registered in Q1 2008 and 21% lower on a quarter-by-quarter basis. MDS blamed the declines mainly on weakness in late-stage orders “as customers continue to delay awards while reprioritising their research and development projects”.

The period-end backlog was US$458 million, up by 2.2% on a year-to-year basis. Stripping out the impact of foreign exchange, backlog would have risen by about US$35 million or 8% over the 2008 quarter.

In the fourth quarter of the last financial year, MDS took a US$320 million goodwill write-down for MDS Pharma Services, reflecting “the decline in overall contract research organisation stock market valuations, current economic uncertainty and the delay in profit recovery”.