MDS is putting the rest of its US-based contract research unit, MDS Pharma Services, up for sale as the Canadian life sciences company pares down its businesses to focus solely on the MDS Nordion medical isotopes operation.

The announcement comes just three months after MDS decided to narrow the scope of MDS Pharma Services to discovery research and early-stage development, divesting the business’ Phase II-IV operations to INC Research for US$50 million and putting its Central Labs arm on the block.

The Canadian parent has already agreed to sell MDS Analytical Technologies, a global supplier of drug-discovery and life-sciences research tools, to Danaher Corporation for US$650 million in cash, with the aim of returning US$400-450 million of the proceeds to its shareholders. MDS says it is now “actively seeking a buyer” for the remaining parts of MDS Pharma Services, while efforts to find a suitable owner for the Central Labs operation continue.

MDS has 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 has 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.

There had been speculation that MDS might sell off all or part of MDS Pharma Services, after the parent company established a committee of independent directors earlier this year “to support the Company’s continuing process of reviewing alternatives to improve shareholder value”. MDS was under 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.

In the second quarter of 2009, there were signs that a rolling programme of restructuring measures was starting to turn the contract research business around. Adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) were US$3 million compared with a US$1 million loss in the same quarter of 2008. This was despite an 18.0% decline in net revenues to US$105 million for the quarter.

According to its parent, MDS Pharma Services as it now stands is a market leader in molecular screening and profiling, has a strong presence in bioequivalence and bioanalytical studies, and has one of the largest bed capacities for Phase I trials in the industry.

“A sale of the MDS Pharma Services business is expected to provide opportunities to build market leadership and to position the business to better serve global customers in an increasingly competitive contract research market,” MDS stated.

There can be no assurance that MDS will complete any such transaction, it warned, adding: “If MDS determines that there is not an acceptable transaction for MDS Pharma Services, it intends to retain and invest in building the business”.