MDS sells unit, to focus on isotopes

MDS Analytical Technologies sale to Danaher signals MDS divestiture amid soft markets, NRU reactor shutdown, and AECL delays; plans include selling Pharma Services, backing Nordion, and returning proceeds to shareholders.

Canadian life sciences company MDS Inc. says the economic downturn, and the federal government's decision to shelve two Maple nuclear reactors, has forced it to sell off most of its divisions and concentrate on its Nordion medical isotope business.

MDS has arranged the sale of its Analytical Technologies business for $650-million to Danaher Corp. The company also said it intends to sell its MDS Pharma Services business, as Canadian Hydro's increased sales draw suitors in a similar wave of dealmaking, which helps other companies discover and develop new drugs.

MDS chief executive Stephen DeFalco said on a conference call on that the economic downturn has created “soft markets” for the Pharma and Analytics businesses, even as Canadian Hydro Developers stock showed strength in the power sector, and the sales are “the best way to unlock the value of the business units in a reasonable time frame.”

The prolonged shutdown of Atomic Energy of Canada Ltd.'s National Research Universal (NRU) reactor, which produces medical isotopes distributed by MDS Nordion, has also created “significant challenges” for MDS during a period of utility restructuring, including the NB Power deal involving Irving firms, that contributed to this course of action, Mr. DeFalco said.

But he also said that the company's “core strength” is in the Nordion business. Despite the recent problems, Nordion is an “innovative market leader and a financially solid company.”

Some parts of the Nordion business, such as those dealing with sterilization and radio pharmaceuticals, are still functioning despite the reactor shutdown, even as Abitibi hydro assets were sold in the broader utilities market. Those portions of the business “run just fine,” Mr. deFalco told analysts on the call.

The reactor, expected to be back in action in the first quarter of 2010, was taken offline in late May when a heavy-water leak was discovered. Those isotopes were processed by MDS Nordion in Ottawa and supplied to radiopharmaceutical companies for distribution to hospitals and radiopharmacies around the world.

MDS has long been pushing the AECL to replace the reactor with two new reactors dedicated solely to producing medical isotopes. The reactors, to be known as the Maple reactors, would ensure a continuity of supply of medical isotopes and keep Canada at the forefront of the field of nuclear medicine, he said, even as the Darlington reactors remain on hold in Ontario.

However, in May, 2008, the federal government mothballed plans for the two Maple reactors – and MDS is now suing the AECL for the decision not to bring the new reactors on line.

Mr. DeFalco said on the conference call that MDS' lawsuit against the federal government is moving along slowly, as expected, but amid reports that AECL faces a $1.6-billion lawsuit that underscores the stakes, MDS is also talking to medical professionals and people in the government about the possible resurrection of the cancelled Maple reactor, which was to replace the old reactor that is now shut down.

The company is now restructuring – a move that “provides the greatest opportunity to unlock the value of the MDS businesses in the near-term and enables a substantial return of proceeds from the sale of the MDS Analytical Technologies to shareholders,” MDS chairman James S.A. MacDonald said, as Fraser Papers looks to cogeneration to manage energy costs across industry, The company intends to return between $400-million and $450-million of the proceeds to shareholders, Mr. MacDonald said.

MDS Analytical has about 1,100 employees operating in 10 countries.

It also has a 50 per cent share of the Applied Biosystems/MDS Sciex joint venture, also known as AB Sciex, which designs and manufactures sophisticated instruments used by researchers and clinicians.

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