Canada-based life sciences company MDS, Inc. (MDZ,MDS.TO) on Thursday reported a wider loss for the third quarter, that reflected impairment charges and a 21% drop in revenues. Both product revenues and service revenues declined in the quarter. Adjusted loss per share from continuing operations came in much wider than analysts' expectations.
MDS' key businesses include contract pharmaceutical research, production of medical isotopes and manufacturing of analytical equipments. MDS has struggled to generate consistent results despite restructuring actions and management change announced in the first quarter, and has reported massive write-downs at its MDS pharma services division.
In a statement, president and chief executive officer, Stephen DeFalco said, "The economic downturn, further softening in demand for contract research organization services and the unexpected and prolonged shutdown of AECL's National Research Universal (NRU) reactor created significant challenges for our business."
Third Quarter Results
The Mississauga, Canada-based company posted a net loss of US$62 million or US$0.51 per share for the third quarter, sharply wider than US$10 million or US$0.08 per share in the prior-year quarter. The company said that the prior-year quarter results were restated.
MDS noted that MDS Pharma Services Late-Stage operations is being reported as discontinued operations to reflect the previously announced decision to divest Late-Stage operations and to focus MDS Pharma Services on the delivery of Early-Stage services only.
Loss from continuing operations for the quarter widened to US$48 million or US$0.40 per share from US$5 million US$0.04 per share a year ago.
The results for the latest quarter include an after-tax US$25 million, or US$0.21 per share, charge on impairment of goodwill, while the year-ago results included an after-tax US$8 million or US$0.06 per share impairment charge of property, plant and equipment.
Excluding items, loss from continuing operations was US$19 million or US$0.15 per share, compared to income of US$9 million or US$0.07 per share in the year-ago quarter. On average, four analysts polled by Thomson Reuters expected the company to report a loss of US$0.04 per share for the third quarter. Analysts' estimates typically exclude special items.
Total revenues for the quarter declined to US$199 million from US$252 million in the same quarter last year. Analysts expected the company to report revenues of US$197.91 million for the third quarter.
Excluding reimbursement revenues, net revenues were US$192 million, 21% lower than US$244 million in the comparable quarter a year ago. Excluding the impact of foreign exchange, acquisitions and divestitures, net revenue decreased 16%.
Segmental Details
Products revenue for the third quarter decreased to US$125 million from US$155 million in the same quarter last year, and services revenue also declined to US$67 million from US$89 million a year ago.
MDS pharma services net revenues dropped 28% to US$49 million from the prior-year quarter, hurt by lower demand for Phase I and bio-analytical services as customers continue to reprioritize research-and-development project pipelines. As part of its strategic repositioning, MDS announced that it is actively seeking a buyer for its MDS Pharma Services business.
Net revenues for MDS Nordion dropped 32% to US$49 million from the year-ago quarter, primarily due to the shortage in medical-isotope supply as a result of the AECL shutdown of the NRU reactor announced in May, and the timing of cobalt shipments. As part of its strategic repositioning plan, MDS intends to have MDS Nordion as its sole operating unit with a goal to remain an innovative market leader delivering strong financial performance.
MDS analytical technologies posted US$94 million in net revenues, 10% lower than reported last year, hurt by a 15% decline in end-user revenues and negative foreign exchange impact of US$7 million. As part of the strategic repositioning, MDS has entered into an agreement to sell MDS Analytical Technologies to Danaher Corp. (DHR) for for US$650 million in cash. Other Metrics
Operating loss from continuing operations for the third quarter widened to US$53 million from US$15 million in the prior-year quarter, and total costs and expenses were US$252 million, lower than US$267 million in the year-ago quarter.
Expenses include selling, general and administrative expenses of US$57 million, higher than US$53 million in the prior-year quarter, and research and development of US$16 million, down from US$19 million in the year-ago quarter.
The company ended the third quarter with cash and cash equivalents of US$298 million, compared to US$130 million at end of the prior-year quarter.
Last week, MDS announced the signing of a definitive agreement with Danaher to sell its drug discovery and life sciences research unit, MDS Analytical Technologies, which includes a 50% ownership in mass spectrometry business AB SCIEX as well as 100% ownership position in the former Molecular Devices Corp., for US$650 million in cash. Danaher announced separately that it has also signed a definitive agreement with Life Technologies Corp. (LIFE) to acquire the remaining 50% ownership position in AB SCIEX.
The company noted that it currently intends to return about US$400 million to US$450 million from the sale proceeds to its shareholders by means of a share buyback through a Substantial Issuer Bid. MDS also intends to use a portion of the proceeds, together with existing cash on hand, to retire all outstanding senior unsecured notes, pay transaction and restructuring costs and fund ongoing operations of the remaining business.
Transaction and restructuring costs, associated with the sale, are expected to be in the range of US$45 million to US$55 million on a pre-tax basis, and no cash income taxes are expected. The transaction expected to close in the fourth quarter of 2009.
The company also earlier revealed that it is hunting for a buyer for its MDS Pharma Services business. On selling both the businesses, the company can focus solely on its medical isotopes business, namely MDS Nordion. As announced on June 1, 2009, MDS is seeking a buyer for its Central Labs business.
In February beginning, MDS said that it has set up a special committee of independent directors to support the company's process of reviewing alternatives to improve shareholder value. The announcement came in the wake of pressure from shareholder groups to sell off certain units, which also reinforced speculation that the company may sell itself, in part or whole. Goldman, Sachs & Co and RBC Capital Markets are acting as financial advisors.
Nine Month Highlights
For the nine-month period, MDS reported a net loss of US$77 million or US$0.64 per share, compared to net income of US$22 million or US$0.19 per share in the prior-year period. Loss from continuing operations was US$53 million or US$0.44 per share, compared to income of US$24 million US$0.20 per share in the year-ago period.
Excluding items, loss from continuing operations was US$11 million or US$0.08 per share, compared to income of US$22 million US$0.18 per share a year ago.
Total revenues for the year-to-date period declined to US$630 million from US$773 million in the same period last year. Excluding reimbursement revenues, net revenues were US$609 million, lower than US$749 million in the comparable period a year ago.
Looking Ahead.......
"We believe the announced strategic repositioning of MDS will unlock the value of our businesses in the near-term, and provide greater opportunities for each of our businesses going forward," DeFalco added.
Stock Quotes
MDZ closed Wednesday's regular trading session on the NYSE at US$8.16, up US$0.03 on a volume of 1.0 million shares. In the past 52-week period, the stock has been trading in a broad range of US$4.42 to US$13.35.
MDS.TO closed trading on the Toronto Stock Exchange at C$8.77, up C$0.07 on a volume of 0.77 million shares. The stock has been trading in a broad range of C$4.96 to C$14.15 in the past 52 weeks.
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