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MDS sells mass spec business to Danaher for $650 million
October 2009
by Amy Swinderman  |  Email the author


MISSISSAUGA, Ontario—Just three months after MDS Inc. retooled its contract research unit MDS Pharma Services to focus on early-stage discovery and development, the company announced Sept. 2 that it is selling two of its three business units in order to focus solely on medical isotopes.
In one transaction, MDS is selling its mass spectrometry business, MDS Analytical Technologies, to Danaher Corp., an instrument manufacturer based in Washington, D.C., for $650 million in cash. Under the terms of the agreement, Danaher will acquire the MDS Analytical Technologies business, which includes approximately 1,100 employees operating in 10 countries. MDS said it also intends to return approximately $400 million to $450 million of the sale proceeds to its shareholders.   
Under a separate but concurrent arrangement, Danaher has agreed to purchase the portion of AB SCIEX, the Applied Biosystems/MDS Analytical Technologies mass spectrometry joint venture, held by Life Technologies Corp.  
The aggregate purchase price for the combined transactions is $1.1 billion, including debt assumed and net of cash acquired. The transactions are subject to shareholder and regulatory approval and other closing conditions.
In addition, MDS has put its Pharma Services business, which is focused on early-stage discovery operations through Phase IIa, up for sale. According to MDS, the unit MDS has strength in bioequivalence and bioanalysis studies and one of the largest Phase I bed capacities in the industry. If MDS is unable to find a buyer, it will retain and invest in building the business. 
According  to Stephen P. DeFalco, president and CEO of MDS, the strategic repositioning was made necessary by the economic downturn and the prolonged shutdown of Atomic Energy of Canada Ltd.'s (AECL) National Research Universal (NRU) reactor (see sidebar below). These events "have created significant challenges for our businesses," DeFalco says.
"The global economic downturn, combined with biotech funding challenges and pharmaceutical mergers, has significantly impacted customer demand for CRO services and analytical instruments," DeFalco says. "The repositioning of MDS is intended to provide each of our businesses with greater opportunities to grow and expand their market leadership positions."  
Once the recently announced transactions are complete, MDS would focus solely on its MDS Nordion business, which provides medical isotopes for molecular and diagnostic imaging, radiotherapeutics and sterilization technologies.   
"MDS is working through a rigorous process to garner the best outcome for shareholders, customers, employees and other stakeholders," DeFalco says. "We believe that MDS Nordion is a viable, stand-alone business that is well positioned to deliver shareholder returns. Going forward, MDS Nordion will continue to focus on its core strengths, and build its leadership position in molecular imaging, radiotherapeutics and sterilization technologies."  
Medical isotopes are a critical component of global nuclear medicine, which is an increasingly important field, DeFalco adds.  
"Medical isotopes are used to diagnose potentially life-threatening conditions, such as heart disease, and to treat serious diseases such as cancer," he says.  
The economic downturn has also affected Danaher, which announced on the same day its plans to acquire MDS' businesses, close 30 facilities and eliminate about 3,300 jobs in an effort to save about $220 million annually. Last quarter's earnings results disappointed investors because business fell 15 percent compared with the same quarter of last year. The company also reported operating earnings of 89 cents, which was down from $1.08 for the same period a year ago.
Danaher, which makes equipment ranging from Craftsman tools to dental X-ray machines, said its acquired businesses will operate within its Medical Technologies segment, joining its Leica, Radiometer, Sybron, and KaVo businesses, and expand the segment's annual revenues by more than $650 million.  
Danaher did not respond to a request for comment. In a statement announcing the deal, Danaher President and CEO H. Lawrence Culp Jr. said the acquired businesses will increase Danaher's life sciences and diagnostics annual revenues to more than $2 billion.
"We are excited about the opportunity to acquire two leading brands in the life sciences instrumentation market, which will complement our existing Medical Technologies businesses and present an attractive value creation opportunity," Culp stated. "AB SCIEX is the market leader in mass spectrometry and its instruments address the needs of a broad scientific community involved in many applications including the research, applied and clinical markets. Additionally, Molecular Devices is known for high-quality, innovative products in the segments it serves."
AB SCIEX designs and manufactures mass spectrometers and sells into the research, applied and clinical markets. Typical applications include proteomics research, drug development, food and environmental safety testing and diagnostics testing. Customers include academic and research institutions, pharmaceutical development labs primarily supporting clinical trials, testing and reference labs and hospitals. 
"Danaher is a strong company with a solid track record of successful acquisitions," DeFalco says. "Danaher has indicated that their intention is to create a stand-alone company, and to invest in, and grow the business, which we believe will benefit customers and employees.   

Chalk River reactor closing creates shortage of medical radioisotopes, challenges for MDS

MISSISSAUGA, Ontario—According to Stephen P. DeFalco, president and CEO of MDS, one of the challenges that forced MDS to retool its business was the unexpected and prolonged shutdown of Atomic Energy of Canada Ltd.'s (AECL) National Research Universal (NRU) reactor at Chalk River, Ontario. MDS processed isotopes from the NRU at its state-of-the art, 300,000 square-foot facility in Ottawa, but that came to a sudden halt in May, when AECL shut down the Chalk River facility to repair heavy radioactive water leaks that occurred after a power outage.  
When the NRU was up and running, it produced 30 to 40 percent of the world's medical isotopes, and approximately 50 percent of those used in North America. However, the shutdown is causing a shortage of medical radioisotopes, and has obviously created enormous challenges for MDS, DeFalco says.  
"MDS Nordion continues working to attempt to secure a long-term reliable supply of medical isotopes," he says. "AECL has said that it expects the NRU to return to service in the first calendar quarter of 2010. When the NRU returns to service, MDS Nordion would again process those medical isotopes for use throughout the world."
On July 30, MDS submitted a proposal to the Government of Canada's Expert Review Panel on Medical Isotopes to further support reactivating the MAPLE reactors. With expertise and guidance from the South African Nuclear Energy Corp. (NECSA), owner and operator of the SAFARI-I reactor, MDS Nordion believes a technically sound solution that meets regulatory requirements could be available within an estimated 24 months, DeFaFalco says.
DeFalco notes that despite the current shutdown of AECL's NRU reactor, MDS Nordion has continued to deliver positive adjusted EBITDA from its radiotherapeutics and sterilization technologies businesses. Earlier in the quarter, MDS also announced two collaborations evaluating other potential sources of medical isotopes. Nordion is partnering with TRIUMF to study the feasibility of producing a viable and reliable supply of photo fission-based Moly-99 and is also working with the Karpov Institute of Physical Chemistry in Moscow, to study the feasibility of Karpov providing Nordion with a supply of Moly-99.

Code: E100901



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