MDS sells mass spec business to Danaher for $650 million

Company also seeks buyer for pharma services business as it shifts focus to medical isotopes

Amy Swinderman
MISSISSAUGA, Ontario—Just three months after MDS Inc.retooled its contract research unit MDS Pharma Services to focus on early-stagediscovery and development, the company announced Sept. 2 that it is selling twoof its three business units in order to focus solely on medical isotopes.
 
In one transaction, MDS is selling its mass spectrometrybusiness, MDS Analytical Technologies, to Danaher Corp., an instrumentmanufacturer based in Washington, D.C., for $650 million in cash. Under theterms of the agreement, Danaher will acquire the MDS Analytical Technologiesbusiness, which includes approximately 1,100 employees operating in 10countries. 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 hasagreed to purchase the portion of AB SCIEX, the Applied Biosystems/MDSAnalytical Technologies mass spectrometry joint venture, held by LifeTechnologies Corp.
 
 
The aggregate purchase price for the combined transactionsis $1.1 billion, including debt assumed and net of cash acquired. Thetransactions are subject to shareholder and regulatory approval and otherclosing conditions.
 
In addition,
MDS has put its Pharma Servicesbusiness, which is focused on early-stage discovery operations through PhaseIIa, up for sale. According to MDS, the unit MDS has strength in bioequivalenceand bioanalysis studies and one of the largest Phase I bed capacities in theindustry. If MDS is unable to find a buyer, it will retain and invest inbuilding the business. 
 
According 
to Stephen P. DeFalco, president and CEO of MDS,the strategic repositioning was made necessary by the economic downturn and theprolonged shutdown of Atomic Energy of Canada Ltd.'s (AECL) National Research Universal(NRU) reactor (see sidebar below). These events "have created significantchallenges for our businesses," DeFalco says.
 
"The global economic downturn, combined with biotech fundingchallenges and pharmaceutical mergers, has significantly impacted customerdemand for CRO services and analytical instruments," DeFalco says. "Therepositioning of MDS is intended to provide each of our businesses with greateropportunities to grow and expand their market leadership positions."
 
 
Once the recently announced transactions are complete, MDSwould focus solely on its MDS Nordion business, which provides medical isotopesfor molecular and diagnostic imaging, radiotherapeutics and sterilizationtechnologies. 
 
 
"MDS is working through a rigorous process to garner thebest outcome for shareholders, customers, employees and other stakeholders,"DeFalco says. "We believe that MDS Nordion is a viable, stand-alone businessthat is well positioned to deliver shareholder returns. Going forward, MDSNordion will continue to focus on its core strengths, and build its leadershipposition in molecular imaging, radiotherapeutics and sterilizationtechnologies."
 
 
Medical isotopes are a critical component of global nuclearmedicine, which is an increasingly important field, DeFalco adds.
 
 
"Medical isotopes are used to diagnose potentiallylife-threatening conditions, such as heart disease, and to treat seriousdiseases such as cancer," he says.
 
 
The economic downturn has also affected Danaher, whichannounced on the same day its plans to acquire MDS' businesses, close 30facilities and eliminate about 3,300 jobs in an effort to save about $220million annually. Last quarter's earnings results disappointed investorsbecause 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 toolsto dental X-ray machines, said its acquired businesses will operate within itsMedical Technologies segment, joining its Leica, Radiometer, Sybron, and KaVobusinesses, and expand the segment's annual revenues by more than $650 million.
 
 
Danaher did not respond to a request for comment. In astatement announcing the deal, Danaher President and CEO H. Lawrence Culp Jr.said the acquired businesses will increase Danaher's life sciences anddiagnostics annual revenues to more than $2 billion.
 
"We are excited about the opportunity to acquire two leadingbrands in the life sciences instrumentation market, which will complement ourexisting Medical Technologies businesses and present an attractive valuecreation opportunity," Culp stated. "AB SCIEX is the market leader in massspectrometry and its instruments address the needs of a broad scientificcommunity involved in many applications including the research, applied andclinical markets. Additionally, Molecular Devices is known for high-quality,innovative products in the segments it serves."
 
AB SCIEX designs and manufactures mass spectrometers andsells into the research, applied and clinical markets. Typical applicationsinclude proteomics research, drug development, food and environmental safetytesting and diagnostics testing. Customers include academic and research institutions,pharmaceutical development labs primarily supporting clinical trials, testingand reference labs and hospitals. 
 

"Danaher is a strong company with a solid track record ofsuccessful acquisitions," DeFalco says. "Danaher has indicated that theirintention is to create a stand-alone company, and to invest in, and grow thebusiness, which we believe will benefit customers and employees.
  

Chalk River reactor closing creates shortage of medicalradioisotopes, challenges for MDS

MISSISSAUGA, Ontario—According to Stephen P. DeFalco,president and CEO of MDS, one of the challenges that forced MDS to retool itsbusiness was the unexpected and prolonged shutdown of Atomic Energy of CanadaLtd.'s (AECL) National Research Universal (NRU) reactor at Chalk River,Ontario. MDS processed isotopes from the NRU at its state-of-the art, 300,000square-foot facility in Ottawa, but that came to a sudden halt in May, whenAECL shut down the Chalk River facility to repair heavy radioactive water leaksthat occurred after a power outage.
 
 
When the NRU was up and running, it produced 30 to 40percent of the world's medical isotopes, and approximately 50 percent of thoseused in North America. However, the shutdown is causing a shortage of medicalradioisotopes, and has obviously created enormous challenges for MDS, DeFalcosays.
 
 
"MDS Nordion continues working to attempt to secure along-term reliable supply of medical isotopes," he says. "AECL has said that itexpects 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 medicalisotopes for use throughout the world."
 
On July 30, MDS submitted a proposal to the Government ofCanada's Expert Review Panel on Medical Isotopes to further supportreactivating the MAPLE reactors. With expertise and guidance from the SouthAfrican Nuclear Energy Corp. (NECSA), owner and operator of the SAFARI-Ireactor, MDS Nordion believes a technically sound solution that meetsregulatory requirements could be available within an estimated 24 months,DeFaFalco says.
 
DeFalco notes that despite the current shutdown of AECL'sNRU reactor, MDS Nordion has continued to deliver positive adjusted EBITDA fromits radiotherapeutics and sterilization technologies businesses. Earlier in thequarter, MDS also announced two collaborations evaluating other potentialsources of medical isotopes. Nordion is partnering with TRIUMF to study thefeasibility of producing a viable and reliable supply of photo fission-basedMoly-99 and is also working with the Karpov Institute of Physical Chemistry inMoscow, to study the feasibility of Karpov providing Nordion with a supply ofMoly-99.


Amy Swinderman

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