Just two months after selling off Phase IIb-IV operations to Inc Research, MDS has announced that it's trying to sell everything else it's got left in the clinical research sector.

Earlier this week, the Toronto-based firm announced it was looking for buyers for what remains of MDS Pharma Services. That includes Phase I through Phase IIa proof-of-concept services. Earlier in the summer, the company also said it was trying to sell its central lab holdings.

Regulatory Woes

“Discussions are underway with interested parties,” MDS Pharma president David Spaight said in a release.

John Kreger, a financial analyst with William Blair, has been scrutinizing the clinical research outsourcing space for 15 years. He says MDS Pharma is one of the top players in early-phase work.

But the company was never quite able to recover from its regulatory woes of 2007. That's when the FDA questioned the accuracy and validity of pharmacokinetic studies the company conducted in Canada between 2000 and 2004, and recommended that affected clients reevaluate the studies done at that time.

Not Enough

“If you're not delivering quality work, clients run the other way,” says Kreger. “They had execution problems.” The importance of an unblemished reputation has always mattered in the research industry, but it may be even more vital during a brutal economic climate.

Though MDS had done contract research work since 1995, MDS Pharma was formed in 2000 with the acquisition of Montreal-based Phoenix International Life Sciences. Phoenix, a dominant player in early-phase work, had 2,400 employees; its acquisition allowed the new MDS Pharma to quickly become a force in the space. But it didn't become big enough to stand out among its parent company's other holdings.

“MDS was a medium-sized player in a lot of their markets, and we felt that it made sense for them to get bigger [in each of those markets] or get out,” says Kreger.

Here's a previous article about MDS Pharma selling its late-stage operations to Inc Research this summer.

Bleeding Subsidiary

Last year, MDS Pharma posted a loss of $353 million on revenues of $582 million. It also had a loss in 2007—$122 million on revenue of $568 million. Given those numbers, it's not clear how attractive the business will be to potential buyers.

MDS Pharma Services has about 1,700 employees and more than 1,000 Phase I beds across facilities in Montreal, Canada; Belfast, Northern Ireland; Neptune, N.J.; Lincoln, Neb.; and Phoenix/Tempe, Ariz., as well as an auxiliary office in Tokyo.

The auction of MDS Pharma is no surprise, says Kreger. What is more stunning is MDS's announcement that it had entered into an agreement to sell MDS Analytical Technologies business for $650 million in cash. That business offered highly regarded high-end mass spectrometers, according to Kreger. The buyer is Danaher.

Once MDS Pharma and MDS Analytical Technologies are gone, all that will be left for MDS is MDS Nordion, which provides medical isotopes for molecular and diagnostic imaging, radiotherapeutics and sterilization technologies.

—by Suz Redfearn