Eric Shackleton, THE CANADIAN PRESS

Stumble Upon

del.icio.us

Digg

Facebook

Print

Email

Speak Up

TORONTO - Facing what it sees as a soft market ahead, life sciences technology company MDS Inc. (TSX:MDS) has cut its full-year revenue and profit outlook after dropping to a third-quarter net loss of $10 million.

The loss in the quarter ended July 31 amounted to eight cents per share, compared with year-ago net income of $7 million, five cents per share. Total revenues fell to $321 million from $333 million.

While the quarter was stronger than the prior quarter with adjusted earnings before interest, taxes, depreciation and amortization up 21 per cent, "overall performance was mixed and it declined versus a strong quarter in 2007," CEO Stephen DeFalco told a conference call on Thursday.

MDS reduced its full-year revenue guidance to between $1.23 billion and $1.25 billion - down from an already reduced June forecast of $1.25 billion to $1.29 billion.

Blaming "restructuring and asset impairment charges announced in the third quarter and certain other adjusting items," it also chopped its net income outlook to between $18 million and $28 million, down from $45 million to $55 million projected in June.

On the Toronto Stock Exchange, MDS shares fell 88 cents, or more than 5.5 per cent, to close at $14.85.

DeFalco said a "slower-than-expected" ramp-up of revenue at its MDS Pharma Services unit, a Philadelphia-based company that provides drug testing services for major pharmaceutical companies, was also related to the delay.

"Our early stage business is improving nicely" at Pharma Services, said DeFalco.

However, "we expect late stage to take a little longer as we continue to deal with previous quarter cancellations and delays in the start of new projects," he said.

During the quarter, said DeFalco, the company "took actions to improve profitability across our businesses and were able to achieve a step-up in adjusted EBITDA versus Q2."

MDS announced in July that it expected to notch up $28 million in charges as it cut 210 jobs and recorded an asset impairment charge in the troubled Pharma Services business.

Said DeFalco, going forward "with three consecutive quarters of new business wins in excess of $160 million and a backlog that has grown more than $100 million year-to-date to $486 million, a record for Pharma Services, we are encouraged about our prospects going into 2009."

Overall, MDS expects "modest improvements for the balance of the year. We are driving efficiencies in our business and continue to make investments to better serve our customers," he said.

Desjardins analyst Maher Yaghi rated the stock a "hold" with "above-average" risk and a US$19.50 price target.

"Overall, while we believe that the stock's valuation has become attractive after the recent pullback, we remain concerned given the continued margin pressure at Pharma Services and the weakness now being experienced within Analytical Technologies," Yaghi wrote in a research note to clients.

"We would seek enhanced visibility of a turnaround on these fronts before recommending that investors take or increase positions in the stock."

MDS Analytical Technologies, which along with MDS Pharma Services has been undergoing a major restructuring, meanwhile, "showed sequential improvement despite a difficult environment" in a soft North American pharma market, said DeFalco.

But the division, which makes spectrometers and other high-end equipment used in drug and medical research, continues "to see great opportunities in our applied markets and strength in Asia," he said.

The company continues to be concerned about the supply of medical radioactive isotopes to its MDS Nordion division after government-owned AECL stopped work on work on two next-generation MAPLE reactors.

MDS, which has an exclusive 40-year contract with AECL to buy isotopes, is now suing the company and the federal government for $1.6 billion for abandoning the two MAPLE reactors.

DeFalco said MDs continues to put pressure on AECL and the federal government for a resolution.

The reactor's licence, though, is scheduled to expire in 2011. But the government is expected to apply for an extension until 2016. After that the supply of isotopes is uncertain and Canada is a leading supplier of them.