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MDS Pharma to Focus on Early Stage, Selling Late Stage to INC Research for $50M

Monday, June 8, 2009

MDS, the parent company of MDS Pharma Services, has entered into an agreement with INC Research to sell off MDS’ phase II through IV contract research business for $50 million in order to focus on early-stage clinical development.

Under the terms of the acquisition agreement, Raleigh, N.C.-based INC Research will take ownership of approximately 100 active late-stage trials, as well as the 800 employees who work on these trials.

The deal with INC, expected to close by the end of July, enables MDS to hold onto its discovery through phase IIa contract research organization (CRO) services, while unloading its late-stage division. MDS also is seeking a buyer for its central laboratory division.

“Going forward, MDS Pharma Services will focus on the provision of early stage (discovery through phase IIa) CRO services,” said MDS Pharma Services president David Spaight. “These operations will be comprised of two lines of business: discovery and preclinical, which includes pharmacology/drug metabolism and pharmacokinetics, drug safety assessment and development and regulatory services; and early stage development, which consists of early clinical research, bioanalytical services and clinical pharmacology.”

In 2008, MDS Pharma (including both early and late-stage services) contributed $482 million to MDS’ total net revenues–40% of the company’s total revenues. After MDS released disappointing financial results for its Pharma Services division late last year, a major shareholder pressured company leaders to sell off several business units, including Pharma Services, to increase shareholder value. MDS president and CEO Stephen DeFalco told investors in December that the company had seen an increase in early stage activity but that growth was offset by delays in late stage. MDS then undertook a strategic review of its CRO division.

“The decision to divest the late-stage business was driven by the company’s desire to focus its business portfolio on areas where it believes it can expand market leadership. While our investments in our late-stage business have improved operations, we determined that further success required greater scale,” Spaight said.

The MDS acquisition will complement INC’s existing CRO services and global footprint, giving the company a stronghold in several countries where it previously had little to no presence, including China, Singapore, Malaysia, Peru, Argentina, Chile, Mexico, Brazil and South Africa, said INC CEO James Ogle.

The deal also will add vaccines, respiratory and cardiovascular to INC’s list of therapeutic specialties and give the company enough scale to compete with larger CROs for preferred-provider relationships with large pharmaceutical companies, Ogle said.

“There’s been much written about the fact that [acquisitions] don’t always live up to both sides’ expectations before the deal is done. One of the things that we’ve tried to do in our acquisition philosophy, which supplements our organic growth, is to try to find acquisitions that are complementary to us. I think that MDS meets several of those criteria,” Ogle said.

Ogle acknowledges a slowdown in late stage business over the past year but said the market has stabilized in recent months.

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