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MDS ‘Pleased’ With Molecular Devices’ Q3 Contribution to Analytical Technologies Sales

This story originally appeared in Biocommerce Week, a newsletter that has been discontinued.
 
MDS last week reported a 24 percent rise in third-quarter revenues, driven by the contribution of Molecular Devices’ sales to the firm’s Analytical Technologies segment and a slight increase in revenues for the firm’s embattled Pharma Services segment.
 
In its first full quarter under the ownership of MDS, Molecular Devices posted 16 percent revenue growth to $55 million and recorded record profitability, MDS President and CEO Stephen DeFalco said during a conference call last week.
 
MDS completed its $615 million acquisition of Molecular Devices during the second quarter of 2007, providing its MDS Sciex unit with a well-established line of products for the high-end cell analysis market and a sizeable sales force (see BioCommerce Week 1/31/2007). MDS subsequently merged Molecular Devices and MDS Sciex under the Analytical Technologies segment.
 
A strong contribution from the firm’s mass spectrometry products, which grew 10 percent and are sold through its MDS Sciex joint venture with Applied Biosystems, helped the Analytical Technologies segment drive third-quarter revenue growth of 92 percent, or 9 percent excluding Molecular Devices, to $127 million.
 
Overall, MDS reported third-quarter revenue of $321 million compared with revenue of $258 million for the comparable period a year ago. Of that total, roughly 50 percent came from services, 25 percent from reagents and consumables, and 25 percent from instrumentation, said DeFalco.
 
“Molecular Devices has been a strong contributor with 16 percent revenue growth,” he said during the call. He said the firm expects Molecular Devices to meet or exceed the previous revenue guidance of $190 million and profit expectation of $45 million to $50 million in the first full-year of ownership.
 
“We’re very pleased with the step up in performance,” said DeFalco.
 
Prior to being acquired, Molecular Devices struggled in 2006 with sales to large pharma accounts and failed to meet second- and third-quarter revenue expectations (see BioCommerce Week 10/4/2006).
 
“Fundamentally, it was a company with great technology but was sub-scaled to be a publicly traded company,” DeFalco said last week. “When they were publicly traded they had a lot of their financial resources going into things like supporting the overhead of a publicly traded company versus having those investments going into business development capabilities and the R&D pipeline.”
 
DeFalco noted that among the reasons Molecular Devices had a strong quarter were that the pharma market is “a little more buoyant” right now than before, and MDS has launched six new products from Molecular Devices since the acquiring the firm.
 
“We see a pharma market that is fairly strong right now,” said DeFalco. “We see it remaining strong” through 2007 and into 2008.
 
Over the next 18 to 24 months, MDS will move Molecular Devices’ manufacturing capabilities from suburban San Francisco to Asia, DeFalco noted at the Thomas Weisel Partners Healthcare Conference, which was webcast from Boston. MDS has facilities in Singapore and Shanghai that can conduct that work at a fraction of the cost, DeFalco said.
 
He also said that in some ways the new MDS Analytical Technologies segment will look more like competitors such as ABI and PerkinElmer. Though it won’t be as broad as those firms, the segment will focus on high-growth sectors, said DeFalco.
 
“We’re very excited about cellular analysis and cellular screening,” he said. “We think there can be some really big breakthroughs there. We have a label-free platform, and we’re amazed at the uptake and the velocity of science taking place on that platform.”
 

“We are rebuilding our customer relationships and working to win them back. I am optimistic this trend will continue over the next several quarters.”

Progress in Pharma Services
 
While the Analytical Technologies segment was primarily responsible for MDS’ third-quarter revenue growth, the firm’s Pharma Services segment reported 4 percent revenue growth to $118 million.
 
The unit has struggled amid a Food and Drug Administration review over the past few years regarding bioequivalence studies conducted at a couple of its Canadian facilities from 2000 to 2004.
 
Early this year, the FDA sent letters to sponsors of 217 approved and pending generic drug applications that contained data from studies conducted at the Montreal-area facilities that are the focus of the agency’s review. According to MDS, the FDA instructed the sponsors to repeat their bioanalytical studies, re-analyze their study samples at a different bioanalytical facility, or independently audit their original study results.
 
As part of its plans to get the Pharma Services segment back on track, MDS plans to expand its operations in Europe as well as its phase I drug-testing facility in Phoenix. MDS also plans to continue closing some smaller sites.
 
“Pharma Services continues to show steady, sustainable progress,” said DeFalco during the Q3 call. “We are encouraged by the return of some bioanalytical and phase I customers this quarter.
 
“We are rebuilding our customer relationships and working to win them back,” he said. “I am optimistic this trend will continue over the next several quarters. Profit improvement initiatives in Pharma Services are well on track.”
 
Sales for the MDS Nordion segment, which sells imaging and radiopharmaceutical products, were $76 million in the quarter, down 4 percent year over year.
 
On an adjusted basis, MDS posted a third-quarter profit of $56 million, or $.14 per share, up from $21 million, or $.01 per share, last year.
 
As of July 31, MDS had $314 million in cash, cash equivalents, and short-term investments.

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