More to come
Private equity investors may get another bite of the top 10 CRO apple in coming months if the directors of MDS (Toronto),
the parent company of MDS Pharmaceutical Services (MDSPS), decide to test the market. MDS has formed a committee of independent
directors to review alternative ways to improve shareholder value.
Like PharmaNet, MDSPS, which had revenues of $482 million in 2008, has faced some particular challenges. Its early development
business has been hurt by the reputational and operational implications of quality problems at its Montreal bioanalytical
laboratory, which was cited by the US Food and Drug Administration in 2004 for inadequate investigation of contaminated samples.
MDSPS' management reports that the problems are largely resolved and that the company is attracting clients back to the bioanalytical
business. In the Phase II–IV segment, however, MDSPS continues to lose market share to larger competitors, including Quintiles
Transnational (Research Triangle Park, NC), PPD (Wilmington, NC), Icon (Dublin), and Parexel (Waltham, MA). The company also
suffers from a smaller scale and a more limited global footprint, even though its revenues put it among the top 10 CROs.
MDS has ample cash and little longterm debt, so it is not compelled to sell. However, its board and management have been under
investor pressure to consider strategic alternatives. With three distinct businesses in its portfolio (MDS also has business
units that make analytical instruments and radiopharmaceuticals), the company does have some interesting options, including
selling one or more of its business units to strategic or private equity buyers.
Although publicly held CROs represent the highest profile targets for current investment, we are aware of several well-known
privately-held CMOs whose owners have put them on the block and which are attracting considerable interest from investors.
Private investors aren't the only buyers, either. Publicly-held CROs such as PPD, which recently acquired the Eastern European
CRO AbCRO, are also taking the opportunity to pursue deals that flesh out their capabilities.
This doesn't mean investors aren't being picky, however. Many investors are focused on CROs with strong market positions and
viable business models, mindful that the services industry will experience a shakeout in the coming months.
The lesson here is that despite the doom and gloom in the financial media, there are still good businesses to invest in and
institutions with money to invest in them. The smart money seems to be saying that pharmaceutical services will be a great
business well into the future.
Jim Miller is president of PharmSource Information Services, Inc., and publisher of Bio/Pharmaceutical Outsourcing Report, tel. 703.383.4903, fax 703.383.4905, email@example.com