MDS will concentrate on medical imaging, radiotherapeutics, and sterilization technologies.

MDS signed agreements with two companies to sell its MDS Pharma Services early-stage business for $45 million and certain minority equity interests. Upon the close of the sale, MDS notes that it would have completed its repositioning strategy and will be focused on building its MDS Nordion business, which focuses on medical imaging, radiotherapeutics, and sterilization technologies.

The divestiture does not include the early-stage development facility in Montreal, which will be closed. The decommissioning, through which approximately 225 jobs will be eliminated, will take place in stages over the next 12 months and is expected to be completed by the end of February 2011.

The sale also does not include MDS Pharma Services’ headquarters in King of Prussia, PA. While MDS expects the majority of MDS Pharma Services’ employees to move to the new owners, the company anticipates that approximately 50 people will not be part of the deal.

Ricerca Biosciences will pick up discovery and preclinical operations in Bothell, WA, Lyon, France, and Taipei. The early-stage development operations, which consist of Phase I clinics and bioanalytical labs, and MDS’ development and regulatory services division, will be sold to a new corporation primarily owned by Bain Capital Ventures and SV Life Sciences.

Ricerca Biosciences currently has capabilities in discovery and medicinal chemistry, API process chemistry, cGMP manufacturing and scale-up, as well as IND-enabling toxicology. The firm believes that the addition of MDS Pharma Services’ molecular-profiling, pharmacology/drug metabolism and pharmacokinetics, and drug-safety services will allow it to offer a more comprehensive suite of discovery and preclinical services to support drug candidates from discovery through IND on a global scale.

The $45 million purchase price includes a five-year, $25 million note and $20 million in cash that will be adjusted for working capital and other items. MDS’ interest in the new corporation consists solely of the $25 million note and a 15% equity interest. The interest on the five-year note is 4% per annum, and the note is expected to be secured by certain assets of the new corporation.

After currently projected adjustments, the $20 million cash payment is estimated to result in net cash proceeds of approximately $7 million. Operating costs during the wind-down period are currently anticipated to be in the range of $7 million to $12 million. The cost of employee severance is estimated to be in the range of $18 million to $21 million, and MDS has retained pension obligations of approximately $3 million.

Following the sale, MDS expects to retain certain liabilities and obligations related to the MDS Pharma Services Early Stage business, including litigation claims and other costs associated with FDA’s review of the company’s bioanalytical operations in Montreal. MDS will also retain lease obligations for the Montreal facility, the King of Prussia office, and for one office building in Bothell, WA. The cost of future lease payments is estimated at $9 million. Under certain circumstances, MDS may be required to assume additional liabilities that could result in future cash payments.

Following the divestiture of the MDS Pharma Services early-stage business and the intended $400 million to $450 million share buyback resulting from the previously announced sale of MDS Analytical Technologies, MDS currently expects to initially hold between $85 million and $135 million of cash to support ongoing operations and future obligations.

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