MDS Inc.MDZ

Morningstar Rating

Stock Research and Analysis

by Alex Morozov, CFA

After several years of unsuccessful attempts to operate a portfolio of three unrelated businesses, MDS finally came to its senses and elected to sell two of its divisions: analytical, and contract research (CRO). Unfortunately, the company chose the Read more

Bulls Say

The isotope business enjoys substantial barriers to entry. The manufacturing and logistics for radioactive particles are highly complex and heavily regulated by the government, limiting new entrants.

Because isotopes used for molecular imaging have a relatively short half-life, customers need to replace them often, giving MDS a predictable stream of recurring revenue.

If MDS's arbitration proceedings against the Canadian government are successful, the company could reap a substantial benefit. Read more

Bears Say

The company's failure to sell its CRO and analytical instruments businesses prior to last year--as we've advocated since early 2008--resulted in MDS jettisoning them for only a fraction of their intrinsic values.

Although MDS has secured long-term supply commitments from its raw-material producers (specifically radioactive cobalt), its isotope business is at the mercy of a limited number of suppliers, particularly the Russian and Chinese governments, which are among the world's largest miners of cobalt.

Numerous restructuring charges, write-offs, business dispositions, and acquisitions have made MDS' financial picture murky, and difficult to compare with those of its peers.

MDS could encounter a lack of buyer interest in its early-stage clinical unit because of macro factors and continuing deterioration of its operations. Further, potential buyers may have zero need for MDS's bioequivalency assets, which could force the company to simply abandon this business.

The company relied on the new MAPLE reactor to provide stability to its isotope segment. With the Canadian government pulling the plug on the project, the company could encounter future supply disruptions because of the old age of its existing reactors. Read more

Strategy

MDS's strategy, once it sells its noncore operations, will focus solely on Nordion. MDS still needs to secure a reliable alternative to its Chalk River facility, as any further unplanned shutdowns--which Read more

Management

Only a year into his tenure, MDS's CEO Stephen DeFalco is stepping down, as part of the company's transition into solely an isotope manufacturer. The entire management team now represents Nordion, headed by its former COO Steve West. We note that DeFalco's Read more

Profile

MDS is a Canada-based medical isotope manufacturer. MDS's main product lines include molybden-99, which is used in medical imaging, cobalt-60, which is used in medical products' Read more

First Name

Last Name

Email Address

Zip Code

Create Password

Verify Password

(6-15 characters; case sensitive)

What is your occupation or job title?

Select...

Your registration indicates agreement to the terms of use.

Dodge & Cox: Health Care Now More Attractive
Watch more