As we've highlighted in Morningstar Healthcare Observer, the medical equipment sector is one of the areas within the health-care space that could see significant upside during the upcoming year, despite these firms not feeling so well from late 2008 through 2009. Over the past year, persistent uncertainty over health-care reform, accentuated by proposed reimbursement reductions to hospitals, exacerbated the capital spending cycle swing that was set in motion by the deteriorating macro-environment and credit constraints.

The economics of for-profit hospitals, which we don't consider overly attractive even in a bourgeoning economy, (Tenet Healthcare (THC) --one of the largest for-profit hospital operators--has an operating margin has averaged a measly 0.5% over the past decade), become downright miserable when unemployment, and a corresponding level of uninsured individuals, rise in the down cycle. When combined with hospitals' existing high leverage and reliance on credit markets for both operating and capital needs, the perfect storm of a recession and a credit crunch pushed many hospital operators to the brink of bankruptcy early in 2009.

by Marie Daghlian

Standard & Poor's appears set to complete its quarterly review of the S&P/TSX Composite index at the end of next week and UBS expects newspaper chain Torstar Corp. (TORSF.PK), to get lost in the shuffle.

"[Torstar appears] vulnerable to deletion for failing to satisfy the requirements for continued inclusion," UBS strategist Garry Cooper said in a note Wednesday.

Standard & Poor’s is expected to announce the companies that will be added and deleted from the S&P/TSX composite index on or before Friday, Dec. 12. However, the large number of names expected to go as a result of the market meltdown is raising some concern.

The unprecedented number of index deletions will surely put some pressure on the index committee to make special considerations to their methodology, said Yin Luo, managing director of quantitative research at Macquarie Capital.
Changes to the index are based on factors such as trading volume, float turnover, number of transactions, price and weighting in the index.

Deletions are expected to far outweigh additions, when the S&P/TSX Composite Index is rebalanced in December, says Scotia Capital analyst Darwin McGrath.

Mr. McGrath told clients that Ritchie Bros Auctioneers Ltd. (RBA) is the lone candidate poised to jump onto the country main Index, while more than 20 companies are expected to be kicked out.

MDS Inc.'s (MDZ) third quarter results released Thursday are a disappointment to the Street who expected better operating performance from the life sciences company.

MDS reported net revenues of $298-million versus the Street's $344-million consensus and adjusted earnings per share excluding one-time items of $0.06 versus consensus of $0.08.

F3Q08 Earnings Call

September 4, 2008 9:30 am ET

Operating performance, not the headlines surrounding MDS Nordion, should be the focus of investors when life sciences company, MDS Inc. (MDZ), reports third quarter earnings next week, analysts say.

MDS Nordion, a subsidiary of MDS Inc., that distributes medical isotopes worldwide, is in the midst of a supply crunch, due to a global shortage for medical isotopes made worse last week following the closure of a nuclear reactor in Belgium.

Last week, I wrote an article about Canadian Technology Companies. But beyond technology, mining, and oil, Canada is home to over 135 publicly traded life sciences related companies. The following Canadian stocks have market caps above $250 million, and trade either on the New York Stock Exchange or NASDAQ.

MDS Inc. (MDZ) is an Ontario-based developer of products and services for the development of drugs, and the treatment of diseases, including pharmaceutical contract research services and contract manufacturing services for the radio therapeutics industry. The stock has a P/E of 3, and a PEG of 3.46.

In a 13D filing on MDS Pharma Services, Inc. (MDZ), Obrem Capital disclosed a 5.1% stake (6.2M shares) in the company. Obrem plans to talk with management and the board and recommend a spin-off or sale of one or several of the company's business units. Obrem also intends to recommend a review of the company's capital structure and a significant stock buyback plan.

From the filing:

MDS, Inc. (MDZ)

F4Q07 Earnings Call

MDS Pharma Services (MDZ), the CRO headquartered in Canada, moved its Beijing lab to a much larger facility. The new 25,000 square foot space affords five times the space for testing, four times the space for producing clinical trial kits, and a greater number of clinical trial testing services. The new lab is also closer to the Beijing airport so clinical supplies can be transported easily.

In announcing the move, MDS noted that it was the first western CRO to own its testing facility in China. During the 10 years MDS has been operating in China, it has managed more than 30,000 patients in clinical trials.

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MDS Inc. (MDZ)

F3Q07 Earnings Call

New Stakes:

Some interesting new positions from the filing:

Sanofi-Aventis is currently worth $123 billion, while takeover speculation has pushed BMS up to value of $52 billion, a three-year high. The combined company would be the largest big pharma in the world, surpassing the current champion Pfizer (PFE). The two companies share the troubled blood-clot drug Plavix, which produces almost $6 billion in revenue and briefly saw generic competition last year from Canadian generic company, Apotex.

Shire plc (SHPGY) received FDA approval for Lialda, its mesalamine drug with MMX technology. The drug is the only once-daily oral therapy for patients with active, mild to moderate ulcerative colitis. Shire expects to launch Lialda in Q1 of 2007. Shire rose 65 cents to $64.20.