June 11, 2009 / 11:41 AM / in 8 years

UPDATE 2-MDS urges Canada to restart Maple reactor project

* Criticizes prime minister's "confusing" comments

* Urges Ottawa to restart mothballed Maple isotope project

* Posts Q2 Share loss $0.15 vs EPS $0.11

* To cut 180 jobs, take charge of $4 mln

* Shares up 1.6 percent at C$5.69 (Recasts with CEO's comments; in U.S. dollars)

By Scott Anderson

TORONTO, June 11 (Reuters) - MDS Inc's MDS.TO chief executive said on Thursday that comments by Prime Minister Stephen Harper that Canada would eventually stop making medical isotopes were "curious" and "confusing", and called on Ottawa to restart its mothballed Maple isotope reactor project.

Harper told reporters on Wednesday that Canada would eventually get "out of the business" of making medical isotopes. The country produces about a third of world supply at its aging Chalk River nuclear reactor in eastern Ontario, but that facility is experiencing a lengthy maintenance shutdown.

MDS Chief Executive Stephen DeFalco, whose company markets the medical isotopes produced in Chalk River, assailed the prime minister's comments, pointing to conflicting remarks from other departments and agencies on the same day.

"I find Stephen Harper's comments a little bit confusing given other message yesterday coming out from other areas of the government," he said on a conference call with analysts.

"Our perspective is that the only viable solution is the Maples in dealing with the current situation. The Maple project was built explicitly to avoid the current situation the Canadian government finds itself in."

Ottawa halted construction of the Maple project last year. It was planned to be a replacement for the 50-year-old Chalk River unit and take over the production of isotopes.

The isotopes are used for diagnosing cancer, heart disease and other medical conditions. They have a short shelf life and hospitals are already reporting supplies are running low.

DeFalco said the supply of these isotopes is "scarce" after the Chalk River reactor was taken out of service in May because of a small leak of heavy water, used in the reaction process. Government-owned Atomic Energy of Canada Ltd, which runs the facility, says it will be down for at least three months.

MDS's Nordion unit, which markets the isotopes worldwide, urged the government and AECL earlier this month to consult with international experts in hopes of reactivating the Maple project.

Maple was scrapped by Ottawa last year because of cost overruns and technical problems, prompting MDS to file a C$1.6 billion ($1.5 billion) claim against AECL and the Canadian government.

MDS also warned on Thursday that the isotope situation could have a "negative effect" on its revenue, EBITDA and cash flow and, as a result, it could breach a financial covenant related to a U.S. dollar note sometime in 2010.

Earlier, the health sciences company, had warned the financial impact of the shutdown would reduce its adjusted earnings before interest, taxes, depreciation and amortization by about $4 million a month.

MDS shares, which have dropped 67 percent in the past year, on disappointing results and falling demand for medical instruments, were up 1.6 percent at C$5.69.

SECOND-QUARTER LOSS

Earlier on Thursday MDS said it lost $17 million, or 15 cents a share, in the second quarter, ended April 30, compared with a profit of $13 million, or 11 cents a share, for the same period last year.

On an adjusted basis, it earned 3 cents a share, down from 8 cents a year earlier.

Revenue fell 19.4 percent to $282 million.

Analysts had expected, on average, earnings of 6 cents a share before special items, and revenue of $274.4 million, according to Reuters Estimates.

The company, which is narrowing its contract research focus by selling its late-stage research division and its Central Labs division, said it plans to cut 180 jobs in the third quarter, resulting in a charge of about $4 million. It estimates the move will result in average annual savings of about $9 million.

$1=$1.10 Canadian Reporting by Scott Anderson; editing by Rob Wilson

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