Lonza boosts capacity use but tough regulators add volatility

By Nick Taylor

- Last updated on GMT

Related tags Lonza

Lonza is seeing increased capacity utilisation and project pipelines in custom manufacturing but warned more stringent regulatory approval is creating volatility.

Demand for custom manufacturing of chemicals and biologics has been volatile since economic problems hit pharma but in recent quarters Lonza has seen signs of improvement. This continued in its latest financial update with quarter-on-quarter increases in capacity utilisation and pipeline.

Biological manufacturing benefited from strategic manufacturing partnerships, such as a deal with GlaxoSmithKline, and contracts with emerging companies. This helped increase capacity utilisation to the highest percentage since 2008.

The custom chemical manufacturing unit signed multi-year deals for two active pharmaceutical ingredients (API) in late stage and saw increased demand for early phase production and development services.

Custom chemical manufacturing now has almost 300 projects in its pipeline, with much of the growth seen this year coming from preclinical and Phase I. Capacity utilisation is under 75 per cent, lower than levels seen in previous years and the first quarter of 2010.

Ongoing volatility

The chemical manufacturing unit continues to experience volatility, with several projects being delayed in the most recent update, the third quarter of the fiscal year at Lonza.

Although visibility continues to improve, volatility is persistent – mainly due to slow regulatory product approvals. In addition, the macro-economic environment remains challenging​”, said Stefan Borgas, CEO of Lonza.

For instance, the strength of the Swiss Franc is of increasing concern and could reduce operating profit by CHF25m ($25m) this year. Lonza is aiming to record a full year operating profit of CHF380m.

A cost-reduction programme is on-track to realise savings of CHF70-80m by the end of the first quarter of 2011. These savings breakdown as: CHF13-15m on external services and general operating expenses; CHF50-55m on personnel; and CHF7-10m on maintenance.

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