Lonza’s CMO biz gains pegged back by higher raw materials costs for ingredients unit

By Gareth Macdonald

- Last updated on GMT

Gains made in manufacturing, particularly in biologics, were pegged back by the impact raw materials costs and the strong Franc had on its ingredients division says Lonza.

New contracts and ‘good levels’ of capacity utilisation were key to growth of the custom manufacturing business in the third quarter according to Lonza, which said its active pharmaceutical ingredient (API) and intermediates plant in Nansha, China​ had seen particularly strong demand.

The firm also said its biologics production business – which has been the focus of considerable​ expansion efforts this year​ - had also operated at high capacity utilisation and landed a number of new manufacturing contracts in the period.

One area of concern for the custom manufacturing unit was the manufacturing plant in Hopkinton, US that was the subject of a US Food and Drug Administration (FDA) warning letter​ earlier this year.

The agency identified a number of good manufacturing practices (cGMP) deviations at the facility where Lonza makes Ontak (denileukin diftitox), an oncology treatment marketed by Eisai.

Lonza said that the warning would delay the release of a number of product batches but added that it had responded to the FDA in in a timely manner and started a review of systems at all of its manufacturing facilities.

Raw materials impact ingredients

The performance of Lonza’s pharmaceutical ingredient business differed markedly from its custom manufacturing division. For the third quarter in a row, the firm said higher raw materials costs, the strength of the Swiss Franc and ‘competition’ had impacted the division.

CEO Stefan Borgas said: “As in the first half we are working to address the strong Swiss franc and higher raw material costs which have particularly impacted margins in Life Science Ingredients.​”

Lonza’s bioscience business – which supplies scientists working in discovery and early phase research – also had a difficult third quarter. The firm said that the unit “continues to recover although at slower pace than anticipated mainly due to constrained academic budgets as governments limit their investment in research​.”

Arch buy

But despite these issues, Borgas was not too downbeat, suggesting that Lonza is “on track to deliver underlying sales and EBIT growth in 2011​.”

Part of the reason for this confidence is Lonza’s acquisition of microbial control product specialist Arch Chemicals late last month​.

Borgas said: “In recent weeks we have completed the acquisition of Arch to create the world leader in Microbial Control and have listed our shares on the Singapore Stock Exchange. These important strategic initiatives are designed to extend our interconnected life science platform and to support our growth ambitions in Asia.”

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