In the face of worsening market conditions for most of its business lines, life science company Lonza based in Switzerland has revised its 2003 forecast and puts about 500 jobs on the line. Meanwhile, about 90% of Lonza’s expanding biologics capacity in New Hampshire is under contract while its R&D services business will be expanded.
Lonza Group expects to report first-half operating revenues about 20% below last year’s level, while second-half earnings are expected to show a significant improvement over the first-half as a result of company-wide restructuring. Overall, the Group does not expect to exceed 2002 reported earnings, before taking account of exceptional items.
The Group has taken steps to improve efficiency and reduce overhead costs across all its business sectors and service functions. Overall this could improve its cost position by about CHF 100 million ($77m; €65m) over a 12-month period, at a cost of about CHF 50 million ($38.5m; €32.5m). 500 jobs, mainly in the US and in Europe will be affected. About 90 jobs will be eliminated in Switzerland.
Lonza’s chemical custom manufacturing business (Lonza Exclusive Synthesis) continues to face similar difficulties, as in 2002, with production overcapacity remaining and no significant increase in new product approvals.
Its mammalian cell culture fermentation business (Lonza Biologics) has been affected by clinical trial failures of its customers’ products. This had a negative impact on utilization of its 2,000/5,000 litre fermenters in Slough (UK) and in Portsmouth, NH (USA). However, ’take or pay’ contractual payments by customers will offset most of the profit shortfall due to these cancellations in 2003 and efforts are underway to replace the order book for 2004.
Lonza Biologics has a large-scale expansion of its facilities at Portsmouth NH under construction. These are unaffected from the recent setbacks in Lonza Biologics as the additonal capacity will start to come on stream around mid-2004.
According to a separate announcement, Lonza Biologics has concluded a long-term manufacturing agreement with a large pharmaceutical company for several products for multiple indications. This, together with an agreement with Alexion previously announced (see related article) means about 90% of the capacity of the new plant is under long-term contract.
The company is strengthening its Exclusive Synthesis and its biotechnology activities in all clinical stages of the project pipeline. This is designed to increase capacity utilisation of its reactor volumes.
It is Lonza’s more traditional activities of organic fine chemicals, performance chemicals and polymer intermediates where higher raw material prices and unfavourable exchange rates in the first four months have had a negative impact. The company considers it will be difficult to recover the profit shortfall during the remainder of the year 2003.
Besides restructuring, Lonza has begun to redesign its business model with a view to increasing market penetration and coverage of its custom manufacturing. As a further initiative, Lonza states: "We are evaluating the expansion of our R&D offering by combining all our technical skills in the early clinical development phases (chemical, mammalian, microbial) into a global Technology Services business. This would lead to integration of all cGMP production activities (chemical, mammalian, microbial) into a single Custom Manufacturing business."
The company aims to increase it capabilities, to acquire new business and to improve operating efficiencies.
"An additional CHF 50 million ($38.5m; €32.5m) in savings have been targeted as a result of this consolidation, and will be fully realized by the end of 2004."
"The impact of the changed market conditions and our restructuring response on 2005 targets will be disclosed together with the half year results."
Lonza is a Life Sciences driven company headquartered in Switzerland, with sales of CHF 2.54 billion ($1.95 bn; €1.65 bn) in 2002 and operating 18 production and R&D facilities in eight countries. It employs 6,200 people worldwide and is the leading custom manufacturer of active chemical ingredients, intermediates and biotechnology solutions to the pharmaceutical and agrochemical industries.
Keywords : Lonza Group Switzerland Portsmouth NH Slough UK Contract manufacturing Custom manufacturing Biomanufacturing R&D services Life science Restructuring Consolidation Technology services
