Lonza: Pharma Biotech & Nutrition business performs well

The Swiss CDMO keeps 2019 outlook, expects CH 7.1 billion in sales and announces measures to mitigate headwinds impacting the recently created Specialty Ingredients segment

Lonza AG/Lonza BioPharma AG - Visp, Switzerland. Sampling of the 15L pressed fermenter

Swiss CDMO Lonza has released a business update for Q1 2019. The company has seen "a solid start" with continued positive momentum in its core healthcare businesses, and announced measures to mitigate challenges in the speciality ingredients businesses will be implemented.

The newly aligned Pharma Biotech & Nutrition segment performed "better than expected" compared with Q1 of the previous year, however, the recently created Speciality Ingredients division is facing "headwinds" and performed below expectations with sales on the same level as in Q1 2018.

CEO Marc Funk explained: "Q1 results demonstrate that Lonza today has two segments operating in different markets and growing at varying paces; so their performance and challenges should not be compared.

“Our Pharma Biotech & Nutrition business continued to outperform. We are investing to further accelerate growth in our core healthcare businesses. We are also constantly innovating with new offerings for our customers and their patients and consumers.

In Specialty Ingredients, we are committed to mitigating measures and operational efficiencies to manage the headwinds in the sector and strengthen the segment performance."

For Lonza, its biologics business have seen continued demand from existing and new customers for mammalian and microbial commercial manufacturing, for development services and clinical batches.

The drug contractor said internal integration of the commercial and clinical businesses into one Business Unit "is expected to further leverage operational and commercial synergies".

Lonza CEO Marc Funk

Contract manufacturing

Lonza reported "high interest" in its clinical offerings and that new investments in Visp (CH) and expansions in Hayward, CA (US) and Slough (UK) have been well received.

First clients of Lonza's full-service, single-site clinical offering Ibex Design and Ibex Develop in Visp are committed, representing 100% of 2020 available clinical manufacturing capacity more than one year before initiating operations.

Lonza's share of the joint venture (JV) with Sanofi, the first Ibex Dedicate offering for commercial manufacturing in Visp, is contracted with two customers.

Early this month, the drug contractor partnered with Chr. Hansen A/S, in a move to pioneer investment in the microbiome space.The 50/50 joint venture will operate from its new headquarters in Basel (CH) and have production facilities in Denmark and Switzerland. EUR 45 million will be spent initially from 2019-2022, and the market potential is estimated to reach EUR 150-200 million by 2025.

In biotech, Lonza's cell and gene technologies business benefited from "good momentum in a dynamic market environment". In Q1, Lonza started to bring its Cocoon autologous cell therapy in-a-box manufacturing device to the clinic in a pilot project with Sheba Medical Center, the largest hospital in Israel.

The Bioscience Solutions business offering research tools and biomanufacturing equipment saw increased demand, also based on new product launches and expanded offerings. Lonza said this business performed better than the same quarter last year.

Consumer health

The nutrition business saw ongoing momentum for consumer health and nutrition hard capsules with strong sales in EMEA, Japan, Brazil, Mexico and Australia. Sales in North America were slightly softer.

Demand for speciality polymers increased further. Dosage form solutions performed above Q1 prior year, driven by good demand in the US and the Asia Pacific. Lonza said the team has "a strong pipeline of new projects".

Expansion into customer channels and regions has progressed well for Lonza’s premium science-backed ingredient UC-II for joint health.

Challenging marketplace

Commenting on the lacklustre results for its Specialty Ingredients (LSI) segment, Lonza explained that softening demand alongside changing order patterns in end-markets had an impact on industrial applications like composites for electronics, especially in Asia, as well as on anti-microbial actives for paints and coatings and construction applications.

Personal and home-care preservation experienced soft sales caused by increased competitive pressure; however, professional hygiene saw continuous healthy demand and raw material price increases were passed on to customers.

All LSI businesses faced continued raw material shortages and supply-chain disruptions caused by China’s Blue Sky environmental initiative and a major chemical plant explosion in China producing feedstock used across the LSI portfolio.

The extent of the challenges across all LSI businesses was not foreseen in January 2019 and the implementation of additional cost-containment measures in Specialty Ingredients has started to mitigate the impact of supply-chain disruption and raw material input costs.

Based on the performance of its core healthcare businesses in Pharma Biotech & Nutrition and taking into account the continued headwinds in its Specialty Ingredients portfolio, Lonza kept its 2019 outlook. The company foresees sales of CHF 7.1 billion.

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