Lonza revises business forecast downwards
As a result of the recent worsening of market conditions in most of its business lines, Lonza is revising its 2003 guidance. It expects to report first half operating earnings approximately 20% below last year's levels.
As a result of the recent worsening of market conditions in most of its business lines, Lonza is revising its 2003 guidance. It expects to report first half operating earnings approximately 20% below last year's levels.
The second half is expected to show a significant improvement over the first semester, driven in the main by a company-wide restructuring initiative. In total, the company does not expect to exceed 2002 reported earnings (pre-exceptionals).
The Group has begun to implement measures to improve efficiency and reduce overhead costs in all business sectors and service functions. Overall it expects to improve the cost position by about CHF100m (US$75m) over a 12 month period at a cost of about CHF50m ($37m). Approximately 500 jobs, mainly in the US and in Europe will be lost. In Switzerland 90 jobs will be eliminated.
The chemical custom manufacturing business (Lonza Exclusive Synthesis) has seen a continuation of the difficulties faced in 2002. Production overcapacities remain and the number of new product approvals did not increase significantly.
Lonza's mammalian cell culture fermentation business (Lonza Biologics) has been impacted by clinical trial failures of customer products, thus negatively impacting on the utilisation of its 2,000/5,000l fermenters in Slough (GB) and Portsmouth, NH (US).
Not affected from the recent setbacks in Lonza Biologics are the large scale build out facilities at Portsmouth, NH, currently under construction and starting to come on stream in mid 2004.
One piece of good news is that Lonza Biologics has concluded a long term manufacturing agreement with a large pharmaceutical company for several products for multiple indications. With this, and an agreement with Alexion, means that roughly 90% of the capacity of the new plant is under long-term contract.
In addition to the restructuring efforts, Lonza has begun to redesign the business model in custom manufacturing in order to increase its market penetration and coverage.
It is evaluating the expansion of its r&d offering by combining all technical skills in the early clinical development phases (chemical, mammalian, microbial) into a global Technology Services business. This would lead to the integration of all the cGMP production activities (chemical, mammalian, microbial) into a single Custom Manufacturing business. The goal is to increase Lonza's capabilities to acquire new business and improve operating efficiencies. An additional CHF50m in savings have been targeted as a result of this consolidation, and will be fully realised by the end of 2004.