Lonza says demand strong despite headwinds

ZURICH Wed Jul 25, 2012 1:38am EDT

ZURICH (Reuters) - Swiss drug industry supplier Lonza (LONN.VX) confirmed its profit guidance on Wednesday and said demand in its key business remained strong despite macroeconomic uncertainties.

The Basel-based group, which in the past has battled currency headwinds and volatile raw material prices, reported a 3.1 percent decline in first-half net profit to 94 million Swiss francs ($94.6 million). Profit was hit by margin pressure in its key business of chemical custom manufacturing and the manufacture of vitamin B.

Capacity utilization in both chemical and biological plants was high, while the company had a strong project pipeline. "The outsourcing trend is considered to be solid," Lonza said.

Sales grew by 64.4 percent to 1.96 billion francs due chiefly to last year's $1.2 billion acquisition of U.S. biocide company Arch Chemicals. Analysts polled by Reuters had forecast a net profit of 68.8 million and sales of 1.76 billion Swiss francs on average.

While the shift back to specialty chemicals has helped to make Lonza less dependent on orders from large pharmaceutical and generic drugmakers such as Novartis (NOVN.VX) and Teva (TEVA.TA), profits have also suffered as a result. Producing specialty chemicals is a lower-margin business.

Nevertheless, Lonza confirmed its target for the full year of double digit growth in core earnings.

($1 = 0.9938 Swiss francs)

(Reporting by Andrew Thompson; Editing by Mark Potter)

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