ZURICH Aug 22 Swiss drugs industry supplier
Lonza Group AG is courting the financial backers of
biotech firms to help secure a steady stream of projects and
offset some of the volatility of outsourced production
contracts, a senior executive said.
The Basel-based company has seen growing demand for its
outsourcing services over the past year as drugmakers invest in
specialised drugs that are hard to produce, such as
antibody-drug conjugates and ingredients for cell and viral
But the nature of the business is volatile, as many
promising drug candidates fall at the final hurdle or
increasingly cost-conscious pharmaceutical firms terminate
Establishing extensive long-term relationships with both
"Big Pharma" and small biotechs is therefore vital to make sure
drugmakers stick with Lonza through a drug's lifecycle.
Now Lonza is turning its attention to the private equity
groups and venture capital firms who fund biotech companies and
often have a say in which projects go into development.
Earlier this year, Lonza signed an exclusive five-year
agreement with Index Ventures to develop and manufacture all the
biological products of biotech companies in which the venture
capital firm is a major investor.
Marc Funk, head of Lonza's pharma & biotech unit since the
start of July, said the company was keen to establish further
strategic partnerships with biotech's financial backers and was
in talks with other companies.
"These deals are part of our strategy to mitigate volatility
and ensure that out assets are at optimised capacity," Funk told
Lonza makes a range of ingredients for biotech companies,
including monoclonal antibodies, peptides and drug conjugates.
Biotechs often lack the know-how and the capacity to produce
their own medicines in house. Moreover, many are reluctant to
spend money on their own production facilities before they are
sure that they have a commercially successful product in their
pipeline, given the risky nature of drug development.
By signing up biotech business early on, Lonza hopes to
replicate its successful partnership with Pharmacyclics Inc
, for which it manufactures Imbruvica. The leukemia drug
was approved last November and notched up $180 million in sales
to the end of June.
"We worked with this company when they were a start-up and
now they are one of the leading stars on the west Coast in the
United States," Funk said.
Sales at Lonza's pharma & biotech unit rose 10.7 percent to
674 million Swiss francs ($739 million) in the first half and
the company signed contracts with new and existing customers for
both early and late-stage projects.
Some analysts warn, however, that a reliance on large
customers with strong bargaining power could weigh on margins.
Securing a steady stream of business from biotech could be a way
of reducing that reliance.
Funk said an improved financing environment in 2013, when
the biotech industry raised $31.6 billion in capital according
to accounting firm EY, had contributed to more demand for
In contrast, he said Lonza had seen no impact on outsourcing
from the M&A frenzy sweeping through the healthcare industry
this year. In previous phases of consolidation, Lonza's track
record as a reliable partner had typically held sway when
contracts were reconsidered, he added.
"When you have these kinds of large mergers and
acquisitions," he said, "securing the supply and the stability
of the manufacturing process are priorities."
(1 US dollar = 0.9124 Swiss franc)
(Editing by David Holmes)