July 24, 2014 / 6:35 AM / 5 years ago

UPDATE 2-Lonza profit boosted by drug production outsourcing

* H1 net profit 140 mln Sfr vs 127 mln Sfr in poll

* Sales rise 7 pct to 1.8 bln Sfr, matching estimates

* Core EBIT 241 mln Sfr vs 232 mln Sfr in poll

* Group reaffirms full-year EBIT and sales goals

* Shares up 5.8 pct (Recasts with share price, adds analyst)

By Joshua Franklin

ZURICH, July 24 (Reuters) - Shares in Switzerland’s Lonza surged on Thursday after the group’s first-half net profit more than trebled, benefiting from increased outsourcing of production by drugmakers.

The speciality chemicals maker and life sciences group is in the middle of a restructuring that has included plant closures and job cuts to improve productivity and profitability as it sharpens its focus on the pharmaceuticals and biotech market.

Lonza’s pharma and biotech unit, producer of the antibody-drug conjugate used in Roche’s breast cancer drug Kadcyla, posted an 11 percent revenue increase and 15 percent rise in operating profit.

The company said that production at the division’s factories was at budgeted levels and is forecast to improve. Besides antibody-drug conjugates, Lonza said it expects increasing demand for it to produce ingredients for cell and viral therapies.

The group’s net profit in the first half was 140 million Swiss francs ($155.14 million), compared with 41 million francs in the same period last year and a consensus forecast of 127 million francs in a Reuters poll of analysts..

By 1058 GMT Lonza shares had climbed by 5.8 percent, the biggest daily gain since September, outperforming a European healthcare sector index that was up by about 0.3 percent.


One Zurich-based trader said investors were attracted by the group’s better-than-expected profitability after disappointing earnings in the past year had led many to cut their holdings in the group.

The results have also raised hopes that the company could exceed its current full-year guidance, one broker said.

The group reiterated its target for an increase of about 10 percent in core earnings (EBIT) for 2014, with revenue growth of about 5 percent. The company also said that capital expenditure would remain well below 300 million francs.

Lonza said the future order book in its mammalian cell culture business, which produces ingredients for some medicines, had improved substantially in the first half of the year.

Vontobel analyst Carla Baenziger said much of the demand is likely to come from Singapore and could help to lift full-year results above the company’s current guidance.

“We believe that thanks to the situation in Singapore pharma and biotech should even be stronger in the second half of the year and hence believe that management is very cautious with its guidance,” Baenziger, who has a “buy” rating on the stock, wrote in a note.

Overall group sales rose 7 percent in the first half to 1.8 billion francs, in line with analyst expectations. Core earnings were up 13.1 percent at 241 million francs, against an average analysts’ forecast of 232 million francs. ($1 = 0.9024 Swiss Francs) (Additional reporting by Rupert Pretterklieber; Editing by Pravin Char and David Goodman)

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