October 27, 2010 / 6:07 AM / 9 years ago

UPDATE 2-Lonza confirms 2010 goal, expects 2010 dividend

* Lonza on track to reach cost-savings goal

* Sees solid sales in Q3, but strong Sfr a concern

* Outsourcing trend intact in custom manufacturing

* Still sees volatility due to tougher regulatory approval

* Shares indicated to open slightly higher

(Adds share indication, further details)

ZURICH, Oct 27 (Reuters) - Swiss drugs industry supplier Lonza LONN.VX confirmed its 2010 outlook and said it expected to pay a tax-free dividend for 2010 after a string of recent pipeline deals pointed to a recovery in outsourcing operations.

Lonza, which is aiming to post a flat operating profit of around 380 million Swiss francs ($391 million), said sales in the third quarter were solid but it cautioned that the strong Swiss franc was now a major concern.

The group could see a 25 million franc hit to its operating profit this year as a result of the stronger franc, Chief Executive Stefan Borgas said on a conference call.

Lonza, which moved away from specialty chemicals to focus on higher-margin pharmaceutical ingredients, last year embarked on a cost-cutting round after drugmakers became more cost conscious and scaled back inventories.

But the group said capacity utilisation and project pipelines in custom manufacturing, its largest unit in terms of sales, had increased and that the improved capacity utilisation would likely continue until the end of next year.

The group cautioned, however, that volatility still lingered in custom manufacturing as it is becoming harder to win regulatory approval for new drugs.

Lonza shares, which have risen over 20 percent so far this year, were indicated to open 0.5 percent higher in a weaker Swiss market, data provided by bank Clariden Leu showed CLPRE2

The group said cost reductions plans were on track and it expected to deliver savings of 70-80 million francs by the end of the first quarter of 2011.

Analysts expect Lonza to benefit from higher demand for biosimilars as drugmakers invest in biologics, which are used to treat more complex diseases like cancer and rheumatoid arthritis.

The group is already working with Israel’s Teva (TEVA.TA) to develop a generic version of Roche’s blockbuster antibody drug Rituxan, also known as MabThera.

Borgas said he still expects the first revenues from biosimilars to come in the second half of 2014, adding that the group was looking to add to its portfolio. (Reporting by Katie Reid; Editing by David Cowell) ($1=.9719 Swiss Franc)

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