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Lonza CFO sees in-house growth, not takeovers, to grow drug services
September 28, 2017 / 1:57 PM / 3 months ago

Lonza CFO sees in-house growth, not takeovers, to grow drug services

* CFO confirms 2017, midterm targets

* Seeks to fill ‘fill-and-finish’ portfolio gap

* Says lack of M&A targets could prompt in-house expansion

By John Miller

ZURICH, Sept 28 (Reuters) - A dearth of suitable targets may prompt acquisitive Swiss drug ingredients maker Lonza to expand its new drug product services business on its own, not via takeovers, Chief Financial Officer Rodolfo Savitzky told Reuters.

Last year, Lonza poached Roche’s biologics supply head, Hanns-Christian Mahler, to lead the unit whose “one-stop” services for pharmaceuticals companies include drug formulation development, analysis and quality control.

Savitzky acknowledged Mahler’s portfolio still lacks “fill-and-finish” activities, among the final steps in the drug manufacturing process for sophisticated biological medicines. While not ruling out takeovers, he said a lack of targets could mean Lonza builds the business in-house.

“At the end of the day, we could still acquire companies... but they are not for sale,” Savitzky said in an interview on the sidelines of a Finanz und Wirtschaft M&A event on Thursday.

“But this is an area where, because we have the supply chain, we can just integrate one step further.”

Also, risks associated with fill-and-finish -- for instance, U.S. regulators in February flagged issues at a Pfizer U.S. contract manufacturing site, delaying drugs for clients like Novartis -- make Lonza leery of buying problems.

“You need to acquire somebody who is absolutely bullet proof,” he said.

Lonza is fresh off an acquisition spree, having bought U.S.-based Capsugel for $5.5 billion and InterHealth Nutraceuticals for $300 million last year, deals that boosted its debt to 2.8 times operating profit.

Savitzky, who joined Lonza from Novartis in 2015, is now taking a breather on large M&A and said he would rejoin the fray only after completing the Capsugel integration and trimming the debt ratio to pre-takeover levels.

“Any additional big transaction will only happen once these two things are well under way -- we’re hoping 2019,” he said.

Shares in Lonza, added to the benchmark Swiss Market Index this year, rose 0.7 percent by 1330 GMT. They are up around 53 percent this year, near an all-time high of 258.30 francs.

SHARP DIP

On Wednesday, however, they dipped sharply, with investors taking profits amid concern that consensus estimates were high. Lonza gives its next performance update on Oct. 26.

Asked about the drop, Savitzky said he was “confident” of achieving Lonza’s 2017 and mid-term targets.

Those foresee high-single-digit sales growth this year, with revenue hitting 7.5 billion Swiss francs ($7.71 billion), a 30 percent core operating margin and a return on net operating assets of 35 percent by 2022.

“I feel very confident about where we are going,” Savitzky said. “We confirm categorically that the outlook we have given for 2017 we will achieve, and we confirm categorically the mid-term guidance.”

$1 = 0.9728 Swiss francs Editing by Michael Shields

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