Swiss pharma firm Lonza's profit falls less than feared, shares rise

By Isabel Demetz and Andrey Sychev

(Reuters) -Swiss contract drug manufacturer Lonza reported a smaller-than-expected decline in first-half profit on Thursday, as a strong performance in its core Biologics unit partly offset weak demand for capsules.

Its shares rose 10% to their highest level in one year by 0712 GMT, while the broad Swiss blue chip index was down 0.7%.

Analysts at J.P. Morgan said the results may imply an upside potential to the annual core earnings margin guidance, and therefore expect shares to outperform.

Lonza's Biologics unit produces monoclonal antibodies and drug conjugates, and comprises approximately 45% of its annual sales.

Lonza is the world's largest contract manufacturer of monoclonal antibodies, the technology behind a new class of Alzheimer's drugs such as Eli Lilly's Donemab.

However, demand for pharmaceutical supplies such as hard capsules for pills and lab equipment fell from peaks reached during the COVID-19 pandemic, weighing on Lonza's sales.

"We're working on cost containment and operational efficiencies program to ensure we capitalize on the market when it recovers in the next year," Chief Finance Officer Philippe Deecke said on the capsules business's underperformance.

Last week, Sartorius, Lonza's German peer, cut its annual profit margin forecast, expecting low demand for lab equipment in the second half of the year.

Lonza's net profit dropped by almost a quarter, also hit by an impairment payment for its Bacthera biotherapeutic joint venture and an increase in the earnout liability for the acquisition of Dutch firm Synaffix, Deecke said.

Moreover, a weaker Swiss franc during the first six months of the year had a 2%-3% negative effect, he added.

Lonza's adjusted core earnings before interest, taxes, depreciation and amortization (EBITDA) fell to 893 million Swiss francs ($976.4 million) in the first half of the year, from 922 million francs a year earlier.

Analysts were expecting EBITDA of 802 million francs, according to a company-provided consensus compiled by Vara Research.

The company retained its mid-term forecast for the core EBITDA margin of 27%-29%. ($1 = 0.8828 Swiss francs)

(Reporting by Isabel Demetz and Andrey Sychev; Editing by Sonia Cheema, Savio D'Souza and Varun H K)