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Lonza scraps generic drug venture with Teva

A logo of Swiss drug industry supplier Lonza is pictured outside the company's quarters in Visp October 31, 2012. REUTERS/Ruben Sprich
A logo of Swiss drug industry supplier Lonza is pictured outside the company's quarters in Visp October 31, 2012. REUTERS/Ruben Sprich

By Alice Baghdjian and Ben Hirschler

ZURICH/LONDON (Reuters) - Specialty chemicals maker Lonza posted a bigger than expected fall in first-half profit and said it was ending a generic drugs venture with Israel's Teva Pharmaceutical Industries by mutual agreement after misjudging how much it would cost.

The end to the alliance on the development, manufacturing and marketing of biosimilar drugs - copycat versions of injectable biotech medicines that have gone off patent - is not a complete surprise, since Lonza said in March it was reviewing the venture begun in 2009.

Biosimilars have long been eyed as a major opportunity for large makers of generic drugs, such as Teva and Novartis's Sandoz unit, but developing them is far more complicated than making generic copies of traditional pills.

The phase-down of Lonza's U.S. Hopkinton plant led to a 69 million Swiss franc ($73.78 million) impairment charge and a reduction in headcount, while the temporary shutdown of a Swiss plant also hit revenue, Lonza said in a statement on Thursday.

Its net profit fell by half to 41 million francs in the first half of 2013, while sales were down 11 percent at 1.744 billion francs, missing a consensus forecast for a 5.3 percent drop in a Reuters poll.

Faced with low-cost competition, a strong Swiss franc and higher raw material prices, Chief Executive Richard Ridinger is leading a review of Lonza's structure and strategy.

Ridinger said reorganization at three different production sites would lead to a reduction in headcount of about 250 full-time equivalents by the end of the year and the company's cost base should be reduced by 100 million francs by the end of 2016.

He announced Lonza planned to consider strategic options for its wood treatment business and said ending the joint venture with Teva would reduce its investments by 150 million francs.

"We think this restructuring is necessary in order to show growth in the future as the business as it is today would continue to decline," Vontobel analyst Carla Baenziger said, adding that ending the Teva venture should help reduce debt.

SHARES FALL

Shares in the company, which have gained more than 50 percent so far this year, fell 2.4 percent by 0835 GMT, underperforming an index of European chemicals industry stocks, which was down 0.6 percent.

Lonza, which makes ingredients for drugmakers such as GlaxoSmithKline, reiterated its target to increase core earnings before interest and tax by 10 percent this year, slowing from 28 percent growth in 2012.

Chief Operating Officer Stephan Kutzer said it was now clear that biosimilars would "require more capital than initially planned and will also take more time until they reach the market".

Regulators have also been slow to draw up rules for biosimilars, although progress in Europe is faster than in the United States.

Last month, the European Medicines Agency gave a green light to copycat versions of Johnson & Johnson and Merck & Co's blockbuster rheumatoid arthritis drug Remicade - the first such approval for those antibody-based medicines.

($1 = 0.9352 Swiss francs)

(Editing by Silke Koltrowitz and Tom Pfeiffer)

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