Lonza fills portfolio hole by buying Novartis drug bottling plant

By John Miller

ZURICH (Reuters) - Lonza Group <LONN.S> is buying a drug bottling plant from Novartis <NOVN.S> in northern Switzerland as the Swiss drug ingredients maker fills a gap in its offering for drugmakers seeking to outsource production.

Novartis is selling the so-called "fill and finish" facility because its production lines had been underutilised.

Lonza has been building up its drug products services business for three years and has been weighing whether to buy a factory from a rival where it can put the finishing touches on injectible medicines, or build such a facility itself like it is doing now in Visp, Switzerland. [https://reut.rs/32272tu]

In buying Novartis's 10-year-old plant in Stein, Lonza will be able to speed up work for customers seeking to take their injectible medicines quickly into the clinic and onto the market, in particular for smaller lots of medicines aimed at niche populations, a Lonza spokeswoman said.

"Buying rather than building also means we will be operational immediately with an experienced team," said Hanns-Christian Mahler, Lonza's head of drug product services who the company poached in 2016 from Roche <ROG.S> to build up the business.

Lonza shares were up 0.7 percent at 0830 GMT, bringing their rise this year to 29 percent.

Lonza plans to keep the facility's employees and will continue to produce for Novartis.

SEAMLESS FIT

"The acquisition of the sterile bottling plant in Stein fits seamlessly into Lonza's strategy to expand its drug development, production and formulation business," Zuercher Kantonalbank analyst Philipp Gamper wrote in a note to investors. Gamper has a "market weight" rating on Lonza shares.

Lonza previously expanded into packaging operations for drugs when it bought Capsugel in 2016 for $5.5 billion.

Novartis is selling the drug bottling plant that it built in 2009 after reviewing alternatives for its under-used production lines.

"The planned sale of the two buildings is the best option to ensure the further employment and development of our employees and the continuation" of the site, a Novartis spokesman said. "Lonza will produce drug product at the facility for Novartis as well as providing capacity for additional customers."

This month, Lonza carved out its specialty ingredients operation which makes products such as anti-microbials for paint into a standalone business aiming to remedy problems there that have dragged on earnings.

Lonza has also sold a water care business as it seeks to expand its faster-growing biopharmaceuticals business.

(Reporting by John Miller; editing by Michael Shields/Jason Neely/Susan Fenton)