Lonza Group Ltd.

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Munchensteinerstrasse 38
Basel CH-4002
Telephone: +41 61 316 81 11
Fax: +41 61 316 91 11
Web site: http://www.lonzagroup.com

Public Company
Incorporated: 1897 as Elektrizitätswerk Lonza
Employees: 5,668
Sales: CHF 2.18 billion ($1.87 billion) (2004)
Stock Exchanges: Bourse de Zurich
Ticker Symbol: LON
NAIC: 325188 All Other Inorganic Chemical Manufacturing; 325192 Cyclic Crude and Intermediate Manufacturing; 541710 Research and Development in the Physical Sciences and Engineering Sciences; 621511 Medical Laboratories

Lonza Group Ltd. is the world's leading manufacturer of custom active ingredients, intermediates, and other pharmaceutical components supporting the global pharmaceuticals and life sciences industries. The company targets the value-added range of complex organic fine chemicals, conducting research and development, and manufacturing for pharmaceuticals and other products, including agro-industrial, dye and pigment, food and feed, adhesives, fragrances, and the like. Lonza's operations are structured into three primary product groups: Exclusive Synthesis and Biopharmaceuticals (31 percent of sales); Organic Fine and Performance Chemicals (39 percent); and Polymer Intermediates (30 percent). Europe, including Switzerland, is the company's major market, accounting for a total of 54 percent of sales; North America adds 31 percent. Key products include phthalic, maleic, trimellitic anhydride, nicotinic and isophthalic acids, as well as biocides, fungicides, oleochemicals, polymer intermediates, polyester resins, and the like. Lonza, formerly part of the Alusuisse group, was spun off in 1999 to facilitate that company's merger with Alcan Aluminum and Pechiney Since then, Lonza has performed a strategic shift in focus, targeting the life sciences market, and especially the fastgrowing biotechnology and custom manufacturing segments. Lonza supports its operations with an international manufacturing presence, including 18 production and research and development subsidiaries in eight countries, including the United States and China. Lonza is listed on the Bourse de Zurich and is led by Chairman Sergio Marchionne and CEO Stefan Borgas.

Electricity Origins in the 19th Century

The original focus of the Lonza Group was on the newly developing electricity industry in Switzerland at the turn of the 20th century. In the late 1800s, the growth of the country's railroad introduced the need for brighter and safer lighting, especially for headlights. Into the 1890s, the various types of lamps available, based on oil, petroleum, or even early filament-based electric lamps, were neither bright enough nor reliable enough for the railroads.

The invention of a new process for producing acetylene gas, based on carbide, provided a new fuel source for locomotive lighting in the early 1890s. Invented by the chemist Henri Moissan, acetylene provided a bright light, and was more reliable—if nonetheless dangerous—to use on the rails.

The production of carbide, however, required enormous amounts of energy. The Lonza River, in the Swiss Alps near Basel, provided a powerful and unlimited energy source, attracting a great deal of companies to the region. In 1897, Aflons Ehinger, a prominent banker, led a group of investors in setting up a new company, called Elektrizitätswerk Lonza. Lonza was able to acquire a downstream concession in Gampel and began building an industrial complex for the production of carbide, and featuring its own power generation station. After a series of setbacks, construction was completed by August 1898.

Lonza began producing carbide using a method devised by the Nuremberg, Germany-based Schukert Co. involving the use of electricity to combine coal and lime. That process proved inefficient, however, resulting in lower yields than initially expected. The search for greater productivity led Lonza to begin improving the process, enabling the company to build up its first expertise in the chemicals industry.

The development of a new generation of electric headlights put an end to the use of carbide—which had been the cause of a large number of accidents throughout Europe. Lonza began seeking new markets, and by the end of the first decade of the 20th century, the company had begun producing fertilizers based on calcium carbide, ammonia, and nitrogen. For this activity, the company moved to larger quarters in Visp, which was to remain its home into the 21st century.

Lonza continued expanding its range of operations through the first half of the century. In 1920, the company began producing nitric acid and ketene derivatives. By the mid-1950s, Lonza had moved into pharmaceuticals, producing intermediates, and foods markets as well. In 1956, for example, the company launched production of niacin, used as a B vitamin supplement.

The 1960s marked a new period for the company, with a move into the petrochemicals market. At that time the company shifted its production base away from carbide, installing its first naphtha cracker in Valais in 1965. This change led to a transformation of the company's product line, which now extended to include agrochemicals, dyes and colorings, adhesives, and the like. Lonza also continued to develop its pharmaceuticals business, widening its range of intermediates and launching production of a variety of additives as well.

Big Pockets in the 1970s

At the end of the 1960s, Lonza also began an international expansion effort, making acquisitions in the United States that led to the creation of its first U.S. subsidiary, Lonza Inc., in 1969. The U.S. extension enabled the company to enter the performance chemical market, notably with the addition of a line of biocides, as well as the production of a range of oleochemicals. Italy became another market for the company, where it acquired expertise in production of dibasic acids and derivatives.

Lonza found a larger partner in 1974, when it was acquired by Alusuisse. The merger into the company enabled Lonza to develop its international operations on a much larger scale. It also led the company to step up its investments, notably in the production of fine chemicals for the pharmaceuticals and agrochemical industries. The expanded company now adopted the name of Alusuisse Lonza.

In 1982, Lonza entered what was to become one of its major areas of operations by the end of the century, that of contract manufacturing for the world's pharmaceutical and agrochemicals companies. This new business area received a boost in 1984, when Lonza launched construction of a new fine chemicals manufacturing complex in Visp. By then, Lonza had taken its first step into the biotechnology market, setting up its first research group to investigate synergies among the company's expertise in the production of organic substances and the developing biotechnology field. Through the 1980s, the company successfully developed a number of chiral compounds and other substances. By 1992, Lonza was ready to launch its first biotechnology complex, acquiring Biotec S.R.O., which operated a fermentation plant in Kourim, in the Czech Republic. By then, the company also had extended its fine chemicals manufacturing capacity in the United States, adding two new facilities in the early 1990s.

New Strategy for a New Century

Lonza's biotechnology investments continued into the mid-1990s. In 1996 the company made an important acquisition to boost this area of its operations when it acquired Celltech Biologics. The Slough, England-based company also provided Lonza with a biotechnology complex in Portsmouth, New Hampshire, in the United States. Lonza also expanded its additives business, particularly its strong maleic anhydride derivatives production with the addition of a new production facility at Ravenna, its base in Italy.

By then, Lonza's sales had topped CHF 1.6 billion ($1.4 billion). The company also eyed further expansion, now in the fast-growing Asian region. In 1996, Lonza entered China for the first time, forming a joint venture to build a facility to produce niacinamide for the local market. Also that year, Lonza established a manufacturing presence in Singapore, setting up a new factory to produce isophthalic acid.

In the late 1990s, however, Alusuisse Lonza began seeking a partner in order to gain scale in the global market. In 1998, the company reached an agreement to merge with Germany's Viag AG, which, among other operations, operated specialty chemicals subsidiaries nearly three times larger than Lonza.

Yet the merger with Viag fell through by 1999. Instead, Alusuisse found two very different partners, when it reached an agreement with Alcan Aluminum Ltd. and Pechiney S.A. to merge their aluminum and packaging operations into a single unit. In this way, Alusuisse hoped to compete against industry leader Alcoa. As part of the merger, however, Alusuisse was forced to spin off Lonza as an independent company that year. Lonza's shares were then listed on the Bourse de Zurich, and former Alusuisse Lonza Chairman and CEO Sergio Marchionne left to join Lonza as its chairman.

The newly independent Lonza now began a strategy shift, placing its future growth more firmly in the life sciences and biotechnology arena. The company supported its change in focus with an ambitious investment program, which saw the company spend some CHF 550 million ($330 million) at the beginning of the decade. Part of this investment went toward expanding its Kourim, Czech Republic facility, completed in 2004. In the United States, Lonza spent $225 million to quadruple capacity at its Portsmouth facility.

Company Perspectives:

Vision. Lonza's commitment is to be the preeminent supplier to the life sciences industry through chemical and biotechnology platforms driven by an unrelenting passion: to unambiguously deliver value to our customers; to enable our employees to be successful; to continuously improve performance; and to make Lonza a recognized contributor to its communities. All our activities are guided by our vision. It is the cornerstone of our continuing commitment to improve performance and deliver top service to our customers. We feel confident that our positive results are fundamentally influenced by our awareness of that vision.

Lonza's timing proved unfortunate, however, as the global chemicals and pharmaceuticals markets entered a downturn toward mid-decade. Particularly difficult for the company was the slowdown in the contract manufacturing market, brought on in part because of a lower level of new compounds in the pharmaceutical pipeline. The difficult market conditions helped suppress the group's profits, as its revenues receded to just CHF 2.24 billion in 2003, down 11 percent over the previous year, and again to CHF 2.18 billion in 2004. Despite the difficult market, however, Lonza remained true to its strategy to focus on the life sciences market, including the launch of a new biologics facility in Visp at the end of 2004.

Principal Subsidiaries

LOFO High Tech Film GmbH (Germany); Lonza (China) Investments Co. Ltd.; Lonza America Inc.; Lonza Biologics Inc. (U.S.A.); Lonza Biologics PLC (U.K.); Lonza Biotec S.R.O. Kourim (Czech Republic); Lonza Compounds GmbH & Co. KG (Germany); Lonza Europe B.V. (Netherlands); Lonza Finance Limited (Jersey); Lonza GmbH (Germany); Lonza Group GmbH (Germany); Lonza Group UK Ltd. (U.K.); Lonza Guangzhou Ltd. (China); Lonza Guangzhou Nansha Ltd. (China); Lonza Guangzhou Research and Development Center Ltd. (China); Lonza Inc. (U.S.A.); Lonza Ltd.; Lonza Sales Ltd.; Lonza Singapore Pte Ltd.; Lonza S.p.A. (Italy).

Principal Competitors

Merck and Company Inc.; GlaxoSmithKline PLC; Pfizer Inc.; Bayer AG; Roche Holding AG; Celesio AG; BASF Aktiengesellschaft (BF); Bristol-Myers Squibb Co.; Abbott Laboratories.

Key Dates:

Elektrizitätswerk Lonza is created to build an electrical generation plant to fuel production at a carbide plant.
The carbide plant is completed.
Lonza expands into chemicals production, and opens a larger facility in Visp, Switzerland.
Production of ketene and nitric acid is launched.
The company begins production of niacin (vitamin B) as part of its extension into life sciences.
The company shifts from carbide to naphtha, entering the petrochemicals industry.
The company launches operations in the United States and Italy.
Lonza is acquired by Alusuisse, which becomes Alusuisse Lonza.
The company begins contract manufacturing for the pharmaceuticals and agrochemicals industries.
The company launches a research center for entry into the biotechnology market.
The company builds a new fine chemicals plant at Visp.
A biotechnology unit in the Czech Republic is acquired.
Lonza acquires Celltech Biologics (based in England and the United States); a joint venture for production of niacinamide in China is formed; an isophthalic acid facility in Singapore is added.
Alusuisse announces a merger with Germany's Viag AG but the merger collapses.
Alusuisse merges with Pechiney and Alcan and spins off Lonza as an independent, publicly listed company.
After an investment program worth CHF 550 million, the company expands its biotechnology capacity in the Czech Republic and the United States.

Further Reading

Birch, John, "Biotechnology and Contract Manufacturing: Dr. John Birch, Chief Scientific Officer at the Lonza Group, Explains How and Why His Company Has Entered into Biotechnology," Specialty Chemicals , April 2003, p. 30.

"Lonza Builds Up Mammalian Cell Capacity," Chemical Market Reporter , November 1, 2004, p. 2.

"Lonza Group, the Leading Custom Manufacturer of Chemical and Biotechnological Solutions," Chemical Week , January 29, 2003, p. 38.

"Lonza's Results Reflect Struggle in Contract Manufacturing Unit," Chemical Market Reporter , July 26, 2004, p. 5.

"Lonza Stuns Investors with Profits Warning, Job Cuts," Chemical Week , May 21, 2003, p. 5.

"Lonza's 2003 Profits Plunge, CEO Resigns," Nutraceuticals International , February 2004.

Tilton, Helga, "Lonza Supports Its Strategic Shift with More Investments," Chemical Market Reporter , September 30, 2002, p. 25.

"Tough Conditions Threaten Lonza's Profits," Chemical Week , November 24, 2004, p. 5.

—M.L. Cohen

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