Lonza CEO departure prompts concern over earnings prospects

Logo of Swiss contract drug maker Lonza is seen in Basel

By Ludwig Burger and Noele Illien

(Reuters) -Contract drug manufacturer Lonza said on Monday Chief Executive Pierre-Alain Ruffieux will leave the Swiss company by mutual agreement at the end of the month, weighing on investor confidence about the group's medium-term profit prospects.

Lonza said its medium-term strategy and outlook would be discussed in detail at its capital markets day on Oct. 17 and that Chairman Albert Baehny would take on the CEO responsibilities until the appointment of a permanent successor to Ruffieux.

Shares in Lonza, which makes drug ingredients for healthcare and biotech companies, dropped 5.3% shortly after the 0700 GMT market open, trading near an eight-month low.

The stock has been down since Lonza cut its 2023 earnings outlook in July, citing weak demand for capsules for dietary supplements and warning that biotech customers were pursuing fewer projects in early stage drug development and in cell and gene therapy.

At the time, it also lowered its operating profit margin target for 2024 to 31%-33% from 33-35%.

A former Roche executive who joined Lonza in 2020, Ruffieux oversaw the company's role in producing COVID-19 vaccines for Moderna during the pandemic.

He was also behind a multi-year investment push to assist drug developers working on new therapeutic proteins as well as cell and gene therapies.

That was funded in part through the 2021 sale of Lonza's speciality chemicals business to private equity investors for 4.2 billion Swiss francs ($4.69 billion) in 2021.

But JP Morgan analysts said in a note that Lonza's investments in plants and equipment now looked unlikely to lead to the hoped-for improvements in profit margins.

"Today’s announcement increases our conviction that the new mid-term targets will not include an acceleration in growth," they said.

Lonza did not provide a reason for Ruffieux's departure. Spokespeople could not be reached immediately for comment.

Analysts have said that higher interest rates are dampening investors' appetite for risky biotech drug development ventures, which typically take a decade or more to turn a profit, impacting Lonza as well as laboratory gear makers Sartorius and Merck KGaA.

($1 = 0.8959 Swiss francs)

(Reporting by Noele Illien in Zurich and Ludwig Burger in Frankfurt;Editing by Rachel More, David Goodman and Emelia Sithole-Matarise)