ANNUAL REPORT 2006 ACTIVITY REPORT

Transcription

1 ANNUAL REPORT 2006 ACTIVITY REPORT

2 Essential Figures at a Glance Lonza million CHF Sales total Continuing operations Discontinued operations Result from operating activities (EBIT) Continuing operations Discontinued operations Profit before income taxes Profit for the period Cash flow before change in net working capital Investments in property, plant and equipment and intangibles (at cost) incl. leasing Total equity Net debt Net debt-equity ratio Basic earnings per share CHF Continuing operations CHF Discontinued operations CHF Diluted earnings per share CHF Continuing operations CHF Discontinued operations CHF Book value per share CHF Dividend payout ratio % (272) (371) Number of shares (par value CHF 1.00) Share price (high / low) Market capitalization (31 December) CHF / / Lonza Group Ltd million CHF Profit for the year Shareholders equity Shareholders equity as a percentage of total assets % Dividends declared after the balance sheet date Dividend per share CHF < Aspergillus niger, enlarged 1400 times; application as reference strain in quality control.

3 LONZA ANNUAL REPORT 2006 ACTIVITY REPORT

4

5 ACTIVITY REPORT CONTENTS INTRODUCTION Foreword from the Chairman of the Board of Directors and the Chief Executive Officer STRATEGY Lonza the Leading Supplier to the Life-Science Industries Interview with Stefan Borgas, CEO LONZA TRADEMARKS Registered Trademarks VISION, CULTURE, COMPETENCIES Vision, Culture, Competencies The Lonza Brand ORGANIZATION AND ACTIVITIES Exclusive Synthesis Major Acquisition Boosts Peptides Business Biopharmaceuticals A Successful Track Record Organic Fine & Performance Chemicals Lonza s Presence in the Nutrition Market Polymer Intermediates / Other; Acquired Bio-businesses LONZA SITES Lonza Worldwide Lonza Global Map Visp, Switzerland A New Image for Training Opportunities (Visp) Braine-l Alleud, Belgium Achieving Results via Effective Integration (Braine-l Alleud) Kouřim, Czech Republic The Basis for Economic Prosperity (Kouřim) Porriño, Spain Integration Began in a Cordial Atmosphere (Porriño) Slough, United Kingdom A Successful Event in Every Sense (Slough) Allendale NJ / Mapleton IL / Williamsport PA, USA Cohasset MN / Conshohocken PA, USA Portsmouth NH, USA Company of the Year (Portsmouth) China / Singapore A Milestone in Lonza s History (China) ADDRESSES AGENDA AND CONTACTS The consists of the following three parts: Activity Report, Financial Report, Corporate Governance & Social and Environmental Report. These publications are accessible on the Internet at The Annual Report is also available in German. The English version prevails. In this report Lonza and the Group refer to the whole group of Lonza companies, Lonza Group Ltd refers to Lonza Holding. The Annual Report of Lonza Group Ltd follows the guidelines issued by the OECD for multinational corporations.

6 4 INTRODUCTION ACTIVITY REPORT Dear Customers, Shareholders and Friends of Lonza, It is our pleasure to present you with our Activity Report, a section of the Lonza 2006 Annual Report. This report provides a summary view of Lonza s financial accounts, strategies, global business activities and international sites. It also gives an insight into our culture and vision. Looking at our achievements in 2006, what makes us the most proud is the continued strengthening of the relationships with many of our customers: trust in the people at Lonza contributed to the deepening of numerous long partnerships and a substantial increase in the number of joint projects. In 2006, Lonza continued building on its track record by delivering an 18.1% increase in net income and a 15.8% increase in EBIT compared with the previous year. The primary driver behind these positive results was the continuing improvement in the performance of our biopharmaceuticals activities. The Group s operating income margin was maintained at 11.8%, while the return on net operating assets improved to 12.2% (from 10.9%). Net working capital in relation to sales declined from 31% to 26%. In addition to the sound financial results, 2006 was a year characterized by transformation. Based upon our strategy of focusing on the life-science industries, we accelerated our shift into this sector by rigorous business portfolio realignment. In order to realize this transition, we divested non-core businesses (LOFO GmbH, Polynt S.p.A.) and acquired complementary businesses in the life-science sector: Peptides (Belgium), mid-scale mammalian biopharmaceuticals capacity (Spain) and a mid-scale microbial biopharmaceuticals business (USA) as well as a biotech service business, now called Lonza Bioscience (this acquisition closed in February 2007). This transformation is expected to increase and sustain our profitability growth over many years.

7 ACTIVITY REPORT INTRODUCTION 5 Lonza s talented, hard-working and passionate men and women around the world are dedicated to the continuous development and implementation of our strategy. Our growth strategy is based upon a plan that was created over two years ago. It has been executed systematically and effectively since its inception and is regularly updated and improved. This strategy encompasses several critical areas including: operational, technical and leadership excellence, innovation leadership, distinctive commercial performance and fostering an entrepreneurial spirit. We implement our strategy by focusing on vigorous internal organic growth and permanently adjusting our portfolio of chemical and biotechnology businesses. By delivering on the targets of our well-defined plan, we estimate that we will be able to achieve sales growth of 8% to 12% and profits in the mid to high teens each year. The visibility of existing contracts and projects, together with prevailing economic conditions, are the basis for projecting continuous growth until Ultimately, our company is driven by our vision. At Lonza, our passion is to deliver sustainable value to our customers. We wish to take this opportunity to express our sincere gratitude to our shareholders and our customers for the trust they have placed in us over the years. We also owe a particular word of thanks to all Lonza employees, old and new, for their outstanding efforts and vital contributions to the successful implementation of our growth strategy. We thank you for your continued trust and confidence in our team. We are pleased that each of you is continuing to accompany us on our exciting journey. Rolf Soiron Chairman of the Board of Directors Stefan Borgas Chief Executive Officer

8 6 STRATEGY ACTIVITY REPORT Lonza the Leading Supplier to the Life-Science Industries Interview with Stefan Borgas, CEO Realignment and growth in defined life-science markets are the primary objectives of the Lonza strategy. The acquisitions, investments and divestures undertaken recently emphasize this shift towards the life sciences. Besides improving results by over 15%, 2006 saw an accelerated pace of transformation at Lonza. What are the main elements of this strategic program? There are two main pillars to the Lonza strategy. One is the strong and highly focused investment program in our own capacity within our core areas. The second pillar is the change in emphasis of the portfolio towards the lifescience markets: healthcare, hygiene, preservation, nutrition, agrochemicals and personal care. The newly acquired Microbial Biopharmaceuticals business moves us forward significantly as the world s leading custom manufacturer for Biopharmaceuticals. Lonza expanded its life-science portfolio early in 2006 by acquiring UCB s Bioproducts peptides manufacturing division in Braine-l Alleud (Belgium). What was the experience you gained from the integration of this site into Lonza s existing Peptides business and into Lonza as a whole? The Peptides acquisition was meant to boost the high-margin portion of the Exclusive Synthesis business and complement the existing Lonza Peptides business, which was quite a bit smaller than the one we acquired. Our expectations in terms of sales, integration speed and the enthusiasm of the involved people have been more than fulfilled. We still have some work to do in the production performance of the plant and on the improvement of profitability. Do you mean that lessons can be learned for the integration of the new businesses you have recently acquired from Genentech and Cambrex? The integration of Lonza Braine was certainly of great value as a learning

9 ACTIVITY REPORT STRATEGY 7 experience. With regard to systems integration we know that we have to be even more aggressive in terms of timing. A second lesson we have learned is that, despite all the enthusiasm and same. And of course there are a lot of connections between Bioscience and other Lonza businesses in terms of product portfolio, sales channels and production plants. So the integration and products provided by Bioscience. Potentially, this offers a new platform on which we can continue to grow with exactly the same customer base and very complementary, neighboring technologies. energy that have gone into integration, we must not forget to keep the focus on the current business. However, the Bioscience integration might be a little bit different, because Bioscience will be incorporated as a new division of Lonza, while Lonza Braine was integrated as part of an existing business sector. Yes, that is true. There are some differences, but there are a lot of similarities as well. First of all, Bioscience is a bigger business: we have seven sites to integrate, not merely one. From the perspective of the Finance and HR systems, the complexity is exactly the of Bioscience will involve a lot of work. How will this new activity complement Lonza s existing biotechnology platforms? Actually, in a variety of different ways. First, it will give us a new sales and distribution channel, for example with the research labs where we did not have access before. Secondly, Bioscience gives us backward integration, especially in the Biopharmaceuticals business. Some products we previously bought from external suppliers can now be sourced internally. The third way this new business gives us a boost is through some of the technologies The fact that one of the world s leading biotech companies, our customer Genentech, trusts us to build a second plant in Singapore is quite a big compliment. You have also acquired the Microbial Biopharmaceuticals part of Cambrex. What is the rationale for this add-on acquisition in the context of the existing Microbial Biopharmaceuticals business unit in Visp? The Visp-based Microbial Biopharmaceuticals business is focused on largescale production of commercial quantities for our customers. There is also a small pilot plant and a small Process Development R&D group. What we were lacking was more muscle on process development and more mid-scale capacity so that we can better service our customers pre-clinical Phase I, Phase II and Phase III needs. This is now effectively what the newly acquired Microbial Biopharmaceuticals business brings us and thus moves us forward significantly as the world s leading custom manufacturer for biopharmaceuticals.

10 8 STRATEGY ACTIVITY REPORT Through the Biopharmaceuticals plant in Porriño (Spain), which Lonza recently acquired from Genentech, and the second large-scale biomanufacturing facility Lonza is building in Singapore, the company is accelerating growth in the area of Mammalian Biopharmaceuticals operations. Are these expansion projects to be classified mainly as geographical initiatives or do they rather fit into a wider asset and/or service strategy? The Porriño acquisition resulted from a make-or-buy decision process. Our biggest capacity constraint was in mid-scale mammalian capacities to serve Phase II and Phase III volumes for our customers. With this acquisition we can now fill the gap about three years earlier than we could have done through our own investment, but also at very competitive conditions. This helps us to expand the pipeline for the large-scale expansion we are undertaking in different parts of the world. The Singapore side of the agreement with Genentech gives us an opportunity to have engineering income from building a second plant in Singapore for one of the leading biotech companies worldwide, our customer Genentech. The fact that they trust us to do this is quite a big compliment for us. Beyond the above-mentioned acquisitions in the area of Biopharmaceuticals, Lonza is also investing in the expansion of its Exclusive Synthesis business in China. What is the main driving force behind this project? The Exclusive Synthesis business is, in terms of market size of course, substantially bigger than the Biopharmaceuticals business. We fully intend to continue to grow above the market average in Exclusive Synthesis and we will do this mainly by setting three priorities. First, we will continue to expand into very attractive market niches such as peptides. Secondly, we will expand into new technologies such as highly active pharmaceutical ingredients (HAPI). Thirdly, Lonza Exclusive Synthesis is extending its reach into mature products in order to support our customers in managing the life-cycle of their drugs: the processes of products that are a few years away from patent expiration should be redesigned and the production put on a low-cost basis. This is the purpose of the China platform which has already been well-received by customers: the first phase of the plant is already almost sold out. The focus on defined life-science markets also comprises the product line extensions in the field of Nutrition. DHA and larch arabinogalactan (LAG) are products that have recently been acquired. Is Lonza going to become a multi-ingredient provider? What we want to do is become a provider of scientifically based nutritional ingredients that are specific to certain health indications and based on technologies that Lonza masters particularly well. Furthermore, these two smaller acquisitions brought highly-skilled

11 ACTIVITY REPORT STRATEGY 9 Nutrition experts into our team and thus strengthened our knowledge base. This will further improve the specificity of our Nutrition strategy, which quite frankly, is not yet fully realized. Whether we will become a multiingredient provider is something that remains to be seen, but it is clear that if we want to defend our Nutrition business the way it is today, we have to do it through product innovation. The ambitious strategic growth Lonza is aiming for is not only demanding in terms of financial resources, but also requires managerial skills. How are you addressing this important issue? If Lonza faces one risk, it is that of not being able to execute this significant number of projects without delay because of a lack of resources. At the same time, we have to be careful not to overstaff and incur a cost overrun in these projects. Perhaps the most effective way of dealing with this is by identifying talented people as early as possible and giving them responsibility, for example in these projects. That way, we will build up a pool of excellent talents. Furthermore, the new people who join the Lonza family via acquisitions will also strengthen our expertise, management and leadership power, once integrated. Do you think that these new people will cover your needs, or will Lonza have to employ additional staff? Lonza s staff will grow from about colleagues at the end of 2006 to over by the end of Half of the new people are coming to us through the acquisition of the two Cambrex businesses in The other half comes from external recruiting. We cannot expect growth without adding any people. We have a lot of strong talents inside the company who are capable of executing these projects. But then we will need to backfill their positions from outside. The next months within Lonza will be primarily a period of implementation will be focused on delivery and making these growth rates work. At first glance, the short-term quantitative effect of the transformation strategy does not show significant sales growth. What is the step change resulting from this accelerated shift? If you include the portfolio change and compare like with like, there actually is considerable sales growth. Sales growth will be sustainable between 8 to 12 % per year. The profit growth will be sustainable in the mid to high teens, by our estimates until 2012 at least. This is a considerable change compared to where we saw growth going one year ago. However, we have to be aware that, due to the number of investment projects and the size of the recent acquisitions, growth rates will very likely not improve further, at least in the short term. The next months within Lonza will be a period of implementation will be focused on delivery and on making these growth rates work.

12

13 ACTIVITY REPORT LONZA TRADEMARKS 11 Registered Trademarks A B C D E F G ACRAWAX ALDO ALDOSPERSE AMPHOTERGE AZOLAT BARCHLOR BARDAC BARDAP BARLENE BARLOX BARQUAT BIO-GENTLE BIO-SURF BROMCHLOR CARBOQUAT CARBOSHIELD CARNICHROME CARNIFEED CARNIKING CARNIPASS CARSOQUAT CATAGARD CELLMATE CERAMID CLEARTRAC CYTAIR DANTABROM DANTOBROM DANTOCHLOR DANTOCOL DANTOEST DANTOGARD DANTOIN DANTOSERVE DANTOSPERSE EQUINOX ETHOSPERSE FIBERAID FMB GEOGARD GLYCACIL GLYCHLOR GLYCO GLYCOMUL GLYCONOL GLYCOLUBE GLYCOSERVE GLYCOSPERSE GLYCOSTAT GLYCOWAX H I L M N P Q R S T U X GLYCOX GLYDANT GLYDANT PLUS GLYTEX GS-SYSTEM HMB HYAMINE ISOCIL ISOPHAN LARACARE LARAFEED LARA-PRINT LAREX L-CARNIPURE LONZA LONZA PRIMASET LONZABAC LONZACURE LONZAINE LONZAMON LONZAPOL LONZASERVE LONZASET LONZA-SOL LONZASTAB LONZEST META META SUPER META THE MOLLUSCICIDE NATRULON NIAMAX PEGOSPERSE PEPZIN GI POLYALDO PRIMASET Q META QUALITY RESELUTE SPECTRADYNE TWIN CHAIN UNAMINE UNIHIB UNIQUAT XL-1000 Registered trademarks as of < Catalyst for gas-phase selective oxidation (fixed-bed technology); enlarged times.

14 12 VISION, CULTURE, COMPETENCIES ACTIVITY REPORT Vision, Culture, Competencies Each member of Lonza s global team is guided by our defined vision giving us collective direction, focus and passion. Our unwavering commitment is to deliver sustainable value to our customers. All of our activities are driven by our vision, which makes us the premier biotechnological and chemical supplier to the life-science industries. The realization of our vision is achievable on the robust foundation of our Lonza team members competencies. These competencies are the basis of our culture, which is centered around trust in each other and our people s entrepreneurship. In keeping with our commitment to ethical, social and environmental responsibility, all employees are bound by Lonza s Code of Conduct. VISION STRATEGY CULTURE COMPETENCIES VISION Our passion is to deliver sustainable value to our customers. STRATEGY Strong profitable growth based upon chemical and biotechnological platforms for the life-science industries. CULTURE Our culture is centered around trust in each other and our people s entrepreneurship. COMPETENCIES Drive, Decide, Develop, Deliver

15 ACTIVITY REPORT VISION, CULTURE, COMPETENCIES 13 In order to support our vision, culture and long-term strategy, we recognize the necessity of building leaders for our future. This year, a major initiative was implemented in order to focus on Lonza s leadership development in 2006 and beyond. The newly evolved program is based upon our core competencies, identified as the 4 Ds: Drive, Decide, Develop and Deliver. The enhanced development programs are now structured around functional competencies, behavioral competencies and Lonza s core values. By building upon our competency framework, we can ensure that our future is further strengthened with talented, focused and passionate leaders. Competencies DRIVE Motivate others Communicate Enthusiastic Kill bureaucracy Understand the vision Execute DECIDE Master scope and timing of decisions Manage the context Customer-focused Communicate clearly Monitor the environment DEVELOP Coach Create positive atmosphere Build and lead teams Manage talent DELIVER Direct Fast Agile Manage performance The Lonza Brand The Lonza brand expresses our vision, culture and competencies. The three basic elements of our brand message are reflected in our daily activities: Lonza is driving innovation, the high level of quality is non-negotiable for Lonza and our customers get access to leading-edge technologies and receive world-class products and services by partnering with us. These core elements continuously upgrade the standards within our entire industry. Lonza s competitive advantages are conveyed by the following differentiating characteristics through the Lonza brand: cutting-edge: Lonza employees are pushing the boundaries every day. agile: non-bureaucratic decision-making, flexibility and swift implementation. friendly: we are empathic and thrive on wholly understanding our partners situations.

16

17 ACTIVITY REPORT ORGANIZATION AND ACTIVITIES 15 Exclusive Synthesis < Bacillus subtilis enlarged about times; application in biosynthesis and after genetic modification in biocatalysis and as a reference strain in quality control.

18 16 ORGANIZATION AND ACTIVITIES ACTIVITY REPORT Exclusive Synthesis The Exclusive Synthesis business sector specializes in chemical synthesis and microbial fermentation and is the leading custom manufacturer of active chemical ingredients for the pharmaceutical industry. Lonza s track record in this area is impressive, with 25 years experience in the field of exclusive chemical synthesis under a stringent and constantly changing regulatory regime. Cost-efficient production, innovative development work and complex project management are the core capabilities with which we help our customers manage the life-cycles of their active pharmaceutical ingredients (APIs) efficiently and safely. Most of our customers come back with new projects or products after our first collaboration, notes Uwe H. Böhlke, Head of Exclusive Synthesis. In important end-product applications, including indications such as cardiovascular diseases, oncology, neurology, endocrinology and infectious diseases, we work with 18 of the 20 largest pharmaceutical companies worldwide, as well as many midsize and innovative small pharmaceutical companies. Thanks to our specialists achievements in R&D, based on a wide technology platform and flexible multipurpose plants where the performance of each individual product is continually improved, we elevate our good market reputation on a daily basis and further strengthen the long-standing relationships with our customers. Teamwork is the core element of our custom manufacturing concept. We assist our customers during the whole of the R&D and production processes. The cooperation may begin at any clinical phase, from small-scale production for pre-launch volumes to large-scale manufacture. We know our customers requirements precisely, enabling us to develop efficient, tailor-made chemical and biological processes for the individual ingredients and intermediates. This allows our customers to concentrate on their main tasks of R&D and marketing new pharmaceuticals, while benefitting from globally competitive active substance costs. In the last 20 years, the Exclusive Synthesis business sector has expanded continuously. One of the latest significant additions is in the area of peptides. The expansion is in response to the increased demand for peptide APIs worldwide. With its production capacity in Visp and the acquisition of the peptide manufacturing site in Brainel Alleud (Belgium) in early 2006, Lonza is the world leader in the development and manufacture of tailor-made peptides. Peptides consist of two or more amino acids. Lonza is the only leading producer to master all three technologies: microbial fermentation and chemical synthesis in liquid- as well as in solid-phase reactions. Peptides are essential for the manufacture of a new category of pharmaceuticals prescribed in such indications as diabetes, HIV, cancer, hepatitis, Alzheimer s disease, osteoporosis, obesity, infections and inflammations, male and female sexual dysfunction, and even wrinkle and acne treatment. Additional production capacity for APIs in Visp became operational in This investment was in response to the growing demand for APIs produced exclusively for our worldwide customers. The new R&D center equipped with stateof-the-art technology in Nansha Guangzhou (China) became operational in The highly qualified scientific team in Nansha will concentrate on research and development for active ingredients and intermediates in the area of custom synthesis.

19 ACTIVITY REPORT ORGANIZATION AND ACTIVITIES 17 Results 2006 Exclusive Synthesis & Biopharmaceuticals million CHF Sales Change in % Change due to volume and prices Currency translation Scope of consolidation Result from operating activities (EBIT) Change in % Margin in % EBITDA Change in % Margin in % * See footnote in page * With sales of CHF million, 33.6% above the previous year, the custom manufacturing activities (Exclusive Synthesis & Biopharmaceuticals) achieved an operating income of CHF 193 million, 35.9% higher than in Operating margin improved from 17.7% to 18.0%. These results are mainly due to the strong development of the Biopharmaceuticals business sector. Exclusive Synthesis Sales of the Exclusive Synthesis business sector amounted to CHF 605 million (CHF 445 million in 2005). The growth was delivered mainly by a larger volume of active pharmaceutical ingredients (APIs) and regulated intermediates for cardiovascular and HIV indications, as well as the contributions of the acquired Lonza Braine peptides business. Despite very high asset utilization at all sites, production issues at our site in Visp (Switzerland) very early in the year as well as at our facilities in Braine-l Alleud (Belgium) and Conshohocken, PA (USA) in the second half had a negative impact on the business sector s performance. After implementation of specific corrective actions, operations in Visp have been performing at or above budget levels. Similarly, aggressive action plans have been developed for Braine and Conshohocken in order to resolve the operational challenges. Process and portfolio optimization concepts were further expanded in 2006; several optimization projects were completed in the course of the year, delivering or exceeding the expected results. Overall market conditions in the area of chemical custom manufacturing remained difficult throughout Few new drug approvals, the patent expiration of mature products, persisting overcapacity and competitive pressure from Asian producers were the main reasons for this situation. In 2006, a consolidation trend in the CMO (Custom Manufacturing Organizations) area became apparent. Gradual restructuring at the major pharmaceutical companies, with shutdown or divestiture of their own production, might lead to increased outsourcing. The trend initiated by customers to ask for longer-term commitments for production capacity has become evident during the year. In order to ensure future growth and offer our customers alternative production capabilities, we undertook a series of capital investment projects in Noteworthy developments include: Additional capacity at the API plant in Visp (Switzerland) has become operational, while a new HAPI line (highly active pharmaceutical ingredients) will come on stream in Construction of the new API facility and the small-scale plant (SSP) in Nansha Guangzhou (China) is progressing according to schedule. In Kouřim (Czech Republic), production modifications for the fermentation of high-end enzymes are being implemented. Integration of Lonza Braine SA (formerly UCB Bioproducts), with its peptide activities, was completed in December The R&D portfolio pipeline comprises a total of 157 projects. The number has increased thanks to the incorporation of Lonza Braine s peptide activities and the full staffing of the new R&D center in Nansha with 45 skilled scientists.

20 18 ORGANIZATION AND ACTIVITIES ACTIVITY REPORT Major Acquisition Boosts Peptides Business By Tom Mulligan, Editor, sp 2 Magazine, Horsham (UK) A major acquisition completed in 2006 propelled Lonza into a leading position in the pharmaceutical Peptides manufacturing sector, thus complementing and broadening the company s offerings in custom synthesis for the life-science industry. Peptides have been commercially important compounds since the 1950s, when both peptide and amino acid products became available through the manufacture of short-sequence molecules using liquid-phase technology. In the 1960s, the synthesis of longer sequences became possible through the application of newly-developed solid-phase technology. Lonza has invested in both technologies for peptide synthesis, thus completing the company s range of pharmaceutical chemical compound types. Peptides are a part of the biopharmaceutical industry that is of interest to Lonza because of its sustainability: There are a lot of projects in the pipeline, says Dirk Oehlers, Head of Sales and Business Development for Lonza s Tides business unit. First, there are a lot of candidates in the worldwide market. Second, the pharmaceutical industry is developing more complex products, with longer sequences and more chemical modifications. And third, the market is growing in terms of production amounts (volume). Lonza is a company offering all three technologies available today, namely: liquidphase, solid-phase and recombinant DNA technology. The most significant recent development in Lonza s peptides business was the acquisition completed in March 2006 of UCB s Bioproducts manufacturing facility in Braine-l Alleud (Belgium). This has boosted the company s activities in the sector through the addition of liquid- and solid-phase manufacturing capabilities and expertise. UCB Bioproducts started working in the pharmaceutical discovery and development areas and then rapidly moved into contract manufacturing as demand for these services grew in the 1970s, explains Dr Alain Scarso, Head of R&D at Lonza Braine. The com-

21 ACTIVITY REPORT ORGANIZATION AND ACTIVITIES 19 pany s know-how developed around the technology and the needs of the marketplace, that is, the needs of the customer to develop a drug candidate using different and complex ways of manufacturing drugs. Oehlers adds: In 2002, Lonza s Management Committee decided that the company should be committed to R&D, QA / QC and sales in peptides, but that the company needed to grow its capabilities by acquiring liquid- and solidphase synthesis expertise, increasing capacity, and expanding its product portfolio, explains Oehlers. The Lonza Braine facility occupies a expertise in route scouting, process development, process optimization, scaleup, validation and with its regulatory expertise such as the Chemistry and Manufacturing Controls section, all Drug Master Files and the filing of dossiers supporting clinical developments in a large number of territories worldwide, not to mention its expertise in legal aspects such as patents etc., says Oehlers. Offering a broad service makes people comfortable. People feel they are in good hands with Lonza. Ten years ago there weren t many peptide manufacturing companies but nowadays CMOs (Custom Manufacturing Organizations) are looking at peptides as a potentially lucrative area. Some of these are large companies and some are small, and it s possible that some of the world s largest chemical manufacturing companies may enter the marketplace. Indian and Chinese companies may also enter with generic products. However, our customers are very aware of the complexity of peptide manufacture, the very high capital investment required and the expertise needed. Therefore, even though there will be competition in the marketplace, we are highly confident that Lonza will 6-hectare site with plenty of room for expanding its development laboratory and manufacturing facilities. The site has both liquid- and solid-phase manufacturing capabilities in a number of manufacturing suites with steel reactors up to liter for large-volume products. Laboratory facilities include process R&D, in-process control and analytical suites, and a dedicated technology development laboratory, all fully equipped with state-of-theart equipment as well as high-performance analytical tools. Lonza has a lot to offer as a one-stopshop for peptide manufacture with its Lonza now has the capability of more complex peptide synthesis and at an increased scale of manufacture, says Scarso. We need to maintain our leadership through technology investment. There are technologies already existing within Lonza for molecules other than peptides that can be adapted to peptides production at industrial scale. The emphasis is on cost-cutting through both process and productivity improvement. Oehlers adds: In a life-science oriented company playing in a certain league, there are synergies across the board. That s the beauty of it we re focused on life sciences, and it was a conscious strategic decision by the management to have this focus. continue to be successful in peptides because of the company s history in technology development, its manufacturing expertise, its flexibility and its reputation in custom manufacturing, Oehlers states. Pictures from left to right < Flask freeze-dryer < Metrological controls monitoring in LPPS facility < Quality Control Laboratory

22

23 ACTIVITY REPORT ORGANIZATION AND ACTIVITIES 21 Biopharmaceuticals < CHO (Chinese Hamster Ovary) Cells, used for the manufacture of biopharmaceuticals; enlarged about times.

24 22 ORGANIZATION AND ACTIVITIES ACTIVITY REPORT Biopharmaceuticals The Biopharmaceuticals business sector specializes in microbial fermentation and mammalian cell culture, starting from strain or cell line construction, through process development, to manufacture for clinical or commercial supply. This business sector is expected to deliver strong growth in the years to come thanks to the increasing number of biopharmaceuticals being launched, the constantly increasing project pipeline and Lonza s leading position in this market. The business sector s strategy is to grow in close alignment with its customers by balancing its portfolio between process development, early-stage and commercial products, as well as Biopharma Services. To be our customer s partner from product concept through to commercial manufacture. That s how Stephan Kutzer, Head of Biopharmaceuticals, characterizes the business sector s mission. At our production site in Portsmouth, NH (USA), we now operate four liter stirred bioreactors. Driven by strong customer demand we have also initiated the conversion of a mothballed liter into a liter production line. The expansion of the facility in Portsmouth and the acquisition of Genentech s 4 x liter mid-scale mammalian facility in Porriño (Spain) will provide Lonza with immediate access to further mid-scale biomanufacturing capacity three years earlier than planned. In addition to our liter mammalian large-scale facility in Singapore we will build an identical second facility for Genentech. Lonza has also strengthened our position in the microbial area. Supported by the partnership with UCB, Lonza has started to manufacture bulk actives based on PEGylated antibody fragments. Together we have built a commercial-scale biopharmaceutical manufacturing facility in Visp. Based on our growing pipeline, additional large-scale expansion in Visp (Switzerland) is in an advanced stage of preparation. Our core competencies are process development, fast-track plant design and construction, regulatory support and mid- /large-scale commercial manufacturing. For over 20 years, Lonza has been a dedicated custom manufacturer of biopharmaceuticals, successfully meeting the needs of its customers. The setup and performance of project teams, with experts from Lonza and from customers working across company borders, is unmatched in the industry. Our clients are the leading pharmaceutical and biotechnological companies. Lonza is developing biopharmaceuticals for application areas such as oncology and autoimmune diseases. Our facilities in Slough (UK) and Portsmouth have been licensed to produce five commercial products, including Genentech s Rituxan, Bristol-Myers Squibb s Orencia and Eli Lilly s Xigris. As the leading contract manufacturer of therapeutic monoclonal antibodies and recombinant proteins derived from mammalian cell culture, Lonza has developed a highly efficient mammalian expression system the GS Gene Expression System (GS: glutamine synthetase) which is characterized by speed, safety and costefficiency. The GS-System technology is being upgraded on a continuous basis and delivers exceptional, cutting-edge results.

25 ACTIVITY REPORT ORGANIZATION AND ACTIVITIES 23 Results 2006 Exclusive Synthesis & Biopharmaceuticals million CHF Sales Change in % Change due to volume and prices Currency translation Scope of consolidation Result from operating activities (EBIT) Change in % Margin in % EBITDA Change in % Margin in % 2005* * The prior year was restated due to reclassification of the agrochemicals business from the Exclusive Synthesis & Biopharmaceutical segment to the Organic Fine & Performance Chemicals segment as a result of the change in management structure. With sales of CHF million, 33.6% above the previous year, the custom manufacturing activities (Exclusive Synthesis & Biopharmaceuticals) achieved an operating income of CHF 193 million, 35.9% higher than in Operating margin improved from 17.7% to 18.0%. These results are mainly due to the strong development of the Biopharmaceuticals business sector. Biopharmaceuticals The Biopharmaceuticals business sector generated sales of CHF 468 million in 2006 (CHF 358 million in 2005). The Biopharmaceuticals business including Mammalian Operations, Microbial Operations and Biopharma Services delivered a significant performance improvement. High capacity utilization (small-, mediumand large-scale bioreactors), further improved batch success rates and the strongly increasing demand for our R&D services were the main drivers behind this positive development. A major achievement during 2006 was the licensing by the US Food and Drug Administration (FDA), the European Medicines Agency (EMEA) and the Japanese Pharmacopoeia of the Portsmouth, NH (USA) large-scale mammalian cell culture facility for the production of Bristol-Myers Squibb s Orencia and Genentech s Rituxan. Growing demand and a strong project pipeline supported a number of expansion projects and related transactions. The milestones reached in 2006 include: The fourth liter bioreactor in Portsmouth, NH (US) was started ahead of schedule in May The first (of two) liter microbial bioreactor was started on schedule in Visp, in cooperation with UCB. Expansion of the laboratory space and development capacity in Slough (UK) was completed. Construction of a large-scale mammalian manufacturing facility was initiated in Singapore, a pioneering project in the south-east Asia region. Genentech has an exclusive option to buy this plant. Lonza will build a second liter mammalian cell culture manufacturing facility in Singapore. Acquisition of Genentech s 4 x liter mammalian cell culture facility in Porriño (Spain), which is dedicated in the short term to the production of Genentech s Avastin (bevacizumab) bulk drug substance, was completed. The acquisition of Cambrex s Microbial Biopharmaceuticals business was announced; this will further strengthen our microbial small-/mid-scale production capabilities and the project development pipeline. We anticipate closing during the first quarter of 2007.

26 24 ORGANIZATION AND ACTIVITIES ACTIVITY REPORT A Successful Track Record By Robert Winder, Industry Journalist, London (UK) In developing and manufacturing mammalian biopharmaceuticals, Lonza is able to start working with customers at a number of stages. The scientific and customer project management teams based in Lonza s R&D center in Slough (UK) work closely together with customers to design work programs that meet each customer s requirements. This cooperation ensures that the customers are kept up to date with what is happening at all stages of the project and enables them to make informed decisions. Lonza continued to enhance its mammalian biopharmaceutical manufacturing capabilities through acquisition and expansion in In addition, the research and development center in Slough (UK), which is key to maintaining a strong manufacturing pipeline, enjoys high demand and ongoing expansion. When a drug discovery company is looking for a manufacturer for its product, it faces a number of issues such as whether mammalian or microbial fermentation will be used for manufacturing, whether the starting point is a DNA sequence, or a partially developed process, and the scale of capacity that will be required. According to Allison Vernon, Head of Mammalian R&D Services, there are three key reasons why a customer should choose Lonza as their manufacturing partner: flexibility, teamwork and the process. Lonza can provide customers with all the tools required to get their product made, whatever options are required, she says. Lonza has a successful track record in process development and manufacturing of biopharmaceuticals using mammalian cell culture. We have taken products both antibodies and recombinant proteins from R&D to the market, says Vernon. The customer can reduce their risk by working with an experienced company, such as Lonza. Lonza s customers range from almost virtual biotech companies to major pharmaceutical companies. Lonza has developed a standard process pathway to deliver high-titer GMP production so that the customer is able to move through toxicology studies and into clinical trials as quickly as possible. The process is not a simple handle-turning exercise, says Vernon, it is tailored to the specific needs of each project for each customer.

27 ACTIVITY REPORT ORGANIZATION AND ACTIVITIES 25 to the pilot plant, they have all the information about what to expect from a process in terms of fermentation, purification and assays, says Vernon. The pilot plant is used to scale up the process for GMP manufacture. Product from the pilot plant is often used by customers in toxicology studies, which are on the critical drug development pathway. Lonza s standard process is built around its Glutamine Synthetase (GS) Gene Expression System and its suspension time taken for cell line creation, and improving the reproducibility and robustness of processes. There has been considerable success in improving titers in recent years and monoclonal antibody titers of 2 to 5 grams per liter are commonly seen. The GS Gene Expression System is at the center of a whole family of services and products offered by Lonza so that customers have the tools to bring their products to the market. Lonza continues to innovate in all areas to support For Lonza, the key to maintaining a strong pipeline of projects is communication with its customers. A multidisciplinary customer-facing project team coordinates each project. We have an interactive communication process with the customer to ensure they understand what is happening at all stages of the project and to allow them to make informed decisions, says Vernon. The project manager is the key to the relationship with the customer and is supported by a team made up of scientific, quality, regulatory and manufacturing representatives based in Slough. It is important to manage the communication so the relevant experts at Lonza talk to the right people at the customer s end, adds Vernon. In parallel with cell line development, Lonza also creates product assays, to ensure the development and manufacturing processes can be monitored and the final product analyzed. In addition, the purification process is developed to ensure that the product will meet the exact purity standards required for therapeutic applications. Ultimately, when the process is handed variant Chinese hamster ovary (CHO) cell line (CHOK1SV), which is adapted for use in a protein-free suspension culture system. Both the expression system and the cell line are widely used in the biopharmaceutical sector and are familiar to the regulatory authorities. We also see many conference presentations that use the GS Gene Expression System, which is a strong scientific endorsement of the technology, says Vernon. To stay ahead of the game Lonza is working to further enhance the GS Gene Expression System by improving product titers and reducing the GS fermentation processes, to enhance services, to develop new services and to develop technologies that are new licensing opportunities. However, beyond the GS Gene Expression System, Lonza has the flexibility, expertise and capabilities to work with customer s own processes. Pictures from left to right < Separation of DNA on agarose gel < Removal of stack of cryopreserved cell lines from liquid nitrogen dewar < Plasmid purification

28

29 ACTIVITY REPORT ORGANIZATION AND ACTIVITIES 27 Organic Fine & Performance Chemicals < Acetoacetanilide here enlarged times is an intermediate for the manufacture of organic pigments and dyestuffs.

30 28 ORGANIZATION AND ACTIVITIES ACTIVITY REPORT Organic Fine & Performance Chemicals Organic Fine & Performance Chemicals offers a broad range of products for applications in nutrition, hygiene, personal care, water treatment and wood preservation, and selected industrial markets. Its production plants are located in Switzerland, the USA and China. Backward integration to an in-house naphtha cracker provides fundamental starting materials. Ongoing process optimization, the switch to new raw materials and application of innovative technologies lead to continuous expansion of our product portfolio. With production based on naturally derived alcohols, Lonza is one of a small number of leading suppliers of biocides. A process of continuous innovation in the chemistry underlying these materials enables the development of new intermediates and active substances, also increasingly in Asia. Besides our credo of value for money, we are focusing strongly on novel application and product development. We offer our customers firstclass products and application solutions as well as reliable service, explains Lukas Utiger, Head of Organic Fine & Performance Chemicals. Nutrition Lonza s main nutrition products are nicotinates, L-Carnipure, Carniking, DHA (docosahexaenoic acid), LAG (larch arabinogalactan) and advanced intermediates for the production of essential vitamins. L-Carnipure is a special grade of L-carnitine, manufactured for food and pharmaceutical applications. L-Carnipure is of vital importance in supplying energy to, and ensuring the functioning of many organs in the body. Lonza developed and patented the biological L-Carnipure production process for 100% pure L-carnitine. Carniking is recommended for the manufacture of dry-feed formulations, premixes and base mixes. The Organic Fine & Performance Chemicals division sells L-Carnipure and Carniking. These L-carnitine products are fermented under contract by Lonza Exclusive Synthesis in Kouřim (Czech Republic) based on raw materials manufactured in organic chemical plants. Lonza is the leading producer of niacin and niacinamide. Apart from its pharmaceutical applications, this B3 vitamin is added to a large number of foods and used to enrich feedstuffs for production animals and pets as well as in aquaculture. The DHA (docosahexaenoic acid) product, one of the most important omega-3 polyunsaturated fatty acids, is an ideal fit with our Niacin USP and L-Carnipure. The main areas of application are in functional food and dietary supplements as well as in the pharmaceutical industry. The latest product in our nutrition portfolio is larch arabinogalactan (LAG). LAG is a natural, soluble fiber. It offers many significant benefits, the most important ones being in the fields of immune enhancement and digestive health. Meta Metaldehyde is a specific anti-slug active ingredient that works in all weather conditions. Hygiene / Personal Care / Preservation Our Hygiene product offering includes raw materials for antimicrobial active ingredients, specialty surfactants and preservatives, which are used to formulate disinfectant and sanitizer products, as well as institutional and household cleaning products. In the area of Personal Care, we provide a wide range of preservative and specialty additive technologies for applications such as skin and hair care or sun protec-

31 ACTIVITY REPORT ORGANIZATION AND ACTIVITIES 29 tion. Lonza s newly introduced proprietary technology, Natrulon HT (hydrotherapy), protects the skin from drying effects. In recreational water treatment, we offer a proprietary bromine disinfection technology, along with quaternary algaecides for pools and spas. In industrial and paper applications, we have developed proprietary microbiocides for the prevention and control of microorganisms. Our quaternary biocides are also used in oil-field applications to prevent microbiological contamination of water injection wells for secondary oil recovery. Our Wood Protection business provides chemical solutions to preserve and improve dimensional lumber and engineered wood products. Carboquat, a chloridefree, non-corrosive biocide, is Lonza s latest patented and EPA-registered wood preservative (EPA: US Environmental Protection Agency). CarboShield, a novel and very effective corrosion inhibitor for a broad range of industrial metals was successfully launched in Especially in the area of agrochemical active substances, Organic Fine & Performance Chemicals is concentrating on new complex advanced exclusive products. A clear understanding of the needs of our customers, an excellent contamination prevention system, the ability to scale up new processes very quickly and our excellent track record with our customers are some of our key differentiating factors. Organic Fine & Performance Chemicals has highly flexible ISO-regulated production facilities where we manufacture intermediates and active substances for the agrochemical and other industries. Industrial Specialties HCN intermediates are used for the manufacture of agrochemicals, dyestuffs, optical brighteners, adhesives, cosmetics and pharmaceuticals. One example is our malononitrile (MDN). It is extensively used as a building block for various syntheses. Our chlorosulfonyl isocyanate (CSI) is another example of an important building block in the field of antibiotics. Diketene derivatives are utilized in vitamins, fragrances, agrochemicals, pigments and pharmaceuticals. Lonza s high-performance materials are used in the electronics, space, aerospace and automotive industries as well as in coatings. They provide outstanding performance characteristics such as high glass temperatures, low dielectric properties, easy processing, low weight in composites, high crosslink density and can be tailored to the customer s needs.

32 30 ORGANIZATION AND ACTIVITIES ACTIVITY REPORT Results 2006 The division s sales reached CHF million (CHF 973 million in 2005) and exceeded the previous year s sales figure by 10.5%. This increase mainly reflects price adjustments in response to high raw material and energy costs. Operating income remained at CHF 130 million, while the operating margin fell to 12.1% (13.4% in 2005). The time lag between the increases in raw material and sales prices had a negative impact on the division s margin development. Organic Fine & Performance Chemicals million CHF Sales Change in % Change due to volume and prices Currency translation Scope of consolidation Result from operating activities (EBIT) Change in % Margin in % EBITDA Change in % Margin in % 2005* Nutrition The demand for nicotinates (vitamin B3) for food and pharmaceutical applications remained strong throughout the year, sustained by the positive price development. Sales volumes of feed grade nicotinates exceeded last year s levels, with improvements in product prices. The L-carnitine product lines enjoyed a good year. L-Carnipure (food/pharmaceutical grade L-carnitine) sales improved, mainly due to sizeable demand in the USA. Carniking (feed grade L-carnitine) performed well, especially in the pet food segment. The DHA (docosahexaenoic acid) business, acquired at the end of 2005, was fully integrated into the Nutrition business unit. Market development in the USA was hampered by intellectual property issues. Larch arabinogalactan (LAG) sales for food and dietary supplements were slightly above expectations due to volume increases. Sales of Meta Metaldehyde, a specific anti-slug active ingredient, exceeded last year s levels despite growing competition from China and alternative biological products. Development continued on new liquid formulations, mainly for the Asian market, with product registration approvals still pending. * The prior year was restated due to reclassification of the agrochemicals business from the Exclusive Synthesis & Biopharmaceuticals segment to the Organic Fine & Performance Chemicals segment as a result of the change in management structure. Hygiene / Personal Care / Preservation Demand for our hygiene product range, including raw materials for antimicrobial active ingredients, specialty surfactants and preservatives, was satisfactory. However, margins did not meet expectations due to delayed price increases and intense competition, mainly in Europe. In the personal care area, lower sales volumes were offset by higher margins. In the water protection segment, stronger sales of patented technologies such as Equinox, combined with the impact of reduced sales of some older products, resulted in an overall increase in profitability. Strong competition from Chinese halohydantoin producers led to decreased volumes. The wood protection business saw moderate performance from Carboquat, a product for pressure treatment of wood. Industrial Specialties Diketene derivatives faced strong competition from Chinese manufacturers, coupled with lower demand. Production capacity was

33 ACTIVITY REPORT ORGANIZATION AND ACTIVITIES 31 well-utilized overall. However, margins came under pressure as raw material prices for a series of products increased. Demand for vitamin intermediates was at expected levels. In the HCN derivatives business, product deliveries to new customers ensured good sales volumes; but here too, competition from China had a negative impact on margins. Sales in the agrochemicals niche market developed well. In the high-performance materials business, volume increases and an improved portfolio mix led to higher profitability. The growth was driven particularly by demand from the electronics industry, whereas sales to the aerospace sector developed more slowly than expected. Several promising new products in the pipeline will contribute to the rejuvenation of the portfolio. Research & Development There are currently 34 projects in the R&D pipeline in Organic Fine & Performance Chemicals. These include chemicals for pharmaceuticals, agrochemicals applications, polymers, nutrition, wood/water protection, hygiene and personal care. In order to strengthen the R&D pipeline, new chemical R&D laboratories were installed at the Nansha Guangzhou site (China). Recruitment has started and later in 2007 a dedicated team of up to 25 scientists will commence work on selected projects.

34 32 ORGANIZATION AND ACTIVITIES ACTIVITY REPORT Lonza s Presence in the Nutrition Market By Dr Andrew Warmington, Editor, Speciality Chemicals Magazine, Redhill (UK) Lonza has been present in nutrition for many years. Recently, Lonza has acquired Nutrinova s docosahexaenoic acid (DHA) business and the larch arabinogalactan (LAG) business of Larex. As the developed world s age pyramid grows increasingly top heavy and healthcare costs escalate, people in many countries are becoming ever more health-conscious. Put simply, they want to prevent rather than just treat medical conditions. And the scientific evidence to support the beneficial effects of certain health ingredients is making its way into public consciousness. Trends like this make the nutrition market an increasingly attractive one. Lonza, of course, has been strongly present in nutrition for many years and intends to stay there. Growing the Nutrition business and further strengthening our global position as a supplier of evidence-based, high-margin health ingredients is one of the essential elements of the Organic Fine & Performance Chemicals division s growth strategy, says Dr Thomas Kiy, Global Head of Strategic Business Development for the business unit Nutrition, headed by Roman Quinter. There are two parallel approaches, both of which have been exemplified in the company s recent activity: further developing the existing businesses (mainly by expanding into new geographical markets and/or applications) and making acquisitions. Lonza is by far the world s largest manufacturer of Vitamin B3 in the form of niacin and niacinamide. These vitamins are used in dietary supplements, food fortification and animal nutrition. Lonza is also the leading provider of the pharmaceutical-grade quality of niacin used in prescription remedies to maintain healthy cholesterol levels. Under the L-Carnipure brand, Lonza is also the world s largest supplier of L-carnitine, an important nutrient that helps the body to metabolize fat and produce energy, thus ensuring that its most important organs function properly. As such, L-carnitine is vital to

35 ACTIVITY REPORT ORGANIZATION AND ACTIVITIES 33 maintaining our health and fitness. In December 2005, Lonza acquired Nutrinova s docosahexaenoic acid (DHA) business. DHA is produced by fermentation from microalgae; thus, as well as its positive health effects for the heart and brain, it has superior sensory properties to the fish oils from which this important omega-3 PUFA is normally sourced and has the bonus of being vegetarian in source. Then in June 2006, Lonza also acquired the larch arabinogalactan (LAG) business of Larex in the USA. Secondly, they follow Lonza s strategy of addressing top areas of health concern in the general population, notably heart health, intestinal disorders, the immune system, mental health and weight management. Finally, as customers come increasingly under pressure from discount labels, so they look to Lonza for innovations that will make their brand stand out. Kiy observes: Lonza s aim is to be the technology leader for speciality products like these. This brings us into a position not just to control costs and enjoy cost leadership but also to supply positions. Thus, it both intensifies our dialogue with existing customers and supports us in gaining new ones, adds Kiy. Lonza works increasingly closely with customers to support their product development. Lonza regards the Nutrition business as absolutely core. Much of the company s accumulated expertise in key areas of biotechnology such as fermentation and biotransformation are applied here. LAG is a natural prebiotic fiber that is extracted from larch trees via an ecofriendly, solvent-free process. Marketed under the brand name FiberAid, it promotes gastrointestinal health at low dosages. Both acquisitions were highly synergistic with the existing product range. Deals like this benefit Lonza in two key ways, Kiy observes. Firstly, they have diversified the company s position in the food and beverage market by adding new health ingredients for functional foods to the portfolio the nicotinates and L-carnitine, by contrast, are mainly used in dietary supplements. unique quality grades to customers. The group Kiy heads was created in early 2006 in response to demand from the nutrition market and other markets for more support. In former times, it was enough just to supply them with the ingredients. Now customers want help with regulatory matters, labelling issues, health claims, intellectual property, application and formulation support, too, he says. The group offers these services internally, but also to external customers in this market and others. This creates value for customers, giving them added value to differentiate their market All of the Nutrition products are produced by biological or chemical processes and go into promoting health in people or animals. We are a life-science company and this is 100% the definition of what the life sciences are, says Kiy. Pictures from left to right < Niacinamide < L-carnitine crystals < Arabinogalactan < Microalgae ulkenia

36

37 ACTIVITY REPORT ORGANIZATION AND ACTIVITIES 35 Polymer Intermediates / Other Acquired Bio-businesses < Resins with fiber glass which are applied for end use in composites for the electrical and transportation industries; enlarged 677 times.

38 36 ORGANIZATION AND ACTIVITIES ACTIVITY REPORT Polymer Intermediates 1 / Other Results 2006 For the first ten months of the year, ending in October 2006, the Polymer Intermediates division Polynt S.p.A. recorded sales of CHF 629 million, an improvement on the same period last year. Operating income reached CHF 43 million, while the operating margin equaled 6.8%. These results were achieved due to higher selling prices and an improved product mix. Sales of phthalic anhydride and generalpurpose plasticizers for PVC applications increased due to the recovery of the construction and automotive end-market segments in southern Europe. Demand for maleic anhydride and derivatives, sold to the unsaturated polyester sector in Europe, met expectations. Exports to the USA and the Far East were adversely affected by the strength of the euro versus the US dollar. The catalyst business achieved record results thanks to the new catalysts for fixedbed, butane-based maleic anhydride. Polymer Intermediates million CHF Sales Result from operating activities (EBIT) Margin in % EBITDA Margin in % Other million CHF Sales Change in % Change due to Volume and prices Currency translation Scope of consolidation Result from operating activities (EBIT) Margin in % EBITDA Margin in % * The prior year was restated due to reclassification of Singapore Pte Ltd from the Polymer Intermediates segment to the Other segment as a result of the change in management structure. ** Results from January until 30 October * * 118 (23) (19.5) (11) (9.3) 2006** (22) (16.1) (8) (5.8) Trimellitic anhydride volumes were in line with expectations. However, exports to US and Asian markets failed to recover due to currency effects. Special plasticizers developed well in Europe, in terms of both sales volume and margin, confirming expectations. Resins performed well overall as a result of volume increases and stable margins. Sales of compounds were boosted by brisk demand from the electrical and transportation industries. Research & Development New catalysts for both phthalic and maleic anhydride plants were added to the development pipeline. Other new developments included resin formulations for applications in the coating industry and new maleic derivatives for use in wind turbines. Time-tomarket for new plasticizers was reduced to 60 days, offering greater competitive advantages to customers. 1 The majority of the Polymer Intermediates business was divested on 30 October 2006 via the Polynt S.p.A. IPO on the STAR segment of the Mercato Telematico Azionario (Electronic Stock Market) of the Borsa Italiana S.p.A.. At the end of the reporting year 2006, Lonza held 31% of the shares. Polymer Intermediates sales are reflected in financial figures for 10 months of the fiscal year 2006 in profit and loss statement. Lonza retains the Singapore purified isophthalic acid plant that was previously incorporated in the Polymer Intermediates business.

39 ACTIVITY REPORT ORGANIZATION AND ACTIVITIES 37 Acquired Bio-businesses On 24 October 2006 Lonza announced an agreement with the Cambrex Corporation to purchase its Research Bioproducts (now called Bioscience) business and its Microbial Biopharmaceuticals business for a cash consideration of USD 460 million. The close of this acquisition occurred on 6 February The strategic purpose for these acquisitions is to accelerate delivery of Lonza s strategic shift to the life-science sector, while increasing our life-science portfolio from 60 % to nearly 90 % of total sales. Bioscience acquisition is an excellent strategic fit and a natural development in our core focus area. This business provides access to new highgrowth, complementary segments of the life-science market. The organization is a top player in the biomaterials market with a number of world-leading niche businesses including cell-based research, endotoxin detection and cell therapy manufacturing. The Bioscience division brings with it a strong position in media and sera, which complements Lonza s Biopharmaceutical business. The new Bioscience division also adds new capabilities to the Lonza organization, including distribution channels to the Lonza client base and license sales opportunities for Lonza s GS Gene Expression System. Leading product areas: Cell therapy products and scale-up processes Rapid microbial detection Key brands Clonetics, Poietics, Bio- Whittaker, FlashGel, Pyrogent Pyro- Sense TM, MycoAlert Biopharma acquisition plays directly to our strengths. This business is an established provider of process development and mid-scale biologics manufacturing services to the fast-growing biopharmaceutical industry. The organization is highly complementary to Lonza s own microbial large-scale biopharmaceuticals business. Lonza s large-scale capabilities and existing pipeline are expected to strengthen the current Biopharma customer base. We anticipate that it will facilitate early stage project uptake within the existing Biopharma portfolio and help accelerate further large-scale expansion plans. The transformed Lonza business portfolio: Organic Fine & Performance Chemicals Nutrition Hygiene / Personal Care / Preservation Industrial Specialties Exclusive Synthesis & Biopharmaceuticals Small Molecules Peptides Biotransformation Mammalian Operations Biopharma Services Microbial Operations Pharma Sales and Marketing Bioscience Media and Sera Rapid Microbial Detection Cell Therapy Research Products

40

41 ACTIVITY REPORT LONZA SITES 39 Lonza Worldwide Headquartered in Basel (Switzerland), Lonza operates production and R&D sites around the world. In the reporting year, Lonza acquired three production sites in Braine-l Alleud (Belgium), Cohasset (Minnesota, USA) and Porriño (Spain). The inauguration of Lonza Guangzhou Nansha Ltd, the completion of the Lonza Guangzhou R&D Center Ltd and the 10th Anniversary of Lonza Guangzhou Ltd were important milestones in Lonza is a global organization, able to serve other international companies. Our production facilities are based in Europe, North America and Asia. We are where our customers are located, so that we can best serve their individual needs. Lonza knows the operational requirements of large, mid-size and small regional firms. Furthermore, Lonza has a global network of sales offices. Our representatives are close to our customers, speak their language and understand their needs. To achieve these goals, Lonza operates local quality management systems that comply with internal policies as well as with national and international standards and regulations. The fundamental elements of these systems are subject to continual improvement. At our sites, we have procedures in place to measure performance in the areas of health, safety and environmental protection. We use a range of indicators that are generally accepted and applied by the global chemical and biotechnological industries. The performance indicators are defined and uniformly implemented throughout all manufacturing sites. Not only do we bring Lonza s international expertise to the local sites, but we also offer employment opportunities to the respective local communities. In keeping with its commitment to responsible citizenship, Lonza is also deeply involved in community work. Some examples of this commitment are presented in the following pages. Lonza is committed to providing customers with products and services that fulfill their needs and expectations. The highest priority is placed on the integrity of our products, their safe manufacture and distribution, and compliance with all relevant regulations. < Streptomyces hydrogenans enlarged times; application in biocatalysis (stereoselective reduction).

42 40 LONZA SITES ACTIVITY REPORT Acquired Bio-businesses North America USA Lonza Rockland, Inc Lonza Walkersville, Inc Lonza Baltimore, Inc Lonza Hopkinton, Inc South America Brazil Genolife do Brazil Europe Europe Belgium Lonza Verviers SPRL Denmark Lonza Copenhagen ApS France North America Belgium USA Lonza Braine SA Braine-l Alleud Lonza Biologics Inc Portsmouth Czech Republic Lonza Saint Beauzire SAS Lonza Inc Allendale Lonza Biotec sro Kouřim Italy Lonza Inc Mapleton France Lonza Milano S.r.l. Spain Lonza Barcelona S.L. United Kingdom Lonza Inc, Riverside Conshohocken Lonza Inc Williamsport Lonza France Sàrl Levallois-Perret Cedex Germany Lonza GmbH Wuppertal Lonza Nottingham Ltd Lonza Inc Cohasset Hungary Lonza Wokingham Ltd South America Lonza Ltd Representation Office Budapest Asia Brazil India Lonza do Brasil Especialidades Químicas Ltda São Paulo Lonza Mumbai Private Limited Research & Development Production Site Sales Office Netherlands Lonza Benelux BV AL Breda

43 ACTIVITY REPORT LONZA SITES 41 Asia China Poland Lonza Ltd Representation Office Warsaw Switzerland Lonza Group Ltd Global headquarters, Basel Lonza Sales Ltd Basel Lonza Guangzhou Ltd Guangzhou Lonza Guangzhou Nansha Ltd Guangzhou Lonza Guangzhou Research and Development Center Ltd Guangzhou Lonza Liyang Chemical Co Ltd Liyang Lonza Ltd Basel India Lonza Ltd Visp Lonza Ltd India Liaison Office Mumbai Spain Japan Lonza Ibérica SA (Unipersonal) Barcelona Lonza Japan Ltd Tokyo Lonza Biologics Porriño, S.L. Porriño Singapore United Kingdom Lonza Performance Chemicals Pte Ltd Singapore Lonza Biologics plc Slough Lonza Singapore Pte Ltd Singapore Lonza Biologics plc Tewkesbury Lonza Biologics Tuas Pte Ltd Singapore Research & Development Production Site Sales Office

44 42 LONZA SITES ACTIVITY REPORT Visp, Switzerland Visp is Lonza s largest and longest established R&D and production site, with more than one hundred production lines. The entire Visp site is ISO 9001 certified. Our Chemical Launch Plant and Fine Chemi cal Complex work under cgmpand FDA-inspected conditions and have successfully passed hundreds of compliance audits. Lonza s Visp operations have the lowest staff turnover in the industry. Experience, team spirit and flexibility, enhanced by continuous training programs, have put the Visp site in a league of its own. Lonza s 2700 experts, including research chemists, biologists, operators, process engineers and laboratory assistants, are highly motivated and dedicated to continuous improvement. The company initiated its integrated total waste management program at a very early stage. Systematic risk analyses, inspection of operations by internal and external experts and ongoing refinement of safety and environmental protection concepts are part of our daily business. We require and support responsible behavior from our employees. Visp s Research & Development Center houses 420 employees who are passionately committed to developing new processes, improving existing ones and identifying promising new products. Lonza s R&D group in Visp includes 90 laboratories, one small-scale and one pilot plant with several multi-purpose lines, and is active in the fields of Organic Fine Chemicals, Exclusive Synthesis and Biopharmaceuticals. Lonza s global research and development capacity, close cooperation between the plants on the Visp site and Lonza s global operations enable us to satisfy the most demanding customer requirements. Lonza Ltd, Visp Area: 90 ha Employees: 2700 Plants: Naphtha cracker Dedicated and multi-purpose plants Bioreactors for microbially derived biopharmaceuticals from 450 L to L Fully integrated waste management facilities Research and Development: Application laboratories Automated laboratories Biotransformations Chemometrics Computer-aided process simulation Chromatographic purifications Enzymatic reactions Heterogeneous and homogeneous catalysis Membrane technologies Microreactor technology On-line and in-process analytics Organic synthesis Safe handling of hazardous materials Solid materials handling Solid-phase reactions Unit operation miniplants Products: Active pharmaceutical ingredients Biopharmaceuticals Chemical intermediates Diketene derivatives High-performance materials Hydrocyanic acid derivatives Meta Metaldehyde Niacin/nicotinic acid (vitamin B3) Peptides and oligonucleotides Plant protection agents Pyridine derivatives Research and Development Production Site Sales Office Exclusive Synthesis Biopharmaceuticals Organic Fine & Performance Chemicals

45 ACTIVITY REPORT LONZA SITES 43 A New Image for Training Opportunities Every year, Lonza s Visp center offers up to 50 apprenticeships in ten different occupations. The brochure presenting these training opportunities has had a makeover. Potential applicants can also get information via a new website. Attracting talented young people is critical for our future. The new brochure corresponds to our idea of contemporary design. It uses fresh colors and is packed with facts about Lonza and the vocational opportunities for trainees. The copy is framed by attractive visuals. Rather than staged scenes with models, the pictures show some of the current crop of more than 150 apprentices in typical workday situations. The new website is another plentiful source of information. For example, an overview of available apprenticeships and the dates of open days (so-called taster days ). The site also offers candidates the opportunity to apply online for a place on an apprenticeship scheme and to enter into contact with tutors. These presentations give potential candidates an insight into how an apprenticeship with Lonza offers an exciting future and a broad basic education that goes beyond the purely technical, vocational training. The courses also teach social skills and self-confidence, which will help apprentices, on completion of their courses, to focus on the right career priorities and to take their personal and professional develop- ment into their own hands. To our way of thinking, resources committed to training and continuing education are investments in the future. Picture < Chemical assistant apprentice (third-year) puts a sample in a cuvette for photometric measuring.

46 44 LONZA SITES ACTIVITY REPORT Braine-l Alleud, Belgium Lonza Braine SA was incorporated as a subsidiary of the Group in March 2006, following the acquisition of UCB s Bioproducts division by Lonza. The site, which is manufacturing according to cgmp standards and has been successfully audited by the FDA several times, is conveniently located 25 km south of Brussels. Lonza Braine consists of a multipurpose manufacturing facility and laboratories dedicated to peptide production. With more than 25 years of experience in peptide chemistry, the Braine plant is a pioneer in servicing the biopharmaceutical market with evolving peptide-related technologies and has produced almost 400 peptides for preclinical and clinical development needs, including the latest commercial peptide new chemical entities (NCEs) for which Lonza has clear market leadership. Some generic peptide drugs such as somatostatin, desmopressin and calcitonin are also produced in Braine. Lonza Braine is offering a full range of services that also includes regulatory support for filing the CMC (chemistry manufacturing control) part of registration files with the health authorities. It has experience in supporting a large number of submissions in USA for INDs (investigational new drug), NDAs (new drug applications), s-ndas (supplemental NDA), ANDAs (abridged NDAs for generics) as well as equivalent submissions to the EMEA (European Medicines Agency) in Europe. Lonza Braine has also registered European certificates for generic peptides at the European Pharmacopoeia. Lonza Braine SA Braine-l Alleud Area : 5.7 ha Employees: 340 Plants / Processes: Liquid-phase peptide synthesis (LPPS) Solid-phase peptide synthesis (SPPS) Several HPLC (high-performance liquid chromatograhy) system thin film evaporators Freeze-dryers up to 200 kg ice condenser Small-scale SPPS synthesizers with proprietary technology Preparative HPLC systems for R&D Laboratories for LPPS scale-up QC and analytical development laboratories with dedicated peptide analytical devices, spectroscopic technologies and analytical chromatographic methods. Products and technologies: Synthetic peptides with sequences up to above 40 amino acids. Pseudo-peptides: containing unnatural amino acids or modified peptide bonds Peptides derivatization: pegylated, glycosylated and fatty-acids containing peptides, cyclic and multi chains peptides SPPS, LPPS and peptide fragments combination HPLC, ion-exchange, molecular sieve chromatographies Membrane filtration Near-infrared reaction monitoring Barrier-isolation technologies Freeze-drying, spray-drying Scales from few grams up to hundreds of kilos Enzymatic reactions To further position Lonza as a leader in the offering of peptide contract manufacturing services, the Braine organization also has a dedicated Peptide Technology Development team. Research and Development Production Site Sales Office Exclusive Synthesis Biopharmaceuticals Organic Fine & Performance Chemicals

47 ACTIVITY REPORT LONZA SITES 45 Achieving Results via Effective Integration The integration of the former UCB Bioproducts business represented a significant challenge for the newly created company, Lonza Braine SA. The expeditious results were obtained through the commitment of the whole staff and numerous Lonza collaborators outside Braine. In order to ensure a swift and smooth integration Lonza developed a post deal integration (PDI) master plan and set up a PDI steering committee. This committee s tasks include guiding the progress of a PDI management committee which was composed of some new Lonza Braine colleagues as well as colleagues from Lonza Visp and Lonza Basel. The integration started with an aptly named Day One Braine Event which took place on 1 March 2006, the first day after the acquisition of this new site was completed. The Braine site received several representatives from Lonza worldwide and enjoyed the moment of cultural exchange in a friendly and collaborative atmosphere. The PDI was executed in three phases: Phase I was devoted to securing the business, and lasted for three months, during which time almost 60 projects were handled, covering all functional aspects of the organization. All were completed or reached Phase II of the PDI plan: the alignment phase. At the same time, the new business model was defined in accordance with Lonza s expectations. During this second phase, the PDI concentrated on the most critical projects. At the end of 2006, most of these projects were successfully concluded, with the exception of a few outstanding tasks. Some important achievements were successfully recorded. Picture < Dirk Oehlers, Head of Sales and Business Development Tides business unit and Alain Scarso, Head of R&D Lonza Braine

48 46 LONZA SITES ACTIVITY REPORT Kouřim, Czech Republic Lonza s plant in Kouřim is part of the Exclusive Synthesis business sector. Lonza Biotec sro, located about 40km east of Prague, is focused on microbial fermentation and manufacturing services for the pharmaceutical, biotechnology and nutrition industries. Lonza Biotec sro, Kouřim, an FDA-registered facility, again proved its significant expertise in quality systems in 2006, with all processes being inspected according to ISO 9001:2000 standards. In addition, the ISO certification was newly granted to the high-potency, 15m³ fermentation plant. The quality standard FAMI-QS, implemented in 2005, was successfully audited. In addition to regular HACCP system inspection, the plant was twice inspected by the representative of the Jewish Orthodox Union. Lonza Biotec sro Kouřim Area: 6.7 ha Employees: 355 Plants / Capacities: 15m 3, 50m 3, 75m 3 fermenters Fermenter volume 475 m 3 Technology / Products: Custom manufacturing projects Biotransformation Classic fermentation Secondary metabolites Recombinant proteins Te c hni c al e nz y m e s L-carnitine (L-Carnipure and Carniking ) In 2006, Lonza was granted long-term manufacturing rights for ALTU-135 drug substances for Altus Pharmaceuticals Inc. The scope of this manufacturing agreement includes microbial fermentation, process optimization and technical and regulatory support. In conjunction with the project, additional skilled employees were hired and investments made in the technology platforms. Research and Development Production Site Sales Office Exclusive Synthesis Biopharmaceuticals Organic Fine & Performance Chemicals

49 ACTIVITY REPORT LONZA SITES 47 The Basis for Economic Prosperity The connection between the former royal town Kouřim established in the 13th century and the high tech technology of Lonza is for Czech or foreign visitors usually very impressive. The Kouřim production site has become in the past 14 years the integral part of the town and the base for economic prosperity. Mutual cooperation with the town of Kouřim focuses on the areas Lonza considers most beneficial to the local community. In 2006, we aimed at supporting local schools, cultural activities and health services. Significant support was provided in the form of project documentation for the improvement of the traffic situation in Kouřim. This project, which will be realized by the town of Kouřim with grant from the regional authority, should increase the safety of pedestrians and automobile transport in the surrounding area. Lonza Biotec sro, Kouřim also pays great attention to minimizing our impact on the environment. The activities of the noise elimination team formed in 2004 were successfully completed in The team identified the sources of noise and suggested effective technical measures to eliminate them. Our specialists are also working on the elimination of some objectionable odors. Just as important as technical measures is to ensure open and regular communication with our neighbors. In order to cultivate cooperative and mutually beneficial relationships, Lonza Biotec initiated the foundation of a Neighborhood Development Fund. Last year, the number of neighbors who joined the Fund increased to 21. Lonza s support is highly appreciated by Kouřim s citizens and by the local town hall. Pictures from left to right < Microscopy observation < GC autosampler

50 48 LONZA SITES ACTIVITY REPORT Porriño, Spain Lonza operates a site at Porriño, 15 km from Vigo in Spain and 110 km from Porto in Portugal. The Porriño site specializes in custom manufacturing of recombinant proteins ampoule thaw to frozen bulk drug substances in a medium-scale cgmp manufacturing process. The plant is approved by the US FDA and the AEMyPS (Spanish Medicines Agency) and has a strong quality assurance and regulatory record, great experience in cgmp production and SHE analytical support, quality control expertise and fully integrated program management. Lonza Biologics Porriño, S.L. Area: 3.6 ha Employees: 320 Plants / Processes: Processes based on mammalian cell culture Cell bank storage facility Ampoule thaw and expansion suites Fermentation suite Seed bioreactors 25 L to L Production bioreactors 4 x L Research and Development Production Site Sales Office Exclusive Synthesis Biopharmaceuticals Organic Fine & Performance Chemicals

51 ACTIVITY REPORT LONZA SITES 49 Integration Began in a Cordial Atmosphere The biopharmaceuticals production plant in Porriño is Lonza s most recent acquisition. A festive welcome party for the 320 employees in Spain was the starting point for the integration of the Porriño site into Lonza Group. Probably, the town of Porriño (situated in Galicia, Spain) is not identified as a reference region on the map of Europe. Nevertheless, it is becoming a highly productive area of Spain, mainly driven by the automotive sector, the granite industry and the pharmaceutical sector. to produce Avastin for Genentech for an agreed period of time. Furthermore, the facilities are being adapted to turn the plant into a multi-product manufacturing facility, to be approved worldwide. And this can be considered the main challenge for Lonza Biologics Porriño in the near future. vailed among the workers. Stefan Borgas, CEO of Lonza Group, officially welcomed the 320 new employees to Lonza Group. The dinner began with an address from Jesús Mota, General Manager of Lonza Biologics Porriño. Located in this industrial environment, Lonza Biologics Porriño has recently joined Lonza s production network. The plant, previously owned by Genentech, is currently dedicated to the production of Genentech s Avastin (bevacizumab) bulk drug substance. Within Lonza, the Porriño plant will continue As a starting point for Porriño s incorporation into the Lonza Group, all the employees of the plant were invited to a welcome party held on 13 December 2006 at the Hotel Balneario (Spa) Mondariz a charming spot where a warm atmosphere and an enthusiasm about facing the new challenges pre- Pictures from left to right < Buffers hold tank (initial purification) < Chrome skid (initial purification)

52 50 LONZA SITES ACTIVITY REPORT Slough, United Kingdom Lonza s Slough site is part of the Lonza Biopharmaceuticals business sector. It has significant expertise in the fields of mammalian cell culture and cgmp operations. A dedicated unit in the manufacturing facility is used to create master and working cell banks for subsequent manufacturing use. For safety, Lonza offers dual-site cell bank storage at both the Slough and the Portsmouth site. Additionally, a full range of analytical services are available for both internal and external use. These services include product characterization, process impurity assays, stability testing, product-specific assay development and validation. In the past five years, the facility in Slough had three successful inspections conducted by the US FDA (Food and Drug Administration) and the EMEA (European Medicines Agency). Lonza Biologics plc Slough, Berkshire Area: 2.44 ha Employees: 431 Plants / Processes: Research and development Fermentation, purification and analytical development and process optimization GS Gene Expression System, developed by Lonza, for the creation of high-yielding mammalian cell lines Two L trains, two 200 L trains, one 500 L train Products: Custom manufacturing of recombinant therapeutic proteins and monoclonal antibodies The GS Gene Expression System, which is owned and licensed by Lonza, is used for the production of therapeutic recombinant proteins and monoclonal antibodies. Over 80 biotechnology and pharmaceutical companies and over 70 academic laboratories worldwide have successfully used the GS Gene Expression System which has established itself as the industry standard. This system is characterized by its speed and ease of use. In addition, the higher yielding cell lines provide cost-efficient production of therapeutic proteins. Research and Development Production Site Sales Office Exclusive Synthesis Biopharmaceuticals Organic Fine & Performance Chemicals

53 ACTIVITY REPORT LONZA SITES 51 A Successful Event in Every Sense Lonza organized its Investor Relations Event 2006 at the company s Biopharmaceuticals facility in Slough. The attendees appreciated the speeches and the lab and plant tour. They also enjoyed the dinner in the warmly decorated warehouse. The purpose of the Investor Relations (IR) Event, which took place on the 27th and 28th of September 2006 in Slough, was to demonstrate the core element of Lonza s overall strategy: Innovation. The topics presented in this event included Lonza s Biopharma R&D Services as well as the R&D activities in Exclusive Synthesis and Organic Fine & Performance Chemicals. Moreover, innovative solutions for human resources challenges were discussed, along with a case study. The speeches were accompanied by a tour of the laboratories and plant at Lonza s Mammalian Biopharmaceuticals facility in Slough. Approximately 30 guests were welcomed, representing Lonza s important investors, as well as major banks with their key analysts in attendance. The Lonza participants included virtually the entire Management Committee and representatives of top management. The dinner took place in Lonza s warehouse in Slough, which had been arranged and decorated especially for this evening. The attendees expressed their appreciation of the conference and the relaxing atmosphere at the evening event. During this event, mutually beneficial understanding between Lonza and the guests was enhanced. The participants gained a better understanding of Lonza s strategy and activities and incorporated these impressions in their subsequent reports. Picture < Allison Vernon, Head of Mammalian R&D Services (on the left), Toralf Haag, CFO (second from the right) and analysts toured the laboratory facilities.

54 52 LONZA SITES ACTIVITY REPORT Allendale NJ / Mapleton IL / Williamsport PA, USA Lonza Inc Allendale NJ Allendale is the worldwide headquarters of Lonza s Performance Chemicals, along with its Research and Development center, Marketing and Sales offices for Organic Fine & Performance Chemicals, Exclusive Synthesis and Biopharmaceuticals. Additional corporate functions of Lonza Inc, including Legal, Human Resources, Communications and Finance/Treasury are also located at the Allendale site. The close proximity of the New Ventures group and the Regulatory Services to the R&D and Sales and Marketing teams in 2006 facilitated the development of a more streamlined and consistent New Product Development Process that further leverages our capabilities across the Performance Chemicals organization. Lonza Inc Mapleton IL The Mapleton, IL, facility is located in a valley along the Illinois River. Because this site is situated next to a small community, it has brought substantial interaction with local citizens. Lonza Mapleton has established a Community Advisory Panel (CAP) enabling the site to be proactive in dealing with a variety of safety, environmental and community concerns. The site also supports a robust safety program, which incorporates systematic risk analysis and risk reduction. This affirmative safety program has resulted in a record incident rate only one-third of the organic chemical industry average. Lonza Inc Allendale NJ Area: 0.5 ha Employees: 155 Lonza Inc Mapleton IL Area: 39.4 ha Employees: 80 Plants / Products: Quaternary ammonium compounds, tertiary amines / chlorides Biocides Wood preservatives Amine oxides Surfactants Organic phosphonates Water treatment Lonza Inc Williamsport PA Area: 12.1 ha Employees: 160 Plants / Products: Hydantoins Water treatment Preservatives Fatty esters Food additives Acrawax Ethylene Bis-Stearamide Plastic lubricants Surfactants Personal care Household and industrial cleaners Research and Development: Pilot plant Plastic and powder metal test equipment As a result of this commitment from the Mapleton staff, this facility has been able to increase total output by over 65%. Over the last three years, there have been no significant safety, process or environmental issues, even with this dramatic increase in production. Research and Development Production Site Sales Office Exclusive Synthesis Biopharmaceuticals Organic Fine & Performance Chemicals

55 ACTIVITY REPORT LONZA SITES 53 Much of this growth is due to the introduction of Carboquat, a quaternary ammonium compound used for wood treatment and preservation. The remaining growth is derived from the production of other biocidal quats, alkyl chlorides, amine oxides and organic phosphonates. In 2006, major emphasis was placed on continued progress in overall plant safety through employee commitment and awareness. Specialized safety awareness training for all employees resulted in an increased appreciation of the importance of safety procedures. Plant process safety was enhanced by the implementation of the corporate risk analysis system. Lonza Inc Williamsport PA In 2006, the safety committee initiated a holistic process to achieve 100% safe employee behavior in and away from work. The Community Advisory Panel, consisting of a cross-section of plant neighbors, introduced Lonza personnel to the newly organized Newberry Community Partnership, formed to enhance the quality of life of those living in the surrounding neighborhood. Two cooperative projects have been initiated to improve communication within the community. The experience and flexibility of the operating staff have resulted in numerous process improvement projects within our four principal product lines in which more than 350 active products are manufactured. Lonza s Williamsport, Pennsylvania facility is located along the West Branch of the Susquehanna River. This Williamsport site is ISO 9001:2000 certified. Our kosher food manufacturing facility works under GMP guidelines and is audited semi-annually by the American Institute of Baking. In the spring of 2006, Lonza acquired the larch arabinogalactan business from Larex, Inc. Williamsport now has the operating responsibility for the larch arabinogalactan manufacturing site in Cohasset, Minnesota. Williamsport has established a Safety, Health and Environmental presence within the plant and the surrounding community. The site works closely with local fire, emergency management and environmental resource departments to provide for the safety of our plant employees, neighbors and the environment. The plant safety committee consists of plant operators who develop the program strategy and ensures full involvement by all plant employees.

56 54 LONZA SITES ACTIVITY REPORT Cohasset MN / Conshohocken PA, USA Lonza Inc Cohasset, MN Lonza Inc Cohasset, MN Lonza s Cohasset, Minnesota, facility is located at the head waters of the Mississippi River. The site is approximately three hours north of Minneapolis. The plant has been fully integrated into Lonza s operating system since June Adapting to the Lonza Business Culture has been well received by the experienced and flexible operating staff. The plant operation uses a large-scale patented extraction process to isolate arabinogalactan from larch trees. The patented process uses water, steam and pressure, and is completely free of solvents, chemicals, or fermentation processes. Arabinogalactan is a naturally occurring water-soluble polymer found in high concentration in larch trees. Larch trees are a renewable resource in the state of Minnesota. Area: 0.05 ha Employees: 13 Product: Larch arabinogalactan Lonza Inc, Riverside Conshohocken PA Area: 11.5 ha Employees: 170 Plants / Processes: Multipurpose plants DEA (US Drug Enforcement Administration) license for controlled substances Manufacturing scale to support from launch (pilot) to full-scale commercial production Fully integrated and dedicated waste treatment and liquid-waste incineration facility on premises One of two active liquid-waste incinerators in the State of Pennsylvania Process development laboratories Computer-aided process simulation Solid materials handling Safe handling of hazardous materials Products: Custom manufacturing of active pharmaceutical ingredients and advanced intermediates. Research and Development Production Site Sales Office Exclusive Synthesis Biopharmaceuticals Organic Fine & Performance Chemicals

57 ACTIVITY REPORT LONZA SITES 55 Lonza Inc, Riverside Conshohocken PA Our manufacturing site in Conshohocken, near Philadelphia, is located in the heart of the North American pharmaceutical industry, which allows for close collaboration with our customers and industry influencers. The site represents Lonza s US Custom Manufacturing operations for small molecules. The plant has twelve multi-purpose production lines dedicated to supporting customer demands. Specializing in technology transfer, this site supports traditional pilot-to-launch demands as well as direct transfers from customers. Lonza s Riverside plant is compliant with cgmp, is ISO 9000:2000 certified and has been successfully audited several times by the US FDA. This site works in conjunction with our fine chemicals facilities in Visp (Switzerland). As a result of Lonza s employee safety training and awareness, the Riverside plant reached 1,000 days without a lost-time working day on 2 October, This outstanding achievement was an employee morale booster and reinforced the sense of pride Lonza employees feel everyday.

58 56 LONZA SITES ACTIVITY REPORT Portsmouth NH, USA Our Portsmouth site is part of the Lonza Biopharmaceuticals business sector. It manufactures according to cgmp guidelines and has significant expertise in the field of mammalian cell culture. Over the past five years, the facility has had 18 successful regulatory inspections conducted by the US FDA (Food and Drug Administration), the EMEA (European Medicines Agency), the Canadian Bureau of Biologics, the Mexican Ministry of Health and the Japanese PDMA (Pharmaceutical and Medical Devices Agency). The site is currently licensed to supply the market with five different biopharmaceutical products from all three of its manufacturing suites. Lonza Biologics Inc Portsmouth, NH Area: 6.1 ha Employees: 614 Plants / Processes: Processes base on mammalian cell culture Four L stirred tank bioreactors Two L airlift bioreactors (with a third scheduled to be online in 2008) Two L stirred perfusion trains Products: Custom manufacturing of recombinant therapeutic proteins and monoclonal antibodies Lonza s Portsmouth plant is the first fullscale facility designed to use liter bioreactors and, as such, is the largestscale mammalian cell culture plant commissioned to date. An additional liter bioreactor came on stream in May 2006, which increased the total suite capacity to liters. During 2006, this suite received FDA, EMEA and PMDA approval, making it a commercially licensed facility for product supply to the US, Europe and Japan. Portsmouth is looking forward to continued expansion in Design and engineering is under way for the building of a multi purpose shell as well as the reactivation and expansion of an existing bioreactor, which will have a capacity of liters. This reactor is expected to come on stream in mid Research and Development Production Site Sales Office Exclusive Synthesis Biopharmaceuticals Organic Fine & Performance Chemicals

59 ACTIVITY REPORT LONZA SITES 57 Company of the Year Lonza Biologics Inc, Portsmouth was presented with the Commissioner s Company of the Year Award for Lonza s role as the acknowledged global leader in the production and support of pharmaceutical active ingredients both chemically as well as biotechnologically. The Commissioner s Company of the Year Award, which was presented to Lonza in December 2006, recognizes businesses for their achievements in the areas of innovation, growth, employee development, community outreach and impact on the overall business community. This award was presented by New Hampshire s Governor John Lynch at an annual economic development summit. These winners represent the best and brightest in terms of creating a state of economic opportunity for all New Hampshire citizens, said Commissioner George Bald from New Hampshire Department of Resources and Economic Development, who gave the award. Stephan Kutzer, Head of Lonza Biopharmaceuticals commented on the award with the following words: We at Lonza Biologics in Portsmouth are obviously very excited about the recognition of our employees excellent work and achievements over the past years by receiving this award. Even more so as this award supports Lonza s good employment reputation in New Hampshire and will help us to attract and retain talents in the very competitive New England bio- tech employment market. As recently communicated, Lonza will expand its Portsmouth facility over the next couple of years and will add a significant number of new jobs. Picture from left to right < John Lynch, Governor of New Hampshire, John Machulski, Senior Director Capital Projects at Lonza in Portsmouth, and George Bald, President Pease Development Board

60 58 LONZA SITES ACTIVITY REPORT China / Singapore Lonza is the leading producer of Niacinamide (vitamin B3). Our regional production plants are located in Guangzhou and Nansha. In Liyang, we operate a plant which produces pyromellitic acid and pyromellitic dianhydride. Furthermore, Lonza has built a new Research & Development Center in China. The decision to reinforce R&D in China is based on the significance of this emerging market and the enhancement of Lonza s global R&D network. Lonza Guangzhou Ltd Guangzhou Lonza Guangzhou Ltd s site provides a significant portion of the global market demand. Niacinamide is a nutrient additive and is essential for the growth of humans and animals. It is utilized in pharmaceuticals, food, feedstuffs and cosmetic products. Lonza s niacinamide meets national and international quality standards such as USP, BP, Ph. Eur, CHP and JP. The plant in Guangzhou is ISO 9001:2000 certified and has also obtained GMP, ISO 14001, OHSAS and HACCP certificates. Lonza Guangzhou Ltd Guangzhou Area: 3.5 ha Employees: 130 Plant: Ammoxidation technology Products: Niacinamide 5500 t / year Lonza Guangzhou Nansha Ltd Nansha Development Zone Guangzhou Area: 15 ha Employees: 130 Plant: Ammoxidation technology Product: Niacinamide 6000 t / year, with Potential for expansion to 9000 t / year Lonza Guangzhou Research and Development Center Ltd Nansha Development Zone Guangzhou Construction Area: 520 m2 Total Office and Lab Area: 1640 m2 Employees: 60 Lonza Guangzhou Nansha Ltd Nansha Development Zone Guangzhou The products manufactured in Guangzhou are niacinamide (vitamin B3), active pharmaceutical ingredients (API), chemical intermediates and other relevant products. A line for the manufacturing of niacinamide started production in June Lonza Guangzhou Nansha Ltd is one of the biggest global niacinamide suppliers. The product is mainly exported to European countries, the American continent, Japan, Australia and is also supplied to the Chinese market. Lonza Liyang Chemical Co Ltd Liyang, Jiangsu Area: 1.9 ha Employees: 120 Plants / Products: Pyromellitic acid Pyromellitic dianhydride Research and Development Production Site Sales Office Exclusive Synthesis Biopharmaceuticals Organic Fine & Performance Chemicals

61 ACTIVITY REPORT LONZA SITES 59 The company s niacinamide project passed ISO9001 and FAMI-QS (Code of Practice for Feed Additive and Premixture Operations) audits in 2005, and ISO14001 and OH- SAS18001 audits in Lonza Guangzhou Research and Development Center Ltd Nansha Development Zone Guangzhou The R&D Center participates in developmental activities for intermediates and active ingredients. Lonza s R&D efforts are focused on the pharmaceutical and fine chemical industries. A full range of laboratory activities, including small-scale activities in our pilot facilities, use advanced synthetic methods in organic synthesis and biochemistry. The laboratories are equipped with state-of-the-art analytical instruments. This R&D center is an extension of the existing research centers in Switzerland, Great Britain and the US. Lonza Singapore Pte Ltd Singapore Area: 2.5 ha Employees: 90 Plants / Products: Purified isophthalic acid Meta-xylene Lonza Biologics Tuas Pte Ltd Singapore Building area: 4.2 ha Plants / Products: Mammalian Biopharmaceuticals Lonza Liyang Chemical Co Ltd Liyang, Jiangsu Pyromellitic dianhydride (PMDA) and pyromellitic acid (PMA) are used for heatresistant polymers, polyamide acid resins, polyamide film, heat-resistant electrical insulating paint, heat-resistant coating, specialty plasticizers for high-temperature applications, epoxy curing agents, synthetic lubricants, lubricating oil additives, polyester formulation, alkyd resins, etc. Lonza Liyang Chemical Co. Ltd is ISO 9001:2000 certified. Research and Development Production Site Sales Office Exclusive Synthesis Biopharmaceuticals Organic Fine & Performance Chemicals

62 60 LONZA SITES ACTIVITY REPORT A Milestone in Lonza s History The 29th of March 2006 was an important day for Lonza in China, because three ceremonies took place on that day: the inauguration of Lonza Guangzhou Nansha Ltd, the completion of Lonza Guangzhou R&D Center Ltd and the 10th anniversary of Lonza Guangzhou Ltd. Lonza s Niacinamide plant in Nansha was built with state-of-the-art technology in an amazingly short time. The guests at the ceremony were deeply impressed by the modern architecture. Among the guests was Chen Mingde, Vice-Mayor of Guangzhou city. Stefan Borgas, CEO of Lonza Group, said in his speech: In the year 1995, Lonza Group selected Guangzhou city to be our investment front in China. ( ) In the 10 years of operations, Lonza, with its plants in Guangzhou and now in Nansha, has become the main global supplier of niacinamide. In the next few years, we plan to invest 200 million US dollars in this site, building a multi-purpose API plant complex both for large quantities as well as for pilot materials. It will create more business potential for the future, servicing the global pharmaceutical industry. ( ) The completion of Lonza Guangzhou s R&D Center is a necessary prerequisite for this next big phase here in Nansha. The speeches given by Stefan Borgas, CEO of Lonza Group, John Po, General Manager of Lonza China, Werner Nievergelt, Swiss Consul General in Guangzhou and Luo Zhaoci, Governor of the Nansha District, were followed by a traditional Chinese lion dance performance, which signifies good luck and good fortune. The red ribbon was cut to complete the celebration on the site. The red color means happiness in the Chinese culture. Picture < John Po, General Manager of Lonza China, delivered a speech at the ceremony on 29 March 2006

63 ACTIVITY REPORT LONZA SITES 61

64 62 ADDRESSES ACTIVITY REPORT Global headquarters Europe Lonza Group Ltd Muenchensteinerstrasse 38 CH-4002 Basel, Switzerland Tel Fax Belgium Lonza Braine SA Chaussée de Tubize 297 B-1420 Braine-l Alleud Tel Fax [email protected] Czech Republic Lonza Biotec sro Okruzní 134 CZ Kouřim Tel Fax [email protected] France Lonza France Sàrl 55, rue Aristide Briand FR Levallois-Perret Cedex Tel Fax [email protected] Germany Lonza GmbH Morianstrasse 32 DE Wuppertal Tel Fax [email protected] Hungary Lonza Ltd Representation Office Dunaház III. lépcsöház II. em 2 Boráros tér 7 HU-1095 Budapest IX Tel Fax [email protected] Netherlands Lonza Benelux BV Aluminiumstraat 1 NL-4823 AL Breda Tel Fax [email protected] Poland Lonza Ltd Representation Office ul. Smolenskiego 4 m 15 PL Warsaw Tel Fax [email protected] Research & Development Production Site Sales Office

65 ACTIVITY REPORT ADDRESSES 63 Spain Lonza Ibérica SA (Unipersonal) Vía Augusta, n 18, 2a Pta, izda ES Barcelona Tel Fax [email protected] Lonza Biologics Porriño, S.L. C/ La Relba s/n ES Porriño (Pontevedra) Tel Fax [email protected] Switzerland Lonza Ltd Muenchensteinerstrasse 38 CH-4002 Basel Tel Fax [email protected] Lonza Sales Ltd Muenchensteinerstrasse 38 CH-4002 Basel Tel Fax [email protected] Lonza Ltd Badenerstrasse 40 CH-4002 Basel Tel Fax [email protected] Lonza Ltd CH-3930 Visp Tel Fax [email protected] United Kingdom Lonza Biologics plc 228 Bath Road GB-Slough, Berkshire SL1 4DX Tel Fax [email protected] Lonza Biologics plc Suite 3, Building A The Courtyard Severn Drive Tewkesbury Business Park GB-Tewkesbury GL20 8GD Tel Fax [email protected] North America USA Lonza Biologics Inc 101 International Drive Portsmouth, NH Tel Fax [email protected] Lonza Inc 90 Boroline Road Allendale, NJ Tel Fax [email protected] Lonza Inc, Cohasset 1101 NW 3rd Street PO Box 336 Cohasset, MN 55721, USA Tel Fax Lonza Inc 8316 West Route 24 Mapleton, IL Tel Fax [email protected] Lonza Inc, Riverside 900 River Road Conshohocken, PA Tel Fax [email protected] Lonza Inc 3500 Trenton Avenue Williamsport, PA Tel Fax [email protected] South America Brazil Lonza do Brasil Especialidades Químicas Ltda Rua Carmo do Rio Verde andar Conjunto 51 Santo Amaro BR São Paulo Tel Fax [email protected] Research & Development Production Site Sales Office

66 64 ADDRESSES ACTIVITY REPORT Asia China Lonza Guangzhou Ltd 39, Jinhui Road Haizhu District CN-Guangzhou Tel Fax Lonza Guangzhou Nansha Ltd The Middle of Xiaohu Island Nansha Development Zone CN-Guangzhou Tel Fax Lonza Guangzhou Research and Development Center Ltd The Middle of Xiaohu Island Nansha Development Zone CN-Guangzhou Tel Fax Lonza Liyang Chemical Co Ltd 49, East Ping Ling Road CN-Liyang, Jiangsu Tel Fax India Lonza Ltd India Liaison Office Delta, 401-C, 4 th Floor Technology Street Hiranandani Gardens IN-Powai, Mumbai, Tel / 3143 Fax [email protected] Japan Lonza Japan Ltd Kyowa Shinkawa Bldg 8F , Shinkawa, Chuo-ku JP-Tokyo Tel Fax [email protected] Lonza Japan Ltd Toyohei Bldg 1F Shinkawa, Chuo-ku JP-Tokyo Tel Fax [email protected] Singapore Lonza Performance Chemicals Pte Ltd 12, Sakra Road Jurong Island SG-Singapore Tel Fax [email protected] Lonza Singapore Pte Ltd 12, Sakra Road Jurong Island SG-Singapore Tel Fax [email protected] Research & Development Production Site Sales Office

67 ACTIVITY REPORT ACTIVITY REPORT 65 Acquired Bio-businesses Europe Belgium Lonza Verviers SPRL Parc Industriel de Petit-Rechain BE-4800 Verviers Tel Fax Denmark Lonza Copenhagen ApS Risingvej 1 DK-2665 Vallensbaekstrand Tel Fax [email protected] France Lonza Saint Beauzire SAS Biopole Clermont Limagne FR Saint Beauzire Tel Fax [email protected] Italy Lonza Milano S.r.l. Via Galileo Galilei IT Caravaggio Tel Fax [email protected] Spain Lonza Barcelona S.L. Calle de llorero, 42 E1 ES Barcelona Tel Fax [email protected] United Kingdom Lonza Nottingham Ltd Pennyfoot Street GB-NG1 1GF Tel Fax [email protected] Lonza Wokingham Ltd 1 Ashville Way GB-Wokingham, Berkshire RG41 2PL Tel Fax [email protected] North America USA Lonza Baltimore, Inc 5901 E. Lombard Street Baltimore, MD Tel Fax [email protected] Lonza Hopkinton, Inc 97 South Street Hopkinton, MA Tel Fax [email protected] Lonza Rockland, Inc 191 Thomaston Street Rockland, ME Tel Fax [email protected] Lonza Walkersville, Inc 8830 Biggs Ford Road Walkersville, MD Tel Fax [email protected] South America Brazil Genolife do Brazil Rua Dom Lucas Obes 348 BR-Ipiranga, Sao Paulo / SP Tel Fax [email protected] Asia India Lonza Mumbai Private Limited 652, Solitaire Corporate Park Chakala, Andheri (East) IN-Maharashtra, Mumbai, Tel Fax [email protected] Research & Development Production Site Sales Office

68

69 ACTIVITY REPORT AGENDA AND CONTACTS 67 Legal domicile Basel, Switzerland Global headquarters Lonza Group Ltd Muenchensteinerstrasse 38 CH-4002 Basel, Switzerland Tel Fax Anticipated Key Reporting Dates Annual General Meeting for the financial year March 2007, am Convention Center, MCH Swiss Exhibition (Basel) Ltd, Basel Half-year Report July 2007 Full-year Report January 2008 Annual General Meeting for the financial year March 2008, am Convention Center, MCH Swiss Exhibition (Basel) Ltd, Basel Dividend transfer to banks As a rule, Lonza Group Ltd pays the dividend to its shareholders on the fourth business day following the Annual General Meeting. Listing and Security Information Stock exchange listing SWX Swiss Exchange Stock exchange trading virt-x Common stock symbols Bloomberg LONN VX Reuters LONZn.VX Telekurs LONN Security number Valor ISIN CH Forward-looking Statements Forward-looking statements contained herein are qualified in their entirety as there are certain factors that could cause results to differ materially from those anticipated. Investors are cautioned that all forward-looking statements involve risks and uncertainty. In addition to the factors discussed above, among the factors that could cause actual results to differ materially are the following: the timing and strength of new product offerings; pricing strategies of competitors; the company s ability to continue to receive adequate products from its vendors on acceptable terms, or at all, and to continue to obtain sufficient financing to meet its liquidity needs; and changes in the political, social and regulatory framework in which the company operates or in economic or technological trends or conditions, including currency fluctuations, inflation and consumer confidence, on a global, regional or national basis. Contacts For publications and further information please contact: Lonza Group Ltd Muenchensteinerstrasse 38 CH-4002 Basel, Switzerland [email protected] Investor Relations Tel Fax [email protected] Media / Corporate Communications Tel Fax [email protected] Share Register c/o Nimbus Ltd P.O. Box CH-8866 Ziegelbruecke, Switzerland Tel Fax [email protected] Imprint Production Corporate Communications, Lonza Group Ltd, Basel, Switzerland All rights reserved Editorial completion: February 2007 Design zahnzimmermannfankhauser creative projects ltd, Zurich, Switzerland Photography Tim Lüdin, Timage, Sissach, Switzerland Thomas Andermatten, Brig, Switzerland Arsène Saheurs, Zurich, Switzerland SEM pictures Eye of science, o. meckes, n. ottawa, Reutlingen, Germany Martin Oeggerli & Daniel Mathys, Basel, Switzerland The microbiological culture for the scanning electron microscope pictures in the Annual Report with the exception of the picture on page 20 was provided by Lonza s reference stocks in Visp Lithography & Print Birkhäuser+GBC Ltd, Reinach, Switzerland

70