Editor’s (re)View: Lonza’s 2024 financial results and what they reveal about its 2025 outlook
As the world’s largest contract development and manufacturing organization by revenue, Switzerland-based Lonza garners its share of industry attention — especially this week, as it reported full-year 2024 financial results. Lonza on Wednesday announced sales last year of 6.6 billion Swiss francs, which was virtually flat compared to 2023 at constant exchange rates (CER), impacted by the loss of COVID-related mRNA revenue from the termination of a Moderna contract.
Still, after adjusting for this impact, Morningstar analyst Rachel Elfman noted that underlying sales grew approximately 7% at CER with Lonza’s “narrow-moat” underscored by the “resilience of its CDMO business, which continues to perform well despite the loss of COVID-related sales.”
Lonza reported strong “low-teens” year-over year CER sales growth in its core CDMO business in 2024, while the company’s Capsules & Health Ingredients (CHI) business last year was hit with “market headwinds” causing sales to decline 6.6% on “soft demand” for pharma capsules due to customer destocking.
Looking ahead, Elfman wrote in a note to investors that Lonza is “well positioned to deliver strong performance, particularly in the fast-growing biologics and cell and gene divisions.”
CEO Wolfgang Wienand in Wednesday’s full-year results presentation said Lonza’s biologics division in 2024 saw underlying low-teens CER sales growth, driven by strong performance in mammalian and bioconjugates with initial signs of recovery in early-stage business.
“On the back of strong demand in its commercial large-scale mammalian and bioconjugates businesses, as well as signs of recovery in its early-stage business, we believe Lonza remains well on track to hit its 2025 CDMO guide, which we estimate incorporates roughly 11%-12% organic revenue growth for its key biologics segment,” William Blair analyst Max Smock wrote in a note to investors.
Lonza’s $1.2 billion acquisition in 2024 of the Genentech facility in Vacaville, California, one of the world’s largest biologics manufacturing facilities, could position the CDMO to benefit as large-scale mammalian capacity remains in high demand. However, Smock said “impressive demand for Vacaville is unlikely to lead to material upside to numbers this year, but in our view it should enable management to at least hit its recently issued targets for low-teens organic CDMO revenue growth beyond 2025.”
This year, Lonza expects CER sales growth of 20%, excluding CHI, while the company expects low-to-mid single-digit CER sales growth for CHI. Despite having industry-leading profit margins, Wienand maintains that CHI’s product business differs from Lonza’s long-term contracted services, with different manufacturing models, technologies, and “very limited actionable customer overlap.”
Although Wienand called CHI a “great business” in Wednesday’s presentation to investors, he expressed management’s opinion that Lonza is no longer the best owner as it “does not, to the same degree, benefit from our core competencies,” with overall lower growth than the CDMO business and impacting Lonza’s mid-term sales growth.
Wienand, who became CEO in July 2024, is spearheading the new “One Lonza” strategy announced at the end of last year, with the goal of becoming a “pure-play” CDMO. While the new operating model is being finalized and will be implemented in the second quarter of 2025, what is known is Lonza will be restructured from nine to three units — Integrated Biologics, Advanced Synthesis, and Specialized Modalities — and will divest the CHI business “at the appropriate point in time.”
Though Smock said there are some signs of its continuing recovery, CHI “remains a drag” on Lonza due to “limited synergies” with the company’s other units as it is a “strategic misfit” due its product-based rather than service-based business model.
“We are pleased to hear management reiterate its commitment to exit the business at an appropriate time, although it noted that the process is still in its early days,” Smock wrote. “We believe that Lonza’s story will become even more attractive once the CHI overhang is removed and the company becomes a pure-play CDMO operating under its revamped ‘One Lonza’ integrated strategy.”
