Lonza plans to exit capsules and health ingredients business, but uncertainty remains

As part of a new strategy and organizational structure, Lonza plans to exit its Capsules & Health Ingredients (CHI) business with the goal of becoming a pure-play CDMO. The company first laid out its vision last month for a simplified “One Lonza” operating model, which is currently being finalized and will be implemented in the second quarter of 2025 by moving from nine underlying units to three unified platforms: Integrated Biologics, Advanced Synthesis, and Specialized Modalities.

Lonza’s overarching goal is to focus on its core CDMO business and to exit the CHI business “at the appropriate point in time” and in the best interests of shareholders and its employees, according to the company. In a presentation last week at the 2025 J.P. Morgan Healthcare Conference in San Francisco, CEO Wolfgang Wienand provided his outlook on the proposed CHI divestiture.

Wienand, who took over as CEO in July 2024, told the JPM25 conference that Lonza’s CHI is a “great business but it’s not a CDMO business” and it is “not benefitting as much from the Lonza Engine,” a strategy designed to protect and enhance Lonza core strengths including long-term customer relationships and assets in key strategic areas.

With sales above $1 billion and industry-leading profit margins, Weinand acknowledged that CHI is a “brilliant” business that is driving innovation with “attractive growth rates and expanding margins.” At the same time, he noted that the CHI division differs significantly from Lonza’s CDMO services with a different business model, market dynamics, and technologies.

However, one member of the audience during the Q&A session at Wienand’s JPM25 presentation said the potential CHI divestiture would “massively destroy” shareholder value and asked about the financial rationale for such a transaction.

Wienand responded that it is too early to “share details about expectations” for the sale of CHI but said Lonza’s intention is not to destroy shareholder value. While Lonza is currently not under pressure to sell CHI, he said the company has “reasons to expect a strong interest for that business” which is the “market leader in an attractive space.”  

Lonza is “convinced that this business will be able to return to the previous margin levels and growth levels,” according to Wienand, who said that based on CHI’s individual segments the company is already seeing the “uptake” in terms of growth.

CHI is a “great, market-leading” business, Weinand emphasized. “This is not a fire sale.” He said Lonza “will take the necessary time to find a value-adding good solution for shareholders and stakeholders.”      

The plan for now

While the company is still evaluating the appropriate time to divest CHI, Lonza decided that going forward it will guide separately for the two businesses. For 2025, Lonza — excluding CHI — expects constant exchange rates (CER) sales growth to approach 20%, while the company expects low-to-mid single-digit CER sales growth for CHI this year.

Lonza’s forecast is for the “market softness” in the CHI business in 2024 “to be offset by the strong performance of the CDMO business,” delivering on its overall growth and margin outlook for the current year with “strong profitable growth” projected in 2025.

Max Smock, equity research analyst at William Blair, wrote last month in a note to investors that the “planned carveout of CHI” makes sense “given its limited synergies with other business units and strategic misfit due to its product-based rather than service-based business model.”

Smock said the CHI divestment “should also free up leadership focus and resources to execute on the company’s revamped investment strategy, which, in a departure from the company’s historic preference for organic growth, will now place equal emphasis on opportunistically pursuing organic and inorganic growth opportunities.”

In an emailed statement to Pharma Manufacturing, Smock said he believes “it is a good idea to divest CHI” and “doing so is in the best interest of Lonza shareholders.” While CHI is a good business, he noted “it does not fit with Lonza’s core CDMO capabilities, and divesting it frees up capital that Lonza can use to take advantage of other opportunities in the CDMO space.”

Despite plans to shed its CHI business, Lonza last month announced that it is boosting capsule manufacturing capacity at the company’s facilities in Rewari, India and Suzhou, China. Lonza’s aim is to increase the overall annual capacity and ensure the manufacture of “capsules of the highest quality” by leveraging additional automated manufacturing lines at the sites, which are slated to start operations in the third quarter of 2025.

At JPM25 last week, Wienand emphasized that Lonza needs to “continuously watch the market” with an eye towards upcoming and emerging “manufacturing technologies of the future and actually enter and invest in that space.”