Lonza’s capsules business drags down 2024 results, expects return to growth in 2025
While Lonza’s CDMO business delivered strong commercial and operational performance in 2024, the company on Wednesday reported its Capsules & Health Ingredients (CHI) business was hit with “market headwinds” causing sales to decline 6.6% as a result of “soft demand” for pharma capsules due to customer destocking.
Higher-than-expected margins in the company’s biologics, small molecules, and cell and gene segments were partly offset by weaker-than-expected margins in Lonza’s CHI business. However, Lonza expects CHI sales to return to growth in 2025.
Last month, Lonza announced its planned restructuring with the goal of becoming a “pure-play” CDMO to serve the biopharma industry. Under the new operating model, which will be implemented in the second quarter of 2025, the company will move from nine units to three — Integrated Biologics, Advanced Synthesis, and Specialized Modalities — and “at the appropriate time” will exit its CHI business.
CEO Wolfgang Wienand touted the proposed CHI divestiture earlier this month at the J.P. Morgan Healthcare Conference in San Francisco. Wienand told the JPM25 conference that 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’s core strengths including long-term customer relationships and assets in key strategic areas.
Excluding CHI, Lonza in 2025 expects constant exchange rates (CER) sales growth of 20%, while the company expects low-to-mid single-digit CER sales growth for CHI this year.
Despite the slower CHI demand in 2024, William Blair analyst Max Smock in a Wednesday note called Lonza’s 2024 financial results and 2025 outlook a “solid update” from the company, while adding “we suspect some investors may be slightly disappointed by the lighter-than-expected biologics revenue in the back half of the year.”
At the same time, Smock pointed out that excluding the impact of its COVID-19-related mRNA business, the biologics segment “still grew at a healthy 13% on a constant-currency basis last year, putting Lonza on track to hit its 2025 CDMO guide.”
Lonza’s $1.2 billion acquisition last year 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.
“The company has now signed a second hard commitment for its Vacaville site, and on the back of taking more than 20 customers to the facility earlier this year, it currently has multiple additional contract negotiations for the site ongoing,” according to Smock, who reiterated that Lonza is William Blair’s top pharma outsourcing pick for 2025.