Lonza Group AG (LONN), currently valued at over $50 billion by market capitalization, has reaffirmed its robust outlook for 2025, projecting significant growth in its Contract Development and Manufacturing Organization (CDMO) business. The company anticipates sales growth nearing 20% at constant exchange rates and a core EBITDA margin approaching 30%. According to InvestingPro data, analysts are largely bullish on the stock with a consensus "Buy" recommendation. Additionally, Lonza expects an uptick in sales during the second half of 2025 compared to the first half, despite potential headwinds from foreign exchange rates.
Key Takeaways
- Lonza projects nearly 20% sales growth in its CDMO business for 2025.
- The company expects a core EBITDA margin close to 30%.
- Key facility developments include a new API facility in Wyss, Switzerland, and a large-scale drug product facility in Stein, Switzerland.
- Lonza is expanding its manufacturing footprint in Asia, with capsule production facilities in India and China.
Company Performance
Lonza’s performance metrics indicate a strong trajectory in its CDMO sector, with InvestingPro data showing last twelve months EBITDA of $1.97 billion and a healthy financial score rated as "GOOD". The company is leveraging its global manufacturing presence to maintain a competitive edge, particularly in the United States where it has a substantial footprint across various modalities. Trading at an EV/EBITDA multiple of 24.6x, this strategic positioning is crucial as the company navigates potential geopolitical and trade policy challenges. For deeper insights into Lonza’s valuation and growth metrics, investors can access the comprehensive Pro Research Report, available exclusively on InvestingPro.
Financial Highlights
- Revenue growth in CDMO business: Nearly 20% expected in 2025
- Core EBITDA margin: Approaching 30%
- CapEx spending forecasted in the low twenties as a percentage of sales for 2025
Outlook & Guidance
Lonza remains confident in its ability to deliver on its 2025 full-year outlook, with expectations for positive low to mid-single-digit constant exchange rate sales growth in its Capsules and Health Ingredients segment. InvestingPro forecasts indicate a robust 17% revenue growth for FY2025, supporting the company’s optimistic projections. The company is preparing for a potential carve-out of its CHI business in 2025 and plans to transition to new business platforms, including Integrated Biologics and Advanced Synthesis. Subscribers to InvestingPro can access detailed financial forecasts and over 30 additional premium insights about Lonza’s growth trajectory.
Executive Commentary
"We are seeing good momentum and are confident of delivering our full-year outlook 2025," stated a Lonza executive, emphasizing the company’s optimistic view on demand and value for the coming year. Another executive noted, "Most of these investments over time would probably have happened," reflecting on the strategic importance of US manufacturing investments.
Risks and Challenges
- Foreign exchange rate fluctuations could impact sales and EBITDA margins.
- Geopolitical uncertainties and regulatory approvals pose potential risks.
- Delays in equipment delivery at the Stein facility could affect timelines.
- Market saturation and competitive pressures in the CDMO industry.
- Supply chain disruptions could impact manufacturing operations.
Lonza’s earnings call highlighted its strategic initiatives and robust growth projections for 2025, underscoring its strong position in the global CDMO market. With a focus on innovation and expansion, the company is well-positioned to navigate the challenges ahead while capitalizing on emerging opportunities.
Full transcript - Lonza Group AG (LONN) Q1 2025:
Company Executive/Management, Lonza: Good morning, good afternoon, and warm welcome to our q one twenty twenty five qualitative update, and thank you, Sandra, for the introduction. With our qualitative update, we intend to provide you with a general business overview, but we will not be sharing figures related to our financial performance. We will do so on the July 23 with our half year update. Let me start with an overview of our group performance, the current macroeconomic situation, and our growth projects before we move on to the divisional performance. We experienced a strong q one performance across our CDMO businesses aligned with our expected full year trajectory.
Supported by this strong performance, we are confirming our 2025 outlook for the CDMO business with sales growth approaching 20% at constant exchange rates compared to the prior year and the core EBITDA margin approaching 30%. Excluding Vacaville, which is expected to contribute half a billion Swiss francs in sales at a diluted core EBITDA margin, we expect low teens organic CER sales growth and margin improvement in our CDMO business. As a reminder, we define our CDMO business as Lonza excluding the capsules and health ingredients business. As anticipated with our full year release in January, we confirm our expectations of higher sales in h two twenty twenty five than in h one. However, we now anticipate the core EBITDA margin to be more equally balanced between h two and h one with a stronger than expected h one leading to a correspondingly softer margin in h two.
Main reason is a strong operational execution and more favorable mix in the first half. As in previous year, we continue to experience a healthy level of contract signings across all CDMO businesses, highlighting the attractiveness of our commercial offering and providing a strong basis for our future sales growth. Customer interest in Vacaville continues to be strong, and the third long term customer contract has been secured for the site. We can confirm that multiple contract negotiations are ongoing, and we expect more signings in the balance of 2025. Our early stage business saw high utilization in q one twenty twenty five, and we have good visibility for 2025 demand.
At the same time, we remain attentive to the evolving funding landscape and the political uncertainties surrounding regulatory approvals in The US. We are also closely monitoring the recent volatility in the FX market with the Swiss franc gaining significantly in value, especially to the US dollar. Based on FX rates at the April, we would expect a year over year headwind of around 2% of sales and core EBITDA for full year 2025. However, our margin is well protected due to a strong natural hedge and our hedging program in place. Before turning to our growth project, let me say a few words on the current geopolitical and macroeconomic environment, which is characterized by the increased level of uncertainty.
We believe that Lonza’s global manufacturing footprint, including its significant presence in The US across modalities, provides a competitive advantage that will allow us to minimize the impact of recently announced trade policies on our business. At this time, we do not expect tariffs on our manufactured products or raw materials, including pharmaceuticals, should such tariffs be implemented, to have a material financial impact. However, we continue to monitor the situation closely. On our US CapEx spending, CapEx may have a modest financial impact, potentially leading to a slight increase in overall spending. But due to the capitalization and the subsequent depreciation, we do not expect any material impact on our p and l.
Given its strong manufacturing presence in The US and Mexico, our capsules and health ingredients business is currently well positioned to navigate tariff dynamics and may even experience a competitive advantage. Recent countervailing filings have been accepted by the US International Trade Commission and US Department of Commerce against unfair trade practices related to import of hard empty capsules sold in The US market, are likely to add to this relative trend. The case continues according to schedule and affirmative preliminary determinations in the countervailing case were published on March 31 with two to 10% duties being implemented. Concurrent antidumping duty and litigation are ongoing. Now turning to our growth projects.
Overall, we are making solid progress. Our highly potent API facility in Wyss, Switzerland reached a crystal milestone and commenced ramp up activities in q one twenty twenty five, while we expect our large scale milling facility in Wyss to launch GMP operations in q two twenty twenty five. Construction is progressing well at our recently announced large scale bioconjugation site in this, which we expect to become operational in 2027 or 2028 at the latest. We also now expect operations to commence at our large scale drug product facility in Stein, Switzerland in 2027. Originally anticipated for late twenty twenty six, the time line has been slightly adjusted due to an updated delivery schedule for critical equipment.
We do not expect material impact on our financials for 2026 and 2027 from this adjustment. For Vackerhill, we have now entered the implementation phase for the upgrade CapEx and expect the majority of the 500,000,000 Swiss francs to be spent in the next two to three years. As a group, we confirm our expectations to spend CapEx in the low twenties as a percentage of sales in 2025. Consistent with our historical spending pattern, we would expect CapEx to be higher in the second half of the year. Now let me guide you through our divisional performance, still using our former divisional setup as it was still in place in q one twenty twenty five, starting with the biologics division.
There was good momentum across the biologics division with a strong demand for our commercial offering. Improvements in the biotech funding in 2024 have resulted in an uptick in early stage RFPs, we expect a high asset utilization in our small scale assets in 2025. Looking at selected business units, bi conjugates continue to be to see strong growth supported by recent asset ramp ups. The mammalian business units saw continued momentum from growth projects, including the ramp up of our small scale mammalian facility in Portsmouth. The Vacavel integration is progressing as planned, and the site has successfully maintained a strong quality and execution track record since joining Belonga network.
Turning to our small molecules division. We continue to see strong commercial demand and good operational performance. The division is supported by our continuing portfolio shift to higher value and complex small molecules. With high asset utilization and the ramp up of our new highly potent API facility, we anticipate sales and cost exchange grade grow growth in the second half to exceed h one. The ramp up of these new assets is proceeding as planned with additional key milestones expected to be reached in the remainder of 2025.
Looking at our cell and gene division, there’s been continued customer interest in our late stage and commercial offering. We see good progress in our collaboration with Vertex for Cascades, and we are planning and we are ramping up production in our site in Ghislain, The Netherlands, and expect our site in Portsmouth, US to follow later this year. Including the approval of Mesoblast Ryoncil, we now have a portfolio of five commercial cell and gene therapies, and we expect to add further commercial molecules in the midterm. Supported by the improved biotech funding environment and the increased number of RFPs in 2024, we observed sustained demand for our clinical cell and gene technology offering. We are so pleased with the current performance, but remain attentive to the broader market environment and the low maturity of the industry, which is inherently volatile.
Finally, and before moving to CHI, we are pleased to confirm that our bioscience business unit has returned to growth in q one with good demand for our media and buffer bioprocessing solutions. For 2025, we expect a solid performance and the business to show healthy growth again. In our CSI business, we have observed a steady recovery in demand with q three twenty twenty four representing the trough. For the pharma hard density capsules market, we expect a return to pre pandemic levels in the second half of twenty twenty five, while demand for nutraceutical capsules is back to positive volume growth versus the same period in the prior year after a long period of post pandemic destocking. The recent geopolitical development illustrates the benefits of having a strong manufacturing presence in North America.
We have the largest US manufacturing site for capsules in Greenwood, South Carolina, and our site in Criblat, Mexico allows us to produce for The US market at high quality and is currently tariff exempt under The US Mexico Canada agreement USMCA. Progressing successfully on its recovery path, we confirm our twenty twenty five outlook for CHI to return to positive low to mid single digit CER sales growth and an improving core EBITDA margin in the mid twenties, a small improvement versus our initial guidance for the CHI margin. Before I close, let me say a few words on the progress to part way with the CHI business. We see a high level of continued commitment from the affected colleagues and a strong focus on operational execution execution during the transition period. We remain strongly committed to the CHI business and continue bringing new product innovations to market as well as the rollout of our next generation d ninety capsules manufacturing line across our network.
In addition, we just recently announced to expand our capsules manufacturing capacities in India and China for the fast growing APAC region. In q one, we mandated our external advisers, and we are currently in the preparation phase of the carve out. Considering the positive business development in recent months, in line with expectations, we are confident of the successful completion of a transaction at the appropriate time point in time and in the best interest of customers, employees, and our shareholders. To close, let me provide some final remarks. We are seeing good momentum and are confident of delivering our full year outlook 2025.
We see strong contracting levels and good interest in our early stage offering. As said, we are well positioned in the current geopolitical environment and do not expect any material impact from tariffs on our business. So we continue to monitor development closely as the situation is constantly evolving. On April 1, we have implemented our simplified and streamlined operating model to support our new one Lonza strategy. This setup will provide us with a more scalable organization, improve the customer experience across business platforms and technologies, and provide us with elevated execution capabilities in the construction and operations of our assets.
This q one update will therefore be the last time we comment on our former biologics, small molecules, and cell and gene divisions. For our half year results, we will comment on our new business platforms, integrated biologics, advanced synthesis, and specialized modalities. We will continue to report on capsules and health ingredients in its existing structure as it will continue to operate as a separate business within Lonza. To provide comparability with historic financials, we will publish restated 2024 financial figures ahead of our half year reporting in late May. And with that, I would like to thank you for your time.
Over to you, Sandra, for the q and a.
Sandra, Conference Moderator, Lonza: Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press and one on the telephone. You will leave a tone to confirm that if you have entered the queue. Kindly limit yourself to one question only.
You can get back in the queue again if you have a follow-up. If you wish to remove yourself from the question queue, you may press star and 2. Questions on the phone are requested to disable the loudspeaker mode. In case of difficulties, understand that your question on on the phone. We will ask you to submit your questions via the chat box in the webcast.
Anyone with a question, press and one at this time. Our first question comes from Ebrahim Zain from JPMorgan. Please go ahead.
Ebrahim Zain, Analyst, JPMorgan: Hello. This is Ebrahim from JPMorgan. Hopefully, you can hear me okay?
Company Executive/Management, Lonza: All good, Dain. Thank you. Go ahead.
Ebrahim Zain, Analyst, JPMorgan: Okay. Great. So thank you for the phasing comments. Maybe just to to ask further, how are you thinking about the phasing of sales growth between h one twenty five and h two in the context of the strong strong q one that you just reported? And maybe tied to that, how should we think about the phasing of the half a billion of back of the revenues in ’25?
That’ll be the first question. And then my second question is just on the early stage. Any any changes that you’ve seen in RFP momentum in q two or or in q one as a result of some of the volatility in biotech funding and FDA on track tier that you highlighted, or is it continue to be continue to be strong momentum from from an RFP perspective? Thank you.
Company Executive/Management, Lonza: Thank you, Zane. Yes. I think we provided some commentary in h one and h two. I think the the change being more on the margin side than on the on the top line. So I will not go into further details on the top line.
I think we we mentioned that the h two sales in absolute will be bigger will be higher in in the second half than in the first half, and I’ll I’ll leave it at this for now. But I think please note the the the more balanced margin outlook that we that we now provide. In terms of Vacaville, I think equally, we’re not providing more detail on the on the Vacaville phasing, but we’ll we’ll, of course, provide you with an update in July. In terms of the early stage, I think we we’ve been clear to not talk about momentum because I think we see good good utilization of our assets. I think we have we have seen good RSPs levels, and I think they were improving during 2024.
I wouldn’t say the same for 2025, but that doesn’t concern us for this year and for early next year. But given the environment, especially in The US, I think we would prevent from talking about momentum.
Sandra, Conference Moderator, Lonza: The next question comes from Charles Weston from RBC Europe. Please go ahead.
Ebrahim Zain, Analyst, JPMorgan: Hi. Thanks for taking the question. You’ve mentioned the time scales for the commercial aseptic facility at Mount Southwyck, but I I recollect you’ve signed a number of development deals that include these aseptic services. So can you just comment on interest in general for this facility, whether it’s delay, create an issue for any of your clients, and and also whether we could expect the ramp up timelines for that asset in line with other large assets, I e, sort of three years from opening? Thank you.
Company Executive/Management, Lonza: Hi, Charles. Thanks for for the question on our on our filling finished facility in in Schein, Switzerland. I think the the shift the small shift in in time scale does not impact customer program, and therefore, does not create a really a larger issue or material issue on our financials for ’26 and ’27 as I mentioned in my in my intro. I think in terms of the ramp up, probably this is a smaller ramp up than a facility where you do drug substance. Why?
Because we are using this to provide fill finish capacity to our drug substance customers, and therefore, they will come when they are ready rather than piling up customers at the beginning to get them started as quickly as possible.
Sandra, Conference Moderator, Lonza: The next question comes from James Wayne Tenthus from Jefferies. Please go ahead.
Company Executive/Management, Lonza: Yes. Hi. Thanks for taking
Ebrahim Zain, Analyst, JPMorgan: my questions. Quick one to begin with. I think you initially originally mentioned carve out financial will be available in June. Just wondering what the latest thinking is and when we may get those. And then my second question is, you signed an agreement with Vertex in ’23 for a dedicated facility for type one diabetes in New Hampshire.
In March, b x ’2 ’6 ’4 is discontinued. So just how should we think about conceptually the financial impact from developments like this as the dedicated suites require more work to make ready for new customers? Thank
Company Executive/Management, Lonza: you. Yeah. Thank you, James. Maybe just to to be clear, I did not promise to cover financials for June, which I I think you’re probably talking about capitals and health ingredients. So I have not made any promise on carve out financials, and we’ll certainly not be providing these externally.
What I was talking about are restated financials because we have changed our organization structure from the four divisions up to the first quarter of twenty twenty five to the new platforms as of April 2021 2025. And so what we will provide you by the May are basically the year the half year 2024 and the full year 2024 in the new organization structure with the new platform. So you’ll be able to see that advanced synthesis was this amount of top line and bottom line in ’24 versus what we will then be presenting in July year. So here we’re talking about our new OneLumza organizational structure. We’re not talking about the CHI carve out financials, which will not be provided externally.
Second, on our Vertex agreement, indeed, we we are building a a manufacturing site for the type one diabetes product. Remember, Vertex has two type one diabetes candidates. One is v x two sixty four, the other one is v x eight eighty. And while we have as well heard about the v x two six four results. The the d x eight eight zero candidate continues, and therefore, there is no, at this point in time, no change in our plans with Vertex.
Sandra, Conference Moderator, Lonza: The next question comes from James Creeley from Goldman Sachs. Please go ahead.
Company Executive/Management, Lonza: Great. Thank you for taking my questions. So I’ve got a high level one on on capacity and, you know, following the tariff announcements we’ve seen, a number of big numbers for investments for pharma companies in terms of investments in The US. Now a lot of that obviously relates to r r and d as opposed to CapEx. But what are your what are your views on these announcements and how they might impact the supply and demand balance as well as outsourcing rates in in biologics?
And in your modeling, how much of this capacity was already anticipated as this brand new additional capacity that may have been in a different location relative to the to The US? Thank you. Yes. So I I think we’ve seen, of course, the the big announcements, you know, hundred 50,000,000,000 plus depending on when you when we stop counting. I think what we’ve also seen, probably like you, is that there’s actually little detail on what the mix is of investments, what is the mix between r and d and manufacturing, let alone understanding if if we’re talking drug substance, drug products, or modality.
So it’s still relatively opaque and, therefore, hard to judge. Our understanding is that most of these investments are not necessarily additional but have been announced in one go. Most of these investments over time would probably have happened. So I think this is one thing, but we don’t know much more than what what you hear or what we have been able to read. So probably time will tell.
Important to note that if if the capacity is actually being constructed in The US, this will take five to ten years to materialize. I think unless you’re sitting on land with permits, you need to find the lines, you need to apply for permits. We’ve heard now president Trump asking to speed up the permit delivery, but still, it takes time. And then you need to start designing the asset, constructing the asset. So all of this takes time, and I guess we will see over time how much it is.
I’d I’d like to remind you that in terms of driving the volume for for the CDMO industry, in general, there are three three main drivers. One is the need from biotech company as most of the innovation actually comes from biotech companies who, by design, do not invest in own capacity as they prefer to spend their money on r and d and ultimately commercialization. So that’s one driver. The second driver being biosimilars where, again, biosimilars entry usually increase the need for volume across the world. And, also, most biosimilar companies do not build their own facility.
And only third are the the investment by Big Pharma. So the last one is impacted by this potentially impacted by this announcement. The first two are not. So we remain confident on on the demand and value for the next year. But, of course, we would adjust our models as we understand better the investments that are being made.
Sandra, Conference Moderator, Lonza: The next question comes from Dylan Van Haasen from Stifel. Please go ahead.
Ebrahim Zain, Analyst, JPMorgan: Excellent. Thanks for taking my questions.
Company Executive/Management, Lonza: So just a question on the call out of the early stage and the clinical stage strength. I think on one hand, we had a weaker one q last year, specifically here. But on the other hand, if you look at the street more generally and you look at CRO activity, it it still feels kind of soft. Could you explain a little bit where that view to strength comes from? And is that pharma?
Is that biotech? And and, you know, is that, you know, cost trade on US? Any color would be helpful. Thank you. Yes.
I think 2024 saw an improvement of the funding levels in biotech. And at that point in time, many companies start to think about what they could do and wanted to do with the money and which trials they would start. This has led to an uptake in in RCs, which we’re not delivering upon in 2025. And, therefore, our commentary that the current utilization level of our lab and and smaller scale assets is good, and and we have good visibility for 2025. So remember, there’s always a time delay between the funding in the industry and the impact on our business.
First, this is just a little bit of lab work, and only after several months, you would start to actually produce something in smaller scale assets. And so this is what we’re now. We’re seeing basically impact of a positive 2024 signing for for this type of business and late also late twenty four signing. The signing today, I think, are still at good levels. I wouldn’t say that they’re increasing, but I think the the signings also in q one were actually okay.
Sandra, Conference Moderator, Lonza: The next question comes from Charles Pittman King from Barclays. Please go ahead.
Ebrahim Zain, Analyst, JPMorgan: Hi there. Thanks so much for taking my questions. Just two for me. Firstly, on just on the Stein equipment delivery slippage, I’m just
Company Executive/Management, Lonza: wondering if can give us
Ebrahim Zain, Analyst, JPMorgan: any more detail around, kind of, who the supplier was for that equipment and how confident you are that this is just a one off delay and this will therefore remain only a small slippage in impact as you highlighted? And then just secondly, in terms of the CNHI expectation for divestment, can you just give us a little bit more to think about on terms of how what would be the correct timeline to dispose of this business and whether or not the current market volatility and policy uncertainty precludes this potentially occurring near term? Thank you.
Company Executive/Management, Lonza: Thank you, Charles. So I I think on on Stein, you know, I will not include go into details telling you who who supplies what. But as you can imagine, in the current environment also of GLP one shortages in fill and finish, fill and finish lines are in very high demand. And, therefore, I would say this is a one off because this is about fill and finish lines. So this does not, you know, really impact the delivery of materials for all our drug custom facilities we’re building in in the other key projects.
So, yes, this is isolated. This is an industry issue, if I can call it this way, where these lines are just in very high demand, and so delays happen. In terms of CHI, you’re you’re taking your second question. I think we were clear that we were preparing for the the exit of CHI during 2025. We’ve made good progress in terms of assigning our advisers.
We’re doing all the internal work that is necessary in terms of preparing the the carve out perimeter and and all this work that is needed internally. The teams are appointed, etcetera. So I think we see good progress on this. We’re also very pleased with the with the the the development of the business itself, which which has been a trough in the last in the second half of last year and is now seeing an improving trend. And as we we mentioned, we we are expecting the growth rate in the second half to be ahead of what you would see in the first half and ahead of what we saw in the in the second half of twenty twenty four.
So I think the timing is is right, and, you know, we should be probably making progress this year, but we don’t we don’t mention any more precise timeline.
Sandra, Conference Moderator, Lonza: The next question comes from Patrick Rafales from UBS. Please go ahead. Mister Rafaisz, your line is open. You may proceed with your question.
Company Executive/Management, Lonza: Yes. Thank you. Hi, Chris. Follow-up on the biotech funding environment in early stage. Right?
Because last time we had this scale of drop in in the farming level long term cost a bit off guard. Now I’m just wondering, right, you have visibility until the end of the year. But to what extent do you already prepare or flexibilize your your cost structure should the RFPs start to decline again next year? Yes. Patrick, I think, as you know, we have taken action already last year, actually, at the end of twenty three to prepare into ’24 as we basically close to small scale facility.
So, you know, we’ve done we’ve done the work. I think we believe that our early stage network is is right in size. And so far, I think with the with the level of the demand that we see and also new RFPs that we’re seeing, we’re not concerned by that. However, I think it’s right that we need to observe the next month and quarters. So I think, you know, I think where where we see q one twenty twenty five is not a is is not a a bad level, actually.
It’s it’s pretty much in line with what you would have seen on average over the last five years. However, the question would be how does q two and q three develop. So I think once we see that, we can probably be clear on on the outlook for now. I think we are we are ready to go up or down, but we don’t expect to have to go down at this point. Maybe I can ask Sandra for the last question.
Sandra, Conference Moderator, Lonza: Yes, sir. The last question for today’s call will be from Justin Smith from Bernstein. Please go ahead.
Ebrahim Zain, Analyst, JPMorgan: Yes. Thanks very much for taking my question. It’s just a very quick one on with regards to opportunistic acquisitions of CDMO capacity. Is it fair to say you’ve got so much to deal with at the moment? This is probably more a story for twenty twenty six and beyond.
Company Executive/Management, Lonza: Yeah. I think as you rightly said, this is opportunistic. And so if the opportunity arises, we would take the opportunity. So I think we are very capable of doing the the the organic program that we’re doing at this point and going after opportunities, acquisitions if they were to to happen. So I think, unfortunately, you cannot time such acquisitions.
So when when we see the opportunity, we would go after it if it’s the right one, we believe the long term engine can add value to that acquisition. So, yeah, anytime is the right time for the right asset. With that, thank you very much. And I would like to thank you all for attending the call and for the good questions, and looking forward to talking to you again in a few months at our half year results in July. So with that, thank you very much, and goodbye, everyone.
Sandra, Conference Moderator, Lonza: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
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