Our Strategic Focus

Today, we are one of the world’s leading suppliers to the pharmaceutical, biotech and specialty ingredients markets. We focus on preventing and curing illness, by supporting our customers to deliver innovative medicines that help treat or even cure a wide range of diseases, as well as creating a healthier environment. Patients and consumers benefit from how we apply our manufacturing technologies to the healthcare, preservation and protection categories.

Our strategy in 2019 has been to increase focus on the healthcare related businesses and commencing the carve-out of the Specialty Ingredients segment. Over the course of the year, we have worked diligently on the carve-out and concurrently reviewed the Group strategy to refocus on accelerating the growth and development of our Pharma Biotech & Nutrition offering.

Investing in Future Growth in Lonza Pharma Biotech & Nutrition (LPBN)

LPBN continues its accelerated growth trajectory, with an expanding portfolio of customers and offerings. Our focus remains on providing healthcare development and manufacturing solutions, which enable our global customers to deliver advances in global health.

Today, the contract development and manufacturing organization (CDMO) industry is experiencing a time of radical change and disruption, driven by the rate of scientific and technological advancement in the industry. At this time, pharma and biotech companies are increasingly focusing on the breadth and depth of end-to-end solutions that deliver a path to commercialization to save time, better deal with complexity and gain access to expert knowledge.

As an early entrant to the CDMO market, we have captured and built customer relationships and established a leading reputation for quality, reliability and consistent delivery.

We are well-positioned to increase our competitive advantage through strong investment in growth projects. These include capacity expansions and new technologies supporting the full life cycle of molecules. In 2019, we had CHF 786 million in capital expenditures (CAPEX) – 13.3% of Group sales – a significant proportion of which was spent financing several important growth projects across our global network. These included expansions in Visp (CH) for clinical and commercial biologics, highly potent active pharmaceutical ingredients (HPAPI) and bioconjugates (including Antibody Drug Conjugates), in Portsmouth, NH (USA) for mid-scale mammalian, in Guangzhou (CN) for clinical mammalian, in Houston, TX (USA), Geleen (NL), Singapore (SG) and Portsmouth, NH (USA) for cell and gene technology, and in the Basel area (CH) for drug product services.

At Lonza, we always work diligently to weigh up risk-return profiles when investing in new initiatives and offer different business models to our customers depending on their needs. For larger commercial investments, we seek contractual commitment before build-out. For multi-purpose assets and clinical assets, decisions are based on robust demand projections. Depending on business models, CAPEX contributions and milestone payments by customers may be part of the investment approach.

We are reaching an inflection point, as biopharma performance over the last few years was based on historic investments. To continue our current growth trajectory and meet market demand, we have invested in new capacity, the expansion of our value chain and geographic coverage.

Planned projects are largely expected to contribute to continued growth beyond the Mid-Term Guidance 2022, as facilities are ramped up over several years before full utilization and profitability levels are achieved.

All investments have been considered in the context of the attractive pharma and biotech market environment with high levels of growth and innovation. We are eager to build on our leadership position as a partner of choice to both large, mid- and small customers who are working to advance health with sophisticated manufacturing technologies.

Delivering a Customer-Centric Configuration in Lonza Specialty Ingredients (LSI)

Over the course of 2019, we have worked to develop the structure of the LSI business to more accurately reflect the markets it serves. The business is now set up to be easier to navigate and more accessible to customers, with a leading portfolio of Microbial Control Solutions (MCS), supported by a division dedicated to Specialty Chemicals Services (SCS).

In LSI, we play in an attractive niche market within the Specialty Chemicals industry and we have expanded beyond our core market of microbial control actives, into microbial formulations and the much larger market of formulation additives. We have the ambition to return to growth and to increase our CORE EBITDA margin to above 20% by 2022. The main growth driver will be the asset-light Microbial Control Solutions business. We aim to extend our digital capabilities – not only to increase internal efficiency, but also to develop new business models and enhance customer engagement.

Growth will be supported by our strength in innovation, and our capability in fulfilling customer needs in an increasingly complex regulatory environment. We have been at the forefront of innovation and have a full pipeline of growth projects. As part of our approach, we continue to focus on “out-of-house” innovations, for instance, with investments through our Venture Fund with Prolog, or through targeted acquisitions.

We are now working to create closer connections to customers with a refreshed creative visual identity and a marketing campaign that is designed to highlight the importance of the customer relationships and the value of long-term partnerships.

Delivering the Carve-out: Process Overview

The carve-out has enabled LSI to benefit from greater levels of autonomy translating to renewed customer focus, alongside improved structural and operational efficiency.

We have a designated core team of around 40 employees who have been dedicated to the carve-out process since the program was initiated in June 2019. The team has worked systematically on all key pillars of an independent LSI, including dedicated legal entities and allocated employees, among others. Through this close collaboration, all significant milestones targeted for completion in 2019 were achieved.

Particularly complex areas in the carve-out process included IT systems, and the allocation of full-time employees (FTEs). There have also been intricacies carving-out sites that have a mix of LSI and LPBN facilities. All of these issues have now been substantively resolved. The carve-out is progressing in line with plan, with completion currently expected in mid-2020.