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Systematix Research Report
We recently met the management of Lonza Group AG, a global leader in the contract development and manufacturing organisation space. Our interaction with the management focused around the biologics CDMO piece of their business. The other business segments within their CDMO operations include cell and gene therapy and small molecule CDMO. We present below the key message we gathered from our interaction.
Biologics CDMO is the largest revenue stream for Lonza (CHF 3.3 billion in CY22, 55% of sales), and this service attracts huge demand, as per management. Lonza does not expect demand to slow for at least for another seven years as the market is undersupplied. This is reflected in their capex spending, which is potentially at its peak (30% of sales), with entire capex driven by visibility in demand / contracted demand.
Western CDMO players preferred – Unending political tensions between China and the U.S. could favorably benefit western-leaning CDMOs like Lonza, as per management.
The company currently operates at high utilisation levels, and the management believes they will continue to do so to generate optimal returns. This is because vacant capacities would be massive drag on operating margins and return ratios. The company is mindful of adding capacities and generally does so only once it has a clear written agreed commitment from a client.
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