Lonza - D/G to HOLD – Risk From Higher Yields (HOLD [BUY], TP CHF 550 [610], 5pgs)
Our deep dive into biologic manufacturing yields [HERE] has led to our questioning the wisdom of Lonza’s huge Vacaville deal, given that it uses 12kL & 25kL fed batch bioreactors, while the sector is increasingly turning to higher yielding novel technologies. 70% of Vacaville is empty, with the 30% contracted by Roche phasing out over time. If Lonza cannot sign new contracts to fill this 330kL facility, it will slow growth and create a material margin headwind for the foreseeable future, imperilling 2028 margin targets. Given Vacaville, we also question when ROIC will start to be attractive, having fallen 24% in 2023 to just 8.7%. In light of this newly identified risk & the ~60% appreciation in Lonza’s shares since we upgraded to Buy, we now believe the risks are balanced.For access to the full note, please contact Naresh Chouhan ( )
Lonza supplies services and products that range from active pharmaceutical ingredients and stem-cell therapies to drinking water sanitizers, from vitamin B compounds and organic personal care ingredients to agricultural products, and from industrial preservatives to microbial control solutions. Co. operates in two segments: Lonza Pharma & Biotech, which clusters all of Co.'s offerings for pharmaceutical markets, focuses on providing custom development, custom manufacturing, cell therapy, viral therapeutics and bioscience solutions; and Lonza Specialty Ingredients, which includes offerings in its consumer care, agro ingredients, industrial solutions, wood protection and water treatment.
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