Lonza 2019 results: Nutritional hard capsule business dips amid strong sales in Pharma Biotech & Nutrition

21 Jan 2020 --- Increased competition in the space of nutritional hard capsules has negatively impacted Lonza Group’s fiscal 2019 profits, although the company reports overall strong sales driven by Pharma Biotech & Nutrition (LPBN). Looking to the year ahead, the company intends to appoint a new CEO, commence operations for major investment projects, complete the carve-out of its Specialty Ingredients segment (LSI) and continue to expand production of its undenatured Type II collagen supplement, UC-II. The company is also overseeing new investment, which includes moves in China to support companies developing therapeutic proteins.

“Although increased competition impacted our nutritional capsules business, we have started to implement commercial countermeasures with the first impact in Q4 2019, and carry-on expected in 2020. Our Nutritional Ingredients business experienced soft sales in 2019. However, our UC-II manufacturing expansion in Greenwood, US, is on track to start operations in H1 2020,” Albert Baehny, Chairman and CEO ad interim of Lonza Group, tells NutritionInsight. 

Baehny also describes 2019 as a “year of change” as the company accelerated the portfolio review and made strides with the carve-out of LSI. The segment, which provides microbial-control offerings across various consumer and industrial markets as well as composites and fine chemicals, experienced headwinds during 2019. Sales declined 3 percent, resulting in CHF 1.7 billion (US$1.8 billion) revenues for the segment. Completion of the carve-out is currently expected in mid-2020.

Overall, Lonza reports nearly 7 percent sales growth with CHF 5.9 billion (US$6.1 billion) in sales. Meanwhile, LPBN saw sales growth of 11 percent and delivered CHF 4.2 billion (US$4.3 billion) sales in 2019, while investing in strategic growth projects – a number of which are expected to commence operations from the end of 2020.

The newly expanded LPBN segment also now includes the nutritional hard capsules business (acquired with Capsugel), as well as a small portfolio of nutritional ingredients and formulation services. However, the slump for nutritional hard capsules was exacerbated by softer demand for conventional gelatin hard capsules and slower growth than anticipated in specialty polymer empty capsules, particularly in mature markets.

The slump for nutritional hard capsules was exacerbated by softer demand for conventional gelatin hard capsules.Expanding investment potential
Baehny further explains that Lonza is investing in growth opportunities in its core businesses in LPBN. These include capacity expansions and new technologies supporting the full lifecycle of molecules.

“We continue to bring announced capital expenditures expansions for biologics online in 2020. These include a new biopark in Visp, Switzerland, to house Ibex Solutions – a flexible manufacturing offer with capabilities for microbial and mammalian manufacturing across the full lifecycle of a medicine. We are also investing in China with a new facility to support companies developing therapeutic proteins – from preclinical to launch phases. Our focus continues to be on supporting new modalities such as cell and gene therapy and live-biotherapeutic products (LPB),” further notes Baehny.

Planned projects are largely expected to contribute to continued growth in Pharma Biotech & Nutrition beyond the Mid-Term Guidance 2022, as facilities are ramped up over several years before full utilization and profitability levels are achieved. The revenue contribution in 2020 of the investments coming on line in Q4 2020 is likely to be modest. New projects are expected to reach peak sales on average five years after the start of operations, although there is a wide range of variation, depending on the technology.

The year 2019 also saw Lonza enter into a 50/50 joint venture with Chr. Hansen, dubbed BacThera. As BacThera is reported as a separate company, it is not included within the results. However, Baehny notes that the company will be operational in 2020, offering both drug substance and drug product for early-phase therapies. “As this is a nascent field, we will invest in a further round as the pipeline matures towards commercial products,” he states. 

By Katherine Durrell