Lonza on track with 2019 goals: Pharma Biotech segment delivers double-digit growth

24 Jul 2019 --- Swiss chemicals and biotechnology company Lonza has reported a “continued positive momentum” for its core healthcare businesses for the first half of 2019. The company says that it is “on track” with its goals and that the half-year results translate into a 6.4 percent sales and 7.7 percent CORE EBITDA growth. This has resulted in a CORE EBITDA margin of 27.8 percent. The half-year performance was driven by Lonza’s Pharma Biotech & Nutrition (LPBN) segment achieving 10.8 percent sales growth and a 33.2 percent CORE EBITDA margin in an important investment year, the company notes.

Via these results, “we have confirmed our outlook for 2019, which was first communicated with the Full-Year 2018 results in January of this year. We also confirmed mid-to-high single-digit sales growth and a sustained high CORE EBITDA margin,” Constance Ward, Lonza spokesperson, tells NutritionInsight.

“We base this outlook for the year on the strong performance of our Pharma Biotech CDMO businesses while taking into account the softer results for Nutrition and the headwinds in Lonza’s Specialty Ingredients (LSI). We expect high single-digit sales growth in LPBN for the full year and for the start of a sales recovery in the LSI segment in the second half of 2019,” adds Ward.

In brief, the six-month performance results showed: 

• Double-digit sales growth delivered by the LPBN segment.
• Half-year headwinds in the LSI segment, showing first signs of recovery.
• New LPBN projects confirmed with Alector, AstraZeneca, Gamida Cell and several other biopharmaceutical partners globally.
• Cell and Gene Technologies have a strong inflow of new clinical and commercial contracts.
• Softer performance of Consumer Health & Nutrition business.
• LSI carve-out progressing on time and on budget.

 “The results leave us confident that Lonza is on track to deliver on our Full-Year 2019 outlook. The strong momentum in our Contract Development and Manufacturing Organization (CDMO) businesses continues to drive our financial performance,” says Lonza Group CEO Marc Funk.

He also notes that challenges in other parts of the business are being addressed and that they are already working to deliver a recovery in the performance of the Specialty Ingredients segment. The company’s focus is supported by the carve-out program, which has already provided some improved transparency on cost and profitability, Funk continues.

 “Our segment realignment earlier in the year has given Specialty Ingredients greater autonomy to push towards a leadership position in microbial control. Concurrently, LPBN maintains positive momentum as a major player in Life Sciences. Our targeted, high-return growth projects are progressing as planned and the strength of our current market position is validated by the number of confirmed strategic contracts,” he adds.

 Lonza’s Pharma Biotech & Nutrition (LPBN) segment achieving 10.8 percent sales growth and a 33.2 percent CORE EBITDA margin in an important investment year.The LSI segment, however, reported a 3.8 percent decline in sales in H1 2019. Despite this, the CORE EBITDA margin increased by 20bps to 19 percent, despite headwinds caused by raw material price increases, supply chain challenges and negative cyclical impacts, according to the company.

All figures relate to Lonza’s continuing operations (excluding the Water Care business unit) in reported currency and are compared with the same period in 2018 on a like-for-like basis (restated Lonza Half-Year 2018 financial results). This is to reflect the adoption of the International Financial Reporting Standards (IFRS) 15 on revenue from contracts with customers and realignment of segments). The positive development of CORE EBITDA was also supported by the IFRS 16 accounting adjustment on leases, resulting in 40bps incremental margin for Lonza Group.

Pharma Biotech & Nutrition Segment
Lonza Pharma Biotech & Nutrition achieved double-digit sales growth. The newly formed segment, now including the Consumer Health & Nutrition business (formerly part of Specialty Ingredients), delivered CHF 2.1 billion (US$2.13 billion) sales in H1 2019 and a CORE EBITDA of CHF 693 million while investing in strategic growth projects.

CDMO Services Businesses
Mammalian and microbial clinical and commercial offerings performed strongly in H1 2019 with batch releases ahead of schedule for the year. Lonza saw continued high demand for its development activities across all technologies in Visp (CH), Slough (UK) and Hayward (CA, USA) with further visibility into 2021, which is unusual for clinical programs. Lonza’s Drug Product Services (DPS) continue to expand ahead of plan, responding to positive demand from customers. To complement its existing development services with sterile fill and finish of drug product for commercial launch, Lonza entered into a binding commitment to acquire a Novartis facility for drug product manufacturing in the Basel (CH) area.

Consumer Health & Nutrition
Consumer Health & Nutrition performed below expectations against a strong year-on-year comparable base. Ingredient sales were marginally softer, driven by customer inventory pre-build in 2018 and subsequent Lonza supply challenges. Additional capacity is coming on stream within the existing footprint in 2019, with significant expansion starting mid-2020 from its Greenwood (SC, US) facility. Nonetheless, Lonza's premium science-backed UC-II ingredient for joint health successfully entered new markets, regions and applications, and Carnipure L-Carnitine ingredient for sports nutrition performed strongly.

 Specialty Ingredients Segment
The newly aligned Specialty Ingredients (LSI) segment provides microbial-control offerings across various consumer and industrial markets as well as composites and fine chemicals. As noted in the Q1 Qualitative Update, it continued to face headwinds, in line with the broader sector.

 Sales amounted to CHF 859 million in H1 2019, a 3.8 percent decline compared to a strong H1 2018. CORE EBITDA reached CHF 163 million, resulting in a robust 19 percent CORE EBITDA margin by industry comparison – a 20bps increase compared to the same period last year. Profit margins were maintained as raw material price increases were partly passed on to customers and LSI overhead cost control measures have started to gain traction.

 Lonza announced in June its decision to carve-out the Specialty Ingredients segment. LSI is intended to be fully carved-out and operated independently as part of the Lonza Group. The company expects to complete the process by mid-year 2020. LSI will have the autonomy to push towards a leadership position in microbial control and LPBN will continue to maintain momentum as a major player in Life Science. 

By Kristiana Lalou