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The Secret To Lonza's Massive FY2025 Growth · Investor Exchange

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  Time for another Investor Exchange podcast. Here are your hosts, Matt and Sally.
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  Welcome back to the Deep Dive. Today, we are zooming way in on just one company.
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  And it's a company most people probably haven't heard of, but have definitely used.
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  Exactly. If you've taken prescription medication recently, chances are Lonzo was involved.
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  We're looking at their full year 2025 results. It's good to be here.
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  And you're right, Right. They're sort of the invisible backbone of the whole pharma industry.
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  I always think of them as the intel inside for medicine. That's a great analogy.
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  Or another one is the master chef. You know, a biotech company comes up with
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  the recipe for a drug, but Lanz is the one in the massive kitchen actually cooking it.
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  They're a, what's the term, a CDMO.
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  A contract development and manufacturing organization. Yep.
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  And our mission today is pretty specific. We're looking at this strictly from
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  an investor's perspective.
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  We've got the annual report, the presentations, all released on January 28th.
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  So the goal is to figure out, is this company healthy?
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  Where's the growth coming from? Is it sustainable? Exactly.
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  Did they actually deliver on all the hype from last year? And there was a lot of hype.
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  2025 was supposed to be a huge year for them. You had this massive new factory
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  in Vacaville, California coming online.
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  A big internal shakeup called One Lanza. And the market was just expecting massive
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  numbers. So let's get right to it. Did they deliver?
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  Oh, they delivered. The short answer is yes. But the how is way more interesting than the yes.
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  OK, let's unpack this. I'm going to start with the big one, the top line.
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  Revenue. What do they do in 2025? They clocked in sales of CHF 6.5 billion.
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  Six and a half billion Swiss francs.
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  Now, for a company this big, you'd maybe expect, what, mid-single-digit growth? You would.
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  But that's where this gets really impressive. We're looking at 21.7% sales growth
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  at CER. Okay, stop right there. CER.
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  You see that acronym everywhere in their report? Constant exchange rates.
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  Why is that so important for a Swiss company? It's all about the currency.
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  Lanza is global, so a lot of their business is in U.S. dollars.
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  But in 2025, the dollar actually weakened quite a bit.
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  So when they bring those dollars home and convert them back to strong Swiss
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  francs, looks like they made less money. Exactly.
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  So CER, it strips out that currency noise. It tells you if exchange rates hadn't
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  moved at all, how much did the actual business grow? So it's the raw horsepower of the engine.
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  Perfect analogy. The reported growth was 19.2%, which is still fantastic.
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  But that 21.7% CER figure, that's what investors really care about.
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  It shows massive operational demand.
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  20% growth for a company this size is wild.
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  But, you know, growth is vanity, profit is sanity. Did the profitability keep
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  up? It did more than keep up. It actually accelerated.
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  Their core EBITDA hit CHF 2.1 billion.
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  And what does that mean for the margin? The margin came in at 31.6%.
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  That's a jump of 1.4 percentage points over the year before.
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  Now, that's interesting.
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  Because usually when you grow that fast, margins take a hit,
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  right? You have growing pains, you're hiring like crazy. You do.
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  But they got bigger and more efficient at the same time. And these numbers,
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  you know, they didn't just meet expectations. they beat the upgraded outlook
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  they set for themselves during the year.
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  Okay, so the machine is running hot, but why?
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  What drove this? Was it all just one thing? Well, you have to start with the
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  elephant in the room or the giant factory in the room, Vacaville.
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  Right. The site in California they bought from Roche. Correct.
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  And 2025 was the year they finished integrating it.
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  Now, normally, these big acquisitions are messy. They can be a drag on earnings
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  for a year or two. It's a dreaded integration risk. Exactly.
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  But the report says Vacaville contributed higher than expected revenue. Higher.
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  Yes, that's rare. It is. It just shows their strategy worked.
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  They didn't want to wait years to build a new factory.
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  They bought an existing one so they could fill it with customers right away.
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  They signed a fifth major contract for that site just in 2025.
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  That's a key insight. They're selling speed.
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  They're selling immediate capacity in a market that is starving for it.
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  But it wasn't just Vacaville.
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  You also saw huge performance from their core technologies. Like what?
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  Specifically, mammalian and bioconjugates. Bioconjugates. Mammalian.
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  That's using like animal cells to brew these complex biologic drugs,
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  right? Essentially, yes. It's the gold standard.
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  Bioconjugates think of those as guided missiles for cancer, an antibody that
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  carries a toxic payload directly to a tumor.
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  Which is one of the hottest areas in biotech right now. It is.
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  And they're incredibly complex to make.
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  You need expertise in both biology and highly toxic chemistry.
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  Very few companies can do it. So they have the right factories and the right tech.
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  But what about that one Lonza thing, the internal restructuring?
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  Was that just shuffling boxes on an org chart?
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  It seems like it was more than that. They simplified the whole business into
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  three platforms. Integrated biologics, advanced synthesis, and...
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  Specialized modalities.
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  And the report actually credits this new model with improving operational performance.
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  It helped drive that margin expansion we were talking about.
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  This wasn't just corporate speak.
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  It seems to have had a real impact on efficiency. Okay, so the bull case is strong.
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  Revenue, margins, acquisitions, strategy.
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  It's all pointing up. But what didn't go perfectly, there have to be some cracks.
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  There were a couple of, let's call them softer areas. The report mentions the cell and gene division.
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  Cell and gene therapy. I thought that was the future of medicine.
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  It is, but the business side is really volatile.
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  Many of their customers are small biotechs that live on venture capital funding.
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  And when VC funding gets tight, they pull back. Exactly.
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  They delay trials. They push out manufacturing runs.
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  So Lonza's performance there is tied to the broader financial markets.
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  So they're not totally immune. No.
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  They also mentioned some phasing issues in their microbial division.
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  Phasing. Another one of those corporate words. What does that mean? It's just about timing.
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  A big customer order might have slipped from December into January.
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  So the money's still coming. It just falls in a different quarter.
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  It's not a fundamental problem. Okay, manageable.
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  But there's a much bigger change here. This whole section on discontinued operations
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  about something called CHI. Yes.
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  This is a huge strategic pivot.
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  CHI is capsules and health ingredients. So, the actual pill capsules. Exactly.
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  For decades, they were famous for making the empty shells for pills and vitamins,
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  and now they're selling that whole business. Why? Why?
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  Is it a bad business? Not at all. In fact, the report shows CHI grew almost
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  4% last year and had a great margin of nearly 26%. So why sell a growing,
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  profitable business that feels counterintuitive? Because it's a different story.
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  Lonzo wants to be a pure-play, high-tech partner for pharma.
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  Making jillions of anti-gelatin capsules is a commodity business.
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  It's not the same as making a complex cancer drug. Not at all.
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  By selling CHI, they're sending a message to investors.
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  We are a high-tech biotech engine, not a general manufacturer.
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  It's about focus. Okay, so a leaner, more focused Lonza. Now let's talk about the cash.
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  With all this profit, what are they doing with it?
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  Spending it or hoarding it? Oh, they are spending heavily. CapEx,
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  that's capital expenditures, was CHF $1.3 billion in 2025.
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  $1.3 billion. How big is that relative to their sales? It's about 19.6% of their sales.
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  It's a massive reinvestment rate. And it's going into? Steel,
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  glass, and bioreactors.
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  The report mentions 23 large growth projects currently underway.
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  They're billing out capacity for the future. That's a confident bet.
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  But investors want something now, too. Did they get anything? They got a stake.
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  The board is proposing a dividend of five Swiss francs per share.
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  And compared to last year? That's a 25% increase. Wow.
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  Okay, a 25% hike sends a very loud signal about their confidence.
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  It does. And there's a little bonus in there for investors who track Swiss stocks.
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  Half of that dividend is paid from something called the Capital Contribution Reserve.
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  Which means? It means it's exempt from Swiss withholding tax.
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  So for many of their investors, it's a tax-free pay raise.
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  OK, so 2025 is a great year, but we're in 2026 now. The market only cares about tomorrow.
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  What are they guiding for this year? Another 21% growth.
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  They're being a bit more prudent, which makes sense. For 2026,
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  they're forecasting sales growth of 11 to 12% at CER.
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  Which is still incredibly strong double-digit growth. It is.
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  And crucially, they expect the margins to keep expanding to above 32%.
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  So the efficiency gains are set to continue.
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  I did see a note in there about timing, though. Yes, this is important.
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  They said growth will be stronger in the first half of 2026 than the second half. Why is that?
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  It's mainly because the back half of 2025 was so massive, the year-over-year
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  comparison just gets tougher later in the year.
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  So it's part of the plan. What about those headwinds we mentioned?
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  The U.S. dollar? Yep, that's still a factor. They're forecasting an FX headwind
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  of about negative 2% on sales and earnings this year.
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  So they're starting 2% in the hole before they even turn the lights on. Pretty much.
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  And then there's geopolitics, trade wars, tariffs. Right.
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  Are they worried about that? They say they expect no material financial impact
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  from current U.S. trade policies. That sounds optimistic.
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  It might, but you have to remember Vacaville, they now have a massive manufacturing
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  base inside the United States.
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  Ah, so they can make products in the U.S. for the U.S. market.
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  It's a natural hedge against tariffs.
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  Exactly. The acquisition wasn't just about capacity. It was also geopolitical insurance.
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  So what's the long-term story here? Beyond 2026.
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  They talk about their CDMO organic growth model. They're targeting low teens
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  sales growth on average over time.
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  So 12, 13, 14% a year. Right. The math is simple.
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  The whole pharma market grows about 6 or 7%. They plan to beat that by taking
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  market share as more companies outsource and by leading in those high growth
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  areas like bioconjugates.
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  The pie is getting bigger, and they plan to take a bigger slice every year.
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  That is the bet. Okay, so let's summarize.
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  You've got a company with massive growth, a successful acquisition,
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  a smarter structure, and a clear focus on high tech, plus a 25% dividend hike.
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  It's a case study in execution.
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  They laid out a plan, and the 2025 numbers show they are hitting every target.
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  It sounds almost too good to be true. I want to leave our listener with a final
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  thought on that strategy, though. Go on. By selling the council business, they're going all in.
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  They're betting everything on being this high-tech CDMO.
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  That's the core tension, isn't it? In a world of supply chain anxiety,
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  is putting all your eggs in that high-tech manufacturing basket a genius move?
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  Or does it just make you more vulnerable to those biotech funding cycles we
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  saw in the cell and gene business? Exactly.
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  But for now, based on these 2025 results, that engine is absolutely roaring. It certainly is.
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  And that's it for this deep dive into Lonza's 2025 results, a fascinating look
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  at the machinery behind the medicine.
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  Thanks for listening, and we'll catch you on the next one. And remember,
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  this content is intended to serve strictly and only as an informational,
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  independent, objective summary of recent events and should in no way be interpreted,
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  construed or relied upon by any party as inside information or financial advice.