Lonza closes plant in China but CDMO's sales signal an uptick in industry

Days after Lonza confirmed its plan to close a manufacturing facility in Hayward, California, the CDMO powerhouse said that it was shuttering another plant in Guangzhou, China.  

The biologics production site, which had just opened in 2021 and employs 400, handles drug substances along with clinical and commercial manufacturing. Closures of both plants will be phased, starting this quarter and ending in the first quarter of next year, the company said.

It wasn’t all bad news from Lonza, however, as it reported quarterly earnings that exceeded expectations, allowing it to maintain its guidance through 2028.

The Swiss company also revealed that chairman Albert Baehny will step down in May, with Jean-Marc Huet proposed as his replacement. Huet currently serves as chairman of Dutch brewer Heineken. Baehny, who also serves as Lonza’s interim CEO after Pierre-Alain Ruffieux’s departure three months ago, will continue in the role until a new chief is brought on.

With the updates Lonza’s shares jumped 14%, the largest one-day surge ever for the company, according to Bloomberg. The boost came after the company’s shares slid by 23% in 2023.

Lonza’s about-face comes one day after CDMO Samsung Biologics of Korea reported sales growth of 23% over the last year. The turnarounds are a good sign for the contract manufacturing industry, which struggled to match the boom in revenue that came with the COVID pandemic.

As for Lonza, its sales for last year came in at 6.7 billion Swiss francs ($7.7 billion), which was up 11% from last year at a constant exchange rate.

“We saw a softer sales and margin performance in cell and gene and capsules and health ingredients,” Baehny said during a conference call. “However, there was strong performance in both sales and margin from our biologics and small molecules divisions. Collectively, these two divisions were responsible for more than 70% of our revenues and both delivered a margin of more than 30%.”

As for Lonza’s search for a new CEO, Baehny said that the board has identified eight candidates with interviews ongoing. The company expects to identify its new CEO by the end of this quarter or early in Q2.

Regarding the closures of the plants in California and China, Baehny said it will help the company “reduce fixed costs across the network without impacting mid-term growth.” He added that the closures will trigger asset impairments of roughly 200 million Swiss francs ($232 million).

The Guangzhou site is a 17,000-square-meter (183,000-square-foot), off-the-shelf facility, which was outfitted quickly after its purchase from GE Healthcare in 2018. Lonza’s move into Guangzhou came shortly after China loosened drug regulations to meet the demand for critical medicines.

In addition, the company has a 550,000-square-foot factory an hour away in Nansha, which makes small-molecule APIs and employs more than 700. Lonza also maintains a 268,000-square-foot facility in Suzhou, China, which provides drug capsules and microbial control solutions, with a headcount of 400.