Financial Data and Key Metrics Changes - The company reported a softer Q1 group performance, with expectations for H1 to normalize and align with the full year trajectory, confirming a flat CER sales growth compared to the prior year and a CORE EBITDA margin in the high 20s, between 27% to 29% [5][14] Business Line Data and Key Metrics Changes - The Biologics division experienced good momentum despite a slower start in Q1, impacted by high delivery in Q4 of the prior year and campaign shifts [7] - The Drug Product Services business continued to grow but at a slower pace compared to previous years, with a key milestone reached in Q1 for the first commercial fill and finish program [8] - The Microbial business developed strongly, supported by new assets and solid demand [9] - The Small Molecules division saw strong commercial demand but was affected by biotech funding challenges, with expectations for a stronger H2 [10] - The Cell & Gene division delivered improvements in commercial and operational performance, with strong sales and customer interest [11] - The Capsules & Health Ingredients division faced softer sales and margin performance, particularly in the U.S. due to post-pandemic destocking [12] Market Data and Key Metrics Changes - The funding environment for biotech improved significantly, with around USD 23 billion in funding in Q1 2024, although customers remain cautious about spending [60] Company Strategy and Development Direction - The company is focused on growing its commercial offering while managing costs and driving operational excellence, with ongoing progress in growth projects such as the large-scale commercial drug product facility in Switzerland [6][14] - The integration of Synaffix into the licensing business is proceeding smoothly, with positive market feedback on the expanded offering [9] Management Comments on Operating Environment and Future Outlook - Management noted that the softness in Q1 was due to phasing of commercial batches and weaker demand in early discovery activities, but emphasized the strength in other business units [25][69] - The company remains cautious about the market recovery in the Capsules & Health Ingredients division and has made price concessions to maintain business with key customers [32] - Management expressed confidence in the visibility of contract deliveries, supporting the outlook for H1 and H2 [53] Other Important Information - The company is progressing with a share buyback program of up to CHF 2 billion, having repurchased CHF 1.3 billion of shares as of March 31 [13] - The appointment of Wolfgang Wienand as the new CEO was confirmed, set to commence in the summer [13] Q&A Session Summary Question: Phasing and growth trends - Management explained that Q1 softness was due to the phasing of commercial CDMO batches and a weaker start in Bioscience, with expectations for improvement in Q2 and H2 [19] Question: Market developments and fill and finish expansion - Management refrained from speculating on the acquisition of Catalent but acknowledged potential pressure on fill and finish capacity [27] Question: Vacaville acquisition status - The transaction is expected to close in the second half of 2024, with no contribution from Vacaville included in the 2024 guidance [30] Question: Capsules & Health Ingredients recovery - Management noted weakness in demand in pharma and cautious expectations for market recovery during 2024 [32] Question: Core definitions impact on segment EBITDA - Management indicated that the reporting change would not distort figures going forward, providing a new base for divisional EBITDA [34] Question: Small molecules campaign impact - Management stated that the impact of campaign timing would be marginal but positive in H2, with new HP API plant ramping up in Q4 [38] Question: Cell & Gene demand drivers - Demand is driven by both strong market interest and the number of programs progressing into later stages [40] Question: BIOSECURE Act impact - Management expressed uncertainty regarding the BIOSECURE Act's implementation and its potential impact on business [44][49] Question: Capacity normalization in the industry - Management did not observe a trend of capacity elimination in the industry, stating that closures were due to inefficiencies in specific plants [57] Question: Biotech funding recovery pace - Management noted that while funding has improved, there is a 6 to 9-month delay before any impact on revenues is expected [60] Question: Biologics EBITDA margin guidance - Management maintained that the Vacaville acquisition would be neutral to the overall margin guidance for 2028 [62] Question: New business contracts and backlog - Management reported signing CHF 10 billion in biologics and CHF 1 billion in small molecules contracts last year, with ongoing contracting but no specific backlog metrics shared [66]
Lonza(LZAGY) - 2024 Q1 - Earnings Call Transcript