Last year, Lonza added around 1,000 employees, leading it to make “a significant investment” in on-boarding and training programs to support the new hires. In disclosing its financial results, Lonza revealed it plans to take on an additional 600 staff at its pharma, biotech and nutrition business this year.
Lonza’s hiring plans are part of a broader increase in spending. From 2011 to 2018, Lonza’s capital expenditure averaged 8% of sales.
The figure shot up to above 13% in 2019 and is expected to remain elevated this year. Lonza expects spending to normalize at around 10% of sales from 2021 onward.
At 13.3% of sales, capital expenditure last year was marginally above the top end of the 11-13% forecast range given by Lonza. Albert Baehny, CEO of Lonza, attributed the marginal overshoot partly to the complexity of the investments Lonza made in 2019.
Talking to investors on Lonza’s 2019 results conference call, Baehny said, “In mammalian, in microbial, in antibody conjugates, in cell and gene therapy, those are very, very complex projects and if we start with [CHF100m (€93.5m)] and we end up with [CHF110m], what the hell. We have to make these investments.”
Lonza also pointed to the rapid increase in its spending to explain the slight overshoot. In the recent past, annual capital expenditure at Lonza was CHF300m. Now, Lonza is spending close to CHF800m.
Baehny said, “This is stretching massively the organization.”
Lonza’s willingness to stretch itself is a reflection of the opportunities and threats facing its business. Some of Lonza’s major investments have focused on China, biologics manufacturing and mammalian cell culture, areas that look poised for growth given the composition of the global drug pipeline.
However, Lonza is far from the only contract development and manufacturing organization (CDMO) to spot and respond to those opportunities. Established and emerging rivals alike are investing in capacity.
Despite the competition, Baehny thinks Lonza is in a strong position, pointing to the head start it has over WuXi Biologics to make his case.
Baehny said, “On mammalian fermentation, we have a capacity of more than 200,000 liters more. WuXi has 50,000 liters. Before they reach 200,000 liters, we will have maybe [400,000] liters. In other words, it will be very difficult or extremely expensive, for example, for a WuXi to have access to our capacities. This is not cheap business. This is hundreds of millions.”