Lonza Group AG: Initiation of Research Coverage

Thursday, February 11, 2021

William Blair & Company initiated research coverage of Lonza Group AG (LONN-SWX CHF 587.80). Lonza is the largest global contract development and manufacturing organization (CDMO), with particularly strong market share positions in biologics drug substance, small molecule high potency active pharmaceutical ingredients, antibody drug conjugates, and cell therapy.

Analyst John Kreger estimated the company would generate adjusted earnings per share of CHF 13.00 in 2021 and CHF 15.08 in 2022, and that its organic revenue growth can be sustained in the low double digits.

“We believe Lonza stands out among peers,” Kreger said, “as having a stellar reputation, a unique offering to address the increasing complexity of drug production, and a large and growing number of clinical programs in its pipeline that should drive growth for years to come. Lonza’s strong positioning across the drug development and manufacturing spectrum, plus significant pipeline growth driven by a healthy macro environment, should allow it to grow revenues longer term in the low double digits and earnings at a low-teens pace.”

Kreger continued, “In terms of the broader CDMO market environment, we estimate the market is $50 billion today and growing in the midsingle digits, with top-tier CDMOs accumulating an increasing share of the outsourcing pie. Growth in large pharma R&D budgets, an increasing pipeline driven by small biotech companies, and recent success of new modalities should offer a healthy floor for CDMOs serving the biopharma space. Further, pharmaceutical manufacturers view CDMOs as key components in the pharmaceutical supply chain; large pharma companies have displayed an increasing propensity to work with high-quality CDMOs, and small biotech companies have limited infrastructure to manufacture drugs on their own. Thus, we believe the CDMO market is likely to outpace both R&D spending by biopharma manufacturers and end-market spending for prescription drugs for several years to come.”

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