Lonza: Investors Spooked as CEO Steps Down; Shares Undervalued for Long-Term Investors

Lonza LONN has announced that its CEO, Pierre-Alain Ruffieux, will leave the company at the end of September by mutual agreement. Chairman Albert Baehny will take over as CEO on an interim basis until a permanent successor is appointed. Baehny has served as the Chairman of Lonza since 2018. Investors were spooked by this news and sent the stock down nearly 15%. The stock is currently trading at a 32% discount to our fair value estimate of CHF 620 per share, representing an attractive entry point for long-term investors with a high degree of risk tolerance.

We maintain our narrow economic moat rating, and we continue to believe the long-term outlook looks positive as drug manufacturing becomes more complex with biologics and cell and gene therapies playing larger roles in the overall mix. We forecast that 2023 revenue will reach nearly CHF 6.7 billion, representing about 7% growth over 2022, and we expect the continued reduction of COVID-19-related sales. Lonza said its medium-term strategy and outlook would be discussed in detail at its upcoming capital markets day on Oct. 17.

Lonza’s narrow moat rating is supported by the company’s sticky and long-lasting customer relationships. Drug companies tend to stay with trusted suppliers with good track records of regulatory compliance to avoid manufacturing delays. Lonza maintains an extensive network of partnerships with pharmaceutical and biotechnology firms, which leverage the company’s expertise and scale to benefit from access to flexible capacity and manufacturing improvements.

We appreciate that Lonza is investing in capabilities to produce novel cell and gene therapeutics in addition to biologics, which should help drive long-term growth. The company recently entered a strategic collaboration with narrow-moat Vertex Pharmaceuticals to manufacture Vertex’s type 1 diabetes cell therapies, which are progressing in clinical development.