Being a Leading Integrated Service Provider

All of our initiatives are focused on further strengthening and broadening our Healthcare Continuum® for integrated solutions across technologies and along the entire pharma and consumer health value chain to leverage synergies in technologies and know-how and provide customers a «one-stop-shop» offering.

Hand holding a pill in the sunlight (mood picture)

Accordingly, the integration of Capsugel has further strengthened the depth and breadth of Lonza’s integrated solutions. We now provide parallel offerings from a value-chain perspective for prescriptive and curative patient healthcare and for consumer preventive healthcare. Bringing together Lonza’s drug substance services in small molecules with a regulatory track record of developing and manufacturing highly potent active ingredients and Capsugel’s world-leading position in advanced oral dosage delivery technologies and hard capsule manufacturing, we now have a complete small-molecule-to-patient offering along an integrated value chain in Pharma & Biotech.

« We look back at a successful first year after acquiring Capsugel and see that integration is progressing better than planned, operational and commercial synergies are starting to materialize and our Healthcare Continuum® offerings are becoming even stronger. »

Richard Ridinger, CEO of Lonza

The same synergistic dynamic applies to Consumer Health, where tailored dosage forms can optimize the value of nutritional, dietary and other health supplements and ingredients manufactured by Lonza. We are also leveraging synergies between pharma and consumer health by bringing pharma technologies into the consumer markets. Lonza is uniquely positioned to benefit from new growth opportunities in both markets due to these synergistic offerings. Our aim is to get closer to the patient and consumer and to fully serve their needs by helping our clients get to market faster with a reliable and agile partner – one who is dedicated to highest quality, constant innovation, technological advances, and has a strong regulatory track-record and scientific expertise.

Lonza’s Integrated Offerings In Pharma & Biotech and Consumer Health
Lonza’s Integrated Offerings In Pharma & Biotech and Consumer Health (graphic)

Integrating Capsugel Successfully

Having completed the first full year as a combined company, we now have a strong organization; and we are positive about our joint forces and synergistic potential.

« The successful integration was made possible by our strong shared values and cultural fit. The determination and commitment of both Lonza and Capsugel teams have created a high-performing working environment. »

Fridtjof Helemann, CHRO of Lonza

Operations and functions are fully integrated, both company’s cultures are closely aligned and the new teams are dedicated to becoming one integrated service provider to deliver the most value for our customers. Throughout 2018 «Delivering Together» has been our theme, supported by all managerial levels and put into action by our people. We are finding that the cultural fit we anticipated – such as our joint commitment to constant innovation, strong customer focus, nurturing high-performance teams and championing entrepreneurial projects – is coming to fruition. With proven scientific expertise and innovation in engineering, Capsugel is also a real powerhouse in research & development and adds to Lonza’s innovation activities.

« As expected we are benefiting from operational and supply chain synergies and cost savings, as well as from growing commercial opportunities. New, combined offerings complement our value proposition along the Healthcare Continuum®. »

Rodolfo Savitzky, CFO of Lonza

Commercial synergies are coming through in all of the businesses where the former Capsugel has been integrated. Capsugel adds to Lonza’s offerings from molecule to patient in Pharma & Biotech and from ingredient-to-consumer in Consumer Health. We are leveraging formulation technologies and delivery systems throughout all these businesses. For example, we are seeing strong customer interest among consumer health and nutrition for clean label, animal-free capsules. This interest in high quality capsules is echoed on the Pharma & Biotech side along with demand for specialty polymer capsules for enhanced bio-availability. The Capsugel integration is fulfilling its strategic promise to help make Lonza the most comprehensive supplier of integrated solutions along the Healthcare Continuum®.

Expected Synergies with Capsugel Integration
Expected Synergies with Capsugel Integration (graphic)

Examples

Capsugel-Enabled Solutions in Consumer Health

Lonza’s consumer health and nutrition business is proving to be a marketplace leader in the realm of nutraceuticals and other innovative nutritional ingredients and functional foods. Our two leading actives – UC-II® undenatured type ll collagen ingredient for joint health and our Carnipure® L-Carnitine ingredient for sports nutrition – are experiencing high demand. And both of these market-leading products are benefiting from tailored capsule delivery technologies brought to us by the former Capsugel businesses.

Utilizing the synergies of our combined offering, we introduced the pairing of our Carnipure® ingredient – proven to be beneficial for sports recovery and helping to reduce tissue damage and muscle soreness – with Capsugel® Licaps® cutting-edge liquid-filled capsules.

Also more than 30 new dietary supplement product concepts were launched, combining Lonza’s specialty ingredients with Capsugel’s innovative dosage forms. Plantcaps® capsules are a vegetarian capsule, for instance, made from pullulan, which is naturally fermented from tapioca. Underscoring the value of our approved ingredients and regulatory expertise, these capsules may be used with organic ingredients so that the finished product can be labeled in the United States as «made with all-organic ingredients». We also are drawing on Capsugel technologies to optimize the use of our industry-leading UC-II® ingredient, a patented, clinically proven undenatured type II collagen. For example, customers have the option to combine our ingredient with further joint-health ingredients, such as krill oil and fish oil, and to package them in our DUOCAP® «capsule-in-capsule» patented technology. This technology allows for incompatible ingredients to be combined into a single capsule. Customers can also encapsulate the UC-II® product with curcumin to provide yet another proposition to support joint health and mobility.

To satisfy customer demand for our existing and future products and to simplify the supply chain, in September 2018 we broke ground to expand production capacity at the former Capsugel Greenwood, SC (USA) site. The expansion will combine capsule production, ingredient production and finished dosage form development. This investment highlights the value of the Capsugel acquisition and its successful integration in propelling Lonza’s growth strategy.

Tailored Solutions and Cross-Selling in Pharma & Biotech

We are experiencing high interest from our customers and are already working on small-molecule offerings from active pharmaceutical ingredient (API) manufacturing to formulation and encapsulation. Clinical trial and regulatory approval processes in the pharma area have to be taken into consideration when comparing timelines for launching combined products with the consumer health area.

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In 2018 synergies have been noted from cross-selling and better commercial terms. The pharma hard capsules and dosage form and delivery systems performed above expectations due to buoyant demand and capturing of these cross-selling synergies. In addition, new pharma hard capsule products have been launched and are further supporting the ongoing momentum.

Realizing Synergies in Pharma & Biotech’s Small-Molecule Businesses in 2018
Realizing Synergies in Pharma & Biotech’s Small-Molecule Businesses in 2018 (pie chart)

For example, one of the newest vegan-family capsules Lonza offers is our Capsugel® Vcaps® Gen C, a product based on a carrageenan gelling-agent formulation. It meets the demand of pharmaceutical manufacturers for a fast-dissolving, non-animal capsule that is robust and offers high-performance machinability.

A common issue drug product developers face is that the color composition choice for the commercial drug product is often made after initial stability studies. If new colors are introduced, it may require additional studies, which can result in costly delays. To address this issue, we are drawing upon Colorista capsules from the Capsugel® Color Lab. This fast and flexible technology enables customers to cut down on development time while giving them the choice to progress with technical development before making the final commercial color decision.

Leveraging Significant Overlaps Among Lonza’s Businesses

Lonza’s quest to be the leading integrated service provider for the pharma and consumer health markets not only applies to the Capsugel integration but also to the leveraging of overlaps and synergies across our businesses. Lonza’s growth trajectory is based on a global asset strategy and on leveraging of assets, as well as technological and know-how overlaps along the Healthcare Continuum®.

One area to point out is the attractiveness of applying pharma technologies to the consumer health markets. We will continue to capitalize on the growth momentum in Consumer Health with our pharma-related offerings by further strengthening the synergies between the pillars – in addition to taking advantage of the synergies between Lonza and Capsugel.

At the same time, Consumer & Resources Protection is continuing to strengthen its innovative offerings and make use of Group-wide regulatory expertise and chemical know-how to address an evolving regulatory landscape. For example, feeding into an increasing global market demand for biocide formulations free of methylisothiazolinone (MIT)-free, the Consumer & Resources Protection business announced the launch of a new MIT-free preservative in 2018.

Leveraging Significant Overlaps Among Lonza’s Strategic Businesses
Leveraging Significant Overlaps Among Lonza’s Strategic Pillars (graphic)

Our focus is on growth investments along the Healthcare Continuum®. In 2019 we expect to see stronger capital expenditures (CAPEX) investments into biologics to allow us to participate fully in the anticipated market growth toward and beyond our Mid-Term Guidance 2022. Consumer Health and Consumer & Resources Protection are less CAPEX-intensive but we will continue to invest in innovation and technological advances including potential bolt on acquisitions.

It is Lonza’s objective to make our market-oriented pillars more independent, but we are at the start of the journey so we are continuing to thoroughly review the portfolio on an ongoing basis.

Within the Consumer & Resources Protection division of our Specialty Ingredients segment, we are focusing on high-value specialty product and service offerings in coatings and composites and agricultural markets while reviewing more mature, basic chemical parts of the portfolio.

Part of this review is the discontinuation of certain commodity products or the re-purposing of Specialty Ingredients assets within the Healthcare Continuum®. We have already started in 2018 with the re-purposing of some assets in our Visp (CH) site that were formerly used for basic offerings in our agricultural business. They are now used to produce intermediates for our pharma business.

Also in 2018 we have discontinued the fertilizer business, part of Consumer & Resources Protection. On 1 November 2018, we also announced the divestment of the Water Care business unit to Platinum Equity.

More information on our businesses and 2018 initiatives is available in the segment reporting: