"We need to be close to our customers, so as our pharmaceutical and nutraceutical customers move their manufacturing bases, we have to adjust to where they are for logistical and regulatory reasons."
How does Capsugel fit within Lonza’s broader corporate structure?
Our legacy Capsugel business (now called Capsules, Health and Ingredients (CHI)) is an integral part of Lonza's strategy. If you look at Lonza historically, we provide CDMO services to help pharmaceutical companies get their products to market. Our CDMO business helps customers develop the API, while Capsugel assists in the development of the right delivery solution.
At Lonza, we want to make sure that our CDMO is neutral, so we work with customers on whatever arrangement best suits them. Therefore, CHI works with multiple CDMOs and the CDMO of Lonza works with multiple delivery solutions. We are not a package deal in that respect. However, Lonza offers a combination of products and services that help our customer to launch their products to market successfully.
Can you point to a case that illustrates the services CHI provides?
We are finding that delivery dosage is a critical component of the overall API, and the delivery form you choose impacts the efficacy of either the drug or health supplement. For example, if you are taking a probiotic, the location and timing of release become very critical. We work with our customers to find the right polymers so that the ingredients do not prematurely release in the gut, where the probiotic would be killed. We develop them to release at the right location and in a particular timing profile.
One of the areas we are heavily focused on is multi-dosage ingredient delivery, where you may have two separate ingredients, and they are physically separated in the capsule because you want them to release at different times or in conjunction with one another.
What trends are driving Lonza’s investment in building out its manufacturing network?
In certain regions, such as the US, we have seen a trend towards supplementation. More people are focused on their health, whether it is losing weight, exercising more or mental health. That trend toward healthy living has been here for a long time, but COVID gave it a boost. As a result, we saw a healthy surge in demand for capsules, but also, we have an ingredient side of the business where we make sports nutrition and joint health products and we saw an overall jump in demand there. This demand was so high that we had to accelerate our capacity expansion plans. We received about 85 million CHF in capital investment to further expand our global manufacturing network, which will ensure we can keep up with demand. We saw this demand coming a long time ago, but COVID compressed timelines.
What are the fastest areas of growth within CHI’s business?
The highest growth is in the nutraceutical market. All segments are growing, but in the pharmaceutical market, many blockbusters may be moving to generics but not going away. Therefore, it is more of a reshuffling going from pharma to generic to OTC. In contrast, in the nutraceutical space, we see the largest de novo new demand.
Within that segment, the question then becomes, what do customers want? We see a big shift in that segment of the market. Particularly in the West, people are more focused on what they put into their bodies. We see a shift in demand to clean label products or clean label capsules. Historically capsules have been gelatin or animal-based products. However, now there are many vegans and vegetarians, and segments like halaal want vegetable-based polymers that are free of additives or carcinogens. The trend is more towards vegetable-based products.
How Does Lonza strategize around where to locate its facilities?
We need to be close to our customers, so as our pharmaceutical and nutraceutical customers move their manufacturing bases, we have to adjust to where they are for logistical and regulatory reasons. The second factor that is critical to our customers is redundancy. Hurricane Maria in Puerto Rico devastated the island and put a lot of companies based there out of action for months. That had a ripple effect. Therefore, if a hurricane or a tsunami hits one plant, we can flex to other plants. Dispersion and redundancy are critical elements of our risk management strategy.