The race for a coronavirus vaccine is on...
Folks around the world are counting on a vaccine that will let everyday life return to some sort of "normal." Pharmaceutical giants like Pfizer (PFE), Johnson & Johnson (JNJ), and AstraZeneca (AZN) have all poured resources into developing vaccine candidates.
And they're getting help from governments...
The U.S. government launched "Operation Warp Speed" to help speed up the process of developing a vaccine. So far, the U.S. government has already awarded more than $8 billion to seven companies, which will fund the development and manufacturing of their vaccine candidates.
Governments around the world are rushing to secure doses of the vaccines. The U.S. has already made deals with Sanofi (SNY) and GlaxoSmithKline (GSK), AstraZeneca, and Pfizer to lock up about 500 million doses of the potential vaccines. And the European Union is in talks with multiple companies to secure the vaccines for its citizens.
But these pharmaceutical companies won't manufacture so many vaccines themselves. That's where today's company comes in...
Lonza (OTC: LZAGY) is a $46 billion specialty manufacturer. It got its start in 1897 producing calcium carbide – a charcoal-colored stone that, when mixed with water, creates an ignitable gas called acetylene. Folks used acetylene-powered lamps to light their homes before electricity.
Eventually, Lonza began making synthetic fertilizers, nitric acids, and vitamins. By the 1980s, it had become a dominant player in the manufacturing of active pharmaceutical ingredients.
Lonza has remained relevant throughout its long history as a specialty manufacturer because it anticipates and capitalizes on the next big innovations. That's just what we're seeing today in gene therapy.
Nowadays, the firm divides its business into two segments – specialty ingredients and pharmaceutical/biotech.
Lonza's specialty ingredients segment includes paints and coatings, crop protection, and personal-hygiene products. The pharmaceutical and biotechnology business manufactures pharmaceuticals like antibiotics, antibody drugs, and vaccines.
The pharma and biotech segment is the better business for Lonza. In 2019, it brought in $4.2 billion in sales, versus $1.7 billion for the specialty ingredients segment. And it produced about $950 million in operating income, nearly six times that of the specialty ingredients business.
Growth in Lonza's specialty ingredients business has flatlined, while the pharma and biotech business has doubled its revenues over the past five years.
Because of this, Lonza will exit the specialty-ingredients field. In a recent financial update, the company said that by the end of this year, it would begin the process of selling its specialty-ingredients business.
By doing this, Lonza can focus on its growing, more profitable, high-growth pharmaceutical segment.
In that segment, Lonza is a market-leading contract development and manufacturing organization ("CDMO"). CDMOs contract with the pharma companies for everything from drug development to manufacturing.
Today, the pharmaceutical industry only uses in-house capabilities for about 33% of the time. The other 67% of the time, they outsource the work to CDMOs like Lonza.
Lonza provides all the manufacturing services a drug company needs in one place. It covers everything from development, production, and downstream processing to formulation and packaging. So it's a one-stop shop for large pharmaceutical companies. That helps Lonza bring in new customers, and keep them.
And it's getting a boost from the COVID-19 pandemic...
Lonza has an agreement with Moderna to produce the company's coronavirus vaccine candidate. The 10-year deal will see Lonza produce up to 1 billion doses of Moderna's vaccine annually starting in 2021. Moderna CEO Stéphane Bancel highlighted Lonza's "global presence and expertise" as key drivers behind the partnership.
Bancel added that Lonza's capabilities will help the company ramp up vaccine production at an "unprecedented" pace.
The Moderna deal sent shares of Lonza up 4%. And the gains haven't stopped there...
Since Moderna named Lonza as its supplier on May 1, Lonza shares are up nearly 45%. That continues a strong uptrend we've seen in the stock since it bottomed with the broader market in March.
Since its March 23 low, Lonza stock has soared more than 90%. That's dramatic outperformance compared with the S&P 500's 46% return over the same time frame.
The coronavirus – and, more specifically race for a vaccine – could turn out to be a short-term tailwind for Lonza... But the company also has unrelated long-term prospects.
Lonza is the best-positioned CDMO in the industry to profit from the rise of new and more complex treatment manufacturing. With biotech and pharma businesses continuing to outsource their needs to CDMOs, Lonza has plenty of future growth coming its way.
Sometimes investing is simple.
Our colleague John Engel recommended shares of Lonza to his Stansberry Innovations Report subscribers in November. Readers who followed his advice are up 82%. If you'd like to learn more about a subscription to Stansberry Innovations Report, click here.