Lonza: Swiss Compounder Poised for New Uptrend

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

– Warren Buffett

CDMO.

Or Contract Development and Manufacturing Organization.

What on earth is that?

A CDMO provides both development and manufacturing services to pharmaceutical and biotech companies. They partner with clients across the entire drug development lifecycle — from early research to full-scale production.

This integrated approach means faster timelines, fewer handovers, and a smoother path from lab to market.

In plain English: A CDMO is a contract service provider for pharma companies — helping them develop and manufacture a drug from the very first idea all the way to commercial mass production (chart 1).

Their clients?

Pharmaceutical and biotechnology companies, academic institutions, and government research agencies.

And if you remember our Medpace arvy’s Weekly — that was a CRO (Contract Research Organization), which focuses on the research and clinical trial phase. A CDMO takes it further — into development and manufacturing.

And the dominant player in this field for decades sits right here in Switzerland.

More precisely, in Basel.

The name?

Lonza.

Chart 1: CDMO services and solutions (Thermo Fisher Scientific (Patheon), peer of Lonza)

Sustainable high market growth and uniquely attractive characteristics

“We are the pioneer and world leader in the CDMO industry, setting the pace with cutting-edge science, smart technology and lean manufacturing.”

That’s the bold vision of Lonza.

And indeed, Lonza is a holding in nearly every Swiss equity portfolio.

Rightfully so.

Let’s get curious – why?

Because it embodies nearly every “Good Story” trait we look for when hunting for high-quality compounders.

Lonza sits right at the heart of one of the most powerful long-term growth themes out there — the pharmaceutical outsourcing boom (chart 2).

The story is simple.

The global pharma market keeps expanding — 4% annual growth for small molecules, 6% for biologics, and a strong 9% for cell and gene therapies. At the same time, pharma companies are outsourcing more of their development and production.

In 2019, CDMOs handled roughly 35% of mammalian capacity.

By 2029, that share is expected to jump to 55%.

And for the curious — because we like to learn while we invest — “mammalian capacity” refers to the production of complex drugs made using living mammalian cells, such as antibodies and other biologic therapies. These are the next generation of medicines, and they require the kind of specialized, cutting-edge facilities that Lonza builds and runs.

Add both trends together — pharma growth plus rising outsourcing — and you get a powerful formula: CDMO market growth of 8–10% per year.

That’s the kind of structural growth we look for in a “Good Story.”

And Lonza checks every box of an ideal long-term compounder:

• Operating in a non-cyclical industry — healthcare demand doesn’t care about GDP swings.
• Growth is captured through continuous investment in capacity and technology.
• Strong customer loyalty thanks to deep, long-term partnerships.
• High revenue visibility, supported by multi-year contracts.
• And finally, massive barriers to entry — regulation, expertise, and scale make this a tough club to join.

This combination creates a perfect setup: structural growth, predictable cash flows, and a business that compounds quietly in the background.

In short — a true Swiss precision machine.

But of course, there’s a catch.

Chart 2: Lonza’s dynamic underlying market with unique characteristics

Covid Boom & Bust: Quality — But Not at Every Price

Certainly, Mr. Market is no fool.

He knows exactly how attractive Lonza’s position is — sitting squarely in the middle of a structural growth trend that’s both non-cyclical and expanding fast.

Remember, the CDMO market itself grows at around 8–10% per year.

Yet Lonza is expected to deliver an even stronger 18.1% long-term EPS growth, outpacing both its competitors and the underlying market (see chart 3).

And naturally, that kind of Swiss quality doesn’t come cheap.

Mr. Market currently prices Lonza at a next twelve months (NTM) P/E of 32x — valuing it as a premium compounder.

Again, rightly so.

It’s a growth engine wrapped in precision engineering.

But here’s where it gets interesting.

Valuations have cooled — significantly — from the high-flying pandemic days, the Covid Boom & Bust, when markets treated Lonza like a biotech rocket. At the 2021 peak, Lonza traded at a jaw-dropping 53x forward earnings.

That’s a 65% premium to today’s valuation.

Sweet Mother, Mary and Joseph!

Taking a page from Warren Buffett’s timeless playbook: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.”

Well, Lonza is undoubtedly a wonderful company — but at those multiples, it simply wasn’t a fair price.

And that’s the tricky thing about quality investing: You can pay up for quality, and over the long run, it will probably work out. But the long run means exactly that — long. You need to hold it, let it grow into its valuation, and allow compounding to quietly do its work over years, if not decades.

So yes, buying at the wrong time can still pay off — but it comes with a heavy cost: time and opportunity. In Lonza’s case? Years of sideways action.

Fast forward a few years, and after the Covid Boom & Bust has finally washed through the system, Lonza’s valuation is slowly but surely drifting back to where it belongs — a wonderful company trading at a fair price. Historically, that means around its 10-year median of 30x forward earnings.

That puts us close to a fairly valued “Good Story.” So, let’s move from story to price.

It’s time to check the “Good Chart.”

Spoiler: it’s coiling.

Chart 3: Company Statistics, Key Metrics and Fundamentals

A Large Powerful Move is Imminent

“Coiling.”

Thierry, you already claimed half my Friday morning brain power with “mammalian capacity” — and now another term?

Yes. Because as we like to say in the arvy offices: the key to success is to keep learning.

Coiling refers to the tightening of price action within a narrowing range and falling volume (see chart 4).

Exactly what Lonza is doing right now.

And that’s the setup you want to see before a large, powerful move — a stock quietly building up energy, waiting for a catalyst.

Just last week, Lonza delivered a strong Q3 2025 and confirmed its full-year 2025 outlook, which cements the fundamental “Good Story.”

But it’s not just fundamentals.

We’ve also seen the technical side clean up beautifully.

In Q4 2023, we had a full washout (orange) — a sharp correction that flushed out the weak hands. Panic sellers exited. The true believers stayed. Since then, the stock has carved out a higher low (purple) — a sign of quiet accumulation and renewed confidence.

Now, there’s just one piece missing: A breakout above the strong resistance zone around CHF 600 (blue) — that key psychological round level over the past five years.

If Lonza can push through that barrier on high volume, signaling strong institutional buying, it would be a powerful message from Mr. Market that the long-term uptrend is ready to resume.

Fundamentals? Check. Price action starting to resume its uptrend? Soon to be checked?

Lonza had my curiosity in the beginning.

Now, it has my attention.

Chart 4: Lonza over the last ten years