The start of the new year shows that the Corona spook is far from over. While infection numbers continue to rise around the world, the virus is mutating and causing experts additional concern. Some medical experts already believe that society will have to adjust to living with the pathogen.
Science is trying to keep up with Covid-19, and with early success. BioNTech/Pfizer, AstraZeneca and Moderna, for example, already have vaccines on the market. Many others are yet to follow, with 63 vaccine projects currently in clinical development, according to the World Health Organization (WHO). However, development is not enough; an effective vaccine must also be produced. Lonza is at home in this area. The domestic pharmaceutical supplier is one of the specialists in the production of vaccines.
A glance at the order book shows that numerous international companies rely on Lonza's know-how. The US group Moderna, for example, is having its already approved vaccine reproduced by the Basel-based pharmaceutical company, as is the British-Swedish company AstraZeneca. Moderna alone wants to produce between 500 million and 1 billion doses per year. Lonza also has another hot potato in the form of US biopharmaceutical company Altimmune. Although its vaccine candidate Adcovid is still in development, a clinical trial for the active ingredient, which is administered via a spray, is due to start in the current quarter. Approval is planned for 2021. To meet demand, Lonza has two large production facilities: In Portsmouth (USA), as well as in the Swiss canton of Valais, hundreds of millions of vaccine doses can be produced annually.
Not only is Lonza currently in the spotlight as a Covid-19 beneficiary, but the company is also in the process of restructuring itself to make it more profitable. To this end, less profitable businesses are being divested. The specialty chemicals business has already been put on display. According to media reports, the German chemical group Lanxess and several financial investors are interested in the "Lonza Specialty Ingredients" division. LSI is estimated to be worth more than CHF 3 billion.
The aim of the corporate restructuring is to concentrate fully on the production partnership for pharmaceutical and biotech companies. This is expected to generate growing sales and profits for Lonza. Management has already drawn up a detailed plan. Despite constant investments in future growth projects, the company is expected to achieve double-digit revenue growth, a core Ebitda margin of around 33% to 35%, and a double-digit return on invested capital (ROIC) by 2023. This compares to an Ebitda return of 27.4% in fiscal 2019. According to the board, growth will be driven by the Biologics, Small Molecules and Cell & Gene Therapy businesses.
On the stock market, the Lonza share, which was the strongest SMI stock in 2020 with a gain of 61%, has been taking a breather for some time. Since the summer of last year, the blue chip has been trading in a range between CHF 550 and CHF 630. On the downside, the sideways trend channel is supported by the 200-day line, currently at CHF 530. The all-time high at CHF 637, on the other hand, limits the current upside potential.
Yield enhancement products were created precisely for such a scenario. By far the most popular variant in this category is the Barrier Reverse Convertible. With a BRC, respectable returns are possible even with stagnating or moderately falling prices. This is also evident in the new BRC on Lonza. The product has a coupon of 6.00% p.a. and a comfortable risk buffer of 31%. Consequently, the barrier is in the CHF 400 range and thus well below the support zone outlined. The Barrier Reverse Convertible is also equipped with a soft callable function that can shorten the maximum term of 2 years. The first observation date takes place after 12 months - and quarterly thereafter.
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