In the midst of the pandemic, Lonza, as a partner of Moderna, played a crucial role in the rapid production of vaccines. However, strong competitors from Asia pose a threat to the Swiss contract manufacturer’s advantage in the pharmaceutical sector.
The Rise of Contract Manufacturers
While many industries experienced stagnation due to the COVID-19 outbreak, the pharmaceutical sector thrived. The demand for vaccines skyrocketed, and companies struggled to keep up with the production. This situation sheds light on an often overlooked segment of the industry, contract manufacturers that work on behalf of pharmaceutical companies. Among them, Lonza drew significant attention due to its partnership with Moderna. The company swiftly established manufacturing facilities in its main plant in Visp, Switzerland, as well as in the United States and the Netherlands.
From Euphoria to Setbacks
Lonza’s rapid rise to prominence brought it excessive attention from governments, investors, and the media. The influx of inquiries overwhelmed the company, and its stock price reached unprecedented heights in 2020 and 2021. However, the euphoria was short-lived as Moderna unexpectedly removed Lonza from its list of suppliers in September of the same year. The diminished demand for the COVID-19 vaccine rendered Lonza’s services unnecessary. Furthermore, Lonza faced challenges with the departure of its CEO Pierre-Alain Ruffieux and subsequent fluctuations in its stock price in 2023.
Setbacks in the Biotechnology Industry
Lonza and other contract manufacturers now face an additional challenge: a significant decline in orders from the biotechnology industry. The reduced demand for COVID-19 vaccines and medications has resulted in excess capacity for many companies that invested heavily in new facilities during the pandemic. Moreover, biotechnology companies, traditionally a significant customer group for contract manufacturers, are receiving fewer investments due to rising interest rates. This financial strain forces them to postpone or cancel projects altogether.
The Rise of WuXi
As the market for contract manufacturers seeks a new balance, it could take several years to stabilize. Additionally, price pressures are expected to increase, especially with the growing presence of Asian competitors like WuXi Biologics, a Chinese company expanding its footprint in the industry. WuXi has factories not only in China but also in the USA, Ireland, Germany, and Singapore. Geographically, WuXi’s reach is similar to that of industry leader Lonza. In terms of workforce, WuXi’s 12,000 employees are closing in on Lonza’s 17,000 employees.
The Swiss Advantage and Future Challenges
Switzerland, with its thriving pharmaceutical industry, quickly became a fertile ground for contract manufacturers. Lonza benefits from the fact that leading drug manufacturers, such as Roche and Novartis no longer produce everything in-house. Alongside Lonza, Switzerland is home to three other significant players in the contract manufacturing sector: Siegfried, Bachem, and Dottikon ES. Together, these companies generated over eight billion Swiss francs in revenue in 2022.
Swiss contract manufacturers maintain a competitive edge in the global market thanks to their longstanding experience and commitment to quality. However, their advantage is diminishing. Industry experts acknowledge that some emerging Asian competitors are highly responsive to customer demands, giving them a flexible edge. Additionally, the demand for medications in Asia is growing significantly faster than in the saturated pharmaceutical markets of Europe and the Americas. It is plausible that Asian contract manufacturers could take the lead in the next pandemic. Against this backdrop, Lonza and other Swiss companies need to step up their game.
Outlook and Industrial Impact
Lonza, once praised for its partnership with Moderna during the pandemic, now faces fierce competition from Asian rivals. The decline in demand for COVID-19 vaccines and medications, as well as challenges in the biotechnology industry, presents significant obstacles for contract manufacturers. Companies like WuXi Biologics are expanding their presence worldwide and threatening the established players. Switzerland’s advantage in the field will require constant innovation and adaptability to stay ahead in this highly competitive market.
