Lonza’s CEO makes sharp exit

Pierre-Alain Ruffieux, CEO of the contract drug development and manufacturing organization (CDMO) Lonza, will leave “by mutual agreement” at the end of the month, the firm says. He took the role in November 2020. Chairman Albert M. Baehny will become acting CEO until a successor is appointed. Lonza’s next CEO will be its third in four years.

Baehny hints in a press release that the company experienced problems under Ruffieux but that positive times lie ahead. “While recent months have undoubtedly been challenging, the company is a global leader in our industry and has many opportunities for further growth across all our businesses,” he says. The Swiss company’s stock price dropped more than 10% following the news of Ruffieux’s departure.

Jan Ramakers, a consultant to the fine chemical industry, says he sees no obvious reason why the CEO should be leaving. “The contract pharma market has slowed a bit, but still I am surprised at Ruffieux’s departure,” Ramakers says.

Sebastian Bray, a stock analyst at Berenberg Bank, says Ruffieux may not have adjusted quickly enough to the market slowing. “My own view is that the wider CDMO space faces a period of adjustment in a post-pandemic world, one where biotech funding costs are higher and bio-fermentation capacity is more readily available,” Bray says. “Lonza was arguably slow to adjust margin expectations to this new normal. The goal of new CEO will be to set credible mid-term guidance and restore investor faith in the long-term earnings growth story.”

Bray adds that Lonza may also review its portfolio. He points in particular to the firm’s Capsugel gelatin capsule business, which it acquired in 2016 for $5.5 billion.

Lonza’s sales grew 3.2% to $3.4 billion in the first half of 2023 but its pretax profits fell 6.6% to about $1.0 billion.

In its half-year financial report, Lonza flagged slower-than-expected sales growth for early-stage services and underutilization of its facilities caused by continued weak demand in the nutraceutical capsule market. In the report, the company predicts mid-to-high single-digit percentage sales growth for all of 2023. The median forecast by 20 analysts listed on Lonza’s website is less rosy: 2.6% sales growth for 2023 and an 8.3% decline in pretax profits.

Ruffieux’s predecessor, Marc Funk, quit in late 2019 after just 9 months in the job, citing personal reasons. In 2021, under Ruffieux, the firm sold its specialty ingredients business to Bain Capital and Cinven for $4.7 billion. While the deal raised money for Lonza, it also left the company more exposed to market swings in the drug development and manufacturing sector.