Lonza Group AG (LONN) Earnings Call Transcript & Summary

Welcome to Vacaville, and a warm welcome to everyone here in the room who made the effort to actually come over to the other side of the world, actually, if you came over from Europe. But of course, also a warm welcome to anyone or the ladies and gentlemen, being with us today in the virtual webcast. We, as always, prepare a rich agenda for yourself, including me speaking about a great story at One Lonza and then handing over to Philippe, who will actually take you through the financial engine underlying and driving us forward. And then Gordon, as the Head of the Business Platform, Biologics will take it down and provide further examples on how it looks like specifically when it comes to biologics and drug product manufacturing. Equally important, you will have at least those of you being with us here in Vacaville, you will have the opportunity to meet other people, important people who actually make our equity story, our vision a reality. It's going to be John Howell, the Head of Operations, Integrated Biologics. Fernando, the site head since May this year of the great site and Atul who's actually leading our biologics R&D activities. Before I actually dive into what One Lonza is about, let's take a quick look at the disclaimer, the safe harbor statement. Please read it carefully take note and feel bound to it. And with that, my 4 topics for me to take you through today are the Lonza engine delivers reporting back. The CD1 model is structurally attractive. It's a great place to be, especially if you are Lonza, which is the innovation to launch integrator, and I will explain to you what we mean with that term to lastly take it to the financials and why we actually call ourselves see ourselves and probably from an investor's perspective, I believe we are a structural growth compounder offering actually a great opportunity to create value. Before we dive into the details of the presentation, maybe kind of as a reference and I mean, taking us back to the investor update in December 2024. When I introduced, we introduced the new One Lonza strategy to you, 6 strategic imperatives, which actually drive our decision-making and drive us forward at One Lonza. First of all, we decided to focus on the pure-play CDMO business to only compete where we are strongest, where we can create superior value for our customers and for our shareholders. Second, strategic imperative is about us being a multimodality CDMO, which is a great thing. And I will share with you today why it's not only great for us and our scientists and our customers, but also for you as investors. So we win across high-value innovative modalities. Then it's about differentiation. What makes us special? We differentiate through the Lonza engine metaphor that I introduced to you in December 2024. In order for us to be able to capture the many market opportunities coming our way. We actually need to build a resilient and competitive global infrastructure to in the end, manufacture the products, the viable therapies that in the end, help millions of patients worldwide. We do that by allocating capital with discipline at high returns. And lastly, we compound value through resilient, repeatable profitable above-market growth. And you will see me hear me touching upon all those topics and then Philip and Gordon, taking it further down. So that's the Lonza strategy. The Lonza engine delivers. That's me reporting back on the promises that we made to you exactly 22 months ago at the end of 2024. So let's go through what we did together as a global One Lonza team. We are gaining together significant momentum. The 5 elements of the Lonza engine for repetition to remind you, high-performance teams. We reduced the attrition rate at Lonza, which wasn't high anyway by another 3 percentage points. And from our top 200 leaders more than 80% actually have an engagement index of above 80%. And it goes further. I mean considering that, actually, we went through significant change in those 2 years. It's remarkable how well the team followed through and made it all happen. This is something which really excites me about Lonza. We actually created in me the confidence that we, as the one Lonza team will actually be able to be successful, short term, midterm and also in the long run. Leading scientific technological digital ecosystem. It's unique. What kind of resources, what kind of intelligence, what kind of scientific knowledge we actually have within Lonza. And just a few proof points here. We [indiscernible] Lonza using our Lonza GS system, together with our clients, brought more than 100 commercial drugs to market since 2012, more than any other company, including large pharma companies in the world. The ADC tool box that we are currently building and our advance into this business is market-leading as well and comprises everything that it takes to manufacture to develop and manufacture those latest modality, it's about payload, it's about linkers, it's about the map, it's about drug product and biocomuigation of all of it. What still impresses me and I think is unparalleled in the industry is the depth of the customer partnerships that we at Lonza are able to enter into the level of trust that people invest in us is remarkable. And it's also, I mean, kind of evidence in terms of what customers tell us. So we tend to -- I mean, making sure that we don't get I mean, off track and kind of testing that what we think about ourselves is actually true, but also finding out where we can still improve. And we do that through an annual a customer survey, measuring our Net Promoter Scores and considering where we have been in 2024, which was already industry leading, we have been able to actually double the Net Promoter Score from 2024 to 2025, actually. And currently, the latest addition of the survey is going on. And at least so far, seems to deliver equally good or maybe even better outcomes. So 2x up for big pharma clients of Lonza and 50% up for another very important customer pool of Lonza small and midsized biotechs 50% higher. End-to-end execution excellence, so we kind of are expanding our offering. We are expanding our footprint in the value chain by not only being leading in the drug substances space but also adding aseptic finished drug product capabilities and it's paying off. Customers appreciate our ability to offer even broader services with actually Phase II, Phase III integrated biologics program up by 35% and 70%. 70% of our new molecules signed into Lonza now being integrated offerings. Lastly, very important as well, considering that we're actually growing 10%, 11%, 12%, 13% on average over time every year. We actually need to have a high capability to take on new people, to take on new technologies to integrate assets like Vacaville, for example, to be able to continuously kind of feed the beast. And this is actually what we are proving not only here in Vacaville, and you will get [ no ] intuition of what it means and how fast integration also mentally of this strong team here in Vacaville has progressed over the last 1.5 years. But we're also proving that in how we take on new assets invested in Visp, for example, but also how we actually acquire and make accessible technologies for Lonza and through Lonza to our clients seamlessly integrating them into our go-to-market approach. So very strong data points supporting our claim, our self perception that we, as One Lonza, are truly gaining momentum. So kind of reminding us as well, we promised to you that we actually would transform ourselves into a pure-play CDMO and also that we are creating an operating model which is better suitable, more suitable for how to run in the end, a manufacturing business because the divisions actually haven't been a great idea, I have to tell you. And we changed that, and the outcome is actually very positive, also exemplified by the feedback that we get from our people. But back to what we did, we created from 3 divisions, 3 business platforms: Integrated Biologics, we will actually learn more about that today. Advanced Synthesis is another great and strongly growing business at Lonza and Specialized Modalities in the kind of a business where we actually reach out at the edge of science into future modalities. And we decided to exit our Capsules and Health Ingredients business, which is in itself a great business, but not a business where we, as Lonza, where we, through our Lonza engine, can actually truly differentiate. We are not the best owner, which is why we actually sold it or are selling it, closing to be expected before year-end, sold it to Lonestar funds, at least 60%. And we will have the benefit of retaining 40% shares of that business to later on benefit from the upside that we expect is achievable a few years down the road. We also made further divestments to create more clarity, get rid of distraction. So sold 3 more assets and are now really set up to be -- to continue to be the winner in the CDMO space where we actually should our -- should focus all our efforts on. So just quickly for the sake of less completeness somewhat. Let me check here. Let's go to actually not only changing our operating model, but of course, also making sure that we have the best possible people on board. And that was about strengthening our strategy team that was about strengthening our go-to-market approach and making it as easy to do business with Lonza as possible. There was also about, and I come to that later, I mean, increasing the tendency how we operate our assets. Quality, a key success factor in our business is elevated now to the executive committee level with Maria taking that over. Intelligence Analytics, a very important topic for the future as well. I'll speak to that later in the presentation as well and a new Head of Global communications. So a number of significant changes, bringing on board strong people who will actually help to drive the future success of Lonza, in this case, through the matrix supporting our 3 business platforms to actually deliver. Also as a kind of a reminder because -- that was, of course, also one of the promises that we made to you with financial performance. And I've chosen the headline we keep the promises we make since 2024, Lonza, we are meeting, beating and raising our financial outlook and at the same time, making sure that not only the business performance today is great, but also that we have the ability to continue to grow. So continuously taking online, our growth projects, which will then drive future growth. Quick reminder, top line evolution, we met the guidance in 2024. We have repeat the upgraded guidance, top line guidance in 2025. And we expect to meet as confirmed today as part of our Q3 update, we expect to meet the top line guidance 2026. The same for core EBITDA, we meet the guidance '24. We beat the guidance, the upgraded guidance of 2025, and we raised our margin guidance as of half year 2026 and expect it to land between 33% and 34%. Last part, where we actually also delivered on our promises. We acquired the Vacaville at this great site with the closing date first of October. And everything that we promised to you over time turned out to become reality. First of all, you will meet some people here of this great team in Vacaville with a retention rate of roughly 95%. We continue to invest into the flexibility of the asset to make it a truly flexible, high-performing CD1 asset. As a reminder, this is not about the quality of the asset, and you will see it today. It's great quality, as you would expect it to be from a company -- from a side coming from Roche and Genentech, but we actually will invest so that it becomes even more efficient going forward. Based on the contracts that we have been able to sign as of January 2026, we have already been able to fully compensate the outgoing business of Roche so that we -- until 2028 kind of have certainty to remain somewhere around CHF 0.5 billion in revenues to them starting in 2028, and will start to grow and expect to reach click sales that potentially being up to CHF 2 billion in the first half of the 2030s. Equally important besides integrating the site successfully also executing the first successful tech transfer and having a successful U.S. FDA inspection has been key for us, and the team here in Vacaville will deliver that. So I guess the takeaway here is we keep the promises we make. So let's briefly talk about the CDMO business model and why this is a great place to be the pharmaceutical market and why it is a great business model to operate in. First of all, kind of looking at the business potential as of today, which is, of course, the underlying commercial pharmaceutical market. which provides for a rare opportunity in terms of high growth, consistent over time. So since 2000, it probably can go further back. This market continued to grow through everything. Pandemic was inflation, whatever. Of course, it kind of makes sense because health is the last thing people would start to save on. So we are building on a market which is sustainably in a resilient fashion, growing 6% to 7% per year. What is also interesting and there have been discussions about that topic 10 years ago, I mean when a new modality enters the market, people get overexcited. They believe [indiscernible] actually substitute and wipe out small molecule. And there's CAR-T. CAR-T actually substitute everything wipe out biologics. In all reality, what is happening is that the new modalities add additional opportunity. But actually, it's building on what is there already before. So in terms of being Lonza and us being the place to actually bring the most innovative technologies to the market together with our partners, this is a great place to be. At Lonza, we are not happy to just grow at market rate, but we intentionally through the investments and the technologies that we have chosen for ourselves we actually created an upside of an additional 1% to 2% growth by picking high-growth modalities. So we are right now kind of doing that 6% to 7% down to 2%. Then kind of making sure that we are not stuck in the presence, right? But that we -- I mean, we have a long-term opportunity. that we are preparing ourselves already today to not only grow and deliver over the next 5 years, but also 5, 7, 10, 15 years further out. and the window into the future, telling us how the future will look like and what we need to prepare for is actually the pharmaceutical pipeline. And first of all, it's growing at 8% CAGR. So if anything, it might amplify the underlying market growth. And what are we able at Lonza to cover within this pharmaceutical pipeline, 90% of the molecules based on the technologies that we at Lonza, already master today. They are driving growth today, and they will continue to drive growth in the future, considering how the innovative pharma pipeline looks like. But we are also taking bets on the future because being strong and delivering, having this growth engine of biologics manufacturing, [ there ] is great. And it will actually continue to drive growth for the next 10 years, but we need to make sure that we never miss the bus which means we need to be present in the future technologies as well, and we are. Allogeneic Cell therapies, Viral Vectors, autologous cell therapies, mRNA, all small, however, high growth segments in the market and [indiscernible] is able to cover them all. So well set up, not only for short to midterm growth, but also ready to actually win in those new modalities in out. Now I mean how to extract value from this very attractive underlying market? Let's briefly reflect upon the CDMO business model itself and make sure that we all understand that this is not the flavor of a day, but that this business model provides for substantial economic lasting value to the global pharmaceutical drug product and drug substance supply. Why is that? So First of all, the benefit that the CDMO business model offers to our clients, be it small or large pharmaceutical companies is, first of all, risk reduction because, I mean, a company which has a Phase II asset and is, of course, operating with limited funds as well, wants to spend every dollar on the true value driver, which is innovation. They don't want to spend their money in brick-and-mortar but rather go to someone who actually has the expertise and the capacity to actually take their products from launch to -- sorry, from innovation to launch. So it's risk reduction. Then specialized expertise that we are able to produce because we can apply it across the pharmaceutical universe and individual company. I mean, probably shouldn't invest into specialized expertise, which it might only use 1 for 1 product. Rapid secure scale because we have the capacity available, something very beneficial for our clients. And in the end, again, freeing up their funds for them to invest into the 2 value drivers. How do we do that? Why does it work? Because, first of all, we create economy of scale by pooling demand across the pharmaceutical universe. And by doing so increased utilization, which end leads to superior returns on the invested capital for a specific asset or for a specific network. So returns as soon as you start to be able to differentiate, offer something that others don't have. you can ask for higher returns. You pool risk, Markovits theory. You all do that constantly. I mean, kind of optimizing a portfolio through risk diversification of individual risky positions. And for us, it's those risky individual positions being a Phase I, Phase II, Phase III project, right? But by creating a large portfolio the overall risk goes down utilization goes up, economics go up. So this is actually why the CDMO business model is so attractive in providing sustainable value to the industry, which leads to continued outsourcing and a growth increment of 1% to 2%. I mean, having a great business model is probably a good thing. Operating a great business model in a market which is actually supply constraint is even better. So how does future capacity utilization look like? We at Lonza actually following the market since more than 20 years and have a proprietary market model, which actually kind of carefully looks at each individual announcement in terms of new capacity being invested to CDMO or biopharmaceutical industry. So the team of 5, 6 people have super transparency in terms of what is available, what is being built. So that's the supply side. We need to make sure that we have an as precise as possible perspective also on the demand side. So what is the KG figure? That's important. It's KG. The volume figure for certain drug substances being in demand going forward. And here, we really go down to every molecule. Also in development, look at daily drug doses in clinical trials and look at the [indiscernible] and then calculate KG figures for each technology. And we actually continue to see 2 things. First of all, the amount of capacity being provided by pharmaceutical companies and by CDMOs actually further shifting towards CDMO. So currently, 2025, we probably have a slight advantage of CDMOs probably above 50%. But we expect it to actually further increase until 2035 based on everything we see for one. Then the question is, how is utilization? And the example here being Mammalian, we actually see continued undersupply high and too high utilization of the globally available capacity. And I mean, the different cars that you see here are for different assumptions in terms of what big pharma companies will actually invest in the U.S. On that topic, is -- I mean is the CDMO business model that because big pharma companies decided to invest in the U.S. The answer is no. And we have great evidence to actually answer with no. For 1 being, if you look at Bloomberg consensus and compared to historic trends, you see that actually the investment behavior, the cap intensity of the big pharma companies is not changing. It's growing by 3% over time. And also the CapEx sales ratio is expected to remain the same. What has changed, though, is that those companies probably shift capacity and investments from other parts of the world to the U.S. So in the U.S., we will see [ things ] coming online but not actually changing the overall equation in terms of global demand. Just as another data point, which I leave to you to think about what it means, but the billion U.S. dollar announcements of investments of big pharma companies in the U.S. Most of it -- I mean, the lion's share will not go into manufacturing. If we just add up those sites, those manufacturing investments, which have broken ground. In the meantime, we see roughly 5%, the majority of this 5% going into GLP-1. So no change. and also in the future going forward, a very favorable environment for companies like Lonza in terms of not only having a great model, but also operating in the space where there is a structural undersupply of capacity. So adding it all up, to underlying market, 12% active market selection, 1% to 2%, continuing outsourcing, leading to an addressable market for Lonza 8% to 10% and then the differentiation, what is special about Lonza comes into play, the Lonza engine, adding an additional upside of 2% to 3%, leading to our organic growth model, top line expectations of 10% to 13% on average over time. So Lonza is the innovation to launch integrator. So really now not talking about the business model as such, but making sure that you understand what is special about Lonza and what will make us win in the future. One important thought to understand what we are doing in the market compared to others. Lonza is not solving a procurement problem in the first place. We're not solving a procurement question in the first place. Reality, we are solving a value question for our clients. A customer Nova Tama company has 2 important first order value questions to answer. The one being I mean, it's my molecule effective. We can't help in this regard. That's for the customer to find out in clinical trials. The second question is, can I manufacture that product. Can I manufacture that product efficiently. And this, when you come to Lonza. And this is what makes us special. So we are the innovation to launch integrator. We are not in a capacity race. I don't see us in a capacity race. We will build the capacity that we need to support the growth trajectory that we see ahead of us, but we are not racing against anyone or another company to build capacity faster as long as we can add the capacity that we need to support our innovation to launch go-to-market approach. We will create value for our clients, their patients and for our shareholders. So what does it mean? What does it take to be an innovation to launch integrator, 3 layers, starting with infrastructure. Vacaville, I mean the physical part of Vacaville is infrastructure. then an operating system, which actually connects and codifies our scientific and technological insights and our data intelligence to make them usable, applicable based on our infrastructure. And here, an important thought is our approach of being a multi-modality vendor maximizes test to customer innovations and in the end, value capture. I come to that later again. So let's quickly go through where we are today. And what you can expect from us going forward in terms of further evolving our infrastructure. We have already today built a unique, highly silent global network, which enables global supply chains and regional supply chains to serve a more fragmented world across key modalities. So just looking what it specifically means across the different technologies you see actually, there's almost no we are present in all key regions, and we can deliver across all key modalities. The few gaps you see actually in terms of what we want to do and tend to do in the future and where you might see potential future investments, especially for bioconjugation in the U.S., which is a very attractive market, obviously, in itself. And on top of being attractive, it is undersupplied. You will see also continuing investments in Europe and in the U.S. for biologics. And drug product will also play an important role going forward to us to really double down on ability to integrate drug substance services with drug product services. So already today, we are operating the most resilient network in the CDMO space. So in terms of supporting our short- to midterm growth, we cannot stand still. We need to continuously add new capacities, new technologies. We're currently managing is a portfolio of 25 growth projects altogether worth CHF 8 billion. 90% of that going into commercial and mixed assets for the high return activities in our overall portfolio, we are committed to all our modalities and those 25 projects actually serve all of them. And what you can expect going forward from this portfolio of growth projects as soon as they have reached peak sales is a ROIC return on invested at peak of 30% to 40%, which will then actually push forward the average ROIC of Lonza as a whole. The recent project that we announced a few months I mean Spray Drying in the U.S., Commercial Highly Potent API Linker for ADCs and a second ADC aseptic fill & finish drug product line in Stein. So this is a mid to -- sorry, short to midterm future. But Lonza being a true long-term opportunity, we already today need to think about I mean, how is our network supposed to look like in 2035 and even in 2040 because we need to lay the foundation today so that we company, an asset, which will not only grow over the next 5 years but also 10 and 15 years down the road. And having said that, actually, we are looking at a world which most likely will be more fragmented the response of the manufacturing industry, pharmaceutical industry being more regional supply for regional demand, which we continue to optimize for 2 dimensions: one being resilience over different geopolitical scenarios and cost competitiveness. And it's clear that you can't have both at maximum at the same time, right? We are in a great place already and we will continue to further improve on both dimensions, but especially on the dimension of cost competitiveness. So how do you do that? How do you [indiscernible] today what you need to prepare so that you are ready to win also in 2035 and 2040 that reminded me of a project, I went through 15 years ago, actually, which was called scenario planning, where you're -- in a forward story telling fashion, fashion create different geopolitical scenarios 9 in our case. You decide for the 3 most likely, and then you actually create a model for ROIC in our case, a discriminative ROIC model in which you can test different network setups against being successful under the different geopolitical scenarios. The outcome of that analysis, you will actually see hear about, read about over the next months and years because we are preparing ourselves through optionality in terms of investment platforms around the world to be successful also in the long run and not only operate the most resilient network today, but also in the future. So the second layer, the operating system. This is a very complex slide. And it is a complex site by design because what we do at Lonza is complex. On the left-hand side, you essentially see we are operating in 8 key modalities. And we, together with our clients, bring their breakthrough innovations to launch and provide viable therapies for patients. In between, we offer services across everything, life at stage preclinical to commercial. The scale in our facilities from lab to large scale, all supported by a leading quality management system and all this happening all around the world, in the U.S., in Europe and in the rest of the world. This is unique. You don't find it anywhere else. If you want to know why this actually makes sense, I would like to give you just 1 figure. The rest, you can actually forget if you want to. It's 99%. Once the molecule has entered this box at Lonza, the retention rate through the different stages of development, Phase I to Phase II, Phase II to 3, 3 to launch is 99%, normalized, of course, for clinical failure. I guess the message is as soon as we actually have a molecule within Lonza in our operating system, it never leaves again. And if you have something special like that, if you created it over 40 years in our case, you, of course, want to maximize the opportunity. So take in as many molecules as possible, which means being a multi-modality CDMO is maximum value capture by maximizing the number of opportunities. And we do that, again, at any scale, any phase across modalities across the globe. So this is about maximizing the opportunity and the value capture. Some proof points. We have a wet success rate across all modalities of 99%. And contracts signed prior to Phase III is 90%. So that means people come to us for this very reason, as being the innovation to launch integrator. We are at any given point in time working on more than 1,000 molecules, which is the industry-leading pipeline. 1 out of 5 FDA-approved drugs every year kind of are connected to manufacture at Lonza or using Lonza IP. 14 of our 20 top customers work across at least 2 business platforms, so integration again and 95 of the 100 large pharma companies are actually customers of us of overall 800 customers. So last part, last layer is the science and technology piece. And I'll actually make that short. First of all, -- and I'll just take that example. Our GS expression system is the most used biologics expression system in the whole industry. We continue to improve it further in terms of cell line stability in terms of yield. Gordon will take you through that in more detail later. We also continue to not only develop technologies ourselves, but also add technology in the outside, acquire them or making them exclusively accessible to us. Recently partnered with Asimov acquired technology from Nona Bioscience. And just last Friday, actually, from [ Curian ] another dual payload technology, which will all help us to create an even stronger integrated innovation to launch engine. So a specific example with regard to another technology, it will become very important for the pharmaceutical industry as such, but also for us at Lonza. But maybe before we go into specific technological questions, let's remind ourselves what data, what data pressures we actually hold in our hands. We are the one company in the world, including large pharmaceutical companies with the highest number of executed batches. We bought at Lonza, brought more than 140 drugs to market in terms of manufacturing. We are working on 3,300 clinical molecules over that period of time. and 1,500 tech transfer. So you kind of can imagine that we are sitting on the richest database in terms of manufacturing data of pharmaceutical drugs. And we started to actually clean them up to make them accessible and usable for AI technologies and create Lonza intelligence layer to then optimize for 3 things. First of all, we actually want to accelerate development and tech transfers and Gordon will give you 1 specific example later, where it's actually already happening today. So second dimension is AI-guided manufacturing. So increasing output and getting more out of the same asset. And lastly, AI supported quality to actually increase our batch success rate even beyond the 99% to make sure that we create as little waste as possible. So this is the journey we embarked on. And the starting point for us [indiscernible], and we will make use of it going forward on those 3 dimensions. One specific example, the first proof point actually is around a real project with a large pharma customer, we're actually together with the customer based on a number of historic data, have been able through AI to actually increase the output by 15% by actually kind of identifying relevant signals in historical betas between process parameters and output by -- through a human in the loop, [indiscernible] expert decisions, which led to significantly improved output for this very product and in this case, of 15%. So remarkable and more to come. And with that, I actually come to the last part of my presentation. which is me taking all the things I explained to you about the market, the CDMO market, the business model what makes us specially at Lonza, the Lonza engine and us being the launch -- sorry, the innovation to launch integrator, how that actually all ends up in terms of the financial algorithm, the financial engine that we are running at Lonza. But before we go there, I want to share a few data points in terms of what the company did in the past and delivered in the past, how resilient this performance over a decade actually was and how we, as the global 1 not team since 2024, accelerated our performance beyond everything that we did before. But let's start with a period of 2019 to 2024, a low teens sales CAGR over time. core EBITDA growing at the same CAGR also low teens, which, of course, then leads to a flat [indiscernible] margin. However, we added over that period of time, CHF 2.5 billion revenues. And we did that during COVID. And if anything, COVID one opportunity for Lonza. And we all remember that Lonza was part of the solution. We actually have been the manufacturer of the COVID-19 vaccine of Moderna. Ukraine war, spike in energy price is not a problem for the Lonza business model. We continue to significantly grow at high profitability. [indiscernible] downturn, why not great for the industry, it's only 10% of our business. And this 10% doesn't really completely depend on biotech funding. So also here, not really a problem, as continuing to grow at very high profitability. Same is true for U.S. tariffs. But of course, bringing friction to global supply chains, our business model completely protected us. against impact in this case, [indiscernible] for the war in Iran and high energy prices. So we actually, as a business, went through all that, the very resilient fashion and continue to significantly grow at high profitability. So what happened since 2024, we actually increased considering the acquisition of Vacaville, of course, our sales CAGR to 16% to 17%. Core EBITDA margin, while being flat over the 5 years before, up 3 to 4 percentage points. ROIC, up 2 to 3 percentage points and free cash flow conversion is expected to be twice the amount -- twice the conversion rate as compared to 2024. How did that happen? And essentially, myself, the Global One Lonza team worked on 5 key levers. But all of that based on a deeper transformation, which in the end is a cultural transformation. And let me maybe even start there. When I joined Lonza in July 2024, actually was impressed by the quality of people I met, highly capable [ teams ]. I was impressed by the readiness of the people to share. And I was impressed by the readiness of the people to also listen to my thoughts. I spend a lot of time working, talking to people across the whole company, across all hierarchy levels. I tested my hypothesis, and I listened to theirs. I kind of synthesize that together with effective leadership team into what then became the One Lonza strategy, the One Lonza vision, our purpose, our values. What I also felt and you can imagine that this is actually not as high as considering the past years in terms of leadership uncertainty at Lonza. There was a certain lack of clarity within the whole organization. And the whole organization was operating in an operating model, which actually was suitable for CDMO divisions. And the company kind of run like a holding, right? I mean lack of harmonization really not fully exploiting available synergies. While in reality, with the exception of the CHI business, the CDMO business is just one business model, right? And that was the starting point. And what also was kind of a surprise from at the time that there was some confusion around the identity what Lonza really is. I kind of found a number of people who actually weren't clear about are they a pharmaceutical company? Or are they a manufacturing company, right? That is a very important distinction. I want to make that clear with one example, which is a numerical one. If you look at successful large pharma companies, they are operating with a gross profit margin of 90%. So 10% cost. If you look at Lonza, gross profit margin is coming, say, around 40%. So 60% [indiscernible]. So how intense [indiscernible] you are about manufacturing makes the whole difference, right? And there was confusion around that, which made actually the sentence, we are not a pharmaceutical company. We are a manufacturing company. For me, the most used sentence over my [indiscernible]. What did it mean practically? It means or meant, me, the team bringing much more intensity in terms of how we operate, how we run our business. much more intensity how we actually operate our assets. Just 2 examples, and that is part of the operational excellence improvement that we have been able to implement or leading among others, to the accelerated financial performance. They haven't been really useful meaningful productivity KPIs. And I brought some very simple ones, which I continuously use myself and take a look and the whole organization knows take a look at it. And this actually helps to make clear and make [ transparent ]. Are we improving at the pace at which we want to improve to, in the end, also mid- to long term, deliver the margin expansion that we wanted to achieve. What, of course, also helped is bringing on new growth projects. CapEx excellence was another very important point because in the end, Lonza is about cash, right? We need to generate cash. It's a very CapEx-intense business. So how good, how fast, how precise we are in delivering CapEx projects is a key success factor going forward. And again, confusion about being a pharma company or a manufacturing company, makes a difference in terms of how we look at CapEx efficiency. And here, we made significant progress as well by introducing some very useful tools as well, technical reference [ costs ] and us shooting for top-tier performance in this regard, being very precise in terms of what is really needed, what is truly needed to deliver a certain business case, and make that very clear upfront, and that already led in an individual examples of [ important ] growth projects to CapEx reductions of 30% to 40%. Operating leverage is something which, of course, comes along with discipline in terms of SG&A costs, and we see that at work as well. Commercial excellence is another important topic, how we actually show up, how we go to market, what the [indiscernible] model is, how we actually price value. And this is something that will even get more intense and will receive more focus going forward as soon as our new Chief Commercial Officer, has joined the company. So kind of bringing it together again. We are also I mean, underway and on the transformation journey in terms of even strengthening our high-performance culture and strengthening our competitive toughness in terms of how we win in the market. And we see first evidence that it actually is coming through that people accept the challenge that they turn them into opportunity, and in the end, into the performance and what we did together over the last 2 years in this regard speaks to itself. And this was also the reason and I mean, why we actually are looking with a much higher confidence at our ability to further accelerate how we improve our margin going forward, which we then translated into the upgrade of our organic growth model, as shared with you today. So, the growth model which we actually turned disciplined investments into resilient and repeatable, profitable above-market growth and increasing returns. Sales growth, low-teens organic CR on average over time, which we then turn into core EBITDA margin expansion with EBITDA margin growth -- sorry, EBITDA growth ahead of sales growth. and the upgraded financial ambition in this casing to reach high 30s in the midterm. All that, that needs to translate into an improving cash generation, KPI in our case, being free cash flow conversion on average over time, which we are seeing to come through already now as well. And that then feeds the next investments, which will be at the mid- to high teens percentages of sales to then yield as an overall economic outcome, ROIC of 2 to 3x WACC in the midterm. And if you look at it, what we're doing is actually creating a structural growth compound cash funds growth, growth creates more cash, repeat. And that's probably a very effective financial engine that we hold in our hands. This being our organic perspective on the world. During our investor update, December 2024, I also shared with you that going forward, we would actually take an impartial view on how to grow, be it through organic growth projects or be it through value accretive, both on M&A. And based on us having built the internal muscle, the strategy team and the ability to be very efficient in terms of executing due diligence, executing deals and integrating new people, new assets, new technologies, we are looking at a broad set of opportunities, be it in the CD1 industry itself, where we might acquire other businesses, including new modalities, but also underutilized pharma assets. Vacaville being that kind of archetype. And we continue to look at technological opportunities from technology developers. What we need, though, in order to really double down on M&A opportunities is a clear line of sight towards value creation. And we test each and every opportunity against 2 criteria. First of all, that's the business model provide value for our customers and does it work to provide value to Lonza. Second criteria, does the specific opportunity benefit from what makes us special from our Lonza engine because only then we have reasons to believe to create superior value. The 3 areas, some of opportunity for us is, of course, taking on capacity from the outside world, taking on business from the outside world or taking on and integrating technologies. If I look at the 3 business platforms, you see our kind of relative priorities in terms of where we would like to acquire and where we are looking at opportunities. Vacaville is a successful example in terms of capacity for biologics technology. We acquired technologies, advanced in that. This is also an area where we would be ready to take on capacity business is now continuing to acquire technology. Specialized modernity is probably somewhat different we have enough capacity, right? But acquiring business there or technologies would make sense. And we are always mindful of not only looking at what we have today, but also kind of adding to our innovation to launch integrator further attractive modalities. So thinking beyond today and being ready to acquire the next modalities, which might then drive growth in 10 years down the growth. So there is opportunity for us to accelerate our very attractive, strong and upgraded organic growth model through M&A. And with that, Actually, I want to come back to the 5 key messages that I've been sharing with you today, which is, first of all, we have delivered on all our commitments made at the investor update in December 2024. We operate in a structurally attractive market that supports not only short to midterm opportunity, but also long-term opportunity. And we are proactively, strategically preparing ourselves also for this long-term opportunity. So this is not a time bound organic growth, which will end in 2030 or so. It will continue for many, many more years. We are the one innovation to launch integrator that offers highly differentiated and uniquely comprehensive CDMO services. So remember, once the molecule is within nonsite doesn't leave anymore. And increasing the opportunity through being present across many opportunities, make sure to maximize the value creation of this special thing that we have created over the last years. We are in financial terms, a structural growth compounder that delivers long-term value through disciplined reinvestments of increasing cash at high returns. And lastly, as you have seen today, we upgraded our organic growth model and the resulting midterm financial ambitions. And with that, I hand over to Philippe, who will take you through the details of the mechanics of our financial Lonza engine. Thank you so much.

Well, thank you, Wolfgang. What an exciting story, indeed. A warm welcome from myself as well to all of you joining us here in Vacaville, good morning to people joining us from the U.S., and of course, good evening to people in Europe. In the interest of time, let me jump right into the content. This page, actually, Wolfgang just took us through and actually discussed and showed us why we are in an attractive industry and why Lonza is very well positioned within this industry. Wolfgang also explained to us why combined and together, this creates a very active financial model, something we call the Lonza Structural growth compounder. But how does it work? What are the mechanics, what are the actions that we put in place to actually increase and give us high confidence in creating the sales growth, deriving the margins, creating the cash and rising the returns. And that's what I would like to take you through today. Let me start with 1 fundamental concept that we get asked often. How does actually Lonza create growth and grow returns [indiscernible]. On the left, you see the illustrative example of one of our growth projects. 3 phases. The first one, we deploy capital. When we deploy capital, we actually don't generate revenues yet. We don't generate returns. The asset is actually cash flow negative and ROIC negative. Then comes throughout period. This is where the growth happens. This is where Lonza grows. This is where we increased sales over time. After a while, the asset reaches deutilization growth slows down. However, the asset becomes highly cash generative, high margin and high ROIC. Remember, all the projects launched are designed to deliver a ROIC at or above 30% when reaching peak. A return that is much higher than our average ROIC of the company today. So every additional growth projects raises returns. Now one single growth projects doesn't do the trick. What you need is a large portfolio of assets all the time. And that's what we have. Wolfgang mentioned 25 large projects. These are the large projects. These are not all the projects we're running in the company. the addition and the overlay of growth projects is what creates the continuous 10% to 13% growth over time. The actual growth of a single year depends on the timing and the size of the growth projects in their face. And so yes, there will be some fluctuation in the actual rate of growth even more so when you look at the platform level. Why? Because the platform has a much smaller portfolio of projects and a smaller base of assets. As you can see in the middle, the rate and the share of our gross projects is increasing over time, time to here over the midterm. So the addition of these growth projects will lift the ROIC of the company over time. Very important concept and again, something that we cannot keep repeating. Now let me stay with growth a little longer. As you can see on the left, this is what Wolfgang took us through before. This is the market view of why we believe 10% to 13% is the right growth figure for the company. But how do we capture that growth? How do we deliver on that demand? This is what the right side is showing you. 8% to 10% on average roughly will be what the company will generate out of new capacity, new growth projects we are adding to the network. Why 8 to 10 because our model tells us that we will be spending 10% to 13% of our capital in percent of sales into gross assets. This 10% to 13% of gross capital will generate over the midterm after construction after ramp-up, a growth for the company of 8% to 10%. Why only 8% to 10%? Because this is further out. during these 5 to 7 years, the company will have grown significantly. And so while, yes, you have in your mind, this 1:1 ratio between sales between CapEx and peak sales. This is in 7 years. And so the company will have grown, therefore, not giving you 10% to 13% growth, but roughly 8% to 10%. The remaining growth will come from our base assets. Don't forget, we are investing into our base assets to continue to grow every single year. This is a very attractive growth because, yes, you don't rebuild everything, you basically improve and you increase capacity of existing assets. together, again, roughly 10% to 13%. These 2 model match, and this is why we feel strongly and we're highly confident about the growth we can generate. My last slide on sales. and showing you why we are confident in the midterm growth, everything we need to grow to 2030 exists. All the large growth projects are existing. They are either ramping up or they are in the late stage of construction. What will drive growth by 2030, foremost the assets you see on this chart. Vacaville, here, of course, significant growth driven by 2030. Our 20,000 asset in Visp, another key growth driver for the company. Portsmouth, small and mid-scale assets also be important by 2030. And then you see commercial bioconjugation, several assets in Visp, ramping up over time, significantly driving growth in the midterm. And then we have another load of smaller growth projects Remember, highly potent API assets or drug product assets that we built in Stein, Switzerland, all of these will also contribute. And then we have our base, which is very predictable, which will also deliver to growth by 2030. The story and Wolfgang mentioned that the story doesn't stop in 2030. We are investing today to grow for the next decades. And you've heard us this year already announcing 3 projects and there will be more to come based on the renewed infrastructure strategy that Wolfgang shared with us today. Where and which projects we will need, this you'll hear soon from us over the next months and years and therefore, high confidence for the growth for 2030 and preparing already and laying the foundations for the growth post 2030 into the next decade. Let me shift gears to our margin expansion. 2024, we reported just slightly above 30% core EBITDA margin. 2026 this year, we're telling you and we reconfirm today that our margin will be between 33% and 34%. How do we go from here? And what are the actions that we've put in place over the last 2 years that shows the path to the high 30s. Mainly 3 drivers of margin. They're actually not very different from the 3 drivers I told you back in 2024. First, maturing growth projects. The growth project you saw driving top line are also the one that over time as the increased utilization have better cost absorption will grow their margin. So the maturation of maturing of our growth projects is one key driver of margin improvements. Number two, commercial and operational excellence. This is what we do day in, day out. These are the metrics that Wolfgang shared with you on how we drive the organization to have better margins in all our assets. And I'll get to this in a second. The third one probably many company present operating leverage, generating economies of scale in new administration. We will not grow our administrative cost as fast as we grow sales. We have actually the ambition to grow significantly less. How do we do this? We invest in technology, of course, including AI, we invest into new systems, to standardize, to harmonize, to make us faster and to make us more transparent for us to be enabled to do what we need to do every year a little bit better. Now bear in mind, we will continue to invest more into R&D and into technology. So what we will save money every year on administration. We will continue to invest in R&D. We will continue to invest in technology to keep our technological and scientific leadership. Let me double down on how we grow gross margin. You see 2 concepts here on this slide, 1 being our asset capacity optimization and on the other hand, portfolio mix optimization. These 2 are interlinked and intertwined. On the left, asset capacity optimization is really about driving 2 things: increasing the capacity of an asset, and increasing the margin you generate out of this asset. Over the last 2 years, we've built for every single asset, a multiyear plan that actually drives these 2 axis upwards. How do we do this? You see this at the bottom, things like downtime optimization, debottlenecking, cycle time improvements. And Gordon will actually touch on this and give you more examples and more data actually on the biologics network. This is really the bread and butter for a manufacturing company. On the right, portfolio mix optimization, why is this interesting? This is what you do if you assume an asset to be -- to have a finite capacity. If you think you cannot grow the capacity anymore, what do you do? You still look at every single product that you produce in this asset and you try to increase the margin of that product. How do you do that? You can reprice. You can do process development and process improvement. You can find maybe a better asset to transfer that product because it's more profitable in another asset and back to you with a more interesting new product. And we do this all the time. And the beautiful thing about portfolio mix optimization is to increase margin with limited to no incremental capital. This is much cheaper than building a new factory. So we do this all the time. And I think we've grown and we've shown you that example before, we've grown the margin of our small molecule business platform at the time, over 10 points by doing a combination of these 2 things. So this works, and this is what we have in front of us for all our assets in the network. So number three, in the structural growth compounder cash. Cash is king. Margins are important, but margins don't matter if you don't extract the cash out of the margin to be able to fund our future and to reinvest that capital. So over the last 2 years, we spend a lot more time, a lot more effort, a lot more organizational focus to actually drive cash and drive cash conversion. Again, how will we do this over time? 3 levers. They're not new. Many companies apply them. We've doubled down on really focusing the organization on these 3. One, EBITDA margin improvement. I just spoke to you about this. These are the drivers. We will grow margin. This will increase the cash available to the company. Number two, higher CapEx efficiency. Now with our CapEx already at a level that is for us steady state, we told you the model is between 14% to 19% CapEx in percent of sales. We are in that range today. And so the intensity of CapEx is not something that will drive a lot of increasing cash flow conversion. Nevertheless, this is something we need to focus and our engineering and operations teams are constantly looking at ways to invest or to build assets more cheaply, more effectively, more quickly. Number 3 is something that is much more important, which takes a lot of effort. This is trade working capital management. We are a capital-intensive business. We are a working capital-intensive business, but this is not something that we need to take as a constant as a given. We need to work on this. We need to work through ways to liberate cash out of working capital, which includes, of course, looking at inventory, which includes looking at quality release times, which looks at standardizing raw materials across the organization having a better visibility of our inventory across the company. As I mentioned in the past already, we are investing into a new SAP S/4HANA system called NEXUS, which will give us a lot more visibility on our inventory which will harmonize process across the organization and allow us to drive and to work on trade working capital in a much more effective way over the next years. Now once we have the cash, we reinvest that into growth. And you've seen that page back in 2023, actually. And while this page depicts our world as phases, Phase 1, 2, 3, 4. This is not how we run our investments. We run a continuous cycle of investments, always looking at where do we find pockets in the market where there's demand that we can fulfill at high returns. For lustrative purposes, we show this to you on a graph with phases. Why? Because this shows beautifully how you first invest, then comes to revenue. And the beautiful thing is once these revenues are here, they stay for a very, very long time. We have durable cash flows and returns and sales coming from these assets for decades. And this is what this page shows very well. That's why we kept it. And please don't keep in your head that these are phases and we suddenly start Phase 4 and Phase 5. We don't do that. But this page, I think, shows beautifully what's happening and how the business model works. As you can see at the end, we have the phase that starts in 2026 with these 3 new assets. Now 3 assets will not make it. We will continue to add and add and add new assets. Another key thing to note here the ROIC on all these periods is at or above 30%. So we've delivered on the return on these phases and on these assets according to our threshold. And this is what gives us the confidence to drive ROIC over time to 2 to 3x current WACC. How will ROIC grow? That's what I have on my next page. 2025, we reported a ROIC of 12%. From here, 3 things will take ROIC to 2 to 3x of WACC. Number one, higher profit margins, again, shows you the importance of driving margins and the discussion we had in Wolfgang had this, and I had this. Number two, higher CapEx efficiency. Again, we're spending 10% to 13% of capital on growth. We need to be very efficient to deliver more capacity at a lower price point. Third, lower trade working capital intensity. These 3 drivers will drive our ROIC to 2 to 3x today's WACC. Now important at every single point in time, our ROIC includes what we call something like a capital stock. This is capital we have already invested for future growth. This is always part of the ROIC today. This is growth that will come in the future revenues, returns that will come in the future. Second, we have infrastructure and goodwill. Like many other companies, we need infrastructure. We need wastewater treatment. We need warehouses. We need quality buildings. They don't generate any revenue. They don't generate any return, but you need them. So our underlying run rate ROIC, if you want, is much higher and will be much higher than 2 to 3x WACC. Now we often get the question, Philippe tell me, did the assets deliver. Did you pass asset deliver? And that's what you see on the right. We've depicted a few assets that are at or clear or very near to their full utilization into their peak utilization. And you see that these assets -- and these are large assets, you can -- I'm not going to go through them. You can take a look at -- these are really large assets. They are all delivering above 30% ROIC today. And so by adding more of these assets over time, this is what we lift ROIC to the levels we're predicting for the midterm. Our capital allocation framework, I'll be very quick because we haven't changed it. We kept it this works for us. This starts by really having priority #1, which is to invest in our current base assets. we need to secure the future. We need to make sure that these assets continue to operate at the best level. Number two, our commitment to dividends, we have now 10 years of progressive dividend policy, and this will continue. New this year, yes, we are expecting the proceeds from the partial exit of CHI. This should come this year, roughly CHI 1.7 billion that we will get. And this then creates what we call discretionary capital or discretionary cash. We used this cash to reinvest into organic and inorganic opportunities at high returns and being diligent and disciplined on where we invest and how we invest that money. I will not repeat our organic because Wolfgang just did so. Should we not be able to find opportunities to invest the capital need organic or inorganic, we will return that money to shareholders. We've done this in the past. We've also promised a $500 million share buyback and as soon as CHI closes. On the right, you see that as the company grows, margins improve, cash conversions improve, our leverage will go down significantly over the next few years. providing significant flexibility to do either more investments, organic or inorganic or actually returning money to shareholders. So bringing this all together, a high, high conviction for our 10% to 13% growth over the midterm. We have the assets in place. We know how to get and where to get that growth. Second, we've put all the actions in place to deliver margins that will always -- that will grow and our core EBITDA to grow ahead of sales with a new ambition to be in the high 30s. And Add on to this, our increased focus on cash, our increase for ROIC and this creates the beautiful model that we call a structural growth compounder. Now I would love to hand over already to Daniel, however, I owe you a Q3 update. So shifting gears to the very near term after speaking about the future, we are very happy today to report that we can confirm our outlook that we increased back in July. We are on track. We had actually a very momentum during Q3, allowing us to confirm 2 things. One, our growth for the year of 11% to 12% in constant currency and our margin outlook, which was upgraded in H1 to 33% to 34% of core EBITDA margin. [indiscernible] words by platform, just to give you a short snapshot on Integrated Biologics, again, a very healthy growth momentum across the platform, both for Mammalian and for drug product. You'll see this, you are in Vacaville for the people that are here for the people online. Vacaville is progressing well. We are on track with our construction. We told you that there is a shutdown for one of the assets in Vacaville. This is ongoing and this is on track. And then our large-scale Mammalian facility in [ Phase ] is actually also ramping up as planned. For Advanced Synthesis, we continue to see great opportunities across both small molecules and conjugation in the market remains a very attractive market. Important to note for Advanced Synthesis because they had a fantastic first half. We mentioned that. This was a very H1 loaded year for Advanced Synthesis. So the growth is expected to be more or less flat for the second half. This is versus a very strong H1 and versus a very strong H2 last year. And so this is by no means an indication of the dynamic of this business or of the prediction for next year. This was expected. This is developing as we had elected back in the first half. Cell and gene doing really well on -- or Specialized Modalities, sorry, doing very well on cell and gene. A little bit of a catch-up from H1 and showing good growth in that business. Microbial really performing -- continue to be performing well. And then our Bioscience business normalizing after a very strong first half this year. So also here for specialized modalities, everything on track as expected in July. to finish this Again, we had expected and we are expecting a headwind from a dollar versus the Swiss franc. This is not new. The latest view with rates as of October would be probably a headwind of 2% to 3% on our top line. And with that, I'll close my section I'll welcome Daniel to take us through the Q&A and welcome back Wolfgang on stage.

Very good. Thank you very much, Philippe. Thank you very much, Wolfgang. Just setting a little bit of organizational background. We will now quickly start preparing the stage here for 2 to 3 minutes until Wolfgang and Philippe can come back. I will quickly use that time to introduce myself. Most of you know me, of course. My name is Daniel Buchta, I'm Head of Investor Relations here at Lonza. Pleasure to have you here also from my side. Just very briefly, I mean, obviously, IR has told me a lot of things. You can show as many slides as you want, but there will be always questions, I'm happy to take them. Give us a quick moment, please. Welcome back, Wolfgang. Welcome back to Filipe. So how are we going to do with the 1 second? It's always interesting so. We would start here in the room, as you already did. Is your hands, please quickly state your name, institution request would be to limit it to 1 question. I know 1 question can be very long. Please try to stick to that one. Starting here in the room, we would like to ask the first question. James?

James Quigley with Goldman Sachs. Thanks for that, that was brilliant. So you've reiterated the CDMO growth corridor of 10% to 13% based on 14% to 19% CapEx. But with the current guidance you're currently delivering 10% to 13%, but over the past 5 years, you spent 20% to 30% on CapEx. So how do you reconcile the difference here? What are the inefficiencies in the previous CapEx, a slower ramp of those facilities? Why is the growth on the forward-looking CapEx faster or more efficient than the backward-looking CapEx or why is the high-intensity CapEx period not driven faster growth?

Yes. Thank you, James. So maybe I take first part of the answer. First -- probably twofold. For one, indeed, there has been some, let's say, catch up has to be invested into infrastructure...

I think your mic is not working. You want to turn it on.

I'm to repeat. Can you hear me now?

Very good.

Sorry for that. Thanks, James, for a great question, probably twofold. First of all, there was some catch-up CapEx to be invested, the company in terms of infrastructure. systems from what we didn't do in the late 2010s. And second part is, and I kind of shared the approach that we kind of amplified and changed over the last 2 years in terms of CapEx efficiency, how mindful are we about defining the right scope? How mindful are we about really investing at a top-tier technical reference cost level. So these are the answers and what you're currently seeing in terms of this equilibrium somewhat of a top line growth of 10% to 13% on average over time kind of accompanied by a CapEx intensity of mid- to high teens of percentages of sales is what you can expect from us going forward to deliver upon our organic growth model. I don't know anything to add from your side, Philippe.

No, I think you've said at all. I think maybe a few assets that, of course, did not have this durability. I think 2 that you're all aware of, 1 is our site in China that actually was invested into and then closed with a small biologic sites for DS and DP. And then, of course, the Moderna investment, which was a great business opportunity and a great thing for the world, but which, of course, did not have the durability. So these are just some examples that, of course, things sometimes do not fully work, but otherwise, nothing to add.

Very good. Thank you, gentlemen. Let's continue there on the back side and another James, actually.

It's James Vane-Tempest from Jefferies. We've heard a lot about ROIC today. I think at the first half in the Q&A, has mentioned that ROIC is currently close to 2x WACC. So a midterm target of 2 to 3x with improving margins and the levers you mentioned, what drives the lower end being approximately the same? I'm just kind of curious if, in the framework you've given if that's more the investments may need to be remaining high? Or if you think your cost of capital is going up or if it's just many conservatism?

Let me start. I probably would rather see it as an improvement over time. surpassing the our threshold to then further increase. So it's more time dimension. I don't know anything...

No, I think this is it. I think, again, right, there's always variability in what we do and the years in which you make, again, when we tell you margins of high 30s, this can also be a couple of points different. This will always depend on the actual delivery on these growth projects, right? And so I think you need to give us some leeway to manage this and sometimes maybe also continue to invest ahead of what we have planned. So there is variability in the delivery over the next 5 years, which is just normal course of business.

And for the sake of completeness, your question of is it kind of anticipating increasing WACC, that's not what we try to build into the model because no 1 knows, which is why this somewhat addition of back as of 2026 kind of makes sense. But we thought rather than giving a percentage figure. It might be just more tangible to say, I mean 2 to 3x our cost of capital. That's the potential that we see in Lonza, which I thought is a right message for you. Thank you.

Zain?

Zain Ebrahim, JPMorgan. Thanks for the presentation as well, it was great. Questions on ADC market. So I think in 2023, you said the ADC conjugation market was maybe just north of EUR 1 billion. 2028, you're expecting it to be about 1.8 billion to 1.9 billion at that point in time. So just can you remind us where we are now in terms of the ADC conjugation market size roughly? And more specifically than that, how your market share has evolved since 2023 within that market how you're thinking about that longer term as well in terms of your market share development, given a lot of the origination on some of the new ADCs that coming out of China.

Well, thank you, Zain. Maybe to start with, we actually don't share specific market shares. But what we share is we are the market leader in that space. And we are the one which actually have been able to bring commercial ADCs to the market. And we have the commercial capacity as one of the few [indiscernible] in the world and expect to continue to grow in this very attractive modality. What we also need to keep in mind is, I mean, how to define the value of that market. There is a math in it. There's a payload in it, a linker, biocomgation and probably also drug product. So I mean, our MAP revenues related to ADCs are not part of the Advanced into business platform revenues, they are actually part of the Integrated Biologics revenues. So I guess the key takeaway is we are the market leader in that space in terms of commercial volumes, capacity in terms of ability and proof points having brought commercial ADCs to the market. We are the market leader in terms of the breadth of the ADC toolbox in terms of payload, linker and different offerings in terms of how to manage the release of the payload. And we are actually very happy about that business and how it evolves over time.

Very good. Let's say we take one more question.

Maybe a thought because this question of why Lonza operates as a multimodality as CMO. And I hope that I was able to actually explain this box of 1 molecule is in it, it never leaves again. And let's make sure that as many molecules that you get into that box. That's 1 thought. But if you ask yourself, why Lonza I mean, has been able to develop this very strong position in the market. Think about it. We had small molecules, highly potent APIs. We had maps at the time. we actually have been able to also do formulation development works. So essentially, when the modality, I mean, started to take off, we have been ready to build it all together. And with the complexity of future modalities ever increasing, and we have the capabilities, and we are ready to take on the next manufacturing challenge. And one of our most complex molecules or I probably wouldn't call it a molecule anymore, but rather conjugate actually consists of more than 30 components, all of them in the end in the drug substance itself. This you cannot do if you're just a map player, right? You need to be able to master it all, and that is what makes us special at Lonza. If that is a useful thought for you.

We take 1 more question from the room, then we go to the online audience and then, of course, come back. No worries. Let's take Charles from RBC.

Charles Weston from RBC. My question is around the 10% to 13% CapEx -- for growth CapEx. You're going to end up with substantially more cash than you could spend in a 10% to 13% growth CapEx window as part of your 14% to 19%. You're happy to spend some of that excess cash in acquisitions which, in the case of [indiscernible] is kind of like accelerated CapEx, but not necessarily in organic CapEx because you've given yourself that narrow window. So there seems to be -- I don't know, I'm confused in my mind that you're happy to sort of spend CapEx in an inorganic way, but not in a nonorganic way. So can you just talk about how you think about how that constrains you.

No, thank you, Charles. I think a great question. And maybe going back to the organic growth model itself, which is not a static thing, right? It's kind of built on what we see in terms of underlying market opportunities. If that should ever change, we would adjust the model. It would go up or down for one. Second thought is in terms of the number of high-value opportunities from the market coming our way. It's not that we would leave opportunities on the table, right, in terms of us applying the financial thresholds to deliver the returns. And the improvement of returns as we just shared with you, I mean this is probably the growth rate that we currently see in terms of those high-value organic market opportunities. my second to last slide was about M&A indeed. And I think the headline was kind of accelerating the organic growth model. So as I mean, opportunities arise, which actually survive the test of more model provides for value. Lonza engine provides for differentiation. We will be ready to double down, which then also can lead as an outcome to a step-up in terms of the starting point for the next organic growth, and we see acquired asset becoming part of our base, right? And depending on the kind of the archetype of M&A that we expect to be able to execute over the next years, we will have to talk about them in a different way. Let's assume Vacaville, for example. We kind of took it on board with Roche business, which wasn't really CDMO business, right? It's just what happened to be in the site and enabled us to take it over without spoiling our P&L. So I mean, what we didn't do at the time is telling you, look, this Roche business is actually not growing. If anything, it's going down until 2028. But we stick to our top line growth ambition within the organic growth model, but there might be cases where we actually take on an underutilized pharma asset where we actually need the period to really transform it as an asset and also as a business into a CDMO business, which then needs to grow within our 10% to 13% on average over time again. If we acquire a CDMO business, probably the expectation is it should grow at the same pace as our existing base CDMO business. So that's probably how we should look at it. So kind of M&A providing depending on the archetypes for step-up leading to a higher CAGR, of course, but then continuing to grow after transformation within the remit of our organic growth model. Does that make sense?

Thanks sir.

Looking at Chorus Call, can we get the first question from the webcast, please?

The first question from the phone comes from Thibault Boutherin from Morgan Stanley.

Just to come back on the innovation to launch integrator concept and your comments about integrating molecules from preclinical or Phase I. When we look at the current trends in the biopharma industry, what we see is more and more innovation coming from the China biotech ecosystem. Some [indiscernible] from China before being in licensed by international companies for Phase 2 or more. So can you talk a little bit about the consequence for Lonza for your business model and give us color on molecules that have originated from China. And then under the being fast, we loom manufacturing on the line.

Thank you, Thibault, for the question. had our time to understand, but I assume that actually the transcript reflects what you are asking us. First of all, it is about how we deal with the increasing amount of innovation China -- coming from China and how that translates into what we do at 1 side, is it an opportunity? Is it a threat? Is it anything? So I guess my answer to that is, first of all, we are a global company and our -- I mean, our self-reflection, ourself identity is that in any innovation, I mean, independent from where it's coming from, we should be the place to take it from innovation to launch. And that applies to Chinese innovations [ as far ]. So in the end, we need to set up ourselves in a way that, I mean, both U.S., European, Chinese innovation is something that we can turn into an opportunity for our customers and patients. So where are we today and to kind of provide you some anecdotal evidence here. So we are already developing and manufacturing innovative molecules that have been developed by Chinese biotech companies, household. And this is the example actually after one of our clients announced an acquisition of the Phase II asset out of China. They actually called me and told me Wolfgang, I need a different supply chain. What I acquired in terms of clinical efficacy is great, great product, but the supply chain is horrible, right? And if you think about what defines the value potential for a pharmaceutical company acquiring an innovative pharmaceutical asset, it's 2 things: it's clinical efficacy and its availability. I mean, every day that you actually lose and are not able to supply from the day of launch is missed peak sales opportunity, right? So this is a key ingredient for the success of our clients, and we are the partner being able to build robust, resilient, high-tech supply chains for all the Western markets for any key modality in our portfolio. So this is example one. Example 2 is how do we get closer to Chinese innovator themselves, not relying on Western funds [indiscernible] companies acquiring and bringing it to us, which is always right? But we need to get close to biotech innovation in China. So where are we in this regard? We have a strong site in [indiscernible], which is a small molecule side, which increasing R&D capabilities, offering services based on linker technology based on our ability to develop small molecules to Chinese biotech innovator. So that's already happening today by design. We are also providing our technology, be it the GS expression system, the linker technology, [indiscernible] to Chinese innovators, and they are using it. already today. And with our technology in it, we have a great starting point to later become the party to take it from innovation to Western markets. So there's a clear strategic intention within once to make sure that we -- and actually, in the end, patients worldwide benefit from Chinese innovation as well. What we will most likely not do is to actually expose ourselves to the Chinese market in the sense of developing Chinese innovation in China for China because that's probably the place where we shouldn't try to compete. So whatever we will do to make sure that innovation from China lands in our assets will be in an asset-light shape of form.

Very good. Thank you, Wolfgang. I think that was probably the biggest challenge of the day, at least so far.

I hope I actually hit the question. I'm not sure.

I think the direction was right.

Directionally right. That's not a complement, I guess but good enough for today, I guess.

Can we have the next question from the webcast, please.

The next question comes from Falko Friedrichs from Deutsche Bank.

How do you view the current M&A landscape in the industry? And how likely do you think that attractive assets could come to the market over the next, let's say, 1 to 2 years? And do you already have certain indications that such attractive assets could become available for sale?

Yes. Thank you, Falko. A quick answer is, first of all, I think it's only fair and you can expect that from us that we are transparent about our intentions to talk of both organic investments, but also M&A. And I think we have been. Otherwise, for me, a strict rule applies we only talk about M&A as soon as we actually have signed a deal for one. But otherwise, it's still fair for you to ask, I mean, how is our view on the potential pipeline. What I can tell is the strategy and M&A team that we have been building since the middle of 2024 is, first of all, a strong team, a very capable team, and actually is building a strong pipeline of potential M&A opportunities. in doing so. And I say that with all respect, we, of course, talk to professional advisers, investment banks because from time to time, they actually bring great ideas and unlock assets which could be attractive to Lonza. However, we don't sit and wait, and we are actually not shy in proactively approaching owners of assets, which would actually be a great fit to Lonza. And while they might not even know that they eventually will sell the assets, we will actually start conversations early on, and this is now not Lonza but my past at a different company, the best deals that I have been able to actually attend to have been those which are prepared for years. So that you -- especially with private owners start a conversation early on to then be ready as soon as the time has come. So what I'm trying to say is, you're not trying we are proactively approaching owners, and we will let you know as soon as we have found the right asset and have been able to acquire it at a value-adding valuation.

In the interest of time, let's come back to the audience here. Taking Charles here.

Charles Pitman-King from Barclays. So one key question we have from investors is just in terms of and improving ROIC over time, especially in a world of potential rising competition and the ongoing discussion around potential overcapacity. So just in terms of the ROIC targets you've given us today, can you comment a bit more on kind of how you're seeing pricing evolve with kind of capacitalization knowing pricing is relatively less in focus for pharma companies, but also just what assumptions you made to protect the downside risks?

Yes. Let me start with world of rising competition. First of all, if -- as soon as you start to be complacent and overconfident that is the point in time when you start losing. I'm the opposite of that. We at One Lonza are the opposite of that. So we are very mindful. At the same time, we are also -- we have total clarity about how to differentiate and I did my best today to explain this very special moat that we have created within Lonza to you, which is hard, I would say, to replicate for others. At least it would take a lot of money and a lot of time. So for me, it's clear when it comes to really answering the key questions for our customers, which is efficacy, not our business, but manufacturability. We are the place to go and continue to be the place to go and that is in itself a giving us confidence that we will be able to deliver on our business aspirations for one. The second question is around overcapacity on this one kind of linked to the first part of my answer. I don't see us being in a capacity raise, just not right? We define the amount of market opportunity coming our way and then define what that means for our capacity expansion, right? We are not in a capacity race because what we're offering is very different and is very differentiated as compared to many other offers in the CDMO space. capacity on that, again, we are very mindful of how capacity and demand evolve over time. We shared it on a global view, part of my presentation. The thought that I didn't really elaborate on was that in the world, how it's evolving, the global supply-demand equation doesn't really matter that much anymore because people are looking for more regional supply-demand balances. And here, we continue to see a very healthy structural undersupply in the key regions where we believe as long to we can extract most of the value, especially in the U.S., where there is continued structural undersupply and nothing that has been announced as of today by any CDMO including us, all the big pharma companies will fundamentally change that. Also in this regard, not only healthy business model, but healthy market dynamics. The assumptions to protect downside risk in the end is being excellent and delivering on our value proposition and that will keep customers with us. So why -- again, let's always be mindful the future is uncertain but we believe we have all the reasons to be confident to be able to deliver on our promises. Anything to add?

No.

Taking also someone from the right here. Odysseas maybe.

Odysseas from BNP Pariba. Can I ask 1 on the quarter. So could you explain why demand on Bioscience is normalizing in Q3 as and what drove the strong H1 that's not there in Q3? I'm asking because we haven't heard any of your bioprocessing peers call underlying deceleration on the media side yet.

Do you want to take it?

Yes. Thanks, Odysseas. I wouldn't kind of read too much into this. I think we had a very strong first half for our Bioscience business. And this is a very niche business, right, that is not representative of the overall supply or tools business overall or industry. I think we have a few businesses where we have a more concentrated customer pool, if you want, and we had large orders in the first half that didn't repeat in the second half, which we were not supposed to repeat in the second half. And so that's why we call this normalization. This is not kind of a slowdown or anything. It's just a normalization. So don't read too much into this. It's a healthy business, just imbalanced first and second half.

And maybe using that opportunity, and we had that discussion during half year reporting. So I mean, when you think about what you can expect from us in terms of future growth, we don't do the math like H1 being super, H2 being not kind of normalizing and this is kind of not the case. I mean if you think about our future, take 2026 as we will deliver it. And that's a starting point for us to continue to grow within, let's say, the framework that we shared with you today.

Very good. Progressing. Yes, Paul.

Paul Knight at KeyBanc. You mentioned earlier that you would gain perhaps 100 to 200 basis points on outsourcing from global biopharma. Do you have examples of how much they could save or have saved by outsourcing? Is it 10%? Is it 50%? I think we're in the facility today is 1 great example of that decision being male. And ultimately, it just seems conservative that you're guiding maybe 1% to 2% and outsourcing to me seems dramatically higher in this world of biologic production.

Thank you, Paul. And to make sure that I answer to what's the right KPI. When you say savings, it's CapEx savings, right?

Manufacturing cost.

Manufacturing cost, right? Yes. Maybe actually, I don't have a precise figure in my mind. For that, it's more a directional view, which we substantiate of course, but leading us to the 1% to 2%. But what is interesting, though, and I didn't elaborate on that. But if you look at the figures that I shared for the historic and expected CapEx of big pharma going forward, being at 3% and then growing at 6% to 7%. It means constantly kind of not adding the necessary amount of capacity to their own networks that they would need to support their own growth. So that I think it's a strong indication for the thesis of outsourcing continuing. In terms of manufacturing costs and how much more efficient, let's say, outsourced suppliers, there's also not one size fits all answer to that. But what is true in the end is that we, as a [indiscernible] high utilization through flexibility in our assets. I would there saying also through efficiency, right? How we -- how diligent, how intense we are in terms of operational excellence, we create the space to earn the margin that we need as a return on our assets. So that for a pharmaceutical company, it actually makes sense to not invest themselves, but rather outsource to us. There is one additional element, which is not so much a Cox argument, but it's right off argument. I think we all remember those incidents were actually big pharma companies in the expectation of the next blockbuster in Phase III being in the making investing CHF 500 million, CHF 1 billion, CHF 1.5 billion. And then I have a famous example in mind, I won't share, then this falling apart right off of 1 bill. I mean this kind of additional write-off of course, in the sense of kind of opportunity costs is also coming on top of the overall economic equation, which is strongly in favor of outsourcing to reliable, high-quality vendors like Lonza.