Last month, Lonza announced its intent to divest its Capsules and Health Ingredients (CHI) business, signaling a strategic pivot toward building comprehensive, world-leading CDMO capabilities. While the CHI business has faced some challenges in recent years, particularly rising competition from Asian suppliers of empty capsules, it remains a highly profitable division poised to attract the interest of significant investors.
A Legacy Built on Strategic Vision
The CHI division began in 2017, when Lonza acquired Capsugel, a global leader in gelatin capsules, for $5.5 billion. This transformative acquisition propelled Lonza into the capsule manufacturing sector, broadening its footprint in both pharmaceutical and nutraceutical markets.
Despite a challenging 2024, CHI has been a strong performer historically. In 2023, it contributed CHF 1.161 billion in sales, representing 17% of Lonza’s total turnover.
From COVID Mirage to Market Reality
In the post-pandemic boom, CHI rode a wave of surging demand and limited supply, achieving impressive growth: high single-digit sales growth in 2020, followed by 4.4% in 2021 and 5.1% in 2022. However, strengthening competition began to impact these gains. When demand softened due to the destocking effect, CHI’s financials took a hit—an 8.3% decline in 2023 (2.4% in constant currency), followed by a 9.2% drop in the first half of 2024 (6.1% in constant currency). These pressures accelerated Lonza’s decision to divest the business.
Resilient Market Fundamentals
While recent results may overshadow CHI’s potential, the business rests on robust and sustainable foundations. Kline + Company has mapped the global empty hard capsule market annually since 2019 and Lonza remains the dominant supplier worldwide. With the former Capsugel’s extensive manufacturing footprint and diverse product portfolio serving both pharmaceutical and nutraceutical markets, CHI is well-positioned for future growth.
Empty capsules are benefiting from strong market trends. In the pharmaceutical segment, the growth of biologics—where capsules generally serve as the preferred delivery method when oral delivery is possible—offers immense opportunity. The nutraceutical segment is equally promising, fueled by rising consumer demand for health and wellness products. In this segment, the vegan movement is reshaping capsules demand, and Lonza has the portfolio depth to take advantage of this move away from gelatin-based products.
Health Ingredients Business Poised for Further Growth
Besides its Capsules business, Lonza CHI’s portfolio includes various science-backed health ingredients, many acquired through InterHealth in 2016. These ingredients are used in a variety of nutraceutical and animal/pet health products. Lonza CHI is the market leader in several of its ingredient categories, such as UCII® undenatured type-II collagen, wherein Lonza has a revenue market share of over 65%, according to Kline.
Lonza CHI’s ingredient portfolio offers benefits such as healthy aging, gut and immune health, enhanced sports performance, and weight management, aligning with key consumer concerns for 2025 and beyond. This positions Lonza CHI strongly to capitalize on the expected 5–7% growth in the global nutraceuticals market in the coming years.
The Health Ingredients business complements the Capsules business for supplement applications, positioning Lonza CHI as a key provider of formulation support. However, Lonza’s portfolio and formulation support are less developed in the rapidly growing functional food and beverage sector.
How Kline + Company Can Help
With our deep industry insights, strategic advisory expertise, and a proven track record in guiding successful acquisitions, Kline is uniquely positioned to help you navigate this opportunity. If this prospect aligns with your growth ambitions, let’s start a conversation about how we can help you achieve your strategic goals.
For more information, please contact:
Sunanda Desai, Vice President, Global Practice Lead, Chemicals & Materials
Nikola Matic, Vice President, Chemicals & Materials
Dr. Elizabeth Thundow, Vice President, Food & Nutrition
