Memorandum

Lilly obtains exclusive US commercialization rights for Ypsomed’s YpsoPump and future mylife AID System – November 19, 2020

Executive Highlights

  • Today, Lilly and Ypsomed announced an agreement giving Lilly non-exclusive global and exclusive US commercial rights to Ypsomed’s mylife YpsoPump and the future mylife YpsoLoop AID system. Ypsomed had a conference call Thursday morning (in German and English!), shared a valuable presentation slide deck on the agreement here, and shared a compelling 60-second video here.

  • Under the terms of the agreement, Lilly will be responsible for market access, marketing, training, and “first-level support.” Ypsomed will handle “second-level support” and will maintain its position as the marketing authorization holder (i.e., handle regulatory work). As a white-label agreement, the pumps will be manufactured by Ypsomed, but branded under the Lilly name. Notably, in a reverse to the plans we’ve been hearing since 2017, despite the “massive effort” started at Lilly, the insulin giant will now rely on Ypsomed for the pump – including, presumably, pump design, engineering, design expertise, and algorithms – rather than continuing to build its own. The companies did not disclose the financial terms of the agreement, nor how revenue will be split on Lilly-branded pumps.

  • In the US, Lilly will commercialize a “version” of the YpsoPump with pre-filled cartridges for Lilly’s rapid-acting insulins under the Lilly brand name. Of course, this won’t be until YpsoPump is cleared by the FDA and launched stateside. As of Ypsomed’s F1H21 call, YpsoPump with smartphone control is slated for a two-step FDA submission process: first as a class II “traditional” pump in “June-ish 2021” and then as an ACE pump in “December-ish Q4” 2021 or “Q1 2022” with clearance expected “by mid-2022.” As of today, Ypsomed is targeting an “H2 2022” launch.

  • When cleared, Lilly will also have exclusive rights to commercialize YpsoLoop hybrid closed loop in the US. As a reminder, Ypsomed is developing its AID system in three stages: (i) mylife Assist (integrate YpsoPump data with Dexcom data in the mylife app); (ii) mylife Dose (remote bolusing); and (iii) mylife Loop (algorithm control). As of today’s presentation, the mylife Loop system is slated for FDA submission in 2022 with FDA approval expected in “H2 2023.”

  • Based on remarks from today, we believe Lilly has halted its internal insulin pump development efforts. Instead of pursuing the pump developed in partnership with design firm DEKA (announced in 2017), Ypsomed will take on all work on the pump, which will enable a quicker and easier path to market. Upon clearance of YpsoPump in the US, Lilly will become the only insulin manufacturer with its own insulin pump offering – patients will presumably receive other benefits like easily loadable insulin cartridges. By that stage, the field will presumably see an AID offering in the works. It is not known whether Lilly also has the right to develop its own AID system in addition to the one with Ypsomed, which as we understand, it will now not develop any part of, but only market and sell.

  • Partnered with the Ypsomed insulin pump, we expect Lilly may well have slightly better insight into how its insulins are being used in the real-world, as far as those using pumps – this could potentially help to improve medication adherence.

  • From a device perspective, Lilly’s entrance should make Ypsomed a far stronger player in the field. The exchange of competencies helps both companies but overall favors Ypsomed – they now have a commercialization giant that will presumably be able to offer greater convenience and lower price (that’s conjecture). While what it will take to battle Medtronic, Tandem, and Insulet clearly isn’t for the faint of heart, clearance of YpsoPump in the US will represent an additional player in an expanding market, ultimately driven by AID. Along with Beta Bionics’ pump, YpsoPump will be the first entrance of a new pump player in some time, following multiple pump players exiting the US market, specifically Cellnovo in 2019, J&J’s Animas in 2017, Roche in 2017, and Asante in 2015. This trend reversal is, of course, powered by AID. While Ypsomed’s pump has seen paced adoption so far outside the US, Lilly has significant payer and sales and marketing muscle that could drive some adoption and market share in the US, as long as it is shown that YpsoPump is neutral or better with all the factors that matter to an increasingly heterogeneous group of patients OR that the cost is significantly lower. We’ve seen other giants like J&J fail to pull off market share growth, but they did not have a corresponding market like insulin that was growing as a result of the pump placements – we look forward to watching Lilly expand the market. Rather than taking away share, this will likely expand the market faster – it will also probably lengthen the sales cycle further.

Preliminary Partnership Rationale and Details

Lilly gets…

Ypsomed gets…

  • The extended reach it sought in pursuing AID, first announced in late 2017 – the link to this announcement has been removed from the website but the related WSJ piece remains

  • Exclusive commercialization rights for an existing insulin pump platform – this is the fastest way forward

  • The opportunity to bundle and co-market its insulin with an insulin pump, and eventually, to create an AID system

  • More data on how Lilly’s insulin is being used in the real-world and potentially more value-based contracts

  • Differentiation from insulin competitors (i.e., Novo Nordisk and Sanofi) and a potential moat against biosimilars

  • To be a key integrator in AID while partnered with one of the biggest names in diabetes

  • The sales and marketing muscle of one of the biggest names in diabetes along with some of the strongest payer relationships

  • Access to the US market without the need to build out its own sales and support force

  • Access to other OUS markets bolstered by Lilly’s sales and support force

  • Strengthened product offering compared to other pump manufacturers (e.g., pre-filled cartridges, movement to AID with Lilly)

  • Financial support from Lilly (presumably)

  • Potential help from Lilly propelling expansion into primary care, type 2, and pharmacy channels

Today, Lilly and Ypsomed announced an agreement giving Lilly non-exclusive global and exclusive US commercial rights to Ypsomed’s mylife YpsoPump and the future mylife YpsoLoop AID system. Ypsomed hinted at the agreement during its F1H21 call a few weeks ago when the company shared that it was “finalizing an important US partnership” for YpsoPump that it hoped “to be able to communicate in the coming weeks.” Based on its 2017 announcement, we had expected Lilly to drive AID – either way, whichever company ultimately drives the AID, the two will be working together.

Under the terms of the agreement, and the reason we see the higher likelihood of Lilly driving AID, Lilly will be responsible for market access, marketing, training, and “first-level support.” Ypsomed will handle “second-level support” and will maintain its position as the marketing authorization holder on the pump side (i.e., handle regulatory work with the pump approval and potentially AID). This lines up with expectations shared on the F1H21 call. During that call, Ypsomed CEO Simon Michel stated, “We have a clear understanding that Ypsomed is not going to have its own brand in America, its own sales organization, its own processes. We’re going to have a small organization that will support in second-level support, in regulatory support, and logistics.” As a white-label agreement, the pumps will be manufactured by Ypsomed, and be branded under the Lilly name. Thus, we see the AID system as moving forward under Lilly, though the insulin delivery is powered by Ypsomed.

The companies did not disclose the financial terms of the agreement, nor how revenue will be split on Lilly-branded pumps or AID systems. Based on our assumptions and our impressions of the companies’ positioning, presumably Lilly provided financial support to Ypsomed. Lilly also declined to comment on its commercialization plans other than noting that “if the pump is cleared, we intend to use our long-established presence in the community to ensure that as many people with diabetes as possible have access to it.”

As a reminder, YpsoPump is a uniquely small insulin pump (“the size and profile of your standard business card; 1.6 cm thick) and is controlled via an icon-based touch screen. The pump has a smaller cartridge (160U), and during DiabetesMine’s Innovation Days earlier this month, the company demonstrated how easy cartridge changes were with the pump. With the Lilly agreement, cartridges pre-filled with Lilly insulin are coming and will make the process even easier. mylife YpsoLoop is Ypsomed’s AID system currently in development, which will use a YpsoPump with smartphone control and cloud connectivity, a Dexcom CGM, Ypsomed’s own algorithm, and pre-filled cartridges with Lilly rapid-acting insulins. While we are not clear whether Lilly will also develop its own AID system as described in 2017, it certainly has all the partnerships necessary to do so.

Timing for YpsoPump Appears to Be Around 2022

  • US Commercialization of YpsoPump. In the US, Lilly will commercialize a “version” of the YpsoPump with pre-filled cartridges for Lilly’s rapid-acting insulins under the Lilly brand name. Of course, this won’t be until YpsoPump is cleared by the FDA and launched stateside. As of Ypsomed’s F1H21 call, YpsoPump with smartphone control is slated for a two-step FDA submission process: first as a class II “traditional” pump in “June-ish 2021” and then as an ACE pump in “December-ish Q4” 2021 or “Q1 2022” with clearance expected “by mid-2022.” Launch timing during the F1H21 call was given as “Q1-Q2 2022” – a set of slides shared today by Ypsomed is targeting a slightly later “H2 2022” launch.

  • OUS Commercialization of YpsoPump. In some parts of Europe, YpsoPump has been available since 2016. While the pump is said to be currently available in 21 countries, including India, Australia, and Canada, in some geographies, it is barely launched due to COVID. As of the last official user base update in May, YpsoPump had a global user base of “approximately 14,500.” Under the terms of today’s agreement, Lilly has the option of c0-marketing the pump under Ypsomed’s mylife brand with Lilly insulins “as soon as the pre-filled insulin cartridges from Lilly are available.”

  • Commercialization of mylife YpsoLoop hybrid closed loop system. When cleared, Lilly will also have exclusive rights to commercialize YpsoLoop in the US. As a reminder, Ypsomed is developing its AID system in three stages: (i) mylife Assist (integrate YpsoPump data with Dexcom data in the mylife app); (ii) mylife Dose (remote bolusing); and (iii) mylife Loop (algorithm control). As of a few weeks ago, data integration was expected by the end of 2020 and is “well underway,” and mylife Dose launch was slated for “June 2021.” As of today’s presentation, the mylife Loop system is slated for FDA submission in 2022 with FDA approval expected in “H2 2023,” likely setting back the launch timeline from May expectations for the end of “22, beginning of 23.” Outside the US, mylife Assist is slated for launch in “Q1 2021,” mylife Dose in “H2 2021,” and mylife Loop in “H1 2023.”

Possible Competitive Implications

Based on remarks from today, we believe Lilly has halted its internal insulin pump development efforts although we are less clear about an AID system. Instead of pursuing the pump developed in partnership with design firm DEKA (announced in 2017), Lilly has chosen to partner with Ypsomed, likely offering a quicker and easier path to market. When asked about its partnership with DEKA, Lilly shared that it is no longer partnering with DEKA on the development and manufacturing of DEKA’s pump and that “as we assessed our strategy for our AID program earlier this year, we felt it was time to focus our resources on the area we are best suited to deliver, which is commercialization.” Based on remarks, we believe Ypsomed will be responsible for developing the AID algorithm used in the future Lilly/Ypsomed/Dexcom AID system in the US. While it’s unclear if Lilly still has any plans with its own AID algorithm obtained from Montreal’s ClassAP or another source, we would be surprised if it became only a component in AID after the extensive discussions.

While upon clearance of YpsoPump in the US, Lilly will presumably become the only insulin manufacturer with its own insulin pump offering, this represents a departure in what was originally positioned (in the Wall Street Journal in 2017, no less) as a drive toward AID – though the headline suggests perhaps that Lilly thinks being part of an AID system is enough and that it doesn’t need to build it itself or own most of the parts. We had thought Lilly’s Cambridge Innovation Center in Cambridge, established in 2015, had AID as one of its major goals – the arrival of the Joslin’s Dr. Howard Wolpert was heralded as a major win and if the company is moving toward insulin as the only contribution, this would be a pivot, but not particularly a surprising one (if it is backing away from building AID, that would remind us a little of Google Health’s initial foray into tear-based glucose monitoring back in 2015).

Regardless, when an AID offering of any sort (particularly any that has a preferable cost associated with it) comes to market, the ability for Lilly to co-market its own insulins with an AID system (especially with strong outcomes) could be a meaningful differentiator from its insulin competitors. While we aren’t sure the degree to which differentiated outcomes will be possible without a differentiated algorithm or insulin, Lilly could certainly compete with cost via insulin cartridges being part of a “system” and while it is quite different from what was originally anticipated, perhaps Lilly would prefer to offer insulin only rather than the entire system (see the “first look” at the system back in 2018). Or, perhaps it would like to develop its own AID system but also to be aligned with one developed by YpsoPump – we do not know what the agreement allows or doesn’t allow. It’s possible that the YpsoPump will give Lilly useful data – or possible that with an insulin pump, Lilly could have even better insight into how its insulins are being used in the real-world, potentially helping to improve medication adherence or future insulin analogs.

To our knowledge, Novo Nordisk and Sanofi still have their own connected device strategies, though neither has publicly disclosed plans for pump therapy. Presumably there have been multiple discussions – Medtronic and Sanofi had an agreement way back in the day that quickly disbanded. Novo Nordisk’s tracking pens, NovoPen 6 and Echo Plus, have gone unmentioned since November 2019 when a launch as early as 2Q20 was anticipated – it is unsurprising that the COVID-19 pandemic itself would have slown that down, as well as other factors. Sanofi’s plans are more elusive: Sanofi is paying Biocorp to develop a tracking device specifically for its pens, but whether it is directly investing in smart pens internally is unclear. Though Lilly’s internal pump development efforts appear to be over, the company remains committed to developing and commercializing its connected insulin pen platform, which it anticipates launching in the US and “several EU countries in the second half of 2021;” to boot, it may also still be developing an AID system, sans the pump hardware.

From a device perspective, Lilly’s entrance should make Ypsomed a much more meaningful threat to Medtronic, Tandem, and Insulet. Clearance of YpsoPump in the US will represent the first entrance of a new pump player in some time, following years of pump players exiting the US market (e.g., Cellnovo in 2019, J&J’s Animas in 2017, Roche in 2017, Asante in 2015). This trend reversal can likely be attributed to excitement for pump therapy driven by AID, as well as the FDA’s work around interoperability. While Ypsomed’s pump has seen some adoption so far outside the US, Lilly has significant payer and sales and marketing muscle that could immediately drive adoption and market share in the US. As mentioned above, co-branding with Lilly insulin and the ease of pre-filled cartridges could also represent a meaningful differentiator for some patients. In addition, Lilly’s sales and marketing force could open up YpsoPump, and pump therapy more broadly, into underpenetrated markets like primary care and type 2s. From a feature perspective, YpsoPump appears to be on par with its competitors, albeit without an AID offering (yet). The pump is slimmer and lighter than those of Tandem and Medtronic. Additionally, YpsoPump has plans for smartphone control, which we believe will soon become a fairly common feature for insulin pumps. During its 3Q20 call, Tandem shared that is has “recently” filed a 510(k) for smartphone pump control to the FDA. Insulet is also aiming to launch smartphone control with its Omnipod 5 launch (currently slated for 1H21). Additionally, Tidepool is hoping to submit its 510(k) for Tidepool Loop, with iPhone control, very soon

Q&A with Ypsomed and Lilly

Q: Can you share any more details on the financial terms of the deal? Is Lilly making any payment to Ypsomed? How will revenue be split on the Lilly-branded pumps? 

Lilly: Lilly and Ypsomed are not disclosing financial terms of this agreement.

Ypsomed: There are milestone payments agreed as well as volume-based pricing for pumps, infusion sets and supplies. We do not disclose further financial terms.

Q: Is there a timeline on the deal (e.g., three years, five years)? Does the partnership extend to future developed versions of Ypsomed pumps?

Ypsomed: Both Ypsomed and Lilly are committed to a long-term partnership. Our future developments of the YpsoPump system are an essential part of Lilly’s connected diabetes care solution. So yes, partnership extends to future versions.

Q: Why did Lilly choose to partner with Ypsomed over other pump companies? 

Lilly: We are committed to delivering connected solutions that meet the needs of the diabetes community and improve diabetes outcomes, including blood sugar control and time in range. We believe the flexibility and convenience of Ypsomed’s insulin pump, which stands out for its small size and its unique, icon-based touch screen, will complement our connected diabetes solutions and help improve outcomes among people with type 1 and type 2 diabetes. This collaboration with Ypsomed highlights our continued progress toward a holistic solution for people who use insulin, and their healthcare providers, to better manage the condition.

Q: Why did Ypsomed choose to work with Lilly to commercialize YpsoPump in the US?

Ypsomed: We have been analyzing the option to go direct building up an own sales force. But Ypsomed has the clear objective to grow by building a positive business model from day one. So a partnership with a strong and well-established player in the diabetes space was a consistent way to achieve that goal. Ypsomed is committed to people with diabetes since its inception 35 years ago. We have always put the patient in the center of our actions. With Eli Lilly we have found an organization and a corporate culture that fits very well to ours. Lilly looks at the needs of large populations of people with diabetes in a very holistic way. The Lilly leadership team has a very clear and convincing vision and is building what our industry has been waiting for for decades. Combining the drug with the device and leveraging this asset from a market access and also from a technological perspective. We consider this a highly innovative partnership between an insulin and a pump manufacturer.

Q: Customer support involving the CGM part of the system will go to Dexcom, correct?

Ypsomed: Correct – we’ll be there for second level support, and same goes for Dexcom since this is given by regulation.

Q: As part of the deal, has Lilly agreed not to develop its own AID system or an AID system with any other company?

Ypsomed: There is no contractual restriction like this fixed in our partnership agreement. From the nature of our cooperation and from the fact that both Lilly and Ypsomed contribute development to a system which, by the way is innovation that many people with diabetes have been waiting for for a long time, there is no point in evaluating different options. It’s a mutual commitment for development to bring to live a vision shared.

Q: Who owns the intellectual property?

Ypsomed: On the IP side, there is IP belonging to Ypsomed when it comes to the pump system and IP belonging to Lilly for the Lilly specific components like prefilled cartridges and Lilly-algorithm. At the same time, there will be shared IP on parts that come out of shared development.

Q: We are assuming the Lilly/Ypsomed AID system will use Dexcom CGM, at least initially — is this correct?

Lilly: Our commercialization agreement with Dexcom for our connected diabetes solutions remains the same.

Ypsomed: As announced by Lilly and Ypsomed, both have signed partnerships with Dexcom. Ypsomed has a license to integrate Dexcom sensors.

Q: Will the system use Lilly’s AID algorithm (from ClassAP)? 

Lilly: It’s important for us to pair our deep expertise in insulin with other companies to develop the best possible solutions and simplify diabetes management. Our collaboration with Ypsomed focuses on Ypsomed’s automated insulin delivery technology.

Ypsomed: We are working together closely on the further development of the AID system including our partner Dexcom. We’re are not concerned about what has been but how we can realize our shared vision. At this stage, we know where we’re going, but of course a couple of aspects on how to get there still need to be defined.

Lilly is also working on a more precise Controller by taking the insulin profiles from its new ultra-fast-acting insulin into consideration. The decision on which Controller and which algorithm we’ll implement is somewhat dependent on the time to get the data ready that the authority needs in order to clear the system.

We’re are evaluating different options at the moment. Which algorithm we’ll implement is somewhat dependent on the time to get the data ready that the authority needs in order to clear the system as a whole. Algorithms will not be our own development.

Q: How much capacity does Ypsomed have ready in terms of numbers of units possible to assemble?

Ypsomed: Right now, we’re producing about 40’000 pumps per year, but we can easily double and go up to until launch. The pump itself won’t be the bottle neck. Our new production site in Schwerin (Germany) has capacities to produce 10 million infusion sets and we have plans to double already, and our manufacturer in Mexico has doubled to 8 million sets per year as well.

Q: Can we assume that patients are going to have the cost advantage enabled by a partnership with Lilly?

Ypsomed: We’re introducing a solution that’s offering a holistic support for people with diabetes. From the nature of or cooperation we believe that we’ll be able to offer many advantages to patients. In terms of cost and reimbursement, we’re not in the position to give an outlook yet. That’s why we’re going into the US market with Lilly who has market insight we don’t have.

Q: Will this be a part of Lilly’s patient access program?

Ypsomed: Patient access program is Lilly’s commitment to society – it’s scope is in Lilly’s hand.

Q: Does Lilly still have plans to commercialize the pump developed internally and designed by DEKA? If so, what are the timelines for regulatory submission? 

Lilly: As we assessed our strategy for our AID program earlier this year, we felt it was time to focus our resources on the area we are best suited to deliver, which is commercialization. The DEKA and Lilly partnership brought their innovative pump much closer to helping people living with diabetes. While we are no longer directly partnering on the development and manufacturing of DEKA’s pump, we value our relationship with DEKA and would like to see their technology help people living with diabetes. 

Q: Will Lilly be hiring new sales reps to sell insulin pumps?  

Lilly: We aren’t able to comment on our commercialization plans at this point. However, if the pump is cleared, we intend to use our long-established presence in the community to ensure that as many people with diabetes as possible have access to it.

Q: What is the status of Lilly’s other connected care efforts (e.g., Tempo smart button, connected pen, AID algorithm)?

Lilly: Lilly is working to develop and commercialize our connected insulin pen platform and anticipates launching it in the U.S. and several EU countries in the second half of 2021.

 

--by Katie Mahoney, Albert Cai, and Kelly Close