Memorandum

Ypsomed F1H17 – France OmniPod launch exceeds expectations; touchscreen YpsoPump controlled launch in UK, Netherlands; Diabetes Care sales rise 23% – November 7, 2016

Executive Highlights

  • The mylife OmniPod patch pump launch in France “exceeded all expectations” – no exact sales metrics were provided, but the device has been “extremely well received” by type 1s. The pump continues to see “unabated growth,” now in 13 EU countries.
  • Ypsomed’s own mylife touchscreen durable YpsoPump soft launched in Europe in F1H17 (“a small number of patients”). Initial controlled launches occurred in the Netherlands and the UK, and studies are ongoing in Germany. Launches in Germany and Czechia (the new name for the Czech Republic, as of earlier this year) are expected this month, and regulatory submissions in Sweden, Norway, Denmark, and Italy will occur by March 2017. A lower age indication (<12 years) will launch in the “next calendar year,” and a manual reservoir fill option will launch in 2017.
  • Ypsomed Diabetes Care sales in F1H17 totaled CHF 113.4 million (~$116 million), growing 23% YOY, driven in part by OmniPod sales. Delivery Systems sales grew 12% YOY to CHF 64.2 million (~$66 million), driven in part by GLP-1 pens. Overall profitability increased an impressive 45% YOY to CHF 28.1 million (~$29 million).

Ypsomed reported F1H17 financial and pipeline results last week via press release, a semiannual report, and slide deck. This report shares the top highlights from the first half of the company’s fiscal year. As usual, these results are a good “read” for Insulet, as they indicate how international sales of Omnipod are doing – very well!

Ypsomed Diabetes Care Highlights

1. The mylife OmniPod patch pump market launch in France “exceeded all expectations.” No exact sales metrics were provided, but the report notes that the OmniPod has been “extremely well received” by patients with type 1 diabetes in France. The pump is now available in 13 European countries and is showing with “unabated growth” (albeit from a small base).

2. The mylife YpsoPump, approved by EMA for use with prefilled NovoRapid pump cartridge in June, launched in Europe in F1H17 with “very promising” feedback. Initial controlled launches occurred in the Netherlands and the UK (“a small number of patients”), and studies are ongoing in Germany. Launches in Germany and Czechia are expected this month, and regulatory submissions in Sweden, Norway, Denmark, and Italy will occur by March 2017. A lower age indication YpsoPump will launch in the “next calendar year.” A reservoir for self-filling with any rapid-acting insulin is expected in 2017. We summarize the pump’s pros and cons below.

3. The Ypsomed Diabetes Care business brought in CHF 113.4 million (~$116 million) in F1H17, achieving impressive 23% YOY reported growth. Interestingly, most of the growth from the half-year was derived from increased sales for third-party products via Diaexpert (an online diabetes supply store that sells BGMs, all pump brands, CGM, etc.) and the mylife OmniPod. 

Ypsomed Delivery Systems Highlights

4. Delivery Systems sales grew 12% YOY as reported to CHF 64.2 million (~$66 million). The press release cited numerous growth drivers: (i) increased sales with major GLP-1 agonist customers AstraZeneca and GSK (AZ’s Bydureon and GSK’s Eperzan/Tanzeum); (ii) numerous customizing and industrialization projects with existing and new customers for injection systems; and (iii) increased deliveries of components for Sanofi SoloStar disposable pens. We continue to think these pens are quite fantastic.  

5. Ypsomed is developing SmartPilot, a reusable add-on sleeve that transforms the single-use disposable YpsoMate auto-injector into a connected device. It passively tracks and transmits to a mobile app (see below) the injection time and the sequence of handling steps. An YpsoMate 2.25 (large-volume auto-injector) and YpsoDose (prefilled, large-volume patch injector) are also in development. No new details or timing were shared on Ypsomed’s CHF $50 million R&D investment into smart pens. 

Overall Business

6. Overall Ypsomed sales hit a record-high CHF 185.4 million (~$191 million) in F1H17, an 18% YOY gain. Notably, EBIT profit increased an impressive 45% YOY to CHF 28.1 million (~$29 million). It’s impressive to see profitability growing at nearly three times the pace of sales.

7. Ypsomed hopes to begin construction of a new manufacturing facility in Germany in calendar 1H17. Inauguration and start of production – initially of just UnoPen disposable pens and Ypsomate auto-injectors – are planned for the second half of 2018. Altogether, the facility will require a significant €50 investment and create approximately 200 jobs in the next six years. Pretty telling!

Ypsomed Diabetes Care Highlights

1. The mylife OmniPod patch pump market launch in France “exceeded all expectations.” Exact sales metrics were not provided, but the report notes that the OmniPod has been “extremely well received” by patients with type 1 diabetes in France. Insulet also commented in its 3Q16 call that demand in France was higher than expected this past quarter, driving record-high international sales of $19 million (up 41% year-over-year). This is a big market for Ypsomed, as reimbursement came through in early 2016 and France is one of Europe’s largest pump markets (over 47,000 pumpers as of Ypsomed’s May update). Through partner Ypsomed, OmniPod is now available in 13 European countries.

  • This Ypsomed update did not forecast patient base growth for the upcoming financial year, though an unmarked graph noted an “unabated growth trend” (see below). Insulet’s call last week indicated that it is still on track to achieve 20% growth in US and worldwide installed bases in 2016. This would take the worldwide patient base from 85,000 at the end of 2015 to just over 100,000 at the end of 2016. Approximately two-thirds of Insulet’s base is in the US, and assuming growth is 20% worldwide, Insulet would add ~12,000 patients in the US and ~5,000 patients internationally in 2016. With that in mind, we might assume each y-axis hash mark in the graph below represents ~5,000 patients.
  • The commitment to the OmniPod is encouraging to see, given Ypsomed’s own pump starting to launch in Europe (see below). Ypsomed has long maintained that the pumps target separate market segments, while Insulet has continued to reaffirm its commitment to this partnership. We’ll be interested to how both products co-exist and sell once the Ypsopump launch ramps. It is smart of Ypsomed to have both a durable and tubeless pump in its portfolio, something no other company has on the market right now. 

  • Other planned OmniPod launches (as of the May update) were not mentioned: Australia, Belgium, Czechia, and Poland. We assume these have not occurred at this stage, since none were mentioned by either company.

2. The mylife touchscreen durable YpsoPump, approved by EMA for use with prefilled NovoRapid pump cartridge in June, soft-launched in Europe in F1H17 with “very promising” feedback. Initial controlled launches occurred in the Netherlands and the UK (“a small number of patients”), and studies are ongoing in Germany. Market launch in Germany and Czechia will occur sometime this month, and regulatory submissions in Sweden, Norway, Denmark, and Italy will occur by March 2017. We’re not sure when Ypsomed will ramp up efforts, but the semiannual report indicates that the “first few months” will focus on gaining experience for future market development. Though Ypsomed has OmniPod distribution experience, manufacturing and launching its own pump is a much taller order. We’re glad to see the company proceeding cautiously.

  • We see the prefilled reservoir as a big patient win, eliminating hassle and cutting down the time that vial-and-syringe filling takes – saving two minutes per set change (our estimate) saves patients eight hours per year! The Ypsopump has a few other design advantages too: (i) a capacitive touchscreen navigated by swiping left to right; (ii) an entirely icon-driven interface (no words = language neutral for Europe); (iii) a light weight at only 83 g fully loaded (less than Tandem’s 112 g t:slim); and (iv) built-in Bluetooth.

Ypsopump Strengths

  • Prefilled NovoRapid insulin cartridges: faster set changes
  • Touchscreen (capacitive), OLED display easy to see in dark
  • Icon-driven display (no words, language neutral)
  • Light weight (83 g)
  • Built-in Bluetooth allows communication with smartphone app (displaying insulin-on-board)

Ypsopump Weaknesses

  • 160 unit reservoir may not be enough for many patients
  • No BGM or CGM integration
  • No insulin automation
  • No built-in bolus calculator (included in companion smartphone app)

Opportunities

  • Very low pump penetration in Europe – lots of runway for expansion
  • Portfolio of two pumps to drive greater HCP and patient interest
  • Easier to train pump may drive better uptake
  • Novo Nordisk partnership to help drive marketing?

Threats

  • Will the key barriers to pump uptake still stand: reimbursement/cost, wearing something on the body?
  • Cannibalizing OmniPod sales, given the overlapping ease-of-use focus?
  • Highly competitive pump market in Europe: Medtronic MiniMed 640G, Insulet OmniPod, Animas Vibe, Roche Accu-Chek Insight, Cellnovo
  • Better basal insulins reducing incremental advantage of pumps
  • Upcoming simple insulin delivery devices: J&J’s OneTouch Via [Finesse], CeQur’s PAQ
 
  • We’re not sure if Ypsomed has launched a mylife App for the Bluetooth-enabled YpsoPump, including an integrated bolus calculator. As of June, this was expected in “fall 2016.” The smartphone app will be able to read data from the pump, including insulin on board. Based on the IOB the app will calculate the bolus recommendation, and then the user will manually transfer the bolus to the pump (i.e., you cannot bolus from the pump). Ypsomed has also built a web-based data management platform to aggregate pump and other diabetes data.  
  • The successor version of the YpsoPump will launch in the “next calendar year.” The main difference between the old and new versions is that the current age limitation of 12 years will be lifted. We’re not sure how far down the age spectrum the new indication will extend, or whether any other pump features will be added.
  • According to the mylife Diabetes Care website, a mylife YpsoPump Reservoir for self-filling with any rapid-acting insulin, will be available in 2017. This single-use cartridge will grant patients the flexibility to use other insulins.

  • Ypsomed has uploaded a series of well-done instructional videos on YouTube containing instructions for operation of YpsoPump. Each short (<2 minute) video uses animations to explain a different function of the pump (unlocking the screen, programming basal rate profiles, changing the cartridge, etc.). This is great for improving usability of what already seems like a very intuitive pump.
  • Read a deeper dive on the pump here that we wrote several months ago.

3. Ypsomed Diabetes Care sales totaled CHF 113.4 million (~$116 million) in F1H17, achieving “impressive” 23% YOY reported growth. This came against an easy comparison, as Diabetes Direct sales grew 6% in F1H16. However, Diabetes Direct sales, at the time, didn’t include sales of Orbit infusion sets, pen needles, or the newly launched Ypsopump, making a direct comparison impossible. Most of the growth from the half-year was derived from increased sales for third-party products via Diaexpert (an online diabetes supply store that sells BGMs, all pump and CGM brands, etc.) and the continued growth of the mylife OmniPod patch pump. 

  • Interestingly, Diaexpert sells pretty much every diabetes device, including BGMs, all pump brands (including Medtronic’s MiniMed 640G), and CGM (Dexcom, Medtronic). Browsing the pump page reveals how Ypsomed can subtly drive OmniPod growth, as the pod is listed first among available pumps – by a wide margin. Roche’s Accu-Chek pumps appear about halfway down the page (below batteries and cases), and other pumps (Animas, Medtronic) appear on subsequent pages. Ypsomed’s own Ypsopump is not available through Diaexpert, surprisingly.

Ypsomed Delivery Systems Highlights

4. Delivery Systems sales grew 12% YOY as reported to CHF 64.2 million (~$66 million). Sales accelerated from last year’s update, when the business grew 8% and actually included two more product lines (Orbit infusion sets and pen needles have since been reclassified into Ypsomed Diabetes Care; see above). The press release cited numerous growth drivers: (i) increased GLP-1 pen sales to AstraZeneca and GSK (GSK’s Eperzan/Tanzeum and AZ’s Bydureon); (ii) numerous customizing and industrialization projects with existing and new customers for injection systems; and (iii) increased deliveries of components for Sanofi SoloStar disposable pens. 

5. Ypsomed is currently developing SmartPilot, a reusable add-on that transforms the disposable YpsoMate auto-injector into a connected device. SmartPilot slips over the disposable Ypsomate auto-injector like a sleeve. It passively tracks and transmits data to a mobile app (see below), including injection time and the sequence of handling steps (pressing against skin, triggering the injection, holding the auto-injector during the injection, and the end-of-injection). The add-on is expected to improve injection technique and consistency (guiding patients through the process), and will provide HCPs data on how often patients are taking their medication. After injection, SmartPilot is kept and the disposable pen is thrown away, a lower-cost approach than building the intelligence into every auto-injector.

  • We assume SmartPilot could be leveraged for GLP-1 agonists delivered via an auto-injector. The materials do not mention diabetes specifically, though this seems like the most likely application of this particular technology. This reminds us a bit of Lilly’s Trulicity though we’re not sure if the app is quite as cool as Lilly’s IDEO-inspired Trulicity app.

  • “The mobile app can be customised to meet specific therapy and patient needs. Supporting information may be an injection
map recommending patients where to inject next (Screen A) or the injection history where injection time, injection success, and patient self-reported wellbeing at the time of injection are recorded (Screen B).”

  • An YpsoMate 2.25 (large-volume auto-injector) and YpsoDose (prefilled, large-volume patch injector) are also in development. Due to the high injection volume (five or ten ml), Ypsomed sees higher applicability for YpsoDose in autoimmune diseases such as rheumatoid arthritis and for new therapeutics such as PCSK-9s.
  • No new details or timing were shared on Ypsomed’s CHF $50 million R&D investment into smart pens. In addition to the smart auto-injector work (see above), Ypsomed has also developed smart pen concepts for the disposable Unopen – the current vision is a reusable addition to the pen, and over time radical cost improvement to incorporate smart components individually into each UnoPen. This work could apply to insulin and we’ll be interested to see what comes of it.

Overall Business

6. Overall Ypsomed sales hit a record-high CHF 185.4 million (~$191 million) in F1H17, an 18% YOY gain. Notably, EBIT profit increased an impressive 45% YOY to CHF 28.1 million (~$29 million). It’s impressive to see profitability growing at nearly three times the pace of sales, particularly because Ypsomed is launching its own pump right now. The profitability growth also came on a difficult comparison to 50% YOY growth in F1H16. The increase in EBIT was stemmed from higher sales, increased production capacity, and efficiency improvements in production and sales processes. [In addition to Ypsomed Diabetes Care and Delivery Systems, the company has a small “Others” segment, consisting of contract manufacturer Ypsotec and assets not used operationally.]

7. Notably, Ypsomed hopes to begin construction of a new manufacturing facility in Schwerin, Germany (about a 1.5 hour drive from Hamburg) in calendar 1H17, and complete construction by mid-2018. Inauguration and start of production – initially of just UnoPen disposable pens and Ypsomate auto-injectors – are planned for the second half of 2018. Altogether, the facility will require a significant €50 investment and create approximately 200 jobs in the six years. Ypsomed views Schwerin as an ideal location for its new facility because: (i) Germany is part of the EU, which will contribute to legal and planning safety and also reduce the effects of currency headwinds from the strong Swiss franc; (ii) Schwerin offers a host of companies already engaged in healthcare, plastics technology, etc.; (iii) proximity to the port of Hamburg for trade; (iv) proximity to the Hamburg metropolitan area and to various universities and colleges make Schwerin an ideal location for attracting skilled labor; and (v) Schwerin and Burgdorf share the same language and culture.

-- by Brian Levine, Adam Brown, and Kelly Close