Memorandum

Ypsomed F1H20 – Sales of $193 Million Decline 26% YOY; YpsoPump in Talks with CGM Partner, to Launch in US “Mid-2021” – November 19, 2019

Executive Highlights

  • Ypsomed reported F1H20 sales of CHF 191 million (~$193 million), declining 26% YOY. Diabetes Care revenue was cut in half (-51% YOY) to CHF 92 million (~$93 million) on a tough comparison to 28% YOY growth in F1H19 when Omnipod distribution ended. Excluding revenue from Ypsomed’s Omnipod distribution in Europe during F1H19, Diabetes Care revenue rose 14% YOY in F1H20.   

  • Sales of myLife YpsoPump increased 18% YOY, and there were 12,500 YpsoPump users in Europe and Australia at the end of September. That represents an 8,000-user gain from one year ago. The device was also approved in Canada in May, though Ypsomed is still working on securing reimbursement.

  • YpsoPump will be submitted to the FDA by the end of 2020 (calendar), with expected US launch in “mid-2021.” Ypsomed hopes to launch with CGM integration in the US, and it is in talks with “one of the two CGM companies.” The pump is delayed from its original “summer 2019” US launch timeline, though Ypsomed is working on updating the pump to be an interoperable (open-protocol) ACE Pump, allowing CGM and algorithm partners to interact with it – and keeping pace with Tandem and Insulet. The open protocol version will be ready by the end of this year (calendar) for clinical trials in Australia.

Ypsomed announced financial results for the first half of fiscal year 2020 (April 1, 2019 to September 30, 2019) on a call led by CEO Mr. Simon Michel. See all our top highlights below.

Financial Highlights

1. F1H20 Sales of CHF 191 Million Down 26% YOY; Diabetes Care Declines 51%, Delivery Systems Rises 34%; 12,500 YpsoPump Users

Overall Ypsomed sales of CHF 191 million (~$193 million) declined 26% YOY, driven by a 51% YOY decline in Diabetes Care revenue. Diabetes Care revenue totaled CHF 92 million (~$93 million), down 51% YOY on a tough comparison to 28% YOY growth in F1H19. As a reminder, Ypsomed’s distribution agreement with Insulet delivered CHF 101 million (~$102 million) in revenue during F1H19, including a $50 million exit fee paid by Insulet to Ypsomed with the expiration of agreement. Removing the Omnipod-related revenue from F1H19, revenue from Ypsomed’s continuing operations in Diabetes Care actually rose a solid 14% YOY. Ypsomed is still seeing some revenue from Omnipod as Ypsomed-owned DiaExpert is Insulet’s distribution partner in Germany; that channel generated sales growth of CHF 11 million for Ypsomed in F1H20. The Delivery Systems business grew a robust 34% to CHF 91 million on an easy comparison to 9% growth in F1H19.

  • Sales of myLife YpsoPump increased by 18% YOY, matching the 18% YOY growth from F1H19. On the earnings call, CEO Mr. Simon Michel stated there were around 12,500 YpsoPump users at the end of September, representing an 8,000-user gain from the same time last year. The pump is available in Europe and Australia and received regulatory approval in Canada in May, though Ypsomed noted that there no sales in Canada as the company works on securing reimbursement. Citing “demand decline in the USA,” Diabetes Care’s pen business fell slightly, while the BGM business remained stable.

  • EBIT profit rose 71% to CHF 9 million (~$9 million) from CHF 5 million (~$5 million) in F1H19. Note that this represents Ypsomed’s “continuing operations” (i.e., excludes Omnipod). Cash flow from operations totaled CHF 33 million in F1H20, a downtick from the prior year (CHF 54 million).

  • Full-year revenue guidance was reduced slightly from CHF 415 million (~$419 million) to CHF 400 million (~$404 million). The company cited currency effects and the delayed launch of YpsoPump in Canada as reasons for the guidance reduction. EBIT profit is expected to come in between CHF 21-25 million.


2. Arbitration Proceedings with Insulet to Continue Until 2021 for CHF 45 Million in Expected Compensation

Ypsomed initiated arbitration proceedings against Insulet in December 2018. Insulet was expected to transfer CHF 50 million (~$50 million) to Ypsomed as compensation for establishing Insulet’s European distribution structure. This expected income was booked by Ypsomed already, but Insulet has only paid Ypsomed ~$5 million so far. The arbitration is expected to last until 2021 for the collection of an expected balance ~$45 million. As part of the arbitration, Insulet issued a counterclaim for $19.7 million, citing “insufficient sales efforts” (per Ypsomed’s update). Insulet has not talked about this on recent earnings calls.

Pipeline Highlights

1. YpsoPump to Launch “Mid-2021” in US with CGM Partner; YpsoPump SmartLoop (Hybrid Closed Loop) Trial to Begin by End of Year

In a major update to YpsoPump’s US timeline, the company now expects to submit its tubed pump to the FDA by the end of the 2020 (Calendar), with expected approval in “mid-2021.” That timeline is in line with Ypsomed’s May update, though the touchscreen durable pump was originally filed with the FDA back at the end of May 2018, with launch in “summer 2019.” Of course, the pump landscape has changed meaningfully in 2019 with the creation of the ACE Pump indication – both Tandem’s t:slim X2 in February and Insulet’s Omnipod Dash in September. Notably, Mr. Michel stated that Ypsomed is collaborating with “one of the two [US] CGM companies” to create a more compelling product. Presumably this is either Dexcom or Abbott but there was no information on this. He pointed to Tandem, in particular, as a company that was really pushing the envelope with CGM integration and emphasized the need for YpsoPump to have CGM partners to help compete in the US market.

  • “In the US, we have decided to upgrade the product. We had been convinced to launch the regular pump as we have it in Europe, without CGM. But we understand now that when we look at Tandem and Medtronic, America is more into a combined product proposition. Tandem is really pushing CGM, as well. We are convinced if we want to be successful and want to spend the money on marketing and sales in our own organization in the United States, we must have a competitive product. That’s why we are now working on the collaboration with one of the two CGM companies. We hope to be able to communicate that in the coming couple of months. [We will] integrate the product over the coming 10 to 12 months into our system, so we can then resubmit by Q4 2020 [calendar] with an expected approval in mid-2021.” We hope they also get a closed loop plan in place shortly. – Mr. Michel

  • In a brief update on Ypsomed’s “SmartLoop” – smartphone-controlled closed loop – we learned the company expects to be “ready for a regulatory pathway” in around two years. Ypsomed is currently updating YpsoPump to be open-protocol (i.e., ACE pump), meaning CGM and algorithm partners can interact with the device. We’d imagine the best pathway here would be for Ypsomed to focus on the pump component, and then entrust partners to build the smartphone control algorithm (e.g., Tidepool Loop). The first open pumps are expected to be shipped “before the end of the year” (calendar) to Baker Institute in Australia, where the first clinical trials will begin. The interoperable myLife YpsoPump project is part of JDRF’s Open Protocol AID Systems Initiative and received a two-year grant from JDRF to support development back in 2018.

  • Last month, Ypsomed announced YpsoPump data integration with Glooko through the myLife smartphone app. The cloud-to-cloud integration means that no cables will be needed to upload pump data to Glooko – it will go from the user’s pump to the myLife app (via Bluetooth) to Glooko. Mr. Michel noted that this will make life “much easier and much quicker for users and [healthcare providers].”

2. No Updates on YpsoPod Patch Pump; YpsoDose Patch Injector Use Study Completes with Positive Results

Though briefly mentioned on the call, there were no notable updates on Ypsomed’s tubeless patch pump. Per the FY19 Annual Report, design implementation of the YpsoPod patch pump was expected to have completed by F1H20 – it’s possible that has not happened, as given no update. In the last update, the device was expected to launch in late 2022/2023, though this timeline is quite far out and will undoubtedly change. The device aims to be distinct from Insulet’s fully disposable, tubeless Omnipod and “similar to [Roche’s] Solo.” Manufacturing patch pumps at scale and obtaining regulatory approval is no easy task (e.g., BD’s much-delayed type 2 patch pump), so we’ll be eager to see if Ypsomed can execute on this.

  • In July, Ypsomed conducted a small usability study (n=17) for its large volume patch injector device, YpsoDose. Data from patient interviews were overwhelmingly positive, with users reporting high levels of confidence, ease of use, and comfortability. The YpsoDose single-use injector is an electromechanical pre-filled and pre-assembled patch device compatible with a standard 10 ml cartridge. Needle insertion, injection, end of injection feedback, and needle safety steps are all performed automatically. YpsoDose is intended for treatment of autoimmune diseases and in immune-oncology. It’s unclear whether the device has any long-term diabetes plans, though it could theoretically be prefilled and used to deliver a weekly GLP-1 agonist (our speculation). This should give Ypsomed experience making patch-like devices at scale.


 

--by Albert Cai and Kelly Close