Memorandum

Ypsomed F1H21 – Sales of ~$216 million, up 5% YOY; Diabetes Care declines 9% YOY but Delivery Systems is up 19% YOY; YpsoPump yet to be submitted to FDA for ACE clearance; YpsoPod patch pump development project sold off – November 3, 2020

Executive Highlights

  • In F1H21, overall Ypsomed sales of CHF 199 million (~$216 million) rose 5% YOY (+7% operationally) on an easy comparison to 26% YOY decline in F1H20. The 5% YOY growth was driven by 19% YOY growth in Delivery Systems. In contrast, during the first half of FY21, Diabetes Care revenue fell 9% YOY to CHF 84 million (~$91 million); half of the decline can be attributed to negative currency effects, while the other half management attributed to declines in myLife YpsoPump sales due to the ongoing COVID-19 pandemic. Offsetting the ~$9 million YOY decline in Diabetes Care revenue, Ypsomed’s Delivery Systems business revenue rose by ~$19 million to CHF 108 million (~$118 million). Growth in Delivery Systems revenue can be attributed to the YpsoMate autoinjector platforms, as well as 22% growth in Ypsomed’s pen business.

  • Sales of myLife YpsoPump dropped by 14% YOY in the F1H21, falling behind 18% YOY growth in both F1H20 and F1H19. Management attributed this decline to the COVID-19 pandemic, which made it “hardly possible to convince new users to use an insulin pump.” Due to the pandemic, sales of YpsoPumps to new customers fell 50% YOY during F1H21.

  • FDA submission for YpsoPump is now slated for “June-ish 2021,” in line with May expectations for “mid-2021” submission, though a six-month delay from F1H20 plans to submit by the end of 2020. The company plans to submit the pump in a two-step process, first as a class II “traditional” pump, and then as an ACE pump in “December-ish Q4” 2021 or “Q1 2022.” Per today’s presentation, the company expects market approval “by mid-2022”; this compares to plans for US launch in “Q1-Q2 2022” as of May. Ypsomed reiterated that it is finalizing an “important US partnership” for distribution of YpsoPump in the US when approval is eventually secured.

  • Ypsomed noted that its development of its AID system, the mylife Loop Program, is “on track.” Again in the semiannual report, Ypsomed reiterated its three-step plan: (i) integrate YpsoPump data with Dexcom G6 (deal announced in May) so that all the data can be viewed in the mylife app (mylife Assist; App Store; Google Play); (ii) enable smartphone control of YpsoPump insulin delivery through mylife Dose; and (iii) offer optional integration of the Dexcom TypeZero algorithm into the mylife app to automate insulin dosing (mylife Loop). As of May, data integration was expected by the end of 2020 and per today’s call, “is well underway.” Smartphone bolus control launch is now slated for “June 2021” and closed loop launch for the end of “22, beginning of 23.”

Today, Ypsomed reported its financial results for the first half of fiscal year 2020 (April 1, 2020 to September 30, 2020) on a call led by CEO Mr. Simon Michel. See the Semiannual Report and presentation, then read our top highlights below.

Top Five Highlights

1. F1H21 sales of CHF 199 million up 5% YOY (+7% operationally); Diabetes Care declines 9% YOY, but Delivery Systems rises 19% YOY; no YpsoPump userbase update

In F1H21, overall Ypsomed sales of CHF 199 million (~$216 million) rose 5% YOY (+7% operationally) on an easy comparison to 26% YOY decline in F1H20. The 5% YOY growth was driven by 19% YOY growth in Delivery Systems. In contrast, during the first half of FY21, Diabetes Care revenue fell 9% YOY to CHF 84 million (~$91 million); half of the decline can be attributed to negative currency effects, while the other half management attributed to declines in myLife YpsoPump sales due to the ongoing COVID-19 pandemic. In Diabetes Care, Ypsomed also saw a 12% YOY decline in pen needle sales and a 9% YOY decline in BGM sales. Offsetting the ~$9 million YOY decline in Diabetes Care revenue, Ypsomed’s Delivery Systems business revenue rose by ~$19 million to CHF 108 million (~$118 million). Growth in Delivery Systems revenue can be attributed to the YpsoMate autoinjector platforms, as well as 22% growth in Ypsomed’s pen business, namely UndoPen and FixPen. Also, in positive news for Ypsomed, sales in the company’s contract manufacturing segment rose just over 10% YOY this quarter. Net profit totaled CHF 7 million (~$7 million), down 14% YOY from CHF 8 million (~$8 million) in F1H20.

  • Sales of myLife YpsoPump dropped by 14% YOY in F1H21, falling behind 18% YOY growth in both F1H20 and F1H19. Management attributed this decline to the COVID-19 pandemic, which made it “hardly possible to convince new users to use an insulin pump.” Due to the pandemic, sales of YpsoPumps to new customers fell 50% YOY during F1H21, and the vast majority of new YpsoPump starts were for experienced pump users, who initiated YpsoPump therapy through online trainings. The impact of the pandemic differed by market geography. Markets in countries hit harder by the pandemic (i.e., France and UK) saw “double-digit declines” whereas countries that experienced only moderate pandemic impacts (i.e., Switzerland and Germany) saw “single-digit range” operational YpsoPump revenue increases. Given YpsoPump is only available in Europe and Australia, it’s not surprising to see a bit more COVID-19 impact in those geographies where patients rely more on hospitals for diabetes care.

  • EBIT profit fell 8% to CHF 8 million (~$9 million) from CHF 9 million (~$9 million) in F1H20. Per the semiannual report, this can be attributed to strong turnover utilization of production capacity for pen systems and for contract manufacturing. Ypsomed ended F1H21 with 22 million CHF (~$24 million) in cash and cash equivalents, increasing from 13 million CHF at the beginning of FY21.

  • Ypsomed did not offer full-year guidance because “a reliable outlook for the Group remains difficult, particularly due to the imponderabilities concerning the possibility of gaining new customers for insulin pump therapy.” However, based on today’s report and the recent uptick in COVID-19 cases in Europe and new wave of lockdowns there, we would surmise that the rest of FY21 may not see major improvements from F1H21, especially not in YpsoPump sales. In the semiannual presentation, Ypsomed shared that FY21 guidance for a “slight increase in sales and still further growth in operating profit” despite the pandemic, as well as a medium-term EBIT target of CHF 100 million (~$109 million) in ~3.5 years.

2. YpsoPump FDA submission slated for “June-ish 2021” as a traditional pump, followed by ACE pump submission in “December-ish Q4”; currently “finalizing an important US partnership”; YpsoPump mylife AID program “on track”

FDA submission for YpsoPump is now slated for “June-ish 2021,” in line with May expectations for “mid-2021” submission, though a six-month delay from F1H20 plans to submit by the end of 2020. The company plans to submit the pump in a two-step process, first as a class II “traditional” pump, and then as an ACE pump in “December-ish Q4” 2021 or “Q1 2022.” Per today’s presentation, the company expects market approval “by mid-2022”; this compares to plans for US launch in “Q1-Q2 2022” as of May.

  • Today, Ypsomed shared that it is “finalizing an important US partnership” for YpsoPump and “hopes to be able to communicate in the coming weeks.” During today’s call, CEO Simon Michel suggested that they moved the announcement out a few weeks because “today, the third and fourth of November, are quite full with topics in the US” (read: the election). The identity of the distributer is still yet to be disclosed. However, in May, Mr. Michel shared that the distributor is a “strong player in the field of diabetes,” is very interested in YpsoPump, and is “very well set-up to do this business.” The distribution partnership will be white-label, meaning the product will be manufactured by Ypsomed, but branded by the distributor. In today’s call, Mr. 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.”

  • Ypsomed did not offer an update on YpsoPump’s userbase. Last we heard in May, YpsoPump had “approximately 14,500 active users,” which represented ~2,000 new adds since November when we heard F1H20 financial results. At that point, the company noted that they had “planned for almost twice as many new users for the fiscal year” and saw significant room for improvement. As a reminder, in the past, CEO Simon Michel has stated that the company needs ~50,000 YpsoPump users for the product to be profitable.

  • Ypsomed noted that its development of its AID system, the mylife Loop Program, is “on track.” Again in the semiannual report, Ypsomed reiterated its three-step plan: (i) integrate YpsoPump data with Dexcom G6 (deal announced in May) so that all the data can be viewed in the mylife app (mylife Assist: App Store; Google Play); (ii) enable smartphone control of YpsoPump insulin delivery through mylife Dose; and (iii) offer optional integration of the Dexcom TypeZero algorithm into the mylife app to automate insulin dosing (mylife Loop). As of May, data integration was expected by the end of 2020 and per today’s call, “is well underway.” Smartphone bolus control launch is now slated for “June 2021” and closed loop launch for the end of “22, beginning of 23.” Notably, Ypsomed already has two committed customer orders for YpsoDose, the smartphone control software for YpsoPump.

3. YpsoPod patch pump development project will be sold to TechMed AG for CHF 13 million (~$14 million) at start of 2021; Ypsomed has option to buy back YpsoPod when market-ready

Announced in the semiannual results presentation, Ypsomed will sell the YpsoPod patch pump development project to TechMed AG. TechMed AG is controlled by Willy Michel (YpsoMed CEO Simon Michel’s father), “basically [selling] the development program into our family.” YpsoPod will be sold for CHF 13 million (~$14 million) at the start of 2021 (January 1). So far, Ypsomed has invested “roughly CHF 9 million” in the product, and after the deal closes, TechMed AG will invest an estimated CHF 75 million into the project over the “coming years.” Once the product is market-ready, Ypsomed will have the option to buy back the YpsoPod product. Per the presentation offloading YpsoPod development will help increase “financial flexibility for investments and also increases resources for activities that will improve profitability faster.”

4. Other development updates: developing YpsoMate Zero to be world’s first carbon dioxide-neutral autoinjector; YpsoPump Explorer App offers virtual insulin pump tutorial

In striving for an ambitious goal of carbon dioxide-neutrality by 2030, Ypsomed is developing the world’s first CO2-neutral autoinjector, YpsoMate Zero. The environmentally sound autoinjector uses alternative plastics and reused packaging materials, and Ypsomed will “compensate for the remaining emissions” through purchased certificates and later in 2022, via their own reforestation program. Ypsomed also aims to partner with a variety of companies to launch “a whole range of Zero products.”

  • Ypsomed has also developed a new app, the YpsoPump Explorer App, that allows those interested in starting on YpsoPump therapy to “virtually experience” the pump with a 3D display of the device and the ability to explore its functions virtually. Ypsomed believes that this will be particularly useful in driving sales during the COVID-19 pandemic.

5. Expanded manufacturing capacity in Schwerin, Germany for YpsoMate autoinjector (“doubling capacities”) and myLife YpsoPump Orbit infusion set and in Solothurn, Switzerland for pen production

Today’s semiannual report offered several manufacturing updates for a variety of Ypsomed products. Due to expanded demand for the YpsoMate autoinjector, Ypsoped is expanded production Schwerin, Germany, “doubling capacities” with a 10 million infusion set capacity line. The device is already manufactured in Burgdorf and Solothurn, where additional manufacturing capacities are being added, and will to be produced on additional production lines in Schwerin in “spring of 2021.” Also in Schwerin, Ypsomed is installing a fully automated plant for building its myLife YpsoPump Orbit 2.0 infusion sets, which were previously manufactured manually in Mexico. Orbit 2.0 production in Schwerin is set to begin “in the second half of 2021.” Additional manufacturing capacity for the pen components of Sanofi and UnoPen is also being developed in Solothurn, Switzerland.

Analyst Q&A

Q: I just wanted to ask on the Pod again. I mean, what's the reason to kind of move back into kind of private development? Was that purely to kind of save the P&L? Is it kind of a purely financial loop? Or can it be developed faster, better in the kind of private hands? Thank you.

Simon Michel (CEO): Thank you for the question. It's definitely mainly a financial topic. And it is also my expectations that the team is going to work more independently. I mean, they're all basically staying in our offices, it's all the same people, it's 35 people working on the program. And then perhaps they have, they're probably a bit less disturbed by corporate stuff. So, my expectation is that our programming there is going to use this freedom in order to be quicker and more brave in decisions.

 

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