Ypsomed FY18 – Record high sales of $477 million driven by 28% Diabetes Care growth (mostly Omnipod); YpsoPump FDA submission imminent; CGM in mylife app by next march – June 1, 2018

Ypsomed reported strong, Omnipod-driven FY18 results in a call led by CEO Mr. Simon Michel last week. Read on for our top highlights from the call and get the press release and annual report here.

Financial Highlights

1. Record High FY18 Sales of CHF 466.1 Million Up 20% YOY, Driven by 28% Diabetes Care Growth (mostly Omnipod); Delivery Systems Up 4%

Overall Ypsomed sales reached a record high CHF 466.1 million (~$477 million), rising 20% YOY on a tough comparison to 16% growth in FY18. The sales acceleration was driven by 28% YOY growth in Diabetes Care revenue, which climbed to CHF 315.2 million (~$323 million). Mr. Michel noted EU Omnipod sales of CHF 181.7 million (~$186 million) were responsible for a “large extent” of overall growth – that was an understatement, as Omnipod grew an impressive 50% YOY in FY18, driving 86% of Diabetes Care growth. Delivery Systems (e.g., insulin pens) revenue also increased, rising a modest 4% YOY to CHF 132.5 million (~$136 million).

• EBIT profit rose a solid 10% to CHF 61.1 million (~$63 million), with Omnipod contributing 50% of Ypsomed’s overall profit (CHF 34 million) and we’d guess the vast majority of the YOY profit growth. Mr. Michel cited the “totally normal” launch cost of the YpsoPump, which significantly depressed overall profit by CHF 18.0 million. He also noted Ypsomed’s decision to establish offices in several new countries (i.e. Czech Republic, Spain, Belgium, Australia, and Canada) as cost contributors in FY18.

Ypsomed Sales (FY14-FY18)

• Management guided for “similar sales” in FY19 as compared to FY18 and predicted an EBIT between CHF 61 million and CHF 76 million (~$62-$78 million). Mr. Michel explained that the range accounts for potential variation in the exit fees received from Insulet, which depend on the number of patients who remain on Insulet’s Omnipod following the distribution transition on July 1. The following year, FY20, will see a significant sales and profit decline without Omnipod for all four quarters.

• Mr. Michel proudly announced plans to develop “the world’s biggest infusion set line for Orbit” with an annual capacity of 10 million units (enough to serve over 80,000 patients, by our math). The production line is expected to be established in Schwerin by the end of 2019. This set will be supplied for Bigfoot Biomedical’s pivotal study, per an October 2017 supply agreement.

2. CHF 50 Million Expected in Final Omnipod Sales + CHF 40-55 Million in Exit Fees; Full Recovery in Three Years Following Loss of Omnipod

Per Ypsomed’s and Insulet’s announcements in July, Insulet will assume all Omnipod distribution, sales, marketing, training, and support in Europe starting July 1. Ypsomed expects CHF 50 million (~$51 million) in revenue from final Omnipod sales and anticipates receiving CHF 40 million to CHF 55 million in exit fees (~$41-$56 million). Mr. Michel emphasized that the exit fee estimate is close to the upper end of the range but will ultimately depend on the number of patients who remain on the Omnipod following the distribution transition. He explained that the two companies are “working together intensively” to ensure a “very smooth transition,” noting that it is “key” for Ypsomed to help Insulet in order to “get paid the deserved exit fee.” What a great way to align incentives for both companies, especially since Ypsomed has its own pump that it could theoretically shuttle patients to.

• Management expects it will take three years for sales to recover fully following the loss of Omnipod distribution. Mr. Michel expressed confidence in the ability for Ypsomed to remain largely undisturbed by the distribution termination, claiming: “it doesn’t really affect the way we operate.” Obviously, the pressure will be on YpsoPump and project commercialization in the Delivery Systems segment to scale pretty quickly and fill a very big revenue and profit hole, something that will be tough to execute on within three years – Insulet is only edging on profitability this year after more than a decade on the market.

Pipeline Highlights

1. FDA YpsoPump Submission by End of May; US Launch Expected by Summer 2019

Mr. Michel announced Ypsomed’s plans to submit the mylife touchscreen durable YpsoPump for FDA approval by the end of May (i.e., within the last week). Management later confirmed a May 30 submission. Per the slide deck, a US launch is slated for the summer of 2019, in line with previously expected 2Q19 FDA clearance. During his prepared remarks, Mr. Michel emphasized that the company plans for a “controlled launch,” expecting “sales realistically to start in mid-2019” – this was confusing, since a “summer 2019” launch would imply that anyways. Overall, the US expansion with a non-CGM integrated pump seems quite bold: the stateside pump market is more crowded than in Europe, and at least two companies’ AID systems are likely to be on the market by that time – Medtronic’s MiniMed 670G, Tandem’s Basal.IQ (under FDA review), and possibly Tandem’s Control.IQ (1H19 launch). Plus, both Insulet and Tandem generate most/all of their sales in the US, and both will be tough competition to the YpsoPump’s touchscreen and focus on simplicity. Can Ypsomed really pull off a successful launch and build a profitable business in the US?

• Mr. Michel noted that the YpsoPump is available in 16 markets (14 EU countries plus Australia and India), demonstrating an impressively rapid increase from just six countries in November. Mr. Michel anticipates expansion into an additional seven markets by the end of 2018. The annual report references Spain, Australia, and Canada as markets with particularly “great potential” to add new YpsoPump users.

• A Canadian YpsoPump launch is expected in October 2018, which would be head-to-head with Tandem’s upcoming international expansion and filling the hole left by Animas’ exit. Ypsomed estimates Canada has a population of 280,000 people with type 1 diabetes and 600,000 people with type 2 diabetes on insulin therapy. The annual report cited “encouraging growth in the number of new users of the mylife YpsoPump” but did not provide specific values. We might guess it’s less than 10,000 users at this point, but this is speculation on our part.

2. CGM Integration on mylife App Expected “This Business Year”; Pump Control from mylife Control App in Progress; Final Discussions for Closed Loop Algorithm

Mr. Michel described Ypsomed’s ambitious plan to “digitize” the YpsoPump system and bring increasing connectivity with BGM and CGM devices. The first step is connecting the mylife Unio Neva BGM to the mylife app via Bluetooth, which the annual report claims will “be available soon.” Management later clarified that Ypsomed hopes to integrate BGM this summer. Once connected, BGM values will inform the bolus calculator – as a reminder, YpsoPump does not have an on-device bolus calculator, since the display is fully icon driven. Recorded data can also be shared directly with providers and caregivers via the mylife Cloud. At ATTD, an Ypsomed representative shared that the bolus calculator will be available in May or June. Per our correspondence with the company, we learned that the bolus calculator is available within the mylife app in 16 countries – for now, users enter their blood glucose values manually. No specific timing was shared on today’s call, although Mr. Michel mentioned that Ypsomed is connecting BGM “now” – which could represent a delay from March-April timing provided on the November call.

• Ypsomed has also begun work on streaming CGM data to the mylife app. Mr. Michel acknowledged a CGM partner has not been announced, yet he is “quite optimistic” that CGM integration will be on the market “this business year” (i.e., by March 2019). Efforts are also ongoing to provide YpsoPump remote bolus control from the mylife Control app, which Mr. Michel believes will “support [Ypsomed’s] ambition to go closed [loop].” Per the company’s F1H18 call, remote bolusing from the mylife app was expected in 2019. Currently, SOOIL’s Dana pump is the only device on the market with remote bolusing, although Roche representatives shared at ATTD that Solo will eventually be controlled via a smartphone app. Insulet and Bigfoot are also Google partners on a feature called Android Protected Confirmation – we believe this is a matter of “when” for all pump companies, with regulatory and security standing as the biggest challenges.

• Ypsomed’s is in “the final discussions” with closed loop algorithm developers, though no hints were provided on when or who will be selected. During the F1H18 call, management announced plans to test the closed loop system with the YpsoPump in a pivotal trial in 2019. We might guess TypeZero or perhaps Cambridge could be chosen – the former has licensed its algorithm widely (Tandem, Roche, Cellnovo), while the latter does not have a commercial partner yet.

• Per the annual report, Ypsomed ultimately intends to integrate insulin and BGM/CGM data with GPS, calendar, or personal usage data. The mylife app would recognize behavior patterns and provide users with actionable recommendations via “push messages.” Specific timing was not provided in today’s call, but the annual report noted new app functions are “in the development phase.” This is the first we’re hearing that Ypsomed has aspirations to develop more advanced trend analysis features. These insights will be available to all mylife app users, but will also serve as one of the prerequisites for those on Ypsomed's closed loop system. The annual report mentions that “future automated systems” will bundle collected data and send it directly to the insulin pump as a therapeutic intervention or to the patient as a therapeutic suggestion. Mr. Michel did emphasize that users will be able to customize their management, with all levels of connectivity remaining optional. This functionality sounds a few years away from market, if we had to guess.

3. Conceptualization of YpsoPod Patch Pump by End of Year; Semi-Disposable and “Similar to Solo”

During his prepared remarks, Mr. Michel noted that a team of 35-40 people are working on the mylife YpsoPod patch pump, which is slated for final conceptualization in FY19 (i.e., by March 2019). The November call expected a launch of YpsoPod in late 2020/early 2021, which still seems doable if the R&D wraps up within the next year. Mr. Michel mentioned that the patch pump will be distinct from Insulet’s Omnipod and will be “similar to [Roche’s] Solo,” as it is intended to be a semi-disposable system – both reusable and disposable components. We’ll be interested to see how Ypsomed prices the YpsoPod given Mr. Michel’s comments that it will be “especially interesting from an economics perspective.” As noted above, it has taken Insulet more than a decade to get to profitability – building an economically viable patch pump is by no means easy.

• Per the slide deck, Ypsomed estimates that 12% of worldwide pump users are on patch pumps. For context, Insulet has nearly 150,000 Omnipod users globally, and assuming it is the vast majority of current global patch pump users (Cellnovo is still tiny and Valeritas is not really a “pump”), this estimated market share backs out to ~1.3 million total pumpers worldwide – if true, that means CGM could overtake pumps globally by the end of this year. (Per our Medtronic 1Q18 report, we estimate there are likely more than 1 million CGM users globally now, which could rise to ~1.5 million by the end of 2018 given Abbott, Dexcom, and Medtronic estimates alone.) Ypsomed expects the market potential for patch pumps to double to ~25% in the medium term “due to increasing competition” – likely a reference to Roche’s plans to launch Solo in 2018, more global Omnipod expansion, and presumably other patch pumps like EOFlow, Cellnovo, Kaleido, etc.  

--by Maeve Serino, Adam Brown, and Kelly Close