Memorandum

Ypsomed F1H16 – OmniPod patient base grows 19%; YpsoPump to launch in early 2016 in Europe; smart pens in development – November 2, 2015

Executive Highlights

  • Diabetes Direct sales rose 6% as reported in F1H16 to CHF 71 million (~$70 million). Excluding currency effects, sales would have grown 23%. The mylife OmniPod patient base increased 19%, which we estimate added a couple thousand new patients in Europe.
  • The in-house developed, touchscreen, durable YpsoPump received a CE Mark in September. Launch is expected in early 2016 once the prefilled insulin cartridge secures approval.
  • Ypsomed is investing CHF 50 million in the coming years on R&D related to smart pens. The company is working on smart pens via internal R&D and a new partnership with Thinfilm. The near term vision for disposable pens is a reusable attachment; over time, smart components might be integrated directly into the pen.

Ypsomed announced F1H16 sales last week via semi-annual report. Our top six highlights are enclosed below.  

Diabetes Direct Business

1. Diabetes Direct (mylife) sales rose 6% as reported to CHF 71 million (~$70 million). Excluding currency effects, sales would have grown 23%. The announcement specifically highlighted new market Italy, which “significantly exceeded expectations.” Ypsomed again said the OmniPod was an “important factor” in the “satisfying” results.

2. The mylife OmniPod patient base increased 19% in F1H16. We estimate this added a couple thousand new patients in Europe. Ypsomed did not share further sales figures or show growth charts (as in past updates), suggesting things have slowed down from the most recent Ypsomed updates (50%-60% growth in OmniPod sales). The 19% patient growth is more encouraging than Insulet’s reported international sales, which are down 53% YOY in 1H15 ($11.4 million) on inventory de-stocking (according to Insulet management). The wide discrepancy is confusing and we’re looking into that with both companies.

3. The in-house developed, touchscreen, durable YpsoPump received a CE Mark in September, though launch must wait until the prefilled insulin cartridge secures approval (expected in early calendar 2016). This is behind the previous expectation for a fall 2015 launch. The YpsoPump is expected to fit between the “extremes” of Insulet’s tubeless OmniPod and increasingly complex durable insulin pumps. Cannibalization of the OmniPod is an open question.

Delivery Devices Business

4. The Delivery Devices segment grew 8% on sales of CHF 79 million (~$77 million), driven by a gradual increase in GLP-1 pen manufacturing. Manufacturing of pen components for Sanofi (e.g., the Lantus SoloStar pen) was “run at a slightly lower level” than in the previous year’s period, where it had run at “maximum capacity 24/7.”

5. Ypsomed is investing CHF 50 million in the coming years on R&D related to smart pens. The company has partnered with a Norwegian-based Thinfilm to develop “YpsoMate Smart,” an auto-injector to wirelessly transfer data to smartphones using NFC (Near Field Communication). The disposable Unopen (which can deliver insulin and GLP-1) could add connectivity via a reusable attachment, and over time, incorporate smart components into each disposable device. We see insulin injection data as a major missing piece of the diabetes data ecosystem.

6. Ypsomed announced an agreement in July to become the supplier of pens and auto-injectors for three biologics in Hanmi Pharmaceutical’s portfolio. The portfolio is early but includes an ultra-long-acting (once-weekly to once-monthly dosing) GLP-1 agonist, novel basal insulin analog (potential for once-weekly dosing), and a preclinical once-weekly GLP-1 agonist/basal insulin combination.

Diabetes Direct Business

1. Diabetes Direct (mylife) sales rose 6% as reported to CHF 71 million (~$70 million). Excluding currency effects, sales would have grown 23%. The comparison was tough to sales growth of 21% in F1H15, and clearly, currency was a factor in driving down reported growth. Diabetes Direct sales grew in all Ypsomed markets in Europe and in India, and the announcement specifically highlighted new market Italy, which “significantly exceeded expectations.” Ypsomed again said the OmniPod was an “important factor” among the “satisfying” results, but gave less granularity on sales than in the past (see below). Ypsomed launched the OmniPod in Italy in F1H15, so perhaps it is now seeing some traction.

  • As a reminder, the Diabetes Direct segment (mylife products) includes Insulet’s OmniPod, the Pura and Unio blood glucose meters, pen needles, the company’s upcoming tubed YpsoPump, and Orbit infusion sets.

2. The mylife OmniPod patient base increased 19% during F1H16. We estimate this added a couple thousand new patients in Europe (calculations below). Ypsomed did not share further sales figures or show any growth charts (as in past updates), suggesting things may have slowed down from the most recent Ypsomed updates: 60% growth in mylife OmniPod sales growth in F1H15, followed by strong 50% sales growth reported in the FY15 update in May. On the bright side, management did say the OmniPod has a market share of “up to 20% in some countries.”

  • Insulet’s 2Q15 call reiterated an Ypsomed forecast for 40%+ growth in the OmniPod patient installed base in 2015 – that seems challenging (based on 19% growth thus far) unless the second half of the year brings substantial acceleration. Insulet’s 2Q15 call estimated the international OmniPod business would see mid/upper teen growth in 2H15.
  • The 19% patient base growth is far better than Insulet’s reported international sales, which declined a striking 53% YOY in 1H15 to $11.4 million. Management has attributed the slowdown to Ypsomed’s de-stocking of inventory. We assume some of the drop could also stem from slower mylife OmniPod sales in Europe (not reported, but presumably 19% or less based on the patient growth number).
  • Patient base estimate: Insulet said its total international patient base was ~18,750 patients at the end of 2014. Assuming the European base is 75% of the total international base (Canada is not part of Ypsomed’s agreement) translates to an additional ~2,500 patients on 19% growth.  

3. The in-house developed, touchscreen, durable YpsoPump received a CE Mark in September, though market launch must wait until the prefilled insulin cartridge secures approval (expected in early calendar 2016). At EASD, reps told us the pump would launch in Germany and the Netherlands in 1Q16, with a broader EU launch to follow. This is behind the previous expectation for a fall 2015 launch. Manufacturing and commercialization preparations will begin this month (November), signaling definite commitment from Ypsomed. The pump will launch with prefilled insulin cartridges (160 units), and we can’t wait to hear who its insulin partner is. We might guess it is Novo Nordisk, who has a non-exclusive partnership with Roche for 160-unit prefilled NovoRapid cartridges for the Accu-Chek Insight pump.

  • Ypsomed’s report discussed the market niche for the YpsoPump, which fits between the “extremes” of Insulet’s tubeless OmniPod and increasingly complex durable insulin pumps. The company puts the OmniPod on one end of the spectrum for patients who “increasingly opt for the freedom of the patch pump.” Management calls this segment “firmly established over time with a market share of up to 20% in some countries.” On the other hand are those who desire “greater metabolic control by means of the complex functions and algorithms” of tubed insulin pumps – we take this to mean Medtronic’s MiniMed 640G, and to a lesser extent, the Animas Vibe and Roche Accu-Chek pumps. Between these two extremes lies a “broad market,” in management’s view, “for an easy-to-use, easy-to-understand insulin pump that focus[es] on the core functions.”
  • The big question is to what extent the YpsoPump will cannibalize OmniPod sales. The F1H16 report shows the two pumps side by side, noting, “Ypsomed is in the strong position of being able to offer the ideal solution for two of the three segments and is thus unique in its offering.” Indeed, no other pump company has the tubed + tubeless combination, so in theory Ypsomed should reach more customers and increase its geographic footprint over just the OmniPod alone. But given similar selling points (e.g., easy to use, easy to train) and higher margins on the YpsoPump, will the company prioritize its own device?
    • At EASD, a banner above the booth proclaimed “Freedom of choice in pump therapy,” flanked by icons of the YpsoPump and OmniPod. In addition, our June conversation with Ypsomed suggested that the YpsoPump will be targeted to markets where the OmniPod lacks sufficient reimbursement. Overall, this is a hard one to definitively call until the YpsoPump launches and we see the real numbers. Ultimately, we simply hope the YpsoPump can expand the pump market in Europe.
  • We had a chance to demo the YpsoPump at EASD, which felt slightly smaller than a MiniMed 530G with an iPhone-like, black-and-white, fully icon-driven touchscreen.
    • Notably, the user interface is entirely icon driven and navigated by swiping left to right – there are no words to distinguish anything in the menus, a bold design choice that walks a fine line between simple and initially confusing (we accidentally kept entering the history and priming menus, which have non-obvious icons). Once someone learns what the icons mean, however, it would probably be quite liberating to navigate a pump in this way. In a major positive, the icon-driven interface makes the pump language neutral, a brilliant choice for a European product that clearly drove the design.
    • The pump does not have a bolus calculator, though Ypsomed will give patients a companion smartphone app with this feature. YpsoPump has Bluetooth built-in, but in talking to the rep, it will not communicate with the smartphone app, so the calculator-to-pump transfer will be manual.
    • Ypsomed also plans to launch a self-filling reservoir after the prefilled version. The rep would not disclose any timing. We assume the prefilled version will be the focus, given the marketing advantages to patients and HCPs.
    • The Orbit infusion set will be marketed alongside the pump. The set offers 360 degree rotation and both steel and Teflon cannulas.

Delivery Devices

4. The Delivery Devices segment grew 8% to sales of CHF 78.6 million (~$77 million), driven by a gradual increase in GLP-1 pen manufacturing. As a reminder, Ypsomed’s dual-chamber LyoTwist pen is used for both GSK’s once-weekly GLP-1 agonist Eperzan/Tanzeum and AZ’s once-weekly GLP-1 agonist Bydureon. Manufacturing of pen components for Sanofi was “run at a slightly lower level” than in the previous year’s period, where it had run at “maximum capacity 24/7.” This resulted in CHF 5 million in lost revenue, and is not too surprising given declines in Sanofi’s Lantus sales in 1Q15 (-5%) and 2Q15 (-6%).

5. Ypsomed is investing CHF 50 million in the coming years on R&D related to smart pens. The company has partnered with a Norwegian-based Thinfilm to develop “YpsoMate Smart,” an auto-injector that can wirelessly transfer data to smartphones using an NFC (Near Field Communication) label. 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.

  • Cost is one of the biggest challenges for the insulin companies to move to smart pens, as most patients seem to prefer disposable devices. Is it possible to get the marginal cost low enough to make a disposable smart pen with Bluetooth or NFC?
  • It sounds like Ypsomed’s pharma clients are asking for intelligence and data capabilities built right in to pens: “Ypsomed has identified a customer need for injection devices that support the administration of medicine with intelligent additional functions realised by electronics and software.”
  • Ypsomed’s presentation showed a pen transmitting data to a mobile device (see below), where it is then sent to the cloud and on to various stakeholders.
  • We continue to believe that insulin dose data from MDI users is a major missing piece of the diabetes data ecosystem. There has not been public movement on smart pens from the insulin players (aside from Lilly’s investment in Companion Medical), and most startup efforts are going the reusable route (either a reusable pen or a reusable attachment). Will patients go for the slightly higher hassle reusable pen, given the potential advantages of better data and dose titration? Would providers or payers actively push smart pens, assuming the devices can demonstrate meaningful clinical advantages? We are optimistic that the right smart pen can show a meaningful value add, but the key is integration with the existing data ecosystem.
  • “Ypsomed has the necessary know-how to develop intelligent injection devices.” The company’s semi-annual report cites development of the mylife YpsoPump, which does have embedded Bluetooth to transfer data to a computer or smartphone app. The app will simply send pump history data and will not control the pump (e.g., bolus, changing settings) as far as we know.
  • NFC is the same way FreeStyle Libre transfers sensor data to the reader. Through a scan of the injection pen with a smartphone (via NFC), Ypsomed sys it is possible to call up multimedia operating instructions before using the YpsoMate auto-injector. Once the medicine has been administered, patients can send the conclusive confirmation that the injection has been successfully administered. The report does not describe how the attachment for the disposable pen would work, but we assume it would fit on the dose dial. 

6. Ypsomed announced an agreement in July to become the supplier of pens and auto-injectors for three biologics in Hanmi Pharmaceutical’s portfolio. The F1H16 report was very optimistic on the early pipeline: “Hanmi’s product portfolio is considered to be extremely impressive in specialist circles.” Hanmi came out with a strong showing at ADA 2015 highlighted by Dr. Julio Rosenstock’s (Dallas Diabetes and Endocrine Center, Dallas, TX) presentation of phase 2 data for the company’s ultra-long-acting (once-weekly to once-monthly dosing) GLP-1 agonist candidate efpeglenatide (HM11260), which showed ~1% placebo-adjusted A1c reductions and ~3 kg placebo-adjusted weight loss. We also saw new mechanistic data on the company’s novel basal insulin analog, HM12470 (potential for once-weekly dosing). The Ypsomed agreement encompasses both of these candidates and Hanmi’s preclinical once-weekly GLP-1 agonist/basal insulin combination.

 

-- by Adam Brown and Kelly Close