Ypsomed Holding AG (YPSN) Earnings Call Transcript & Summary

[Audio Gap] conference call. Joining me today are Simon Michel, CEO; and Niklaus Ramseier, CFO. Our press release, report and presentation discussing our financial performance are also available in the Media & Investors section of our website. With that, I will turn the call to Simon. Simon, please.

Thank you, Thomas. Good morning, good afternoon, ladies and gentlemen. Welcome to our half years '21/22 results conference call. Let me start by setting the stage and spending a minute on our strategy. And just taking a minute on telling you again on where we are and what our focus is. In both our segments, Delivery Systems and Diabetes Care, we have a very strong home care and selfcare focus. But not only that, in both segments, we have increased our activities in digitization and bringing more and more digital assets into the game. In both segments, we have extended our efforts on lean management, lean production in order to stay affordable for our clients worldwide. And in both segments, we have been able to close smart partnerships over the past half year in the space of Delivery Systems, for instance, with SCHOTT and Lonza in the space of Diabetes Care in the area of algorithms. When we look at our strategy, we have our 4 pillars: innovation, access, responsibility and our platforms. And it's important to note that the growth drivers and the purpose -- our growth drivers and our purpose are intact. Chronic conditions, not only diabetes, but also Alzheimer, asthma, cardiovascular, migraine are growing. And through the aging of the population, more and more people are affected to them. 1 out of 2 adult actually suffer from a chronic condition. Our purpose is to bring selfcare, self management to home in order for patients, people with chronic conditions to leverage, enhance their quality of life. Climate change is a topic that is reality and we have to act. I am 100% convinced that corporations can go into a leader position here and make a change out of Switzerland, for instance, by exporting technology solutions. And Ypsomed is a leader in the space of medical devices and we'll show you what we have done over the past 6 months with a clear target to become carbon net-zero. Access. Biosimilars is a growth driver, more and more drugs are broadly available, which is important. And our purpose is to be the company that brings those products globally also to countries where there is less resources available. And last but not least, of course, innovation and digital health. Modern liquid drugs, more and more drugs have to be injected. And through digitization, we can finally work on adherence in order to support better therapy outcome. We have waited so long, but now with the asset of digitization, we can bring better care for people in healthcare situations. Let me highlight a couple of elements, and I will dig in all of those elements a bit deeper during our coming 30 minutes. On YpsoPump, as you know, we have launched Assist with CGM Dexcom integrated. We are proud to announce YpsoMate On, our connected autoinjector that will show you that. We have a very clear view together with Eli Lilly on the FDA path towards the U.S. market. We have been able to launch an autoinjector in the space of psoriasis. On responsibility and engagement, we are a founding member -- actually, we are the initiator of the Alliance to Zero to deliver carbon net-zero products to big pharma biotech. We have changed to renewable power since mid '21, and we are also proud of that we have a really stable and reliable supply chain that no interruption over the past 18 months, we're always able to deliver, which is an excellent situation. We are in a comfortable situation where we have to expand capacities, both in Schwerin, and we've also decided to build a factory in mainland China. With that, I would like to spend a bit on our fundamentals, and then, of course, the figures. Our products are vital. And in both Delivery Systems and Diabetes Care, we talk about recurring business models. Once a company works with Ypsomed, they usually stay with Ypsomed. Once a patient is on a pump, they continue to order the infusion set and their supply. And we continue to invest in new platform offerings, especially in the field of digitization. And this is why we continue to invest and to execute our strategy. We invest in innovation, we invest in capacities and we invest in our people. Important to see, and I'm actually quite happy is that we're trying to spend more money on R&D and software and less money on concrete and machines. It's actually a good sign, our total half year CapEx spending of around CHF 50 million were going to increase in the second half, end up with roughly CHF 110 million CapEx for the full year investment side. But it shows that we have a clear focus towards R&D intangible assets and software. This is exactly where I want to see it met delivering more building and spending efforts on products. We have also been investing in people, I've told you, over the past 18 months during the pandemic. Since the outset 164 new jobs or over 10% additional jobs. It shows a very robust situation. We actually were able to hire a lot of very good people from other companies that joined our team, our family, and we were able to grow as you see in all areas in Switzerland and abroad. Our key figures turnover we have seen it this morning, 12% on injection systems over 13%. We are at the moment at roughly 18,000 pumpers with an EBIT of CHF 10.5 million for H1. So over CHF 20 million additional revenues in the first half year. It is clearly showing that we have not been affected by COVID. It is clearly the result of our efforts on platform side on both Delivery Systems and Diabetes Care. And this is what we see on Slide 11 here that we have been able to deliver growth in all 3 segments. Ypsotec, so others is growing, Diabetes Care and Delivery Systems. Let us now dig into the different segments, and I would like to start with Delivery Systems. Now I mentioned, it is a recurring business model. So obviously, introduced products continue to order, but it is also important to mention is that we're able to launch new products, especially for UCB and Novartis in the space of Psoriasis, a new field for us, autoinjectors YpsoMates that we're able to ship. And we continue to have a good performance on project business. We have been able to sign roughly 30 new contracts since the beginning of the new business year. So a excellent track record, actually, another record year again on Delivery Systems side, closing new contracts, new deals for new indications. 13.2% Injection System growth year-on-year, both in pens and autoinjectors and project revenue but has always been driving the growth on the turnover side. Also devices for clinical studies, devices for clinical trials that have supported here, more and more studies are starting. And of course, this is very lucrative for us on that end. On product manufacturing for Sanofi, a small decline, but actually on the EBIT bottom line, no real effect. Important for us, obviously, is our own devices Injection Systems. We have discussed last year, the slightly weaker second half year 2021 due to some delayed shipments of new drugs during the pandemic. We have clearly uptaken now 118, that's what we have estimated half a year ago. And this is not only the elements which have been missing in the second half of 2021, it's actually real growth. And this is why we can really increase also our turnover estimation for the second half year. You will see in the guidance in a minute that you're actually increasing our turnover for Injection Systems to 30% in the second half year in average 20% for the full year. So we continue to grow in the space of own pens and own autoinjectors. Let us move to Diabetes Care. Obviously, also here, we have a recurring business model with the consumables, infusion sets, which is very robust. Now COVID has slowed us down, clearly, we have discussed that. But it's not only COVID, it's also our missing Loop features that stops -- not stops kind of breaks us a bit, slows us down and to bring new patients on the pump this is why we have spent a lot of effort on that end. And I'm very pleased to announce that we have found a strong partner with an existing CE Marked Loop app that will talk to our pump. So we can introduce Looping already Jun-ish, July-ish, summer-ish '22, so being much faster than originally expected. And we see that not only patients, but especially also larger clinics are really demanding pumps that Loop. Even though a majority is still not using it, but it is a feature that patients want in the future. So we have to bring this solution to the market, and I believe we have a good solution here ready to ship. And then, of course, apart from the Loop program, it's our collaboration with Lilly, a large program, full focused program, and I'm pleased to say that this works very smooth and very well. Now turnover level. We have an increase. It's also due to development services. So we sell, we have project revenues. We have a commercial sales increase of 9%, which is obviously not enough, but it is an increase. And test strips and DiaExpert roughly stayed the same. A needle decrease we had in the U.S., mainly because of Walmart, but this is what we have announced to you already half a year ago. Outlook-wise, we raised the expectation, we raised the guidance for the full year. I've mentioned to you the 20% growth in Injection Systems, so it's even a much stronger second half year. We see intense autoinjectors and projects. And for the full year, we gave a guidance of towards CHF 30 million EBIT operating profit. So from CHF 18 million to CHF 27 million, we increased towards EUR30 million, we will see what the euro is doing. Over the past days, it has been a bit up and down. Now this will have an effect of maybe CHF 1 million to CHF 2 million. We will see how long this weak euro will stay, remaining still. Despite of this, we can expect an EBITDA of roughly CHF 30 million. With that, ladies and gentlemen, I would like to spend some time on our 4 strategic pillars, and I would like to start with innovation and digital health and just talk about a topic which is really important for us for today and also in the future is the topic of adherence. You are very well aware that a majority of patients doesn't take good care because we are humans, we forget things, we are not able to do it. And especially in the chronic disease area, this is, of course, a big, big issue. Huge costs, huge patients suffering out of bad adherence, not because they don't understand how to use devices, but because they don't do it, and we really have to support, and we know we can only do that through digitization. Now the reason why people don't adhere enough are very diverse. But a lot of elements can be enhanced by giving better devices, better solutions in the hands of patients, and doctors and nurses. And this is why we bring connectivity into our systems. And we have introduced to you already 2 years ago, SmartPilot. SmartPilot is an add-on that talks to the phone and to the phone to the cloud. We collect therapy relevant data, such as date, time, successful injection, et cetera, et cetera, also temperature. This data is then supplied to the cloud and the disease management, the doctor, but we also support of the application, we support the patient, especially with injections that they only do once per month or once per week. So it's not such frequent things like insulin. So we -- for the patients and what you have to do to clean the sides, to prepare yourself, put the autoinjector down on your belly and keep it on, on your skin until everything is in, not to have wet shots when taking the device out. So really strong support. Then also safety elements. We can check if the medication has expired, if it's too cold, it's too warm and all these things, and we gather all this data and put it in the hand of the patient, of the doctor, but also on -- in the hands of disease managers in big pharma companies. And I'm really proud to say that we have gone an important step forward here and present a new platform design, we call it YpsoMate On. YpsoMate On is the first prefilled, disposable, fully connected autoinjector that we present to our clients. A specific device that has connectivity built in through IoT. And the nice thing is that you don't really have to pair anymore. So the device finds the application itself. It talks directly, and it connects directly without the interaction of the patient. And that's really important because patients always are missing partly a basic element that can make mistakes. Now this doesn't happen anymore with YpsoMate On. The second good thing is that we leverage the existing YpsoMate platform, so we don't have to change our machines, our assembly lines, we can build YpsoMate On, on our YpsoMate infrastructure because the team has just added a small feature. And this is this electronic piece on the back of the device, including a very small sensors that measure what has happened. They give a visual indication to the patient, it is okay to pull out the device, and there is a Bluetooth connection that connects and sends the data from the device to the smartphone and the cloud. So very neatly done. And what is also nice and we're also very proud of is that the team has achieved to actually implement our sustainable thinking. So it's our guideline on design level already, on concept development level already that we built in recycling capabilities early on. So in the future if devices have to come back because they have to be recycled, it's easy if it's assembled to separate the electronics from the plastic pieces. So inherent in our design, the sustainability element. And with that, Ypsomed is the first and only company worldwide that can offer the full spectrum of connectivity devices in the autoinjector space. So both SmartPilot, if you want to have more guidance, want to have more patient support and then the simple, naked IoT device that connects and ships the data. This is an interesting offering. We're having discussions here with our clients on that. With that, I would like to move to access and expansion. I have brought one slide for you on the Loop program. The Loop program for pump here in Europe because this is what is important for us over the coming 3 years, what is going to happen? So we have launched mylife Assist as you know. mylife Assist integrating the Dexcom G6 signal. It's available in a couple of countries here in Europe, we are rolling out more and more countries as we talk. And then beginning of the year, January-ish, we are launching mylife Dose, finally, which gives the ability to dose your bolus from your phone directly. You don't have to take the pump out anymore. So it's a safe connection with a higher standard of cybersecurity that enables the bolus from your phone. Now what we have achieved and what we are already going to launch in June is mylife Loop, an interoperable app of a third party. I will announce the name in December-ish, maybe January. It's a third-party app that is talking to our pump, it's fully corrected. It will steer the pump, it will Loop the pump. And the good thing, it's already a solution that is available CE Mark in Europe. It's not broadly available yet, but we will make it broadly available. It's going to steer our pump and with that it's important that Ypsomed is pulling up and coming up to Tandem and Medtronic here, delivering Loop features for patients and users of insulin pumps, and that's an important step. And then, in mid '23, we're going to deliver the Type Zero with Dexcom as we have planned for a long time, but we simply cannot wait. We have to bring it now. We have to bring this solution to our patients. Let us move to Delivery Systems, and I would just like to focus on one topic, which is the move from IV, so IV to subcutaneous formulations. I was clear that drugs have to be injected no longer pills, molecules become more and more complex. It's also clear that more and more drugs go biosimilars of patents. So more companies are working on hormones and maps and we are delivering devices. But the new trend is really the trend from IV to subcutaneous. So more and more drugs are moving from hospital to home. This is exactly where it's made it in. This is our business. This is a selfcare business, and this is what we are delivering. One good example, of course, is Cosentyx. Cosentyx is a drug that supports and relieves people with the condition of Psoriasis. Psoriasis is a skin disease that is mainly inherited. You have red spots with silver scales around. It's extremely itchy. It comes and goes and comes and goes, but it's a lifelong condition, and you can really treat it only with medications as Cosentyx, also UCB, I mentioned, has a great formulation here, and we are proud to say that Ypsomed is now here partnering with Novartis on this drug, delivering a great solution with one injection per month. So an excellent new solution and for us. And you feel -- that you see here, we are now moving also more and more in new fields in new disease areas, in new indications. We have presented to you last year, asthma and migraine as the indications. Now we have Psoriasis the first device is coming. And we move on. And they have to look a bit outside. And they have to talk a bit about our pipeline and the deals we have signed and the project we are working on. As you know, we are working at the moment at over 100 device project in parallel. Many of them are in new disease areas. So obesity, obviously, is a big, big, big topic where Ypsomed will play a major role in delivering devices. Alzheimer is a big topic with 2, 3 big players, where Ypsomed will play an important role to deliver the device to bring the application to people with Alzheimer's at home, no longer in need to go through IV at the hospital but only deliver drug at home through autoinjectors. And many more diseases are coming also in the space of oncology. And it really shows that Ypsomed is not a diabetes-only company. We are really a company that delivers drugs and that delivers successful therapies. It is exactly where we are focusing, focusing on the whole spectrum of liquid drugs and people with chronic decision -- conditions. With that, I move to platforms and operational excellence because all of that is only possible because we continue to invest in new platforms. And you see on that slide, we have added 2 new platforms, YpsoMate Zero and YpsoMate On in the space of autoinjectors. We are obviously also increasing our activities in the space of YpsoDose, so large volume injectors is our first project running very well. It's a new device class that will bring us revenue product in the market in '25-ish. That's a next big step for Ypsomed with larger volumes. But the logic on how we work remains the same since the inception of our platform strategy. Ypsomed continues to do upfront investments in R&D. We continue to invest in manufacturing infrastructure. And once a client comes to us, once they have a new drug, when they have a new project, they start at the level where the risk is much, much lower and that the time to clinic is much, much shorter. So the same principle applies as we have started with that over 10 years ago, also for new platforms. And when I have told you about our 30 new projects that we have signed over the past 7 months, 70% of them are actually from existing customers. We are now working with 27 out of the top 30 pharma companies worldwide. And if they have a need of a new device, you get a new molecule, they simply order a new project, which makes it for both sides extremely efficient. Now those new devices, those new projects, of course, force us to invest in capacity. And this is why, and the Board, we have decided to order another large line for Ypsomed. We have talked about that in the last call, which will be installed in January. And 2 weeks ago, we have decided to order a large line for UnoPen. So for this bolus pens mainly for insulins that will be also installed in January, tripling our current volume from roughly 40 million to over 100 million pens in that space. So UnoPen will be an important platform also in the future. We have also decided to invest in our own site in China, mainly because Chinese clients demand to become closer to China. And there's a new model from central government called the volume-based procurement model, which is actually supporting Chinese pharma company. And I have a strong feeling, and especially if I talk to our colleagues in China, if we do not become Chinese, we will not ship devices anymore in 10 years. So it's a clear step for us towards this very important market. We have now over 20 projects in China ongoing. We are #1 company there to deliver pens to China. And this market is just starting with autoinjectors. It's just -- I mean, it's just starting on biosimilar site, on natalizumab, on Enbrel, on more and more and more drugs that are going to be delivered to people in China, mainland China, and Ypsomed will play a crucial role here. We have the final selection of the site ahead of us in Shanghai or Suzhou in the coming weeks. We're slowly coming to an end here, and I would like to finish with our activities in sustainability. And I've explained to you, YpsoMate Zero last call, it's a clear commitment to first substitute. And then, compensate. So substitution means we continue to research, to do R&D in new materials, to try to exchange material types with material that has less carbon footprint, but we will always remain with some carbon trapped, obviously, because it's a device, and this we will have to offset in the future with certificates. We have also decided to only consume and electricity and power from renewable sources as of this year. In Switzerland, obviously, that's not that difficult. We have a high amount of water energy. But for the rest of the energy we need, we are buying certificates to be 100% clean on that space. And you may have read what is also important is we have been launching Alliance to Zero. It's a club with an association of players in our space, the whole value chain from glass manufacturers, rubber manufacturers, fillers, logistic partners, but also, of course, obviously, Ypsomed, the company that delivers the device. And our promise is to deliver to the whole chain to the whole organization to the whole chain and whole customer -- pharma customer side solutions that are carbon net-zero. With that, ladies and gentlemen, I would like to come to an end and would like to summarize what I've explained to you over the past minutes. Now I'm proud to say that we have delivered. Our H1 is according to our expectations and that we are able to increase the guidance for the full year. We clearly show that Delivery Systems works well that we deliver on our platform strategy and that we even increase our reach through entering new indications. And on Diabetes Care, we have also shown very clearly that we deliver, that we have a clear path towards Loop and a clear commitment towards our partner, Eli Lilly in the U.S., with a clear view to start that business in '23 with our partner, Eli Lilly. Thank you very much. With that, ladies and gentlemen, I would like to hand the word back to Thomas. And if you have questions, we are still around. Please feel free. Thank you for your trust and interest.

Simon, thank you. Thank you very much for this very interesting presentation and explanation, not actually only our figures, but also of our strategy and main topics we are focusing and drivers and fundamentals. And I'm now looking really forward to the questions of our audience. So operator, may I ask you to open the lines for questions?

[Operator Instructions] So we have no questions at the moment.

Yes. So Katrina, so I would like to say thanks for your support and time for hosting this conference call. Of course…

Sorry, Thomas. We have one question now.

Okay, please. Yes, go ahead.

Yes. My name is Michail [indiscernible]. Yes. I just have one question. I've seen that you want to introduce the YpsoPump now in the U.S. in 2023. As I understood, the last guidance you gave was 2022. Can you explain a little bit why you have this -- why you have changed the planning?

So thank you, Michail, for the question. Obviously, we are here in a very close collaboration with Eli Lilly. And Eli Lilly is thriving here. And at the end of the day, it has to be one strong proposition, and this is what we are working towards. At the end of the day, we may have a delay or a small shift on delivering pumps of a couple of months, but it's much more important that we deliver the whole file towards the FDA together in a strong manner. And it's quite complex because it's not only elements from Ypsomed on the pump side, it's also elements from Lilly that will be delivered together as a package. So we have decided together to go that way and have a strong one step clearance here with the FDA in '23.

Okay. Okay. And for my second question, you mentioned 2 times the UCB that they also have a strong product of Psoriasis. But then later, as you mentioned it, you are also delivering the YpsoMate for UCB or just for Novartis?

No, no. It's actually -- I just picked Novartis, but both companies have existing drugs out there. I actually cannot recall the name of the UCB drug, but we are delivering autoinjectors for both Novartis and UCB.

Okay, understood.

Michail, maybe just one -- I would like to add one comment. You can refer to our half year report and annual report. There we have a very nice report about our collaboration with UCB and the drug and the formulation, they are now approved, and we are very proud and feel privileged to provide the device. I think the pump question on [indiscernible] questions here from mental data is actually quite relevant. On the other hand, if you look at our coming 2, 3 years, our strong focus, and this is what we have to work on in Europe. I mean, our duty is very clear. Our job is very clear. We have to double in Delivery Systems and bring that scale to about zero 2.5, 3 years. And this is exactly what we are working towards and have always been extremely clear that U.S. is not part of that becoming healthy. We have to become healthy also without the U.S., and the U.S. is at top of that. This is kind of the growth driver for Ypsomed as of '23, '24. So I mean what is important to mention here is that we have a very clear view how we deliver pumps and Loop systems to our clients to our patients in Europe here over the coming 24 months. Okay. Any other questions?

No, there are no more questions.

Excellent.

Okay. Thank you. Thank you, Katrina. Thank you, Simon. Thank you, Niklaus for your support in explaining our performance. So if you have any further questions, of course, I'm here to support you, I'm always at your disposal for further discussions. And for today, I wish you a nice day. And Katrina, may I kindly ask you to close the lines.

The conference recording has been stopped.