Ypsomed Holding AG (YPSN) Earnings Call Transcript & Summary

Good day, ladies and gentlemen. Welcome to the financial year 2021/'22 conference call of Ypsomed. [Operator Instructions] I would like to introduce your host for today's conference, Mr. Thomas Kutt, Head Investor Relations. Sir, the floor is yours.

Thank you, Gabrielle. Good day, ladies and gentlemen, and thank you for joining us for our financial year '21/'22 Results Conference Call. Joining me today are Simon Michel, CEO; and Niklaus Ramseier, our CFO. Our press release, report and presentation discussing our financial performance are also available in the Media and Investors section of our website. With that, I will turn the call to Simon. Simon, please?

Thank you, Thomas. Good morning, good afternoon, everybody. Welcome all from my side to the presentation of our annual figures '21/'22. Ypsomed plays a significant role in the treatment of chronic diseases and develops itself into the space of successful therapies. I would like to take the time today to deepen the case for you to show you what we have delivered and where we are heading. Just to remind you, Ypsomed is active in 2 business areas: Delivery Systems and Diabetes Care. And our vision is to make self-care simple and easier. And obviously, both areas play in the field of chronic conditions of chronic diseases. In the case of Diabetes Care, very much focused on Type 1, Type 2 diabetes. In the case of Delivery Systems, very broad. But what are chronic conditions? Now chronic conditions are states, are diseases that last long, sometimes in most cases, lifelong. They can be treated, they can be treated well if you do it on a regular base, but they cannot be healed. If you look at America, the cost and the challenge that derives out of chronic conditions are enormous. $9 out of $10 in U.S. health care spending go into the treatment of chronic conditions. Per capita, over $11,000 are spent on the treatment of chronic diseases. 4 out of 5 patients at the age of 65 and more suffer from at least 1 chronic condition. And 1 out of 2 Americans have disease related to obesity. So we have to act and we have to play a role, and this is our mission. One key topic in that space is the bad and unsufficient adherence. We call it the nonadherence for chronic conditions, which is a truly major issue. It's so bad that people die just because of malfunctional, or not correct treatments. And this is not necessary if we do it well. And Ypsomed is motivated and has its mission to provide here a significant part to make treatments better. So what are the trends? Where do we play? And why is Ypsomed an interesting case? Why are we well set up for the future? Number one, we play in the space of self-care. And this is not just since COVID where treatments moved from hospital to home. It's a general thing that we can save cost for global health care systems by treating at home, no longer IV in hospital, but subcutaneous in -- at home privately. And the second major trend is biologics that more and more drugs have to be injected. They can no longer be swallowed because the molecules are simply too complex. They cannot pass the stomach wall so you have to go parenteral. The third point, the third big trend, why Ypsomed is progressing in that space are biosimilars. So the global access of modern medicines all over the world. And the fourth element is digitization, the openness and the availability of the openness of people to use digital solutions, but especially also the availability of such solutions to give the information to the hand of doctors or nurses of patients to treat people better to have a better outcome and better adherence. And here, we play a significant role, and I will show you how we do it today and how we'll do it tomorrow. Just to remind you, our 4 strategic pillars: innovation, access, global access, responsibility and our platforms. Everything we do, every dollar we invest, we look into those 4 areas because they all go and answer purposes. In the case of our platforms, they support a better quality of life through self-care. With our responsible behavior, how we act our way to carbon net-zero, we are due a part to the climate change and the big problem of nowadays we have. With biosimilars and access of devices also to biosimilar companies, we support global access and affordable care and through digital health and our innovative digital products, we optimize, we support optimal therapy outcomes through better adherence. And everything we do is -- and this is for 2 years now consistently every action we do, we test them according to our SDG targets. We, at the moment, contribute towards 13 of the 17 UN SDGs is a critical element for us. It's not just around climate it's very broad. With that, ladies and gentlemen, I would like to move over to facts and figures. And I would like to point out a couple of highlights first. Just very broadly, what were the 8 main topics we see over the past 12 months, and then we're going to deepen in the second part of this discussion. Now very important, of course, is our partnership with CamDiab and Abbott. CamDiab is a small company in England that has provided or that provides an algorithm to automate to higher automate insulin pumps. In this context, we talk about AID, automated insulin delivery. I'll talk more about it. We are very pleased to the relationship to Eli Lilly. Our program is well on track. We're also extremely pleased with the 36 new projects we were able to acquire in the space of YDS, which is a record. We are well on track in our CO2 reduction carbon program. I'm going to show you how we do it. And what is important on the platform level, we are now enhancing our acceleration on manufacturing capacity for devices for both YDC and YDS. So let me show you figures and I'll start with some key figures, key facts. Our key figure, turnover plus 15%, record growth here 15.2 to be detailed, very pleased about that. And if you look at the injection systems, 31%, now 31%, the second half of last year was close to 50% growth. Ypsomed is still looking at the compound average growth rate of 25%. So this was a very strong year. It will not be always like that, but we are extremely pleased on how the injection system business has been developing. We are a bit less pleased with our ability to add new patients to YpsoPump, we have added roughly 1,500 patients, which is not good enough. We had a tough year, but I will show you what we have done. We have launched now CamAPS. We have launched now the looping program, and we see a significant upscale over the past 4 weeks since we have launched, and we are positive looking into the future. From an EBIT perspective, we have reached our budget with roughly CHF 29 million. So that's a tick box. Turnover itself, 15.2%. I think important to mention is the CHF 464 million so we are above the level we have been 3 years ago with Insulet. So when we still have Omnipod in our portfolio, we have now had those 2 years. We require those 2 years. Now we are back at the same figure now, growing to CHF 0.5 billion more as we talk. Now of course, the strongest growth driver is delivery system with 22.7%. That's including, of course, the contract manufacturing business, Ypsomed Diabetes Care, plus 5.5%, and then the others at Ypsotec with 24%. Let me move now to Delivery Systems. Delivery Systems, as you know, is a truly recurring business model, very strong and long-lasting relationships. We now work with 27 out of the top 30 pharma companies. And if a client needs another version for another molecule, we just go into a new customization based on the jointly approved platform. So of the 36 new projects, roughly 60% actually come from existing clients and 40% come from new customers. So it's very healthy. So we grow together with our partners, big and small, big pharma biotech jointly. On Injection systems, we have grown at 31%, as I mentioned, and this growth mainly comes from products. So from the platforms, the UnoPen, this is the disposable pens, mainly for hormones, the YpsoMate, the autoinjector, that's mainly for monoclonal antibodies and ServoPen, our reusable durable device. You also see here the strong growth in project revenue. So we have the same level roughly. So it still is important, roughly 1/4 of CHF 260 million comes from that space. Diabetes Care, Diabetes Care with 5.5, we cannot be happy. We have grown, but the main growth comes from our program with Lilly and TecMed for YpsoPod, sales almost stagnated. Test trips were slightly decreasing and pen needles are more or less stable. So you will see what we are doing now in that space. Now I mean, diabetes care itself is a recurring business model. Once you have a patient on a pump, they order sets, we are now at 20,000 patients. We need 45,000, 50,000 to get to a black zero, and this is where we are working on at the moment. We have been able to install and implement mylife Loop program, which is now a key focus to roll it out all over Europe. We prepared together with Lilly the U.S. market entry and the whole registration and study program. And we have made a change in the leadership team as of 1st of June. Sébastien Delarive will join us. Sébastien has been with Sanofi for roughly 20 years. He is an insider marketer. I'm very motivated to have him on board here to give us a stronger phase, a restart for our diabetes care pump business. If we move to the EBIT, it shows here where it comes from, and this is showing the CHF 9 million in 2021 to the CHF 29 million last year. Obviously, the main growth comes from the Delivery Systems business, just more sales, more project revenue, more profit on that end. We have a bit less -- we have more amortization on YpsoPump now as we have started to use the cloud and these different apps in different markets. Obviously, we had to start to amortize them. So that's a CHF 5 million additional amortization on the pump program. We spent more money on marketing and sales. We have a positive effect on the patch comp than last year or the year before, we had to depreciate CHF 9 million on the Insulet case, and we gained CHF 5 million on the selling YpsoPump into TecMed, so CHF 4 million plus on that end. Then we had roughly CHF 2 million to CHF 3 million less profit on the other YDC business. Ypsotec did a bit better. That's how we entered into the CHF 29 million, well on track towards the CHF 90 million to CHF 100 million in 2 years. Important, ladies and gentlemen, is our unchanged positive fundamentals. So we are really in executing of our strategy. I've explained to the 4 trends, the self-care, the biologics, biosimilars and digital. So the trends, the global business, including the business model itself is very stable. So we operate for the coming 10-plus years in an environment where we can only grow. We don't make mistakes. Supply chain is very reliable and also robust. We have a strong assessment. We are very close to it. Also our relationship to the 2 Russian clients are stable. We have changed into on the payment mode and on the delivery mode, but it's a topic where we have to be able to still deliver. I mean if we don't deliver devices, people in Russia will not receive their insulin. It makes roughly 4% of our top line. And we constantly improve our platform offering and our long-term partnerships. We extend our businesses into digital services and to execute a sustainable strategy. We continue to invest in innovation and expansion of capacities and in employees. This is why we have grown also on the employee side, 200 new jobs in 24 months, 99 positions in the last year. And you see here on the graph where we add people. We still are in a comfortable situation that we find good qualified people, have also opened a software center in Barcelona in order to accelerate the growth in digital area. On the investment, we have spent roughly CHF 110 million that was more or less on target. We are going to even slightly increase that over the coming years as of our growth programs on the device side. But it shows that now we can profit also from our R&D investment, now we start commercializing and also industrializing the devices. And this, of course, requires investments again into fixed assets. That's one reason why we have decided to increase our capital, we are going to offer 1 million new shares from the 16th to 23rd of June. I think the main message here to you is that my family, our family is going to participate in that capital increase in full. And for all more details, I'm asking you to contact [indiscernible] is Zürcher Kantonalbank they are the sole global coordinator for that capital increase, which is important for us in order to, a, optimize our equity ratio. We will get into a very stable environment. We are not dependent from banks today, and we don't want to be dependent tomorrow, but we really enhance our equity ratio. But of course, you need the money to grow in capacity, in manufacturing line, in tools, casting molding tools and in industrialization power. And the second reason is the focus on digitization. Our products are becoming -- are getting more and more digital. And for that purpose, we are entering into partnerships where we build new products, I am going to deepen that in a minute. So let me come to the outlook, and I would like to start with a couple of assumptions to that. Now clearly, we are going to introduce new products on delivery systems side, almost month by month, but we see a small backlog here through the FDA. COVID has put more work on the FDA, some backlogs are there. So some of our clients see a small delay, that's why we're going to see a stronger H2 and a slightly weaker H1. On Diabetes Care side, the launch of CamAPS is important. It is a restart. We have launched in Germany now. We're going to launch Austria and Switzerland before the summer break, after summer break all the rest of the European countries. We will spend a bit more on the launch, and we see a bit higher investments on R&D, especially working on more medical evidence. So those assumptions will lead us to the outlook for the financial years '22, '23, where we see a sales growth in the same area of 15%. We are going to grow on the operating profit of at least 50%. We will end somewhere 45-ish plus/minus. And then we see a doubling of the EBIT in the following year, '23/'24 in the direction of CHF 90 million to CHF 100 million. So well on track of what we have predicted to and 1 year ago. With that I would like to just talk briefly about the change in the board. My father is 75 years of age now. He has decided to step back as our Chairman. He was my mentor for many, many years. He still is, of course, but I'm very happy to have Gilbert Achermann joining us. He is with us in the Board now for 2 years. He knows our industry well, and I think important here is Gilbert with his former role as CEO of the Straumann Group, the world-leading dental group, and now the Chairman of the Straumann Group, I have somebody here next to me that can support us and the team, management team with clear advice and a great impact. Straumann is there where we want to bring Ypsomed, they have done many of these things, and I'm going to enjoy and look forward to that collaboration. He is up for election at the general assembly on the 29th of June. With that, I suggest we make a deep dive here on a couple of the strategic topics, so our 4 strategic topics, and I would like to start with innovation and digital health. Now the most important element, obviously, is the introduction of the AID with CamDiab, so including the Dexcom G6. The important element here is this algorithm, and we have scouted all algorithms, all available algorithms out there, and we came to the conclusion this is the right product for us. Professor Hovorka, the inventor and the owner of this algorithm with his company CamDiab out of Cambridge, England, has been working for the past 15 years with over 30 studies to deliver this product. It's an adaptive algorithm that is personalized. It's self-learning. It takes up the information, the measurements, the knowledge that it has gathered over the past 1 to 7 days and constantly enhances and changes and adapts the algorithm in order to bring better outcome to patients on pumps. So the Dexcom signal is captured, it's calculated and the order how to infuse is sent via Bluetooth to the YpsoPump. We have been launching the program together with him at the ATTD, our major Congress in Barcelona a couple of weeks ago. And 2 weeks ago, we have started 2 to 3 -- 2 to 3 weeks ago, we have been starting in Germany, introducing mylife Loop, mylife Loop with the CamAPS solution. And you see here in German actually, I just realized basically, patients being really happy to go to bed, they activate the Loop mode, the auto mode, so-called auto mode, and they wake up in an optimal time and range for the first time in their life. It's a game-changing product. It's really supporting on the dawn phenomenon. You don't have to give syrup or sugar to kids before they go to bed in order not to have them drop too low in early morning. It's an excellent product, and we are so motivated to launch it now. We have now roughly 250 patients on the program after 2.5 weeks. A great launch. We are announcing it right now broader at the DDG, the German major Congress. I think it's in live feed, and then we're going to roll it out, as I mentioned before, all over Europe. At the same time, we are happy and very pleased to announce our partnership with Abbott. Now we have always said that we like Dexcom very much. It's an excellent relationship, but we need to give freedom of choice. And the Libre 3 is especially in Europe, a very well-accepted product where Dexcom is not so strong in France, for instance, Libre 3 or Libre 2 and 3 are extremely dominant in those markets. So we need to give access to that sensor also to YpsoPump users. We are integrating that program at the moment on a high speed, and we hope to be able to deliver it by end of the year, latest end of the business year. But we have also made progress on innovation and digitization in the Ypsomed Delivery Systems space. The YpsoMate On the so-called On product is our fully connected, is the first fully connected disposable auto injector out there. It's a product that talks directly via phone into the cloud in order to start working on adherence and it's the first product in Ypsomed product program, which is fully designed under our new Ecodesign guidelines. So you cannot only assemble it well, you can also disassemble it well, so we can start thinking about recycling. Now what's the goal of YpsoMate On and smart device in general? Obviously, it's a catalizator, a means in order to enhance the therapy. The enhanced therapy under smart services by capturing injection data by sending them into cloud and providing them through therapy management solutions to patients. Now how are we doing that? We have decided to partner. So of course, we shift from sole sending shipping devices to offering complete therapeutic options as we do it already on the pump side. On the pump side, with the algorithm, we take full automated influence in the quality of the therapy. Now we want to do the same thing on devices on pens, auto injectors for monoclonal antibodies, very expensive treatments. If you don't take it well enough, you will get into adherence issues. You will get into issues with your chronic disease. And this is why we are going to combine our devices for the traditional treatments with Digital Therapeutics, DTx, how we call it, into new joint offerings. And Ypsomed is the party that offers those programs to big pharma biotechs, including solutions from third parties, we are going to announce in the second half of this year, 2 partnerships with established therapy management companies. We integrate those solutions into the Ypsomed Smart Service program. Very thrilled about it. You will hear a lot about it. It's a game-changing way of Ypsomed, no longer just selling devices, but successful therapy. And in order to do that, we need to grow also on the digital space in terms of new colleagues. We have decided to do that in Spain. In Barcelona, we have a large hub for people with software background. We have now our first 35, 40 people there. We're going to double it until end of the year, and we have inaugurated our new offices here together with the Swiss ambassador. Access and expansion. Expansion is not only geographic expansion, it's only expansion into new areas of therapies. And one good example is the launch of Ypsomed 2.25 Pro in the space of atopic dermatitis. Together with Leo Pharma, we have launched a product to treat this chronic disease of atopic dermatitis. You take a shot every 2 weeks and you keep your dermatitis under control. And because this drug is a high viscous drug, almost a honey, you could think, we need a pro version. So that's basically an Ypsomed with a much stronger spring in order to push that drug under your skin and treat your chronic disease. I just briefly want to mention YpsoDose, it's a very large program, is in Ypsomed. We are going to talk more about it in '23, but it's well on track together with shot. We have various clients on the program. It's for products that don't fit into an auto injector anymore. So it's for products which are 5 to 10 ml larger volumes where the formulation experts and pharma companies don't achieve to bring it into a pen or autoinjector, they have to choose bigger formats. Obviously, you cannot inject such a big volume at once. That's why we offer such a patch. You put on your belly, you push the button, it infuses it over 20 to 30 minutes. It beeps, you can take it off. It's automating. It's communicating directly through the cloud to the nurse and the doctor knows whether the treatment has taken place or not. So a great example also here of digital therapy in the space of immuno-oncology, mainly a new large area where Ypsomed is entering. Now that's important to mention we are actually active in more and more disease areas. We have added products in the space of psoriasis, such as Cosentyx and now dermatitis. And if you go a slide further, we see that we are even moving into more areas. Obesity is the big, big next bet. Obesity has been accepted as an illness, as a disease, and we want to play a significant role in that space. There are still a couple of companies out there working, trying to solve that major issue. We want to play a role in that space if those drugs work. And as I just mentioned, another example, the whole huge base of PDX in the space of immuno-oncology, where treatments are going to move from hospital to home, the self-care business where Ypsomed is active. Platforms. So I just want to mention that again and again and again, this is the reason for our success, we stick to our platforms. We motivate our companies, our customers to use our standard products. And why does this make sense for them. It mainly makes sense because we do the risky job upfront. And once they join us, they have a much, much, much lower risk. The customer project starts. We customize, we have much less time, much less risk. We did the FTO. We did the patent analysis, with the whole industrialization all upfront, and the customer is flexible in ranking up volumes because we have provided the factory around it. This is our established platform device offering. This is the reason why Delivery Systems has been so successful over the past years and why it's going to be successful over the future years. One good example is the evolution of YpsoMate, our auto injector. We have started in the middle here with the 1 ml, the 1-milliliter product for 1 mL prefilled ranges, glass syringes for instance, from Becton Dickinson. And we moved now in different versions. One version is the high viscosity product I just mentioned to you, the dermatitis product, where you need a stronger spring. We call this product Pro version. I also mentioned to you the On version. The YpsoMate On is the one that is fully connected. And next to it, you see the Smart Pilot. You can take this product, put it on top of a regular autoinjector and communicate with the cloud directly. We are also moving into the space of sustainability by offering a zero carbon option by offering a device where we take the carbon CO2 out of it by changing material and by compensating the rest in order to get down to 0. We have many clients now being interested in that area. That's a premium offering, of course, to have a carbon net zero product. And we're now also working on an even larger version of 5.5 ml version because some formulations may fit into such a format. You don't want to hand out too old injectors at the same time, so they try to bring it into one 5 ml, quite a big one, but we see a couple of cases out there. This is why we are investing in that differentiation of our YpsoMate platform. In order to achieve that, in order to bring those products to markets we need to accelerate the expansion. And obviously, Schwerin is ideal for it. Today, we have 24,000 square meters. We have a huge area of 20 hectares of space. We could quadruple this 24,000 easily from a space perspective. We are adding now just 4,000 square meters to the west. So the 200-meter to the west, we add another whole. That's the quickest win. And then we start about doubling in mirroring in '26, '27. We have also now decided to build our own factory in China. We have been talking about it last November already, we have now selected [indiscernible] in the Jiangsu province, that's roughly 50 minutes west of Shanghai, Suoto. So in a very populated area. It's a good city. It's still a very healthy city, 2 million people, not too big. We get red carpets, people are interested for us. And we're going to build an own factory here, mainly China for China. We have this deglobalization trend that is stronger and stronger nowadays, and we are absolutely convinced if we want to stay in China, today, we are the market leader in China, we want to stay there and we want to grow with the market in China, we have to become Chinese. This is why we are building the factory there in the south of China in order to provide products locally. With that, I would like to move to the last strategic pillar, but a very important topic for us, which is our global responsibility and engagement. And we have explained to you in the last call our ambition towards the support of 1.5. At the moment, the World Economic Forum is taking place here in Switzerland, and that's the #2 topic after the war in the Ukraine. You can imagine, that's the biggest challenge that mankind faces and it only works if everybody contributes. We are going to contribute by taking CO2 carbon emissions out of our programs, out of our products, out of our system. And we have now decided how we are doing this. We have defined clear principles. We want to reduce first and substitute before we compensate. And that's a very important point. That's also what the SBTi, The Science Based Targets initiative asks substitute, reduce, try to think about programs of taking products even back, recycle them and bringing back into devices, something we wouldn't have thought about 10 years ago, becomes a real true option. And then in the end, we will have some remaining carbon somewhere in our company, and this is to be compensated. That's why we are already starting building our own portfolio of carbon credits. We have now acquired carbon credits from programs in UN approved programs in Kenya, Tanzania and India. And there are definitely more coming. And if you look at the current price level, with carbon tech, we were able to acquire quite interesting as a difficulty here, and we are going to grow that wallet over the future years in order to retire them when we need. So definitely a clear strategy we have here. And we don't do that alone. We have installed the alliance to 0, 2 years ago. We are, at the moment, heading this organization together with 12 other companies in our industry. we have the pledge to provide carbon net-zero products into the pharma stream. So we solve the problem for pharma in our small world of drug packaging. We adhere to the science based targets, we report on the GRI, and we are a partner of many renowned organizations. With that, ladies and gentlemen, I would like to conclude. I can summarize, we had a good year in a tough situation after COVID and the Ukraine situation now we have to have our minds together and really focus, but we are in an excellent situation with the global trends, self-care with the global trend of biologic, with biosimilars, and with digitization. This is why we profit. This is why we grow also tomorrow. Thank you for your interest and your trust. I would like to hand the word back to Thomas. If there are any questions, I'm here with Niklaus Ramseier, my CFO and me together, we can answer the questions.

Thank you, Simon, for this very interesting explanations and description of our business performance. So Gabrielle, please may I ask you to open the lines for questions.

[Operator Instructions] There are no questions at the moment.

Okay. So I think we can close the call. So we thank you all, everybody, for the interest in Ypsomed. Of course, we are here to support you. If you have any questions, please feel free to contact me. Thank Simon and Niklaus for your support in this event, in this conference. Also thanks to Gabrielle, and I kindly ask you now to close the lines. Thank you. Good day.

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