Ypsomed Holding AG (YPSN) Earnings Call Transcript & Summary

Hello. A warm welcome to all. Today, we'll have the ad-hoc press conference. My name is Sam Ghezelbash. I'm delighted to be here and have the pleasure of succeeding Thomas Kutt. I'll be covering both M&A and Investor Relations. I'm thrilled to be here today with Simon Michel, our CEO; and Samuel Kunzli, our CFO. Indeed, today marks a key milestone in our journey. And without further ado, I will pass on -- hand over to Simon to share the news.

Thank you very much, Sam. Great. A warm welcome from my side as well here out at Solothurn Ypsomed Studio this afternoon. This will be a short update for you, something we have been working on for quite some time, and you have read this morning in the news, Ypsomed exits diabetes care, we have signed yesterday, and we are going to close in the second half of 2025. The agreement has been signed with TecMed AG. TecMed was bidding and in the process from the very beginning. We will deepen with you today how this has happened, et cetera. And more or less, I would like to lead you through what has happened over the past 4 years. So you understand the story again. Ypsomed is on the way of becoming a pure-play injection system specialist, and this is an important moment for us. We have started 4 years ago by transferring Ypsomed by breaking up the matrix and working into business areas. We have then exited our retail business in Germany. We have discontinued contract manufacturing relationships. We are just in the mode of moving the Sanofi lines out and moving Novo lines in here in Solothurn. We have exited our pen needle and BGM business piece, which has been for 20 years with us in the mylife portfolio. We have decided in November to sell Diabetes Care business. And now after a 5-month very structured process, we have signed the deal with TecMed AG, and we expect closing in the second half of 2025. It's an important step for Ypsomed. It's an important step for Diabetes Care as well. Diabetes Care is being released. It's becoming a pure-play B2C player, going to explain a bit more what it means in the -- for our patients as well for our customers. But especially for Ypsomed, this is what we have been working on for such a long time. Ypsomed is now a very clear pure-play B2B company that can grow, company that can grow in its environment, together with its clients, its customers, big pharma biotech but also globally and eventually even further down the road in the vertical in our value chain, a very, very clear story by separating to 2 entities. This has been the result of a very structured process, has actually been taken out of the process at a certain point in time when TecMed showed the interest. But in order to deepen all these details how it has happened, I would like to hand over to Samuel.

Thank you, Simon. So how did we structure the divestment process? We first selected an investment bank to structure the auction process, we selected Rothschild. We then did a broad marketing and we received interest from financial sponsors and strategic buyers. We did the due diligence, we did the negotiations and TecMed was selected as the ideal buyer. TecMed is owned by Willy Michel and we wanted to make sure that this related party transaction is fair. That's why we mandated an independent appraisal company. We mandated ISBC who has a very good reputation in the market. And ISBC came to the conclusion that this purchase price with a nominal value up to CHF 420 million is fair. This purchase price includes also an earn-out. The earn-out is a minor part of it. It's less than 25% of this CHF 420 million. So you see the vast majority, 75% plus is cash. So what we're going to do with this cash. We will invest this cash to expand our core business, the delivery system business. Have in mind, this business is very fast-growing and it's capital intensive. So we do not plan to propose to the shareholders a special dividend from these proceeds. I want to further elaborate why TecMed is the ideal buyer. First of all, there is a strong strategic rationale. TecMed owns the patch pump program and is therefore a well-known specialist in the diabetes care area. Moreover, TecMed has a long-term commitment and a clear vision for the future of the Ypsomed Diabetes Care business, and this brings stability to all stakeholders, to the patients, the health care professionals, to the strategic partners of the business and also the employees. To elaborate further on the strategic rationale, I hand now over to Simon.

Thank you very much. Yes, indeed, there is, of course, a highly strategic logic behind interest of TecMed. As Samuel just elaborated, TecMed invested over CHF 100 million in the development of a patch pump. There is a way to go, but they are lacking a sales infrastructure. They are lacking a call center infrastructure, they are lacking a logistic infrastructure. And this is all -- this is a core element of what YDC has been building up under the lead of Sébastien Delarive, over the past years, a very healthy, well-structured organization in 20 countries, offering the access to the market and TecMed shows highly strategic interest in that list in order to also sell, of course, the patch pump. So the portfolio that TecMed is going to propose is, of course, a complete portfolio that is really unique out there. This unique mylife ecosystem contains not only the patch pump with the app and the relationship with both Dexcom and Abbott, but it also contains the patch pump. So a complete product portfolio, collaborating closely with CamAPS app from Canada app. So the whole logic, the logic ecosystem, the smart system that is provided will also work for the patch pump so an ideal proposition. What does it mean for our company? We have roughly 200 colleagues that will locate from our Solothurn mylife hub today in Solothurn to Burgdorf into new offices where TecMed acquired a large building that is going to be the new home for those colleagues. And Solothurn Ypsomed will get some new space. Importantly, we are growing, as you know, heavily, we are going to invest over CHF 200 million here in Solothurn alone. This is, of course, the novo lines for auto injectors. We also built a new manufacturing floor in Building 4 for new devices and new platforms. We are building a new high beam logistic and warehouse center. We are building the new tool shop as we have explained during the half year figures, and we are going to build our finish our forum, our conference center. So the whole Solothurn area is becoming more and more important here for Ypsomed. So we need the space. We can use the space. It's actually the ideal moment also that we are able to move our colleagues not before end of the year to Burgdorf in order to have the space for Ypsomed's growth and success story. Yes, with that, dear ladies and gentlemen, colleagues, I would like to end, I'm asking Sam back on stage here. We move the camera back on the total. So you see all of us and now we are going to have a structured process, but I hand the word over to Sam, who will lead us through those Q&A.

Thank you very much. Very important milestone indeed. Thank you. [Operator Instructions] I already see that we have some questions, we'll take them in order. So number one, Daniel Jelovcan, please feel free to ask your question.

Yes. So the first question is what happened with the other new ones Simon mentioned in an interview at year-end of '24, that you had some 20 interested parties, I mean basically, I can say, who cares now. But what was the decision of them? It's too tough to build it out? Or was it the price in the end. it's the first question. And then I have another one, but I'll just wait for the answer.

Let me start and then I hand over to Samuel. Thank you, Daniel for the question. Yes, indeed. So I mean in the very beginning, we had over 20 interested parties, both financial sponsors and strategics. And then during the process, it was eased out, but maybe you can add some word here to that process, Samuel.

Gladly. Thanks for the question, Daniel. So we had several criteria. One, of course, among them was the price. But of course, also what is the strategic rationale, what is the plan to do with that business, how to develop that business. And you understand for confidentiality reason, we cannot not tell you in very detail who stayed until how long in that process. But as I mentioned, after the final negotiation, due diligence, TecMed came out as the ideal buyer.

Okay. And the second question, it's a bit special one. It's difficult to ask, but I got this question from investors as well today. Indirectly, they feel that TecMed has to sell some Ypsomed chance to finance the deal. And I told him, honestly, I don't know how wealthy the family office is, you know what, it's a difficult question, but...

Actually, it's a good one. I mean, I think it's absolutely fair. And as always, if you have potential investors with an interest in packages. And we did that with many of you on the call here for the past 10 years, give now new Sam a call or ring me and we look for such packages. I mean, we are going to keep the vast majority. I mean we have no interest to dilute us below 2/3. There might be some room. My dad doesn't need the money to my knowledge from selling shares. But as always, tell your customers, Daniel, they should approach, ask via you, and then we can entertain such a dialogue.

Thank you for your question. Perhaps we'll now take the second question from Sibylle. The floor is yours.

I had a question about the price and the earn-out. I mean for me, it's clear now the upfront payment you will have. Could you have give us a little more color on the earn-out, what are the rules and the details? And do I understand it correctly, YpsoPod at the moment, Ypsomed is doing the whole research and is paid then by TecMed and will it be the same with the YpsoPump or how will this work?

Would you like Samuel to take this question?

Yes. I start gladly Sibylle with the earn-out. So the earn-out structure is a typical one. You see in a deal I mentioned it's the minor part so less than 25% and less than CHF 100 million is related to that earn-out, and it's related to how it's also common to the future success measured by the future sales. So that is the structure of the earn-out and regarding the second question, regarding YpsoPod and how it's done in the future, I maybe hand over to you, Simon.

So basically, we are also going to transfer the team, the YpsoPod team, the PatchPump team to TecMed. This is roughly 40 people that will also move from Ypsomed to TecMed. That's part of the package. It makes a lot of sense that we no longer entertain such a contract development, R&D relationship so the team will also join TecMed in full.

Okay. And until then, you will do that until the deal is closed?

Yes, exactly. I mean we are still in this phase now. We call it Mercury 3. It's this transition phase of 4, 5 months where we have to take a couple of measures in IT where we especially need to work on the contract for our colleagues, employees and some regulatory work in the countries. As you can imagine, that's a very structured process, and all colleagues from Ypsomed that are currently working for TecMed are receiving an offer by TecMed and they have the right to choose, of course, whether they want to join the new company, but I think most of them or all of them will actually move to TecMed bringing that great innovation, this new patch pump to market.

Is there any other additional questions, please feel free to raise your hand on clicking on the icon, I think we have here another question. It will be from Sandra.

Yes. I have a short follow-up on the earn-out. So Samuel, you said it's a typical earn-out structure. So is it fair to assume that this roughly CHF 100 million will be paid out over 3 years. Is that a fair assumption of time horizon? And then I have a second one. I mean, you have built this manufacturing site for the infusion sets manufacturing for the pump business. So we have seen that it's very impressive. Will you continue to manufacture for TecMed as a contract manufacturer the infusion sets at least over a certain time? Or what is the plan there?

I gladly take the first one and then hand over to Simon, yes. So your assumption is fair, this earn-out doesn't take longer than 3 years. So that is a correct assumption. And yes, it's slightly below the CHF 100 million. For the second question, I hand over to Simon.

Yes, absolutely. I mean we have 2 elements where we still continue to keep a relationship for 3 to maximum 5 years. This is the infusion set business, the Orbit business, what you have seen in Schwerin in the clean room. And that is some parts for the insulin pumps and the reservoir, some parts that we still manufacture in [indiscernible] and Burgdorf. So this is a pure contract manufacturing deal. We have negotiated the key terms. This has now to be put under with wet ink. But basically, it is a regular relationship, but we want to minimize the duration. Both parties have actually the interest to minimize the duration. First of all, TecMed wants to become independent. They believe they can get a better deal than buying it from us. And we also need the space in 3, 4 years for our YpsoDose, our patch injector program, where this clean room in Schwerin will be ideal perfect. So this will be a transition phase contractually agreed on the contractual terms. But it's indeed quite a sum up to CHF 40 million in revenue that we will keep on here in this -- during this duration of 3 years in a contract area with, of course, a slightly lower margin than our average. We will then stop it and then will have a positive effect on the overall margin. That is for both the sets, infusion sets as well as the pump parts.

Thank you. And perhaps we'll jump now to [ Olivier Calvet ] since you haven't asked a question first.

Just 1 more on the earn-out. You've talked about the period when that applies about 3 years or less. Could you just confirm that there is no profitability-related element in that earn-out?

That is a question for you, Samuel.

Yes. No, I mentioned that the earn-outs related to the top line, the sales so that is the main driver of that earn-out.

There is no profit related arch of the earn-out, it's very simple.

Perhaps now we can go back to Daniel. He has a follow-up question?

Yes. Just 1 last. I try to recall in memory, what you said about the profitability about the Diabetes Care business. I think you said that it's becoming closer to breakeven towards the end of the fiscal year so March. And now we are in April. And since we are in a public call, maybe you could even be a bit more specific about the profitability of YDC would be nice.

Or maybe not because of the short period to the annual figures, but maybe you can add some...

Daniel, It's a good question. Just have in mind, we are now in the silent period. So we just closed the books end of March. In a month, we will show our annual results what you saw the trajectory you saw when we published the half year results that it is going in the direction of being this profitability breakeven, yes, the trajectory this you can assume is going in that direction, but I ask for your understanding, I cannot be more specific at this point regarding the profitability of the Diabetes Care business. Happy then to catch up on that in May.

Indeed, we also have a road plan in May. So perhaps we can cover this question after the full year results are published. And perhaps now we'll go next to Marianne Bulot.

You can hear me. So I understand that you will use the proceeds from the sales to finance the CapEx expansion for the rest of the business. So should we assume that, that means you will not need to raise any additional debt to finance the CapEx expansion at least in the near term? Just trying to understand a little bit how does the sales maybe change our attitude of financing that you need for the CapEx expansion? And the second question, could you maybe give a little bit more details on how Ypsomed looks pro forma excluding the diabetes care? How does it look like in terms of profitability. And of course, I understand you can't talk about the future figures, but maybe anything of the, let's say, past figures. How does that look like? Maybe it's also something that you will share on the 21st of May, but just wondering.

Good. Marianne, thank you for your questions. Maybe First one regarding the CapEx need. So yes, we are indeed, we are heavily growing. So we have high growth CapEx and your assumption is right that now because of these proceeds so far, purely the cash we get from that deal is roughly CHF 300 million will, of course, allow us to finance really the near-term CapEx fully from those proceeds. Anyway, our balance sheet is stable enough to also finance the full CapEx program we have planned until end of the decade by ourselves so we don't need to raise equity but yes, that's at the later point, that is, of course, still possible that we raise that but not the equity. So that's regarding the first question. And the second one here, of course, I can also now not talk about actual numbers. But what you saw, I want to highlight what you saw in the half year results when we showed also how the business looks, the core business looks stand-alone. And there you saw this much higher profitability of the core business. On that slide, you saw that we have in this core business EBIT margins of North than 30% and that is something you can also see from the historic numbers. And again, since we are on track, you didn't hear any profit warning for you. It's fair to assume that it's developed in the line we showed at the half year results.

Thank you. And we may move now to [ Julian Viscidi ] from the [indiscernible] newspaper.

What does this separation mean for the footprint of Ypsomed in Burgdorf as you are now strongly investing in Solothurn in the future?

So it's actually a great win for Burgdorf so we are adding over 300 new people in -- colleagues in burn, the canton of Bern, since we are moving people out of Solothurn to Burgdorf so Solothurn will actually have empty space for the next 3 years until we fill those offices again. Ypsomed itself will have 35, 40 people moving from Ypsomed [indiscernible] to Burgdorf the new headquarter next to the train station in Burgdorf, the new headquarter of TecMed. It's a large building, which has space for roughly 400 people. And then we have about 210 people coming from Solothurn to Burgdorf, and then they have some TecMed people. And all in all, it's about 300 positions -- colleagues that will actually be stationed in the new TecMed headquartered next to the train station in Burgdorf. So for the canton of Bern, it's a great win. It's a great day. We had contact this morning already with the [Indiscernible] you can imagine, it's a very good thing. For Solothurn, it's also positive because in the end, we are getting space and Ypsomed will now grow here in Burgdorf, Ypsomed is so full. At lunch, you have to eat in 3 shifts. Now we get a bit -- we cannot grow anymore in Burgdorf so we will now fill in the future here Solothurn offices with Ypsomed colleagues.

But the seat of Ypsomed will remain in Burgdorf.

No, this has nothing to do with Ypsomed, of course. I mean Ypsomed [Foreign Language] That's very important. And if you have [Foreign Language] we can also have a direct in-depth discussion after this call if you have further questions because I think it's important for people in the area, in the region, in Bern, in Burgdorf to understand what really happens. So give me a call, an e-mail and we will schedule a quick call.

Thank you very much, Julian, for your question. And now we have a follow-up question from Sandra.

As you are now on track to coming this pure-play self-injection specialists. So any thoughts on Ypsotec or what's the potential plans around that business segment? That's the first. And then the second question you are heavily investing in capacity expansion as we heard. Maybe you can also update us on your thoughts or plans to establish a manufacturing site in the U.S. That would be helpful.

Sure. We will give full light on this topic in May, but I can tell you, yes, we are going to start the process for TecMed at some point in time. We tried that already 3 years ago, as you remember, and then Corona came and we had to stop. And for the U.S., yes, we are also going to communicate where we are going to establish our site. We have started the North America program 2 years ago already. We have looked at Puerto Rico, Costa Rica, Canada and Northern America, we are now in North America remaining in 2 states. We are currently in negotiation with the 2 governors. You can imagine now we have very good cards to negotiate with the 2 governors in order to maximize the support of the respective states. So we're going to communicate that in May, latest June because we have to start then applying for the permits. So no, it's absolutely important for us. Ypsomed will become truly global, both with its sites in Switzerland and Germany, the China office, China site that we are going to inaugurate in June this year, and then the U.S., which we're going to open in the course of 2027. So that is a very clear aligned plan also in the expectation of our customers who want us to become -- to get closer and closer in order to optimize their supply chain but also lower the carbon footprint.

Great. And another follow-up question from Sibylle. Sibylle, you can ask your question.

You said that you plan to close the deal in the second half of 2025. What does it mean? What has to be done until then? Do you need approval of authorities or is it more you have to spin off and move the people through a separation of software and so on. If you could elaborate on that, please.

So I can start and then I hand over to my colleagues here on stage. So the good thing is that we are now in Mercury 2, in Mercury 1, until end of November, we already transferred all employees working for diabetes care into a separate Ypsomed Diabetes Care AG. We explained that in November. So that's very important. So all colleagues have already the correct contract. Now we are just moving the company under TecMed that simplifies this process very much, number one. Number two, yes, we have certain regulatory checks in the countries from a competition law perspective, but that is not a problem. It's just a thing you have to go through. We calculate in the maximum in 1 or 2 countries for a 2-month process, but not longer. IT, yes, of course, separation, but a large part of the separation has happened already since we have established the Ypsomed Diabetes Care AG end of November, they've already copied SAP 100%. So Ypsomed Diabetes Care is already working on its separate SAP and ERP system. The separate warehouse is already done. But now, of course, we will have, we call it, Mercury 3 and Mercury 4 program a 1-year transition because there's physical servers and stuff like that. So yes, there's a transition, websites, social media, et cetera, et cetera. But this is a thing we believe we can do in 4, 5 months. So we'll definitely want to close way before Christmas. And my personal goal is to close before the half year figures so we can really work together on the Ypsomed plan.

So it does not mean that something could happen, and you could not close the deal because you expect that authorities will be -- will give you an approval very soon.

No, we don't have any such risks in our plan.

Perfect. Thank you very much. Is there any other questions? From [ Shahas ], the team will unmute your mic and you may ask your question.

So my question is more related to the core business post this strategic sale, right? So basically, what I wanted to understand or give some -- get some color from your side in terms of how the overall demand for the drug delivery devices could pan out post the successful clinical trials by Eli Lily in general? I mean, how should one look at the entire space?

So in general, I mean, our core Ypsomed Delivery Systems business has a lot of tailwind, we see the explosion of biologic drugs. Over 70% of all new drugs in the space have to be injected. There's only a small, small, small trend that goes into orals, but we see the first year in history where we see more injectable FDA approvals than oral FDA approvals, number one. Number two, we see biosimilars, more drugs get off patent. This leads to many local pharma biotech companies in emerging markets that Ypsomed is also serving. And we see the general trend of self-care so that drugs are really moving home away from hospital IV into subcu so we are profiting from that. If you look at our pure figures, we see a compound average growth of close to 20%, 15% to 20% for sure, some years maybe even above 20% over -- until the end of the decade. We see a very strong growth trajectory now for Ypsomed and that's actually one of the key reasons why we divest Diabetes Care to become a pure play very focused company that can focus on growth, can focus on operational excellence but the space of delivery systems, the space of parenteral drugs is exploding. And this is not just because of GLP1s that's very broad. If you look at our 200 projects in our pipeline, we have -- remember, we have 70 products in the market, and we have over 200 in our pipeline. Look at 200 in our pipeline, we have 70 in the space of autoimmune disease. We have 50 in the space of GLP-1. And then we have many, many other hormones and neuro and other stuff. So a very broad spectrum of drugs that have to be injected via pens or auto injects. I don't know if this answers your questions. Otherwise, please feel free to ask again or more specifically.

Thank you all for your interest. Thank you so many of you who are here today and a very interactive session. Thank you for your questions. If you have no other further comments so we'll now close this call. Thank you very much.

Thank you.

Thank you.