Ypsomed Holding AG

SIX:YPSN

Earnings Call Transcript 2019-Q2

[Operator]

Good day, ladies and gentlemen, and welcome to the Half Year 2018-2019 Ypsomed Earnings Conference Call. [Operator Instructions] I would like now to introduce your host for today's conference call, Mr. Thomas Kutt, Head of Investor Relations. Sir, the floor is yours.

[Thomas Kutt, Head of Investor Relations]

Thank you. Good day, ladies and gentlemen, and thank you for joining us for our half-year figures 2018/'19 Earnings Conference Call. Joining me today are Simon Michel, CEO; and Niklaus Ramseier, CFO. Our press release, report and presentation discussing our half year 2018/'19 results and business year 2018/'19 guidance are also available in the Media and Investors section of our website. With that, I will turn the call to Simon.

[Simon Michel, Chief Executive Officer]

Thank you, Thomas, for your introduction. Ladies and gentlemen, good afternoon. Let me lead you through our presentation here. We can report very strong first half year. We are pleased with the launch of YpsoPump, clearly above our expectation. I will deepen that in this discussion later on. We are on track with our geographic expansion, where we are currently available in 17 countries and we are also pleased to have successfully transferred all the Omnipod business to the Insulet Europe team over here so that they are now in charge for the business. In Ypsomed delivery system side, we have been able to profit from both device deliveries and products for studies, but also in project revenues, also going to deepen that a bit. We are pleased that the relationship with Sanofi is strong and is getting stronger so contract manufacturing is key element in our Delivery Systems strategy. And we can also report that despite of Merck's decisions, not to launch their biosimilar insulin in the USA, we are on track here with our midterm planning. You will be able to see today that our vast portfolio of projects based on our platform logic is very strong and that this decision not to launch does not really impact our guidance. With that, I would like to move to the next slide, Slide #4 and this is going to show our 3 main focus areas on a strategic level. First, we talk about expansion, we talk about innovation and we talk about operational excellence. On expansion side, we are now in 17 countries active with YpsoPump, we have needles on the markets as well. Health Canada will release YpsoPump at end of January. We are a bit behind schedule here, they're asking some more elements on the app side, but in overall, we are on track. The team is installed, the SAP and logistic elements are in place. Also United States, FDA, we have received all their questions. We are now on a 180-day period. We are halfway through and we are still expecting approval from the authority by May next year. So are currently starting up the organization, we have our launch team prepared and ready here in Europe and we are going to appoint our team in America hopefully before Christmas. On innovation side, we have 2 important elements to disclose, discuss. We have talked about this already, this is number 1, our collaboration with JDRF. It's a key element in our logic, how to bring pumping to the next level. We are a strong believer in fully individualized algorithms. We are not a vast believer in hardcoded algorithm like, you know, from Medtronic. That's why we are in this closed collaboration with JDRF, Juvenile Diabetes Research Foundation, on the open-protocol AID initiative. For the pump business, we have also signed a deal with Philips. Philips here in Europe as our global cloud provider. We are now able to afford medical-grade HIPPA-compliant cloud services for our B2B customer. This will be especially important in the growth of data business. I am also going to deepen that a bit further during that call. We are pleased to be able to announce that we have launched the first autoinjector here in Europe for Japanese client, for adalimumab biosimilar, so Humira biosimilar. On operational side, we have decided to expand the capacity for our pump and infusion set because of the above-expected growth in pumps. We are very well on track in our 2 large programs in Burgdorf and in Schwerin. In Burgdorf, as you may know, we have been doubling our tool manufacturing shop, our technicom where we ramp up tools, plastic-molding tools for production. And where we are also now offering 100 additional workspaces. In Schwerin in Northern Germany, our large site is well on track on day, where we will be able to manufacture the infusion sets, the patch pumps, the YpsoPump, the YpsoMates, et cetera over the next years. With my team, we have decided to also invest money in a comprehensive and expanded lean transformation program. We are currently analyzing all departments, doing audits on where we can become lean and where we can save time, cost, where we can get rid of waste and be leaner in how we work and what we do. This is an overall picture. I leave you to the figures. You have certainly read them in the press release. We have increased our revenue by CHF 45 million, maybe Thomas, you just go to the next slide here that shows the actual business growth without any Omnipod effects. For this purpose, we have also separated the CHF 7.6 million we made in revenue with DiaExpert related trade Omnipod business. This is announced by us. We are the formal distributor in Germany only for the Omnipod system, via our DiaExpert trading business. So 1 quarter CHF 7.6 million leads to closely CHF 30 -- CHF 30-something million of revenue, which we are going to generate here, which is Omnipod business in our collaboration over here in Europe with Insulet Corporation. The growth itself, 12.6%. If you take the CHF 7.6 million and add it to the CHF 150 million, then we have a growth of 18.1%. When we look at the details in YDC and YDS, on Diabetes Care, of course, they have been profiting from the strong launch of YpsoPump. 18.1% growth rate to CHF 73.2 million in the first half year. 80% of the growth comes from the pump, about 20% of the growth comes from the needles. Delivery Systems have been slightly below our expectations, mainly because of the nonlaunch of Merck. But we are going to overcompensate that in the second half year. We expect overall growth in the Delivery Systems segment for the full year of something between 16%, 17%. Then we go to bottom line. You see this increase, of course, the large piece here is the compensation payment we expect from Insulet over the coming 4 quarters. So CHF 68.4 million is including the payment for the handing over of the business here in Europe. Let me move to the investment view. We have had a very strong investment periods mainly due to our infrastructure programs. We have been building on track in Schwerin, CHF 26 million, we have done a lot of capacity expansion programs here in the Switzerland on infusion set, on the patch pump, in the molding, on the autoinjector side, but also on the actual infrastructure building in Burgdorf for the new tool shop. With this, I'm moving over to the outlook for the full year, and I think what is important here to note and which make me very pleased that, despite of the discontinuation of the Omnipod business here, we are able to deliver sales on the same level. So around CHF 460 million as in the previous year. Of course, the roughly CHF 30 million that we do in Germany with the Omnipod helped. But in general, you see that the YpsoPump and the additional sales in pen systems, but also the onetime payment from Insulet is going to support that guidance. We also raise our expectation on the EBIT to CHF 23 million. Together with the roughly CHF 50 million compensation, we plan to land at CHF 73 million for the full year. Let me dig into this -- into how this is developing here. This EBIT for the coming 6 months. As you know, we start at CHF 61 million. Omnipod was roughly delivering CHF 34 million. Of course, this is now pure, we have loaded all the cost for the sales onto the other programs, onto our pump, on to our needles, so it seems to be a high figure, but this is what we report at this moment. The continued business is CHF 27 million, we may add CHF 16 million through the continued business. We have uncovered costs from the sales and organization. As you know, we have communicated that very clearly that we are going to keep our sales infrastructure in country. We have been growing our sales infrastructure. It is CHF 8 million on the global expansion side and invest more in access. We are now close to 350 sales reps. We are going to be 400 sales reps until the end of the year. This is an important element here in our global expansion strategy. We've also added additional CHF 1 million in the R&D side, money we have not activated, so which really put into our cost and this is leading to CHF 11 million for the continued business, plus the CHF 12 million for the last quarter of the regular Omnipod business from April to June leads to the CHF 23 million which I just explained, in total about, plus the CHF 50 million is to CHF 73 million. With the high-level overview of the figures, I suggest move directly into the segments. We start with Diabetes Care and this is an important graph for us because it shows the clear strategic intent to move to America with our pump. The global pump market is 1.3 million, 1.4 million out of a total of 50 million Type 1's worldwide. Still pretty much under-penetrated. And we know that 50% of pumps are worn in United States. We have our home turf here in Europe, where we will definitely succeed in all the markets. We are here for 30 years. So our big step is now America for 2019. Currently, we are available in 17 countries. We are on track to rolling it out to 6 more until March. We have the book now in our own hands. We are no longer dependent from Insulet. Like in the past, we have not been able to launch products in more market because Insulet has not been able to deliver with the language versions, now of course we can do that. And as you know, the YpsoPump is language-independent and it is a single-only. It's a very, very simple device. We don't need all these complicated translations on the device. That's why we are launching in more countries. We are thrilled to move to Canada now very soon. And Norway is an important market with a national tender which is opening in December this year. 2019, I announced already we are going to launch in America. We are going to discuss -- disclose the entry strategy as late as possible. It will be either in March or then with the full year figures, how we are going to launch in this important market. We have decided to present to you the actual installed base figures for YpsoPump. We are currently at roughly 5,000 patients and we are going to be at roughly 10,000 customers by March 2019. This is about 20% over our average. I can say that we have some markets which run really well and some markets we have to learn. We have to profit from other markets. This the process we are in at the moment. Canada is delayed for 3 months, but in other market we are 50% above average -- above expectations. So in general, we are extremely pleased, it's an extremely robust device. We have almost 0 calls. It's easy to learn and all the arguments we have been fighting with, we have been working on for the past 5 years have proven to be real. The market wants easy-to-learn and easy-to-use pump, the market wants a pump with prefilled cartridges, no manual filling, the market wants a small device, a light device. It's half the weight of a Medtronic pump, and it's modular. And I'm going to show to you what I mean with modular in the connection of CGM. Before I do that, I would like to present the launch we have had. It is really a successful launch. I mean, with Omnipod, we have a great product. It was new -- it was really new and disruptive in a sense that it was new, no tube. But you see here in this graph that for the 2 quarters here, the launch lots quarters, we have shown a steep growth in YpsoPump versus Omnipod back 7 years ago. Of course, we have now an installed organization. We have market in place, we have organization in place. Ypsomed is very well-known as a pump manufacturer. We can profit from that. That's definitely a reason, but what it shows to me is that this is a successful launch. It's a stable launch and we can focus on growing and don't have to work on problems, on issues. So Ypsomed here is very pleased with this development. For this reason, we have decided to extend the production, the capacity both in pumps and in infusion sets. As you know, we manufacture infusion sets in Mexico, in Solothurn, Switzerland. And end of 2020, we will have the large line running and then ready for the market middle of 2021 for infusion sets out of Schwerin. The new clean room, which we are going to hand over production beginning of next year, a very important step for us, so we have the capacity to enter the important American market with infusion sets. As you know, also Bigfoot is going to profit, the California-based company is going to profit from this product and they're also going to use Orbit infusion sets for their Asante Bigfoot-based pump. When we look a bit ahead, we would like to differentiate pump customers, pump users in different segments. And 70%, 75% of the market, as you certainly know is still, we call it pure pumper, so pure is a pumper is a pumper that uses a BGM, the regular, either it's a Libre or it's normal measurement by blood on your fingertip. And you use this to do your pump therapy, you have a bolus calculator which supports you, but you give your bolus manually through the pump or via the phone or via, in the case of Omnipod, via a remote control. Now the next step, we call this basic looping. And the basic looping is making use of CGM, for Continuous Glucose Monitoring system. And for this purpose, you are in very close contact with one of the 2 major CGM providers and we plan to have a CGM-integrated mylife App available in the market in the second half of 2019. We have now to figure out all these different languages and eventually make it prioritization here in Europe. But the center will be part of the mylife App in order to have a better experience on the pumping, if you want it. It's not mandatory. You are free to use it, to have an automated support on the bolus calculation. And the next step then we call full looping, Medtronic talks about closed looping. This is then taking use of the CGM signal and the algorithm. And together with the algorithm, we are able to control the therapy even better. As you know, Medtronic is still far away from a closed loop, but it shows where it goes. And for this purpose, we have decided to collaborate with JDRF to open up our pump. Maybe, Thomas, you can just click the slide through. We have decided to open up our pump. We call it 2.0 open-protocol in the coming year in order to give access to the looper community and to the live cloud community to our pump. It's a very controlled access, which will enable them to use our pump as a full looping, smart looping device. This is out of your choice. Ypsomed is focusing on the device on our own app, but we want to open it to this community, because we are convinced that the individualized protocols will prove better than hardcoded protocols in the long run. Thomas, I suggest I jump to the following slide. This gives you some further information, whereas most of it is disclosed here on the collaboration with JDRF and then we move directly to the pen needles business. This is something which we have not been talking for the past 3 years. It's always been in the shadow of the Omnipod, but we are very pleased that we grow clearly above the market and we have some great new sales opportunities in United States, in the store brands together with our partner, Perrigo, where we are supplying over 150 million pens just to Walmart alone. We are now opening new channels together with Perrigo and we are very pleased here that this runs well. That's why we are also planning to install a 6 -- so a number 6 automatic pen needle manufacturing line next year. We are going to order it in March, April in order to be ready in 2 years with an extended capacity. Pen needles for America and China, also a very fast-growing pen needle market. With this details on the pump and on the pen needles, I suggest we just move to the Delivery Systems business. And for those who have not been following us for the past years and are not so acquainted with the topic of devices, we make a very clear difference between pens and autoinjectors. So pens are mainly for hormones such as insulin. Autoinjectors are mainly for monoclonal antibodies. Typical example is Humira, adalimumab. Pens are variable dosed, autoinjectors are fixed dosed. Pens are used for weight-independent drugs and autoinjectors for weight-dependent drugs. In the world of pens, you work with cartridges, glass cartridges, typically 3 mL. In the world of autoinjectors, we work with pre-filled syringes. And we are very pleased to announce this at the beginning that we have been able to launch the first Ypsomed, together with the Japanese client in Europe for a biosimilar from Humira. I've also informed you that Merck is not going to launch the UnoPen, insulin pen from Ypsomed. But for this purpose, we are prepared this Slide #27 here for you. It shows that our platform strategy makes us really, really independent from individual projects. On the left side, you see medium sales potential projects. On the right side, larger sales potential projects. In total we have something between 20 -- something below 20 large, and something above 60 small projects. Today, the dark gray shows what product we have on the markets. Blue, new projects; light blue, projects that have been discontinued because clinical study has failed or because the company has decided not to prolong this project; and then the gray is the potential. Now in terms of top line growth, you see that the large programs are still the ones which bring the most to us, but from a bottom line perspective, of course, the 60 -- 60 to 70 small projects are extremely interesting to us, because we solve the issue for companies that have 500,000 to 1 million to 1.5 million, 2 million devices, small volumes but which need devices in order to bring their product to the market. So from that perspective, Ypsomed is becoming system relevant. We are the facilitator of devices for new drugs that are going to see the market in the coming 1 to 4 years. So it's important to understand that our company is independent from single programs. We continue with the message to have compound average growth rate of 25% in the segment of Delivery Systems over the coming 3 years. We had a weaker first half year, we had a strong second half year. Then we are going to continue the growth to 25%, 30% so compounds 25% over the coming 3 years in the segment of Delivery Systems. With this, I am moving over to SmartServices and I have talked about this initially, briefly, about our partnership with Philips. We have been talking to Qualcomm, to Flex, to all the guys in the space. And we have decided to work with Philips because they understand that costs are relevant. In this world, we cannot charge $10 -- $20 per patient, per user. So we work with low-costs here in order to provide data to a large pharma customers. So the main idea here is to connect our SmartPilot device, our autoinjector with a SmartPilot device around via phone or directly 5G to our Ypsomed cloud. It's a medical-grade cloud and this cloud offers a patient or a customer interface, a cockpit you can say, which delivers information either to the patient, but probably more importantly to customers, i.e. pharmaceutical customers. Let me move to the next slide and explain a bit the value adds that we deliver here with SmartServices. So for on the left side pharma customers, first of all, we deliver them really relevant information on the adherence of the patient. So we provide them information such as counter setting, is it really an original product, is the expiry date okay, is the temperature okay of the drug, has it been injected too warm, too cold out of the fridge, has the holding time been okay, has there been a wet shot, has the injection been complete, when had it happened, et cetera, et cetera? So over 20 parameters that we collect and we provide via cockpit to our large pharma customers. In the future, we are going to make money with data. I think this is the important message here. Ypsomed is moving from a device-only company to a data company, but I can tell you we don't have it in our mid-term plan yet, but we are convinced that the world goes IoT and when I visit PDA, the big conferences where our device world meets, we are clear leader in the space showing the complete ecosystem, because you don't just stop at this smart device. It's a system and Ypsomed together, with Philips, provides the system where I'm very pleased what our team has been developing here over the past 12 to 18 months. There are also of course advantages for users itself. I mean you have -- as a father you know what happens to your kid. You have a full control of the therapy. You are reminded of your injection. If you do an injection, you have your holding period topic, that you keep the device long enough under your skin in order to prevent wet shots, et cetera. So we have a key set of information which big pharma is looking for in order to have better negotiations with insurance companies in order to support outcome-based payment, but also in general, to support real adherence. And there are the same advantages for the users, but we can imagine that the pressure is more coming from big pharma and insurance than out of free will from our users. But it is clear, if you want to manage global health cost, we have all to get to work on better adherence. With this, I suggest, Thomas, we move forward to some group information. It's just a couple of slides left. We have, as I talked about it, Schwerin is on track. It's a 200-meter-long production home, it's a 24,000 square meter building, which will be handed over to the production and qualification team in April. Then steadily going to be filled up with the different products and clean rooms. So we have a flexible building, which gives us the flexibility and growth over the coming years. Also, Burgdorf, we have finished our CHF 25 million extension program with this large clean room. I would say it's the most modern -- sorry, tool shop -- it's the most modern tool shop in Europe. It's white, it's clean. And you can eat from the floor. We have a technical special room, where we finish all tools. We manufacture way over 100 plastic-molding tools per year and we are going to validate them in our technical closed environment that ships them directly to the plant. So the plants can manufacture, we can focus on lean production, we don't have to a ramp up new tools. It is a key element in our global attempt to become more productive and to stay cost leader. Also, what you see here is our new office building with 100 additional workspaces. So with this, I come to the end. We disclose our full year figures on the 23rd of May, 2019. And with this, Thomas, I am handing over to you. Thank you very much.

[Thomas Kutt, Head of Investor Relations]

Thanks, Simon. Operator, please open the line for questions.

[Operator]

[Operator Instructions] So far there are no questions coming in. There are still no question.

[Simon Michel, Chief Executive Officer]

Okay, so thank you and thanks for joining us and thanks for listening to the call. Thank you very much.

[Thomas Kutt, Head of Investor Relations]

Thank you, operator.

[Operator]

The conference recording has been stopped.