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Edited Transcript of YPSN.S earnings conference call or presentation 5-Nov-19 2:00pm GMT

Half Year 2020 Ypsomed Holding AG Earnings Call

Burgdorf Nov 20, 2019 (Thomson StreetEvents) -- Edited Transcript of Ypsomed Holding AG earnings conference call or presentation Tuesday, November 5, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Simon Michel

Ypsomed Holding AG - CEO

* Thomas Kutt

Ypsomed Holding AG - Head of IR

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the First Half Year 2019-'20 Ypsomed Earning Conference Call. (Operator Instructions) I would like to introduce your host for today's conference, Mr. Thomas Kutt, Head of Investor Relations. Sir, the floor is yours.

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Thomas Kutt, Ypsomed Holding AG - Head of IR [2]

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Thank you. Good day, ladies and gentlemen, and thank you for joining us for our half year figures 2019-'20 earnings conference call. Joining me today are Simon Michel, CEO; and Niklaus Ramseier, CFO.

Our press release, report and presentation discussing our half year 2019-'20 results and financial year guidance are also available in the Media & Investors section of our website. With that, I will turn the call to Simon.

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Simon Michel, Ypsomed Holding AG - CEO [3]

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Thank you, Thomas, for the introduction. Ladies and gentlemen, it's my pleasure to comment our first half year results for business year '19-'20.

There are 3 main messages. Number one, Ypsomed is on track in its transition phase. Number two, we had a very strong YDS H1 with 10 product launches. We're going to show you that in detail. And number three, we have a slightly weaker-than-expected H1 in YDC because of currency effects and a slower start in Canada.

With that, let me start and go to Slide #5 to talk about -- directly about our highlights. When we look at our main focus, and this is a long-term strategy, we focus on expansion. And what are the main elements? As I mentioned, the phenomenal 10 launches of products, number one; our strong expansion into China; and until end of the March, around 1,200 -- 12,500 users on YpsoPump.

On the Innovation side, we have signed with i-SENS, a second partner on BGM side with further options for CGM. And very important, we have signed with Glooko in order to have the connection -- cloud-to-cloud connection in Europe into all clinics for the therapy management software. We have also started our SmartLoop program. In combination -- and together with the Baker Institute in Australia, we are going to ship the pumps before end of the year to start the clinical trial. And we have a concept start in our digital product line for SmartPen, SmartPilot. We're going to deepen that later on in the presentation.

On our third part, where we focus our operational excellence in our production side, we have a very important message that we are on track on MDR. This is not to underestimate as Europe is moving ahead, and we have moved our Notified Body from Switzerland SQS to TUV SUD, and this gives us the freedom and flexibility to be operational long term, and we are on track on that. Number two on operational excellence, we have a clear commitment towards the circular economy. We drive the sustainability program towards zero carbon footprint in the future. We're going to deepen that in this presentation as well. And in August, we have officially opened our site in Schwerin.

With that, I'll move to the figures, and I'll start with some key figures. We have a turnover growth on the continuing operations of 21%. So that is the business growth, taking away all [only for the effects], 21%. And this is the phenomenal element on the injection system side, a sales growth of 55% based on our own developed and own manufactured products towards big pharma biotech. On YDC side, we are focusing on YpsoPump. As you know, we have added 8,000 patients year-on-year. And in combination, all together, we have an EBIT growth of 71%. We're going to show you that in more detail right now.

When we look at top line, of course, it's a lower year-on-year comparison on sales. But if you look at the continued business, we see a growth of 20.8%, and this is taking away this CHF 100 million missing top line sales from Internet partially out of this one-time compensation and the last quarter of sales we have still in the first half year '18-'19.

You see here on this slide, both segments show a nice growth, 13.9% on the YDC and then the 33.8% on Ypsomed Delivery Systems, with a slightly weaker on Others, Ypsotec. Ypsotec is our metal company, which has a slightly smaller revenue mainly due to the tough environment in automotive.

When we go and move into more detail and look at the 3 segments, YDC, YDS and Others. And I'm going to explain you that a bit in more detail. So we see here YpsoPump, 18% in plus; DiaExpert, slightly ahead. We have a slightly lower revenue on pen needles mainly because of Walmart America, slightly less deliveries into America. This is mainly because of Q4, they try to activate their stocks. We expect then larger orders again beginning of the new calendar year. We have around the same turnover in test strips.

And this is very important now, we have the negative FX effects of around CHF 3 million. We have calculated and planned and guided this half year in EUR 1 to CHF 1.17. The proposition of the banks and the content of the banks has been CHF 1.19. We have then decided for CHF 1.17. And as you know, we are now at CHF 1.10. So, much lower. This has this negative effect. And then we move on to YDS. We see a similar effect here of around CHF 2 million. So all in all together, CHF 5 million currency effect from euro to Swiss francs that we have here compared to our guidance.

Now when you look at YDS, very important, I mentioned this 55%, a tremendous growth on our injection systems. We have a slightly lower revenue on Contract Manufacturing. This is our Sanofi business, the SoloStar, we have 2 (inaudible) business, as you know, 10.1%. Around 6% of this 10.1% is a currency effect as we charge in euro towards Sanofi. And around 4% here is slightly lower sales, but this is just a month-to-month stock topic.

So as you see here, both segments with a nice growth.

With that, let us move to the bottom line EBIT of continuing operations increasing 70.8% to CHF 9 million. This is a bit below our guidance. It's around CHF 1.5 million below our guidance, and this is exactly the foreign currency effect. So the increase of sales in injection systems and the license income that we have had compared to the year before is offsetting the missing sales in Canada, I'm going to deepen that in a minute, and this loss of around CHF 900,000, roughly CHF 1 million on Ypsotec. Ypsotec stands for the Others segment. So the increased sales in injection system is really offsetting it. And what we see now here on the bottom line is, in essence, the currency effects out of the CHF 5 million less revenue on the exchange rate euro-Swiss franc.

With that, we communicate the adjusted outlook. We go from CHF 415 million to CHF 400 million. This CHF 15 million reduction in turnover is purely FX, currency effects, CHF 5 million in H1, CHF 10 million in H2 if we see a EUR 1 to CHF 1.10 currency exchange rate from euro to Swiss franc. So in total, CHF 15 million because we believe that pen business is offsetting the YpsoPump slightly lower uptake in Canada -- delayed uptake in Canada and lower results on Ypsotec side.

Also, of course, on EBIT, we are adjusting. We are adjusting from CHF 25 million to CHF 30 million, to CHF 21 million to CHF 25 million. So we make the band a bit narrow -- a bit more narrow, but we take away this effect of roughly CHF 4 million, which is the currency effect for the full year. So with that, we are more or less on track just to be flat, and then we see this currency shifting here.

Let me explain this once more on the next slide. This waterfall graph shows you a bit the history. You see the compensation payment here, the CHF 49.8 million, CHF 50 million, which has been a significant part of the EBIT from the past year. You also see the CHF 12 million contribution from the last quarter of OmniPod distribution, which led to this CHF 11.4 million. You remember the continued business that we have delivered into the last business year. On top of that now, we did a CHF 25 million to CHF 29 million growth for this 29 -- 2019-2020 business year. And from that, we are deducting the uncovered costs which is uncovered costs from distribution, from sales and marketing which has been carried on by OmniPod in the past and now are to be burdened -- to carried by the YpsoPump. So as we deduct the CHF 6 million, then we have an expansion program, as you know, this is Canada, Australia, Eastern Europe mainly, around roughly CHF 5 million. And we see this currency effect, which I have just explained to you, of roughly CHF 4 million, leading to our new guidance of CHF 21 million to CHF 25 million. I hope this helps a bit understanding where we come from.

With that overview, ladies and gentlemen, I would like to move over to the business segments. And we are starting with Ypsomed Diabetes Care. And as you know, this is our 4 main product areas. It's the YpsoPump which is the center. It's the system, the center of the proposition. The app, the blood glucose monitoring devices around and the software, which is an important integral part for patients and doctors, and we take the needles, the roughly 500 million pen needles along with it.

I would like to remember what the type 1 market is. We talk roughly worldwide on 15 million type 1 patients. Only 10% are on pump. That's an important message. In Europe, we have a penetration of roughly 20%, 21%. In America, penetration of above 1/3. So in Europe, it's growing around 10-plus percent; and America, slightly below. We see 2 increasing markets, which are, of course, important for us. And Europe is our home territory. This is where we are active in 20 markets. This is where we know how to operate. And we have to make the move now also to North America.

And with that, I would like to move over to Canada. So what happened in Canada, we have received approval, as you know, but we have no real sales, a couple of [comforts] we have on the product. We have no real sales yet, and this is mainly due to administration missing approvals for reimbursement. We have underestimated the situation there. We have had eventually the wrong team. We have exchanged the local CEO 2 months ago, have now a new responsible person, but we have kept the team. We have changed the person there. We now understand better what we have to do. And our full focus is now on reimbursement gaining in Ontario, Quebec and BC. These are the main provinces in Canada which has to be looked at. So there's a rough delay of 7 to 8 months here if we calculate all in all that we see here.

In the U.S., we have decided to upgrade the product. So basically, we have been convinced to launch the regular pumps as we have it in Europe, so without CGM. But we understand now that when we look at Tandem and Medtronic, America is more into a combined product proposition. Tandem is really pushing CGM as well. So we are convinced if we want to be successful and want to spend the money on marketing and sales in our organization -- own organization in the United States, we must have a competitive product. So that's why we are now working on the collaboration with 1 of the 2 CGM companies. We hope to be able to communicate that in the coming couple of months, in order then to integrate the product over the coming 10 to 12 months into our system, so we can then resubmit by Q4 2020 with an expected approval around 12 months later in mid-'21. It is a bit disappointing, of course. But on the other hand, it gives us security. We know we'll have a much stronger proposition. It gives us the focus to focus on Europe now. It will, of course, take a bit burden away from the bottom line in '20 -- in the business year '20-'21. And we don't start in America yet, but it's important. It's important also to then evaluate the right partnerships in America, the right connections, the right sales access with the products, that we're going to have a real competitive proposition.

So when we look now at where we are on Slide '19, I mean we are still much faster than we have been back then in 2012-2013 with OmniPod. If you remember, OmniPod, after 2 years, we have had around roughly 12,000 patients. After 3 years, we had 19,000 patients. We are expecting now to have 18,000 after the end of the second year being live with YpsoPump. So we are still faster. We are still ahead of the curve. And I think that's normal also. I mean if you look in the history, you always need some time to explain the product to get the confidence of doctors and professors, that it's pushed. And we see some markets now, Germany, France, for instance, where we have been in from the very beginning, we see this uptake coming. And then we have the younger markets like Spain, Italy, Eastern Europe, where we need some more convincing, but that's normal. It's a trust element as well. And that's -- from that perspective, we are here not worried at all. So we reduced a bit from 20,000, and that's maybe being a bit too optimistic, down to 18,000 users on the products by end of March 2020.

The arguments are still valid: it's simplicity, it's size, it's quality, and it's our customer service. We have really few complaints only. It's a really robust product, and the patients love it. It's small. It's touchscreen. The prefilled cartridge from Novo works perfectly. And it's a real and a strong proposition towards electronic products.

So when we continue now on the mylife diabetes care portfolio, we have 3, 4 messages I would like to make today. So number one, I've talked about it initially, it's our partnership with Glooko. So Glooko, as you know, has acquired diasend. And diasend is the therapy management software here in Europe, mainly strong in Northern Europe and Germany. That's an important product. If you do not have access to the Glooko world, to the diasend world, well, that's a tougher job to do to bring product into the larger clinics. So we are the first company to have a cloud-to-cloud connection here, cloud-to-cloud connection that is exchanging the data directly from the pump to the app into the Glooko world, so there's no cable connection required or special connection to Bluetooth, wiring required in the clinic, which makes life, of course, much easier, much quicker for our doctors.

On the glucose monitoring side, I mentioned that we have signed with i-SENS. It is the leading South Korean BGM, CGM company. They are roughly #4, #5 in the world with around 2 billion strips per year and have a very strong CGM program as well. So this is 1 of our 2, 3 candidates in the future after a partnership to have an own CGM eventually if we think it makes sense. Today, of course, we believe that we must focus on a strong partnership with one of the existing CGM providers.

I also would like to make an update on the SmartLoop program. So as you know, we are updating YpsoPump and open the product. And we are now starting with Baker Institute in Australia our first clinical trial with the open products. So we open it controlled. It means that our partners can exchange data with our product. We access -- give access to algorithms to our pump. We give access to CGM to our app and to our products, so we can learn on individualized elements. And also work like Dexcom is doing, like Medtronic is doing, like Tandem is doing, and where Internet is heading, to go and work on the closing of the time and range. So our objective here is, a, learn; and b, to optimize the product, so we have then a clear proposition towards SmartLoop and also to be ready for a regulatory pathway in around 2 years from now.

The fourth element I would like to mention on the mylife side, it's the SmartPen. We have been working on that product for quite some time on the content development team. It's a separate program. We are basically using our existing ServoPen, which we are manufacturing for 8 years and sell it quite successfully in China, Asia and other markets. It's a high-value reusable pen and metal housing. As we're now adding digitization here to the product, so it can be working in our ecosystem. And this is a very nice example how we collaborate between the 2 segments. We see this conversion of the YDS segment and the YDC segment. So YDC, it's meant that this has carried one of the first customers. For YDS, it's the delivery systems for that pen. We believe this pen has an own proposition in combination with the pump and the BGM, CGM. It belongs into this ecosystem. It is a backup pen for a type 1 pumper. It is an [NVI] patient who wants to deliver the data into the cloud, et cetera, et cetera. That is a new product that we are working on and where we are trying to motivate, it's here to add more synergies in the mylife diabetes care world.

With that, I would like to change to the delivery systems environment. And as you know here, it's all around our pen system, autoinjectors, patch injectors and now smart services.

And one of the key slides today is the next one. Here, you see this wide platform array, the 10 market launches we can communicate over the past 6 months only. So this shows -- this graph shows that our platform strategy, where we are working on for roughly 8, 9 years, is now really paying off. Over the past 10 months -- over the past 6 months, we have launched 10 products. It's the 2 autoinjectors for GSK and AstraZeneca. So it's the Fasenra and Nucala asthma products. We have the AMAG, Palatin product here launched now. We have the osteoporosis PTH launch for ATP, Japan. We have the PTH ServoPen launched for (inaudible). We have launched the HBT diabetes insulin glargine products for China. It's a low-cost insulin pen. We are launching -- or we have launched 2 diabetes pens, UnoPen: one for Russia, Pharmstandard; one for ACI Bangladesh. And 2 other FixPen also for PTH: One for Mochida, Japan again; and one for [Phenex], our chain, Europe and America. So what we showed you here is really our broad spectrum, our broad spectrum motivated through our platforms, autoinjectors and pens, which is now really showing the fruit from what we have started so long ago.

I'm going to show you also the pipeline in a minute, but let me just explain you now a bit more detail what we are doing on the autoinjector side. So this targeted and personalized therapy is really something where we see a lot of traction coming. We have more and more new drugs that have to be injected at home. So they move from IV to subcutaneous medications to reduce costs in the health care system. And for that reason, we are investing in 2 further assembly lines. We have now 3 in place, 2 in Burgdorf and 1 in Solothurn, so 3 in Switzerland. And we are adding 2 more and install them in our new site in Schwerin, in our new site in Northern Germany. So autoinjectors is a really critical product, one of our key platforms that we are driving.

What happened in China? China, as you know, we are there for over 10 years, we have long-term relationships, and we can report that we are strengthening them. We have signed another 5 years with Dongbao Group. We are signing -- we have signed this with 5 other Chinese players. They are all mostly in insulins. They are all now moving also into other drugs. And it's important to announce that we will soon be launching our first UnoPen, this is forward look ahead in China. We are expanding our local team especially in the regulatory environment. And we are also investigating whether it will make sense to invest in a local production site mainly for packaging for the Chinese standard, to be quicker in the Chinese market on a regulatory level. So an important and very motivated major topic.

With that, I move over to our pipeline. And this is a very impressive slide. It shows what happened over the past 12 months only. It basically shows our pipeline. You have seen this graph before. And here on the very right side, you see the marketed products. This is in total roughly 30, 35, 34 pens and autoinjectors. This is what we have in the market here in dark red and dark blue.

We see roughly 10 products in the registration phase, registration phase by our pharma partners. And then you see this large amount of products currently in the customization phase, roughly 90 products, and you see how many autoinjectors here. And then the pipeline, over 90 products in our pipeline that are now moving into this funnel into this pipeline. And so all in all, you are seeing 230 device projects here on the map. It's a lot of work ahead of us. But operationally, we have done our homework. We are ready with the production level. There are 2 more sites to install. We have enough capacity on UnoPen, but we have a lot of work to do now to move these products through the funnel. 1 or 2 out of 10, of course, will not see the end, but it's important to understand we have many options. On PTH, for example, you work with a handful of customers, not only 1 or 2, with adalimumab, Humira as well. So we have different options, different partners. If one is more successful, we are the delivery device partner of choice, we will be successful. It doesn't matter who of the device partners, of the pharma partners, we will be successful.

Apart from the current pipeline of the current existing products, autoinjectors and pens have introduced, created YpsoDose, on the main slide. And we have conducted a couple of studies. So first of all, the user acceptance of our YpsoDose is very high. As you know, there are about 10 customers who tried -- 10 suppliers who've tried to move into this segment. But in essence, it's really BD and West. And Ypsomed now that will eat most of the cake. And this is a very interesting new segment. It's all about volumes 2 to 10 ml, so larger volumes that do not fit into an autoinjector, a new class of products with medicines and drugs that have to be injected over a period of up to 30 minutes.

We have a couple of feasibility studies ongoing with large pharma clients, and we are starting our first clinical study together with a pharma company. So we are delivering the devices into a clinical study in a couple of months, in Q1 2020. So a very interesting new platform here, patch injectors, YpsoDose, how we call it. And we will be reporting on that in the future more and more. And we will also try to show it in the pipeline graph in the future.

And the last slide for today in the area of Ypsomed Delivery Systems. It's the expansion of our SmartServices program. So apart from the YpsoMate, so the product that is bringing the data from the autoinjector, the Smart Pilot for YpsoMate, which brings data for the autoinjector into the cloud, we're now introducing the SmartPilot UnoPen. So also for insulins and growth hormones, we are going to be able to send the data through the phone into the YpsoCloud; and from there, towards the doctor, the patient or the pharma company, which have had the means then to negotiate in a world where outcome-based payment is more and more important to actually negotiate with the large insurance groups. I can tell you all big pharma are interested in that. It's a big topic. They are interested in data, and we are, at the moment, trying to find also our pricing mechanism, how are we going to charge pricing in this world, a very interesting time you are in, and this data we'd be able to report more in 6 months from now.

With that, I hope I have been able to give you a good overview on the YDC Diabetes Care business. It's our pump efforts, it's our YDS, it's our tremendous launch of new products.

And with that, I move forward to a couple of Internet group topics. We are still hiring. This year, in total, we are going to hire over 150 people again. We have hired, so far, roughly 66 people in Switzerland and a couple of people in our new site in Schwerin. And we're adding more people especially in the area of software and hardware. They are growing the team in-house but also to near-shoring options in the future.

We have decided to grow our sustainability program. As you know, we are not only focusing on the economical part, we are convinced that we can only be long-term successful, that we can only drive the long-term profitability if we also focus on our ecology and our society responsibility. And for that purpose, we have decided to deepen the circular economy approach. Circular economy approach has been explained by the Global Institute at McKinsey about 4, 5 years ago. And it basically shows how we can bring waste and carbon out of your organization. It's all about regeneration; sharing; optimizing processes; keeping products in a loop; virtualizing certain elements, so no longer make physical but virtual studies eventually; exchange goods, exchange components, exchange raw materials to more environment-friendly sources.

So for instance, we have been exchanging our complete heating system in our main factory in Solothurn from oil to using the heat that we use in our machines, that we generate from our machines, from our production machines. We're now analyzing bioplastics not based on oil for future products. We are trying to loop the trays. Many trays that deliver the products to our customers are all used once. That's insane. We have to reuse them. So many, many topics here we are looking at to lower our carbon footprint, which is a topic not only now, it is valid for our future here in Europe, but it's really a topic which has followed us for 3 years now.

And the last 2 slides. It's about Schwerin. We have opened our new site. This picture here shows the political people here from Germany, Health Care Minister and the President of Mecklenburg-Vorpommern, Ms. Schwesig. And you also see on the next slide our new site in Schwerin. We are really motivated. We are going to upload the movie in a couple of days on our website. It's a 26,000, 27,000 square meter sized production site. We have here enough capacity. At the moment, we are installing our Orbit infusion set line, our 10 million infusion set line for YpsoPump infusion sets, then we are delivering the 2 YpsoMate autoinjector lines. We are now preparing the space for YpsoPump, our own touch pumps; and then further, YpsoMate or UnoPen product. So we have enough capacity here for the next 6, 7 years. This gives us freedom of sort, and we can focus on the delivery of our products and of our projects.

So to summarize, ladies and gentlemen, we have had a spectacular half year. On YDS, we have over 10, 12 launches ahead of us of new products in the coming 12 months. So YDS is the key driver to the bottom line. YDC with YpsoPump have shown that it's a product which is very accepted. We have had a slow start in Canada. We are trying to make good for that again. We have decided to move America for 1 year. But in total, I think it's a wise decision to be ready in America with a good product. It's a competitive product, and this gives us time to focus on the European market.

With that, I would like to end here and hand the word over to Thomas. Thank you.

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Thomas Kutt, Ypsomed Holding AG - Head of IR [4]

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Thank you, Simon. Thank you for your explanations and comments. Operator, please open the line for questions.

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Operator [5]

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(Operator Instructions) Apparently, everything was very clear. Nobody has questions.

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Thomas Kutt, Ypsomed Holding AG - Head of IR [6]

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Excellent. Excellent. So I think -- thanks, operator. I think we can close the call for today. Thanks for joining, and we look forward to our full year business earnings call.

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Simon Michel, Ypsomed Holding AG - CEO [7]

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Thank you very much.