Memorandum

Ypsomed F1H14 – OmniPod sales double, carrying 30% Diabetes Direct growth; touchscreen pump to launch by end of 2014 – November 5, 2013

Executive Highlights

  • Diabetes Direct sales reached CHF 55 million ($60 million) in F1H14, up 30% year-over-year (YOY). Growth was primarily driven by a striking 117% increase in mylife OmniPod pump sales.
  • Delivery Device sales of CHF 68 million ($75 million) in F1H14 were down 1% YOY, but are expected to increase with the recent launch of three new pen systems in India, China, and Africa.
  • In new news, the YpsoPump, Ypsomed’s in-house developed touchscreen, prefilled insulin pump is expected to launch by the end of 2014.

Switzerland-based Ypsomed released semiannual financial results for the first half of the 2013/2014 financial year late last year, which runs from April 1, 2013 to September 30, 2013. The company releases financial results twice a year (semiannual and annual); for the purpose of this report, we’ve denoted the first half of Ypsomed’s financial year as F1H14. This report contains our top five highlights from the call:

1. For the Diabetes Direct business, F1H14 sales totaled CHF 55 million ($60 million), up 30% YOY. Growth was primarily driven by mylife OmniPod sales, which more than doubled compared to F1H13. Notably, the mylife OmniPod now holds over a 10% market share in the Netherlands, UK, and Switzerland.

2. In the Delivery Devices business, F1H14 sales totaled CHF 68 million ($75 million), a 1% YOY decline. Management was optimistic for the future, as the company recently launched three new insulin pen systems in emerging market (India, China, and South Africa).

3. Management commented that insulin biosimilars will not be available in Western Europe and the USA before 2015.  

4. The YpsoPump, the company’s in-house developed touchscreen, prefilled reservoir insulin pump, is expected to launch at the end of 2014.

5. The F1H14 materials emphasized the heterogeneity of European markets and the increasing trend towards tendered buying

As brief background, Ypsomed has two distinct business segments: 1) Diabetes Direct (blood glucose monitoring devices, insulin infusion systems, and supplies under the brand name “mylife” e.g., Insulet’s OmniPod patch pump); and 2) Delivery Devices (pen systems and needles for pharma and biotech companies; e.g., components for Sanofi’s Lantus pen, SoloStar; this division includes non-diabetes products).

Top Five Highlights

1. Diabetes Direct sales in F1H14 reached CHF 55 million ($60 million), up 30% YOY from F1H13. Significant demand for the mylife OmniPod was cited as the main driving force behind this strong growth – indeed, OmniPod sales grew 117% YOY, a strong increase from 75% growth during F1H13. This is consistent with Insulet’s remarks in the 4Q13 call that the international business doubled in calendar year 2013. Our estimates put the international business for OmniPod at ~$14 million in 2013, representing ~7% of Insulet’s total OmniPod business. In addition to the OmniPod, Ypsomed’s Diabetes Direct business saw 24% growth in blood glucose meters and 8% growth for diabetes specialist retailer DiaExpert. Notably, the Diabetes Direct business saw an operating profit of CHF 1.2 million ($1.3 million) in F1H14, up significantly from an operating loss of CHF 2.5 million ($2.7 million) in F1H13. Management attributed the improved profitability to strong sales growth and better purchasing terms.

  • The mylife OmniPod now has over 10% market share in the Netherlands, UK, and Switzerland, while also “increasing strongly in other European markets.” In addition to the aforementioned countries, the OmniPod is currently available in Germany, Austria, Sweden and Norway. Ypsomed’s F1H14 materials noted that the company’s specialist sales force for diabetes and is developing the relevant markets “intensively” and with “great success.” We note from our last report on Ypsomed in F2H13 that the OmniPod launch in France was delayed, but a France-based study to enable reimbursement suggested by French authorities was slated to begin in the first half of 2013. Management did not provide any updates on this study. Insulet’s 4Q13 call also noted that the OmniPod was filed for Chinese approval “a while ago” – management only said things “continue to move methodically through that process.” Lastly, Insulet’s 4Q13 call highlighted that the international distribution agreement with Ypsomed was extended one year to 2017, a clear sign that this is going quite well for both parties.
  • Ypsomed is currently still negotiating with interested parties regarding the sale of German-based subsidiary DiaExpert (a diabetes specialist retailer). The divestment process was announced to start in June of 2013. No additional updates were mentioned in the F1H14 supporting materials. Management noted that the company instead intends to focus on the growing Diabetes Care business for intensive insulin and insulin pump therapy with its own mylife range.

2. Delivery Device sales of CHF 68 million ($75 million) in F1H14 experienced a 1% decline from F1H13. At CHF 3.9 million ($4.3 million), operating profit was down 32% from the previous year’s profit of CHF 5.7 million ($6.3 million). Management noted that the product mix and the additional costs incurred in relocating pen needle production from Burgdorf to Solothum contributed to these declines. Management remained optimistic and expects double-digit sales growth for its Delivery Devices segment, mainly due to three newly launched pen systems in emerging markets – the Lupisulin pen in India (May 2013); the low-cost, reusable Sulin pen in China; and the Biosulin pen in South Africa.

  • In September 2013 Ypsomed launched the new Sulin Pen in the Chinese market in partnership with pharmaceutical customer Tonghua Dongbao Pharmaceutical. The Sulin Pen is a low-cost and reusable pen based on the YpsoPen technology platform. Management characterized it as “ideally suited for tapping into rural areas with lower purchasing power.” Management foresees the Sulin pen as a complement to the existing Gansulin pen, which was also developed from this now ten-year-long partnership between the two companies. The Gansulin pen has been on the Chinese market since 2010, but has largely been the primary choice for patients in only more affluent towns and cities. Of course, penetration into rural China is a logical move for Ypsomed, considering that nearly 12% of adults (almost 114 million people) in China have diabetes.
  • In May 2013 Ypsomed launched its new Lupisulin Pen in India in partnership with Lupin Ltd. The Lupisulin Pen was manufactured with a newly customized version of Ypsomed’s ServoPen technology platform (spring-driven, reusable). Management noted that this platform re-vamping was accomplished in “a record time of just four and a half months.” Lupin is India’s third largest pharmaceutical company and a strong business in manufacturing generic drugs. As a reminder, more than 51 million people in India have diabetes, expected to increase to 85 million by 2030.

3. “Insulin biosimilars will not be available in Western Europe and the USA before 2015.” This timeline stems from management’s assessment of the “major hurdles” – the expense of clinical trials, the lengthy EMA/FDA approval process, and associated costs. We would note that BI/Lilly’s biosimilar glargine is currently under regulatory review in the EU and US, though Sanofi's patent infringement lawsuit automatically invokes a 30-month “stay” on FDA approval. That will push expected launch from February 2015 to mid-2016 if Lilly can’t get a summary judgment. A slide did note that there are a total of more than 30 biosimilars for other drugs in development, including GLP-1 agonists. According to Ypsomed, some of these will be coming on to local or international markets over the next 3-5 years, and “some of them are biobetters.” The call’s materials did note that there are now “a number of insulin biosimilars” on the market in China, India and semi-regulated markets. These are made by local producers that use vials, and encouragingly, management believes that most local providers are converting to cartridges and pens.

4. The YpsoPump, Ypsomed’s in-house developed touchscreen, prefilled insulin pump is expected to launch in its first markets “from the end of 2014” (we assume this means by end of year). This represents a delay from the previous timeline of “2H14.” During F1H14, ~CHF 5.3 million were invested in intangible assets, “mainly in developing” the YpsoPump. The durable YpsoPump should complement Insulet’s OmniPod patch pump quite nicely, and leverage the existing sales force and reimbursement expertise. The product portfolio of a patch and durable pump is something not other company has right now. The touchscreen design is not color, though combined with prefilled reservoirs, would represent a unique offering from Tandem’s t:slim or Asante’s Snap. The company emphasized in its F2H13 update that the acquisition of ICU Medical’s infusion set business (in January 2013) was strategically important to this pending pump launch.

  • Ypsomed will manufacture the new insulin pump itself, “marking a firm return to its successful roots as Disetronic.” As a reminder, Disetronic changed its name to Ypsomed effective August 15, 2003. The rights to the name Disetronic were sold to the Roche Group, while the Injection business was taken over by Willy Michel, the founder of the Disetronic Group.

5. Ypsomed management emphasized the heterogeneity of European markets with respect to healthcare insurance systems, sales channels, and regulatory provisions that variably affect diabetes product sales. For example, Ypsomed subsidiary DiaExpert supplies over 170,000 customers directly with diabetes products in Germany. However, direct sales of this type aren’t permitted in France. Management also noted the fundamental difference in reimbursement for products and the freedom of product choice. As a result of significant cost pressure in the healthcare sector, management noted that the field is moving towards tender procedures in which national or regional service providers purchase products in a bidding process. This is a trend we expect to see continue around the world, including in the US.

Table 1. Ypsomed Device Pipeline

Device Name

Device Type

Status/Timeline

Other Remarks

YpsoPump

Insulin pump

Expected EU launch at the end of 2014

Slim, compact size; touch screen interface; pre-filled reservoirs

YpsoPen Twist Pen

Reusable insulin pen

As of November 2013, the YpsoPen platform was used to develop the newly launched Sulin pen in China; no updates on the YpsoPen Twist specifically

Positioned as a reusable “value” pen for emerging markets

UnoPen

Disposable insulin pen

As of November 2013 still in pipeline development

 

LyoTwist Pen

Disposable insulin pen

As of November 2013 still in pipeline development

Used in combination with dual chamber cartridges

YpsoMate

Disposable autoinjector

As of November 2013 conducting handling studies and planning clinical trials

Disposable, single-use autoinjector for prefilled syringes made of glass or plastic

YpsoMate Control

Disposable autoinjector

As of November 2013 still in pipeline development

Disposable, single-use autoinjector for prefilled syringes made of glass or plastic

 

-- by Jenny Tan, Adam Brown, and Kelly Close