It has probably passed most people by, but there were some very interesting statements from Ypsomed in regard to their Diabetes product line towards the end of March.
The CEO appeared to state that they are more focused on the Business to Business delivery systems aspect:
Our underlying growth drivers of simple self-treatment and the growth in biopharmaceutical drugs and biosimilars offer enormous potential. Our fully automated and scalable processes enable us to benefit from this growth. As a preferred partner of pharmaceutical and biotech companies, Ypsomed intends to further strengthen its dedicated business-to-business activities. With the new, clear focus and the simplification of structures, we want to concentrate on the many opportunities in the market for subcutaneous self-injection in future,
And subsequently, they have made a decision to withdraw from the Diabetes business, but that’s not been explicitly stated:
Long-term success in diabetes care requires a clear patient- and marketing-orientated culture as well as specific competencies and processes. Through a separation, Ypsomed Diabetes Care will be able to expand geographically as an independent organisation and further develop its innovative product offering. Following the submission of the approval application in Canada in September 2023, an application has been submitted to the FDA for approval in the USA. The necessary preparations for market entry in the USA are being driven forward by Ypsomed AG. The final decision on further investments for the market launch in the USA in the second half of 2025 will be made as part of the revised organisation. Ypsomed expects to reach the break-even point in the Diabetes Care business in the fourth quarter of the current financial year.
In short, they announced the split of Ypsomed into two groups.
- Ypsomed Delivery Systems (YDS)
- Ypsomed Diabetes Care (YDC)
Until March 2025, YDC will live under the roof of Ypsomed Holdings, while Ypsomed undertake market sounding to get a better understanding of interested parties and the value of the diabetes care business. Thereafter, as the slide says, it won’t!
If we’d been watching, this might not have come as too much of a surprise given they’ve been divesting of diabetes care divisions over the past few years.
The DiaExpert retail business in Germany was sold in 2022 while a sale of the pen needle and blood glucose monitoring business to MTD was agreed in early 2024.
The question is, what does a review of the strategic options for Ypsomed Diabetes Care look like, and what happens to it as a stand-alone?
Let’s start with the current state of YDC, and figure it out from there.
Where is YDC right now?
Revenues and profit
As mentioned in the announcement, YDC was not profitable in the last financial year, although it expects to break even in Q4 this financial year, driven by growth in the distribution of its products.
Product growth and expansion
There are two key slides in the investor deck on this topic.
It’s fair to say that the user growth rate has been impressive, given it’s limited to Europe, especially given the size of the company. This is expected to continue. The introduction of the NHS England Hybrid Closed Loop scheme will help, given this is one of the options available there.
In addition, to get real growth, US exposure is required.
Ypsomed have been working on this, and as the slide shows, have been making progress on US approvals.
Ypsomed have chosen to take the path well travelled by Insulet and Tandem, separating their algorithm from their pump, allowing the algorithm to receive updates separately.
Given that, separately, the CamAPS algorithm has received FDA approval, we might expect that mylife CamAPS FX App will get relatively swift approval.
Ypsomed have also submitted the Ypsopump for approval, as an ACE pump, we assume.
Given these positions, I wouldn’t be at all surprised to see their hybrid closed loop offering approved by the end of this year.
So why the expectation of a launch on Q4 2025? Surely this is a long way from now?
Although I don’t know a huge amount about YDC’s North American operations, I don’t imagine (given the lack of approved product) that they have a large sales and distribution organisation, which will need building up. There will also need to be an education process with endocrinologists, as well as all the fun of insurers. So I imagine there’s a reasonable amount of work to do to expand here.
And that appears to come back to two of the points that have been made regarding YDC in the statements. Limited investment so far and need for more investment for growth.
So what happens next for Ypsomed Diabetes Care?
Once you’ve decided that strategically, a business you own doesn’t really fit with the direction you want to go overall, there are a number of options available to you. With the statements that Ypsomed have made regarding a strategic review, two of the three options below seem possible.
- Spin the operations out as a separate business, potentially to private equity backed or via a listing on a financial market
- Sell the business off to someone who can pay you a lot of money for it
- Shutdown the operations you no longer want to keep
Shutdown the operations
With a product that’s expected to go into profit in the near future, planned expansion to the US and the work already undertaken to split the business out, this seems unlikely.
We’ve seen Diabetes businesses shutdown when they were running at a cost to the parent company (Animas and Johnson and Johnson) but if, as expected, YDC breaks even or turns to profit, then I think one of the other options kicks in.
However, if that break even point extends out, then I suspect that all bets are off the table. Expansion into the US at cost to Ypsomed doesn’t look like the path they necessarily want to take.
Spin out as a separate business
Assuming that break even comes as expected, and that future projections for the company also show a reasonable path to profit, this seems like an attractive option. Ypsomed would potentially make a decent amount of money from selling off to private equity, especially if they felt it was a good fit for other healthcare in their portfolio.
I think, given the scale and current growth ambitions, this is more likely than a listing.
What also needs to be taken into account as part of this is not only the product IP associated with the pump and its integration to CamAPS FX, but also the manufacturing IP and plant.
Given that the Ypsopump is currently one of the cheaper offerings on the market, is there an opportunity to set up additional manufacturing in low cost centres to aid with scale in the US roll out? Does that add to the value of the company?
Sell the business off to another industry participant
Why does this appear on the list? For a few reasons.
1. The CamAPS algorithm is probably only really matched by that from Dreamed, Glucositter, which is at the core of the Medtronic 780G device. Medtronic acquiring the major pump that this is distributed with and is most likely to enter the core US market would allow competition to be reduced.
2. Taking out a small pump manufacturer with a potential to enter the large US market would provide various IP benefits to the company acquiring it and allow them to potentially re-enter an area of the diabetes market they’ve not been involved in. For example, Roche…
3. One of the key issues with expansion into the US is the lack of feet on the ground. Acquisition by another diabetes related company with a large footprint and existing client base (for example, Abbott or Lilly) could result in a more complete offering on their part and would make up for the lack of presence in that market.
What are our takeaways?
I think the key takeaway from the actions that Ypsomed have taken is that in the longer term they plan to focus on the delivery systems aspect of their business. As a result, they’re trying to work out what to do with Diabetes care, and to allow them to do this, they’ve created a separate unit, which allows them to track performance and attribute cost.
That they’ve not fully decided what they’re doing yet is an interesting one, and until the strategic review in 2025, we won’t know their plans.
The stark reality is that if YDC isn’t profitable, then there’s a problem. The question will become “what will it take to turn to profit?”.
If the answer is volume of sales, then expansion in the US is going to be key to that, and selling on to an industry participant that can help provide a shortcut to this scale would be a good option.
If the answer is increase prices to cover costs, then it becomes a different perspective. How many existing contracts with insurers and healthcare systems would need to be renegotiated? Would providers continue to offer the products at increased prices? Difficult questions to answer!
If, on the other hand, the projections are correct, then I suspect we will see competition in relation to what happens next. Better projections lead to a higher price, and currently, as the only algorithm with an official approval for pregnancy, it also has a clear USP.
Whichever option they choose to go with, it’s one that many interested parties will watch with baited breath.
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