Ypsomed invests in the diabetes care business and wins new pharmaceutical customers

(PresseBox) (Burgdorf, ) In the first half year of the new 2010/11 financial year, Ypsomed has reached significant milestones and achieved important successes on the market. Just six months after announcing the partnership with Insulet Corp. to market the mylife(TM) OmniPod® insulin patch pump in Europe, Ypsomed has started selling the world's most modern insulin pump on the German and British markets. From November 2010 onwards, the innovative insulin patch pump, which is simply worn on the skin and does not require an infusion set, will likewise be available in France, the Netherlands, Norway, Sweden and Switzerland. In June, Ypsomed, as a diabetes specialist, launched a new web service for people with diabetes and diabetes experts from clinical fields and practice (www.mylife-diabetescare.com) increased sales of the mylife(TM) Pura(TM) blood glucose monitoring system, and has acquired new distributors in Latin America, the Middle East and North Africa for the mylife(TM) pen needles. In the pen business, Ypsomed is launching the new ServoPen® re-usable insulin pen together with Tonghua Dongbao Pharmaceutical Co., Ltd., its client of many years and one of the leading insulin manufacturers in China. In addition Ypsomed has won new pharma customers for several pen systems, thus expanding its customer base in the injection systems business.

- Overall in the first half of the 2010/11 business year, Ypsomed achieved slight growth in sales in local currency, although the strength of the Swiss Franc meant that consolidated sales amounted to CHF 121.9 million, -3.8% compared with CHF 126.8 million in the same period in the previous year.

- Due to high costs for the market expansion, the operating profit was CHF 4.9 million compared with CHF 6.8 million in the previous half year.

- Ypsomed invested a total of CHF 8.9 million in capital expenditures and CHF 12.9 million in research and development in the first half of the 2010/11 business year.

- Majority shareholder Dr. h.c. Willy Michel is convinced about the success of the strategy and the growth potential in the diabetes market and in the injection systems business. As of September 30, 2010, he directly and indirectly holds approx. 74.6% of the issued shares (compared with 73.3% as of March 31, 2010).

- Ypsomed is still in a transformation and build-up phase and estimates for the 2010/11 business year a slight sales growth in local currency and an EBIT margin of between 3% and 4%.

Sales of goods and services of CHF 121.9 million - slight sales growth in local currency

Ypsomed is currently undergoing a challenging period of transformation and is investing in the development of its diabetes care business (B2C) and, at the same time, is diversifying its client base in the area of pen systems for global pharmaceutical groups (B2B business). Sales with its major client Sanofi-Aventis fell once more (accounting for 22% of sales compared with 31% in the previous year), while fortunately sales of all other pen systems increased by 13% and pen needles by 13.6% (24% in exchange rate adjusted terms). Growth in sales of mylife(TM) Pura(TM) blood glucose test strips and sales of mylife(TM) OmniPod® insulin patch pumps, which launched in July 2010, are also positive. The strong Swiss franc had an impact on the consolidated sales figure, although foreign exchange income and costs for Ypsomed's individual product categories are balanced operationally (operational hedge), with the exception of pen needles. As of September 30, 2010, the Swiss Franc rate stood at 1.33 to the Euro and 0.98 to the US Dollar, compared with 1.52 to the euro and 1.04 to the US Dollar as of September 30, 2009.

Significant potential for improvement in profits in the medium term

In the first half of the financial year 2010/11, Ypsomed generated an operating profit of CHF 4.9 million (EBIT margin of 4%) compared with CHF 6.8 million in the first half of 2009/10. The consolidated net profit amounted to CHF 3.3 million compared with CHF 6.6 million in the previous year, with exchange rate losses of CHF 0.8 million and interest on borrowings of CHF 0.5 million having to be taken into account. Comprehensive income amounted to CHF 1.3 million and was below the comprehensive income of CHF 7.7 million in the first half of 2009/10, despite a net increase in the value of the participation in Bionime Corp. in Taiwan and Insulet Corp. in the USA of CHF 0.5 million, due to translation differences from unrealized currency losses of CHF 2.9 million. For many reasons, Ypsomed has significant potential for improvement in profits in the medium term:

- Manufacturing costs in the first half-year were adversely affected by unsatisfactory productivity at the new pen-needle plant in Solothurn. Measures were taken to improve productivity at the plant. Manufacturing costs were also increased by a non-recurring charge of CHF 0.67 million resulting from a subsequent claim for sales tax in Germany, which is disputed by the entire industry, on blood glucose monitoring systems provided free of charge.

- A gross margin of over 30% is realistic once again and the Group is working all-out to achieve this. The cost savings from the reduction in the work force in pen-system production and related functions such as logistics, which were announced at the beginning of the year, will have an impact, most notably from the second half of 2010/11.

- Ypsomed has expanded its Marketing and Sales workforce by 10%. Accordingly, marketing and sales expenses rose by 22% to over CHF 18.1 million in comparison with the same period in the previous year. This figure also includes the considerable market-development expenses for the introduction of the mylife(TM) Pura(TM) blood glucose monitoring system and the mylife(TM) OmniPod® insulin patch pump. As diabetes care sales rise, marketing and sales expenses will decrease as a percentage of sales and consequently improve profitability.

- In the first half of 2010/11, income from licenses and client payments for development projects were both slightly up on the previous year, at CHF 0.6 million and CHF 4.8 million respectively. They will continue to make an important contribution to margins in the future as well, since Ypsomed has a large number of new pen systems for pharmaceutical clients in the pipeline.

- Thanks to substantial investments in the past, Ypsomed now has an up-to-date production and logistics infrastructure and sufficiently modern production facilities and manufacturing resources. This is why investment in fixed assets in the first half, at CHF 8.9 million, was more than 50% lower compared to the previous year at CHF 18.4 million.

Ypsomed increases cash flow from operating activities by 66% to CHF 20.5 million

In the first half of the financial year 2010/11, Ypsomed improved cash flow from operating activities by 66% from CHF 12.3 million to 20.5 million. In addition to investment in fixed assets, cash flow from investing activities of CHF 17.3 million also includes the takeover of the previous distributor by the newly established Ypsomed subsidiary in the United Kingdom and the acquisition of the diabetes shop in Bad Mergentheim, the largest diabetes centre in Germany. Thanks to a substantial equity ratio of 80.9%, Ypsomed remains extremely soundly financed and was able to make a par value repayment of CHF 3.2 million in September and to reduce the existing shareholder loan by a further CHF 10 million.

Consistent implementation of the strategy

Ypsomed is consistently pursuing its strategic aims by strengthening the two business areas of injection systems and diabetes care as well as by broadening the turnover basis in order to clearly improve the profitability of the Ypsomed group. Especially on the cost side, Ypsomed faces challenges. Accordingly, there has been a restructuring in Switzerland, particularly in the manual pen assembly and in production-related support functions, due to changes in the product mix and increasing automation in the pen-system manufacturing. The executive management, too, has been reduced. In addition, Dr. Manfred Mäder, member of the executive management board responsible for quality management and regulatory affairs, has resigned. Ypsomed regrets this decision and thanks him for his valuable services. Ypsomed is currently searching for a successor. With the simplification of the structures in Switzerland, Ypsomed intends to improve productivity and efficiency. Overall, in the first half year 2010/11, this led to a reduction of 70 jobs in Burgdorf and Solothurn. At the same time, in the diabetes care business, the European marketing and sales staff for the mylife(TM) Pura(TM) blood glucose monitoring system and for the world's first insulin patch pump, mylife(TM) OmniPod®, has been expanded. Ypsomed currently employs around 1'150 people, of whom 940 are working in Switzerland. Since becoming independent in March 2003, Ypsomed has thus created a total of over 590 jobs.

The mylife(TM) OmniPod® insulin patch pump is met with enthusiasm by patients

With the swift market launch of the worldwide unique insulin patch pump mylife(TM) OmniPod® in mid-July 2010 in Germany and Great Britain, not only customers are thrilled, but leading diabetes experts recommend the new patch pump for typ-1 diabetics. The reason for the great demand for the insulin patch pump lies in the benefits for users: the mylife(TM) OmniPod® does not require an infusion set and offers a much greater degree of freedom and simplicity of use than previous insulin pumps. Today, the OmniPod® system is the first and only insulin patch pump available on the market and is marketed by Ypsomed under the mylife(TM) Diabetescare umbrella brand. The mylife(TM) OmniPod® is available through practices specializing in diabetes and the costs are reimbursed by the health insurance schemes. Patients can obtain the accessories from specialist diabetes retailers and in Germany also via the mail order service for diabetes care provided by DiaExpert (www.diaexpert.de).

Great demand thanks to clear advantages of the mylife(TM) OmniPod® insulin patch pump

The mylife(TM) OmniPod® system consists of a small, lightweight pod, which is simply stuck directly onto the skin and which supplies insulin for up to three days. The pod is worn discreetly underneath clothing, and is controlled wirelessly in a menuled manner via the portable Personal Diabetes Manager. The Personal Diabetes Manager can also be used simultaneously as a blood glucose meter. An infusion set is no longer required, because with the mylife(TM) OmniPod® the cannula is placed automatically at the press of a button, quickly and accurately. The alternative sites for wearing the pod ensure greater flexibility and reduce stress on the skin and tissue. The pod plaster is breathable, skin-friendly and flexible. In contrast to infusion sets, which have to be removed for showering or swimming, the mylife(TM) OmniPod® is water-tight - a decisive aspect for continuous and safe insulin therapy. Overall, this opens up new possibilities in diabetes therapy, specifically also for children, young people and generally active people with diabetes.

Important success in the injection systems business: ServoPen® insulin pen will be launched first as a world innovation in China together with Tonghua Dongbao Pharmaceutical Co., Ltd.

The award winning ServoPen® from Ypsomed is considered to be the most modern and functionally the best insulin pen system on the market and has received the renowned red dot award 2010. Very gratifying was the recent conclusion of a supply contract for the ServoPen® with Tonghua Dongbao Pharmaceutical Co., Ltd., one of the leading insulin manufacturers in China. Starting in the fourth quarter 2010, the ServoPen® reusable insulin pen system will be sold in China under the brand name "Gansulin® Pen". The Dongbao Enterprise Group (www.dongbao.com) company was established in 1985, and thanks to a high level of investment in research and development, today it has grown to become one of the leading pharmaceutical manufacturers with 20 subsidiaries. The company holds numerous patents and as a manufacturer of biotechnological substances, specifically human insulin, serves millions of people in China and Asia every day. It is currently estimated that in China alone, 90 million people are living with diabetes today. In comparison, just approximately 25 million individuals in the US and approximately 50 million individuals in India are estimated to have diabetes - these include undiagnosed patients. In particular, it is expected that the insulin market will see high growth in China in upcoming years with estimates ranging from 25% to 30% annually. It is very please to note that Ypsomed has successfully been audited according to ISO 13485 standards by the State Food and Drug Administration (SFDA) of the P.R. of China.

Enlarging the customer base in the delivery device business

Numerous other insulin suppliers are showing great interest in the ServoPen® and Ypsomed is convinced that it will be able to increase the production volume continually. Thanks to its own technology platforms for innovative injection systems, in recent years Ypsomed has built up an attractive pipeline of client projects in various phases. Pharmaceutical companies are working together with Ypsomed on the development and industrialization of injection systems for administering active biotechnological substances, insulin and other medication for treating diabetes (e.g. GLP-1).

Outlook

Ypsomed is firmly convinced about its strategy and the growth potential in the diabetes market and in the injection systems business. In the diabetes care business, Ypsomed is growing with its independent mylife(TM) Diabetescare brand, both by geographical expansion with self-manufactured pen needles, as well as with partner products such as the mylife(TM) Pura(TM) blood glucose monitoring system and the mylife(TM) OmniPod® insulin patch pump. Richard Fritschi, CEO of Ypsomed, is confident: "The great market interest in the new and unique mylife(TM) OmniPod® insulin patch pump exceeds our expec-tations. We share the enthusiasm of our customers and we will launch the mylife(TM) OmniPod® insulin patch pump in the next few months in additional countries. Furthermore we are able to convince leading pharmaceutical companies with our innovative pen systems and thereby enlarge our customer base. We are therefore convinced that this will have a positive effect on Ypsomed's turnover and profitability." Ypsomed is still in a transformation and build-up phase and estimates for the 2010/11 business year a slight sales growth in local currency and an EBIT margin of between 3% and 4%.

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