Hello, welcome to the J.P. Morgan Health Care Conference. We are pleased to have with us the management team from Ypsomed. With that, we'll let Samuel Künzli, CFO, take over.
Thank you, Sanjivita Singh, and welcome. We feel honored to be here at the JP Morgan Health Care Conference. Thanks to you in the room for having patience and endurance to wait until the very end to see Ypsomed. You will not regret. You will hear about the innovative, fast-growing company. Why we at Ypsomed get up every morning. We do wanna make self-care simple and easy. How we do that? We do that by serving customer with the widest portfolio which is out there of injectables. What you see here on the left side is the autoinjectors, what we have in our portfolio. You see on-body devices, you see also the pens we have in our portfolio. You see that our devices are also digital. You see our SmartPilot. That's how we make self-care simple and easy.
To also understand where we are in the pharma ecosystem, you see here the pharma supply chain, the drug substance on the very left and the distribution, the commercial on the very right. You see here in that space are the companies who do the components, the primary containers. You see us, we are mission-critical in that. In that supply chain, we do the devices. You see also the service companies, the companies who do fill finish and final assembly. That's where we play. I mentioned Ypsomed is a fast-growing company. In the last five years, the delivery system, this pen and autoinjector business grew with a CAGR of 24%, and we keep growing that fast. Why so? Here you see four trends which support the growth of us.
First, the therapies, they're moving from the hospital to the home to the patients. We are all interested that this happens because healthcare costs are just dramatically higher if patients each time have to go to hospital to a doctor to get an injection. If they can do that at home, it's much cheaper. Also, for the convenience, think of yourself having a chronic condition. It gives you so much more quality in life if you can do that injection at home. The second, we see a movement from drugs going from orals into injectables. When we look what is approved from health authorities, from FDA, EMA, we see that there is now more injectables approved than orals. Also looking further down the road, when we see what is in the pipelines of big pharma, we see injectables dominating.
We feel we are in the right place. Maybe not all of you know, we are also a dominant player in the biosimilar space. The rise of the biosimilar is a huge chance for us. Why is that so? The more people can take those drugs, that means more devices. For us, the ultimate driver of the business is the volume, the amount of devices. By having more people having access to those devices, that means more volume for us, and that drives our business. The fourth is obesity, incretins. Sure, you all heard a lot of that. Also, that is injected and also that boosts the growth of our business. During that presentation, I wanna focus on four aspects which make Ypsomed unique. I will show how we became a pure-play injection specialist.
I show why Ypsomed is an innovation leader, why we're such an innovative company. I will also show you why it's difficult to copy us from an operational point of view. I will show our production footprint, and I also show the unique cash and margin profile our business has. Let's start with Ypsomed and the transformation to a pure-play specialist Ypsomed did. For those who follow us long or they know that we had historically two divisions. We had also a diabetes care business. In the last 3, 4 years, we systematically divested non-core assets. We divested the pen needle business, the BGMS business. We divested also the insulin pump business. That was a very important step for us. Also in the last year, we divested the Ypsotec business.
This was a metal part business, and we are now a pure play delivery system business doing pens and autoinjectors. Innovation. We proved in the last calendar year with three new launches that we are the innovation leader in our space. We launched two pen platforms and one autoinjector platform. Those new platforms, they differentiate themselves by having an eco-friendly design. That means those devices you can disassemble and even bring them back into a circular economy with having the ecosystem ready. That is a crucial requirement which we think differentiates us. Also, we use the eco-friendly plastic. So the bioplastic. That means the production of the devices needs much less CO₂. That is, of course, good for the Scope 3 of the big pharma.
There is also the continuous audio, which it is continuous clicking, which makes it easier for a patient to make sure that he does the full injection. You see, we keep innovating those platforms and make ourselves unique and make it difficult for our competitors to copy us. We had also new launches. We have that every year. Few things, I want to mention here. An important launch was tirzepatide from Innovent. That is a GLP-1 in China. In our autoinjector it came to market. Two more I wanna mention is, one is Alzheimer's. That was launched in YpsoMate 2.25. We think it's a very important therapeutic area. We also had psoriasis, autoimmune, an autoimmune disease which we launched in Japan. We serve more than 130 customers.
We have a huge customer portfolio, and we do not have a customer concentration. No customer is making more than 15% of our sales. In the midterm, it is staying that way. We have a great track record. Over 70 products were approved in our devices through health authorities, through FDA, through EMA. That shows our customer that Ypsomed is the partner you can trust in, which makes sure that your baby, your drug goes safely through FDA, and we help with our knowledge for the device. You see here also what disease, what chronic conditions are typically served in which injection device. On the left side, you see pens. Pens are the devices where you can dose. Initially, the application everyone knows is insulin, diabetes. There you dose.
The amount of insulin depends on person, by weight, by sex. You dose it. Other typical applications for pens are also hormones for fertility, for growth. These are applications for pens. Autoinjectors on the right side is typically. I mentioned autoimmune. Autoimmune therapies are important for autoinjectors. You see here a few examples. Asthma, you see the Alzheimer's we mentioned before. Obesity here also to mention. That is typically in autoinjectors. Now, how those therapeutic areas develop in the future. What you see here, you see on the vertical, you see the market size, amount of units, and you see on the horizontal, you see the growth rate. Those therapeutic areas growing fast, growing double digit and having a huge unit demand you see on the top right.
What you see there, not surprisingly, incretins and GLP-Is are growing fast and autoimmune. Autoimmune is also growing double digit and already today a huge business for us. Now, it's not only the innovation who makes Ypsomed unique, it's also our operational excellence. Our production capabilities, which are very hard for any competitor to copy and to duplicate. We have a global production footprint. We have production sites in Switzerland, in Germany, China started already, and we also go to US. We come to that later on. We bought a production site in North Carolina, Raleigh, where we plan to have our production ready by end of 2027. We build up a production capacity, an installed capacity of up to 1 billion devices by the beginning of next decade. We don't do that just blindly.
For us, building up that capacity is something which we very well align with the demand of our customer, with the requirements they have. We do that in a flexible and optimal way, building up that production capacity. Here a few impressions. We had in Germany, an expansion at our site in Schwerin. You see here the topping out, which happened in October 2025 in Germany. Then an impression from the opening ceremony in China, in Changshu, we have there our factory. You see here a visualization of our investment in U.S. This is brownfield, so we bought a land and a raw structure of a building, and we do now the fit-out and get that site ready to produce also our devices. Now, let's look at our financials. I mentioned at the very beginning, Ypsomed is fast-growing.
The delivery system business had, in the last five years, a CAGR of 24%, basically growing from CHF 200 million to CHF 500 million. In this business year, we plan to grow by another 20%, so we grow basically from CHF 500 million to CHF 600 million. Responsible for that growth were especially the autoimmune diseases, but also the other areas. Insulin, diabetes was important, all the hormone therapies, that was contributing to that growth. The main platforms were the 1-milliliter autoinjector, the 2.25-milliliter autoinjector, and the UnoPen. These are our high runners which contribute to that growth. When you look at our revenue, it's important to understand this differentiation between commercial sales and project sales. What are project sales? We have a platform concept, and we customize for each of our clients the device.
This customizing, we invoice. That is a project revenue. We go with our customers through clinical studies. We deliver clinical devices. This is also a project revenue. The project revenue is therefore a very important measure for us because it gives us a good indication how midterm the commercial sales look like. The commercial sales, this is when a drug is approved, and we deliver for this approved drug. You see here in the last business year, we had roughly CHF 100 million of project revenue and roughly CHF 400 million of commercial sales. Now, what is also important to know about our top line? Our top line, we have a very good visibility, and our sales are very sticky. We have long-term contracts with our customers, typically around 10 years. Why is that so?
Because, yes, the customers want us to serve through the whole lifetime of the drug with our device. That's why we have such long-term contracts. Whenever you have long-term contracts, you also wanna make sure the pricing survives in that long period. You do indexations. You do indexations of big cost blocks, huh? What are the big cost blocks for us? Typically, it's the plastic, the resins, the energy, but as well labor and general costs which you do flexible with an index. For big contracts, especially, but not only, we also look for co-financing, huh? We come to our, let's say, cash flow later on, but we have a lot of upfront investments. Co-financing is a typical way for us to align interest and to share risk, and that's something we use.
What also shows our pricing power is that we manage to have most of our contracts in Swiss francs. We are a Swiss company with a 40 years legacy, with a huge know-how and innovation center in Switzerland, so a lot of costs are in Swiss francs, and we wanna make sure that the Swiss francs, that we don't have currency risks. We have a lot of our contracts in Swiss francs. Very important to know also why our sales are so sticky. When we go through an FDA approval with a customer, when a customer does the Phase III clinical studies, they have to use the same device as they use afterwards for the commercial phase. We sit on the master file of the FDA approval, and it is a combination product.
That makes it, of course, very unattractive afterwards for customers also to exchange their supplier. Now let's have a look at the profitability. This is the EBIT of the last half year result. We had CHF 87 million EBIT, which represents an EBIT margin of 32.4% in our core business. Reported, we had much more EBIT. We had more than CHF 150 million, and that was mainly due to the fact that we sold the diabetes care business. We had a profit there, you see that, of roughly CHF 75 million from selling the diabetes care business. That was the main influence. Profitability is high, profitability has to be high because we are in a capital-intensive business. We come to that.
It shows you also that we have this, the pricing power and the differentiation. Now let's look at a little bit at this capital intensity. To answer to that big growth which is ahead of us, we do a CapEx program of CHF 1.5 billion. Roughly CHF 400 million of it is financed by customers. I said before, we have co-financing structures in place. Customers, they can own customer-specific production equipment, or they pay capacity reservation fees. In 2024-2025, when we started that program, we invested roughly CHF 200 million into fixed assets. This year, we will end up with a little bit more than CHF 250 million. In the half year we had already CHF 220 million.
The reason is that we are now more front-loaded with those investments are the big expansions in U.S., but also in Germany. You saw we had the Schwerin II expansion, and we bought also the land and the raw building structure in U.S. Then towards the end of the decade, you see a normalization of those CapEx. Now, important also to understand when you look at a CapEx expansion step, I mentioned we very well align that with the need of our customers. When we do an expansion step, we first have to make the building ready. We have to order the production lines. Two years, we just there is not yet output there. When we start in year three, the production, we first have to ramp up the line.
You see only in year five, we are on full utilization and have the full sales from such a new line. The way to think about it for you is, for us, $1.5 of CapEx translates into roughly $1 of annual sales. That gives you an idea of how much additional sales we can generate with our CapEx program. Another important number I want to mention, besides that we are flexible also due to the expansion, we also have a strong focus on earning the capital costs or having enough returns. We aim for more than 20% IRR on those expansion steps. When you are in a fast-growing industry which is capital-intensive, it's not surprising that you have negative free cash flows, even though you have, like us, a high profitability.
What you see here is already in year 27, 28, our free cash flow turns positive. That's nothing we worry about. We have a very low leverage on our balance sheet. Net debt to EBITDA is at 0.3, so we can finance that growth easily with our own balance sheet. The number I also want here to mention, which is important for us, the return on capital employed is very important. ROCE, we currently run with around 20% ROCE, and that we wanna keep. That is an important measure for us. Now, ending the presentation with showing you our midterm ambition.
We basically wanna grow on the top line from roughly CHF 500 million of sales to CHF 1 billion of sales at the end of the decade. So this represents a CAGR of around 15%. Let's have, on the left side, a closer look now how this top line will develop. What you see here in the light blue are the commercial sales. They are relatively stable growing, also rather steep growing, so that's. They actually grow with a CAGR of around 20%. The dark blue is the project business. The project business is, you remember, the clinical devices, the customizing. That is more volatile and not growing with the same dynamic. So that is rather stable or slightly growing. The orange part, an important thing for those who follow us closely know that we phase out contract manufacturing for pens.
We historically did contract manufacturing for Sanofi, and we stopped that. We stopped that in November 2026. Basically, this business year we still have CHF 40 million of revenue from that business. Next business year will be only roughly CHF 15 million. Yes, this will give a dip on that top line growth just because we phase out the not profitable contract manufacturing business. What you see in the dark red on the top is the contract manufacturing, mainly for the diabetes care business. There we also still have a phase out for the next 3-5 years. We still do some contract manufacturing there for this business. The profitability, we wanna stay above 30% EBIT margin. We wanna end up between CHF 280 million and CHF 340 million of EBIT end of the decade.
More important even, our capital efficiency, we wanna stay around 20% ROCE, so creating significantly shareholder value. With that, I'm done with the presentation, and, yeah, looking forward to your questions.
Thank you, Samuel, for the great presentation. Just going back to some of the points that you mentioned earlier about divesting the diabetes care division, could you just help us understand why you ended up divesting that division? What does the portfolio look like now? What can we expect the next steps to be in this transformation?
Yeah, gladly. For us, the decision to divest the Diabetes Care business was mainly driven by the fact that those two divisions, Delivery Systems and Diabetes Care, did not have much synergies. The Diabetes Care business is a B2C business. There you need a global distribution sales network, it's R&D intensive, and it's in a much earlier stage. While the Delivery Systems business, it's capital intensive, you need the manufacturing sites, big pharma is your customer, so you don't have much overlap. We felt from a capital allocation point of view, it's the right thing to divest to not have a conglomerate discount. The point about on our, let's say, journey here, yes, it's an important step to now have a pure-play injection specialist company. Is the journey at the end?
I showed you at the very beginning, the ecosystem we are in. Of course, we are carefully observing how this ecosystem is developing, what services are bundled, what value we can bring for our customers. We are observing that. I think that is the normal thing to do. Yeah, keep you posted on that.
Okay, great. Earlier you mentioned that you launched the first GLP injectable in the Chinese market. What is your current exposure to that drug class in terms of incretins and GLPs?
The GLPs were in the past a very small therapeutic area for us. In the last business year was a low single-digit percentage which went from the project revenue into GLP incretins. This business year, 2025, 2026, will be roughly 10% of our sales, which goes into that asset class. Midterm, it will even grow further. We expect it to be around 30% at the end of the decade, which goes into GLP and incretin. It is an important class for us.
Great. You know, earlier, just going back to what you were mentioning about your device agreements, that it's usually approximately 10 years when you do it with pharmas. How much revenue visibility do you have from these agreements?
Yes. We are in the good position to have such long-term agreements. Of course not all the volume is already binding in that agreement. I think that is also clear. What is typically binding for us is the next three to six months. There we have binding orders from our customers. We do have then also semi-binding forecasts for the next six months to up to one and a half, two years. Customers tell us what is more or less the volume they need, and a part of it is then already binding. When we speak now really of those long-term agreements, there, the volumes, customers of course also tell us what volumes they expect, but binding there is typically just the minimum order quantity.
We have amounts in there, minimum order quantities, which are defined, think of it roughly in an area of 30%. That is what is binding. I wanna tell you, even though that is not everything binding, I mentioned before, we have a very good visibility, and we are lucky to be in an industry which is not cyclical. The underlying business is people with chronic conditions, so we don't have this huge volatility in those forecasted quantities.
No, that's a good segue into the mid-term guidance that you have shared here. You know, what do you think are the key risks to achieving, say, CHF 1 billion in sales that you anticipate by 2029, 2030? While you're describing those, like, would be great if you could, like, shed some light on how you think the upcoming LOEs in terms of, like, your pen devices might impact these estimates. Also, if you have baked in, like, the loss of any major agreements into this.
I start there with these key risks. I wanna highlight two things there. First, whenever you grow with a manufacturing company double-digit, there is a certain execution risk. Think of it, yes, you have to build up those new production sites, making these lines run, also educating those operators who run those lines. We do the maximum to de-risk that by early enough ordering the lines, making sure we do a very good training of our new people. There is, of course, an inherent risk in this execution risk. The second thing, and I think we heard it a lot at this conference, is also the GLP-1 market is a very young and dynamic market. Compared to other therapeutic areas which are for many more years there, we still have more volatility there.
How exactly the GLP-1's volume develop, that is still something which can have. It's not only a downside, also an upside risk. Maybe a few words on the pen, let's say, risks. Having competitors now entering into the pen space because that is a let's say a more mature product already, more than 40 years out there. Yes, there is ways to find to build pens around the existing patents. What we can tell you there is that the pen market is more fragmented, but in the Western world, there we don't feel new market entrants. In Europe and in U.S., we work with. We are the number one in pens. We have a handful of competitors there, but there we don't feel those new players.
We do feel, though in China, in India, we see that there is new players arising in the pen area, trying especially to also get market share in China for China in the local market. We see that. I think the last question was
It was more around, you know, how have you factored in, your large,
Uh-
Agreements expiring.
Yeah.
Which would essentially enable your customers to switch device suppliers.
Yeah, the risk of switching. I mean, on the one side, you saw we sit on the master file. For customers who went with us through a regulated approval, for them, the hurdle to switch is actually quite high. We are not in an industry where you have, especially in the regulated world, where you would have double sourcing. That can exist in the less regulated markets. There you have a higher risk of such switching. I also wanna remind you that pharma in general is risk-averse, so those switches, they don't happen so often. We make our customers happy, and they stay with us. We see that not as a big risk, customers switching away from us.
Right. You have a pretty strong customer base and, you know, in terms of this midterm estimates that you have, are there any upsides, which are not factored in?
For our midterm ambition, you see here, I wanna highlight two things. The one I mentioned at the very beginning, the rise of the biosimilars. Quantities, if quantities for biosimilars go better than we expected, so factored in here at our midterm ambition, then this is an upside potential. We see there is a lot of traction out there for biosimilars, and we are an important player there. The second factor I wanna mention, you see, we are a very, very innovative company. With the three new platforms we launched, we have also the potential to win new projects and to generate additional project revenue. You remember I said the project revenue in the current midterm ambition is rather simulated as stable and only slightly growing.
Those new platforms, they of course give us the potential to even to grow stronger also with project revenues and clinical devices. That is another upside we see.
Great. Just on the last point around profitability, you have currently your margins around 32%, but in the longer term, you anticipate it to be not less than 30%. Could you help us understand what is driving these margins down?
Absolutely. I think it's a very important mechanism there to understand. You remember I told you that from the CHF 1.5 billion CapEx program, roughly CHF 400 million is financed by customers. This huge core financing, that leads on the one side to a reduction of capital employed, but on the other side, of course, we give customers who co-finance heavily also better prices. Better prices means then also less EBIT margins. It's a pure technical thing. We reduce the capital employed and the, on the other side also the margin is slightly reduced. Because you saw in our midterm ambition, the ROCE, the return on capital employed, and what you care also as investor, that we make good use of the money you give us, that stays stable. Let me frame it like that.
Yes, the EBIT margin is diluted slightly, but this is mainly due to the fact that we grow so heavily that we have a certain co-investment amount, and with that, we also finance these expansions and de-risk our growth projects.
Great. Thank you, Sam.
Thank you. Thank you for the attention.
Oh, sorry. There's a question there.
Oh, yeah.
Thank you so much for this. I was just wondering if you could talk a little bit about if you're more excited about the inherent growth in GLP-1 with tirzepatide or the indirect growth that comes from that, you know, people staying a little bit longer with going to GLP-1 and then probably getting tirzepatide. Just wondering how you're thinking about that.
No, gladly. The question was, if I understood now correctly, what we are more excited about in the GLP-1 market, now just those users directly contributing and also or rather those indirect coming back. Let's frame it like that. We are very excited about that market. We are also still, let's say, discovering with the whole healthcare space what will be the use there. We see now huge growth rates in that space. Yes, I would say the first answer is yes. For us, it's of course already very good that just many people use those GLP-1s. That is already driving a lot of our business. From those who return, yes, that's of course, we don't mind that.
I also want to admit, we see a coexistence between injectables and orals. We heard that at this conference too, that you could also then use orals later on to maintain. We believe in that too. We are still convinced that the injectables GLP-1s, that they stay very important. We think that they are superior and that we are there also in the right place. I hope it helps to give you a little bit color on that.
Thank you. With that, we will conclude the presentation.
Thank you.