Zurich (awp) – Bernese medical device producer Ypsomed is continuing its plan to focus on its core business with the sale of its loss-making Diabetes Care unit five months after drawing a clear line of demarcation from its activities in pens and other injection instruments. The options then considered for insulin pumps and other disease management devices were divestiture or empowerment, with a stated preference for the first alternative.
Diabetes Care, limited only to the Ypsopump homemade insulin pump since the sale at the beginning of August of the needle and glucometer activities to the Italian MTD, saw its sales jump by a third between March and the end of September, to represent 98, 1 million Swiss francs. Excluding the effect of scope, the unit would have even posted growth of more than 50%, indicates an interim report released on Wednesday.
The Berthoud firm believes that these activities will begin to generate profits before spring. In the meantime, Ypsopump’s marketing efforts weighed on operating profit by 12.4 million Swiss francs, after having widened a deficit of 18.8 million a year earlier.
Injection devices generated revenue of 220.3 million Swiss francs, up almost a quarter.
Damaged profitability
Half-year revenues thus jumped by 26.9% to 324.0 million Swiss francs, for an operating surplus (Ebit) almost stable at 40.5 million. Net profit, on the other hand, contracted by a tenth to 32.6 million.
If sales comfortably meet the expectations of analysts consulted by AWP, Ebit and net profit turn out to be significantly lower than expected.
Ypsomed has accelerated its cash burn, doubling to almost 100 million Swiss francs its investments in infrastructure as part of its vast capacity expansion program. Research and development, as well as the approval process of the Ypsopump in Uncle Sam’s country and the digitalization of services still cost almost 40 million.
Management nevertheless confirms its roadmap for the whole year, including continued activity growth at a rate of around 25%. Excluding the unique effects of the sale of the needles and glucometry activities, the operating surplus should be around 140 million Swiss francs.
In the process of shedding
As expected as it was, the announcement of the sale of Diabetes Care delighted analysts. Ypsomed does not have the scale necessary to market Ypsopump itself on the essential US market and these activities have a permanent dilutive effect on profitability, explains Sibylle Bischofberger, for Vontobel. The rest of its business model is “interesting and virtually non-cyclical,” continues the expert.
Unfazed by the erosion of profitability, Daniel Jelovcan notes that the high rate of growth of continued activities has an after all “natural” cost. The analyst from the Zurich Cantonal Bank, like his colleague from the Zurich management bank, sticks to a recommendation to buy the stock.
This leniency did not prevent Ypsomed shares from failing in the first stock market trading. At 9:43 a.m., the registered stock dropped 4.8% to 385.50 Swiss francs and appeared in the penultimate position of an SPI down 0.25%.
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