Visiting businesses: corporate culture speaks volumes

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Our Swiss Equities team checks the quality of around 140 Swiss companies meticulously and for good reason also right on site, as was recently the case at the headquarters of Ypsomed. This visit is just one of many, but exemplarily demonstrates what it is all about.

Mr. Hänni, what is the purpose of company visits for a portfolio manager?

As a portfolio manager, I am responsible for assets that clients entrust to me. That is why I want and need to ensure that for each investment within our strategy in Swiss equities, the underlying company meets my quality standards. And these are high: For me and my team specializing in Swiss equities, it is not enough to simply ask company executives about their business over the phone. Even though we gather as much relevant information as possible from the office, comb through mountains of figures, analyze these in detail, compare them with the data of other companies in the same industry and exchange views with analysts from other financial institutions, it is just as important for us to visit the companies right on site to get a complete picture of them. In the case of Ypsomed, Carla Bänziger from my team takes care of this.

Why Ms. Bänziger in particular?

Carla is responsible for analyzing Swiss chemical/pharmaceutical companies and medical-technology firms. She is perfectly suited for this as she holds a doctorate in molecular biology. Thanks to her background with countless hours spent in the laboratory, she is trained to examine the smallest things. She has been working as a financial analyst in my team with the same meticulousness for around seven years now, examining Swiss companies in the sectors mentioned above to determine their suitability as investments for our strategy in Swiss equities. After her extensive research, she was the first to draw my attention to this promising investment. Thanks to her, we finally initiated a position in Ypsomed in summer 2023.

Ms. Bänziger, what do you find impressive about this company?

For me, alone the history of the family business founded in 1984 is remarkable. What began as a niche in Emmental with an invention by two brothers from the Michel family has blossomed into a global business for self-medication solutions, primarily for diabetics who depend on insulin injections, through a customer-driven mindset, constant innovation, high quality, and cutting-edge technology. Since then, the next generation has taken over the helm with Simon Michel as CEO. Marc and I have regular discussions with him since we are invested in Ypsomed shares – always on an equal footing. I am impressed by the care and foresight he shows in leading the company. The fact that he has been successful can be seen from the consistently solid business results, which we regularly discuss in detail also with Ypsomed’s CFO.

Can you briefly outline Ypsomed’s business for us?

The name of the company sums it up in one word: Latin ‘ipso’ means ‘self’, and ‘med’ stands for medication. Self-care with medicines is Ypsomed’s core business. It is divided into the main areas of Diabetes Care and Delivery Systems. Diabetes Care includes injection and infusion systems distributed to diabetes patients, pharmacies, and clinics. Delivery Systems comprises customized solutions and extensive services for pharmaceutical and biotechnology companies that develop, manufacture, and distribute drugs intended for injection. Most of them work with Ypsomed already before the drugs are launched onto the market. Because the drug and the individually customizable administration system are approved together, the latter is used in clinical trials in which the effectiveness and tolerability of a drug is tested on test subjects. For example, Ypsomed recently gave the Danish pharmaceutical manufacturer Novo Nordisk a hand on the technical side in the design, manufacture, and packaging of the next generation of weight-loss syringe, which is currently undergoing the last of three phases of clinical trials. I expect that this will further boost the sales of Ypsomed’s pen and auto-injectors, which have increased in recent years.

Does this injection really help you lose weight?

According to reports on the currently available version of the weight-loss syringe, in which Ypsomed is not involved, the pounds can fall off quickly, but users may also suffer unpleasant side effects such as nausea, vomiting or diarrhea. Only a specialist doctor is allowed to prescribe it. The active ingredients contained in the syringe actively intervene in the metabolism by promoting the release of insulin, thereby lowering the blood sugar level, while at the same time slowing down digestion in the stomach and intestines and signaling the brain a feeling of being full.

This requires knowledge about the processes going on in our body. It’s no wonder then that Mr. Hänni chose you, as a former molecular biologist, to inspect Ypsomed. What else does the company have in store?

Besides the variety of pen and auto-injectors, Ypsomed’s product range also includes conventional insulin pumps. It all started with this business idea in 1984 under the company’s original name of Disetronic. Over the years, the pumps have become modern companions for diabetics and have recently started to significantly contribute to overall sales. A few months ago, the company announced that it would divest this segment and focus its long-term strategy on those systems that promise to be future-proof thanks to cutting-edge technology.

Cutting-edge technology comes with a price. How does Ypsomed remain competitive on the international stage?

Ypsomed is also involved in the administration of biosimilars. These are copycat products of biological drugs that are only approved once the patent for the original has expired. Accordingly, they cost less. Because healthcare systems generally insist on lower costs, Ypsomed is attracting more and more biosimilar producers. However, the fact that biosimilars are cheaper for the healthcare system does not mean that Ypsomed earns less from them than from original products. Moreover, a few years ago the company decided to build up its production capacities abroad for cost reasons. It now also produces in Schwerin in northern Germany as well as in Changzhou in China. In Switzerland, it ensures cost-efficient, lean production through its highly automated plants in Burgdorf and Solothurn featuring state-of-the-art injection molding tools as well as assembly and printing machines designed for high volumes. With its outstanding quality, powerful innovations, and a top-class service that customers do not want to miss, hence translates into pricing power, Ypsomed counters the competitive disadvantage of a strong Swiss franc.

How does Ypsomed keep up with the latest advances in medicine and technology?

So-called immuno-oncology, a new but promising discovery in cancer medicine, uses the body’s own immune system to fight tumors. This is activated by injecting a drug. Injections are required less often than for diabetes, but in higher doses. Ypsomed has also developed a suitable administration system for this: an injector with a larger, pre-filled medication reservoir. The patient sticks this wearable device onto the skin like a plaster and administers the required amount in a sterile manner at the push of a button. Thanks to their advanced technology, Ypsomed devices can now also be connected to smartphones. This allows users of insulin pumps to automatically administer the doses they need. Soon, users of pen or auto-injectors will be able to connect those with their smartphones to transmit to their doctor and health insurance company that they have administered the medication and in what dose.

A high-tech medicine chest, so to speak. What quality certification did you give Ypsomed after your recent visit?

First class. The company is a global leader in its industry and has a healthy balance sheet with a low debt burden. Its business model has proven its worth throughout the existence of the company and, in conjunction with strategically smart investments in research & development and customer-focused innovations, has cemented its success. The fact that Ypsomed wants to reduce CO₂ emissions across the entire value chain to net zero by 2040 is not just a case of paying lip service. Solar power systems are already in operation at several locations. I also rate as exemplary the corporate culture embraced at Ypsomed, as I could see with my own eyes. When Marc and I put our heads together after the visit, we could once again tick off all the quality requirements that any company has to meet to be eligible for our strategy in Swiss equities. In short, we keep our position in Ypsomed with full conviction.

One last question for you, Mr. Hänni: Aren’t regular company visits too time-consuming for you and your team, especially since your strategy in Swiss equities includes more than just a handful of stocks?

My goal is to create added value for our clients. To achieve this, no effort is too great for me and my team. Only through the close contacts we maintain with around 140 Swiss companies can we assess their true enterprise value and judge whether their shares are being traded at an inflated, fair, or favorable price. If the latter is the case, the investment opportunity has arrived. With an eye on the long-term performance of our strategy in Swiss equities, it has proven its worth that we visit the businesses time and again.