Alvotech Q1 FY2023 Earnings Call

Welcome to the First Quarter 2023 Earnings Call for Alvotech. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to introduce and hand over the call to Benedikt Stefansson, Director of Investor Relations and Global Communications at Alvotech. Please proceed.

Thank you and good morning or afternoon to everyone joining us on this call today. The company has issued a press release that can be found on our website www.alvotech.com. The release reports financial results for the first quarter of 2023 and provides a business update. Additionally, presentation slides that cover our call today have been posted on our investor website. You'll find all materials posted for the Q1 2023 earnings call under News & Events in the Events & Presentations section on investors.alvotech.com. Our presentation materials and some of our statements that we make today may include forward-looking statements. These statements do not ensure future performance and are subject to risks and uncertainties that are outlined in company filings with the Securities and Exchange Commission. These risks and uncertainties could cause actual results to differ materially from forward-looking statements that are made. And with me on today's call are Robert Wessman, Chairman and Chief Executive Officer of Alvotech; Anil Okay, Chief Commercial Officer; Joel Morales, Chief Financial Officer; and Ming Li, Chief Strategy Officer. And with that, I would like to turn the call over to Robert Wessman.

Thank you, Benedikt, and greetings to everyone joining us on the call today. 2023 marks an important year for Alvotech as we celebrate the company's 10-year anniversary. A significant amount of investment over the last decade has allowed us to build a company that includes a vertically integrated biosimilar platform, a vast commercial network, and a portfolio of attractive biosimilars and biosimilar candidates that are targeted for global markets. The company is committed to the promise of biosimilars, which we believe will provide a long-term benefit to healthcare systems and patients globally by providing low-cost access to important biologic medicines. In addition to celebrating our 10 years as a company, we are also approaching our first year anniversary as a publicly listed entity. We are listed on NASDAQ in both the US and our domestic market of Iceland. Since that time, and as laid out on page four of our presentation, we have continued to drive towards our goal to advance the cause of global biosimilars by progressing a global portfolio of biosimilar candidates through the development process, expanding our commercial footprint and partnerships, and by driving several corporate initiatives that have allowed us to continue to invest in the platform and the pipeline. Alvotech stands as one of the few large pure-play biosimilar companies. Before we discuss the status of AVT02, our proposed high-concentration and interchangeable biosimilar to Humira sold in the US market, I'd like to briefly touch upon the sustainability of Alvotech. Our ESG program, which is led by our Board, is a crucial component of our company. We firmly believe thatbiosimilars are an essential element of global healthcare sustainability. Biosimilars not only widen access to biologic medicines but also stimulate innovation in the life science sector by introducing more cost-effective competition to medicines that account for over 40% of pharmaceutical spending in the US and Europe. Further, in any market, the introduction of biosimilars can expand access to many patients that would otherwise not receive biologic treatment, which has become the standard of care across numerous therapies. In alignment with our commitment to sustainability, we have recently disclosed a number of ESG indicators for 2022 that align with well-recognized frameworks such as NASDAQ and GRI. The updated disclosures are made available on our website through our sustainability portal. Now I would like to spend some time providing the status of our ongoing efforts to gain approval for AVT02 in the US market. AVT02 is seeking to be the first interchangeable and high-concentration biosimilar to Humira. The high-concentration form of adalimumab currently constitutes over 85% of the US market today. As many of you know, we have two separate applications for the same biosimilar candidate. The first BLA has the data supporting biosimilarity of AVT02 to Humira, and the second BLA has the data supporting biosimilarity, as well as additional data seeking interchangeability. Both BLAs have been reviewed and are deemed approvable, with the only outstanding requirement being a satisfactory site inspection. Alvotech hosted an inspection that concluded on March 17 of this year. The company provided a substantive response to the 483s on April 3rd. The biosimilar BLA received a complete response letter from the FDA on April 13 of this year, noting only that the deficiencies from the recent inspection needed to be resolved. The interchangeable BLA has a goal date of June 28th of this year. Meanwhile, as we continue to pursue further clarity on potential approval of AVT02 in the US, we continue to supply to other markets. We have launched AVT02 into 70 markets, including Canada and across Europe, without any negative safety signal to date. However, before we can provide specific guidance around our potential US launch timing, we need additional clarity around our application. The first is to understand the status of deficiencies noted in the recently issued FDA 483s and whether our responses satisfactorily address the observations. The second point of clarification we did relate to the first is whether our reinspection would be required to gain approval of AVT02, and if such, inspection would be virtual or on-site. Looking forward, in addition to continuing to implement a culture of continuous improvement at our manufacturing sites, we have some tangible next steps that we will be undertaking that we believe will allow us to gain further clarity and move our goal of bringing AVT02 to the US market forward. The first is a request to the FDA Office of Pharmaceutical Manufacturing Assessment to seek clarity regarding the status of our deficiencies and clarity regarding our responses, which are intended to address the deficiencies. Furthermore, our responses to the 483 included certain commitments, and we agreed to provide the FDA with monthly updates on the progress of these commitments. This was done on May 1st of this year, and we intend to provide another one on June 1st, which we believe will complete the outstanding corrective and preventive actions that we were committed to. Subsequent to that, the company intends, as a matter of procedure, to resubmit the biosimilar BLA, which would trigger a six-month review period that would be needed in case approval is not granted on June 28th, which, again, is the goal date for the interchangeable BLA. The company remains committed to bringing AVT02 to patients in the US as soon as possible, and we believe that our product profile matches the current needs of the market. We believe that high concentration combined with interchangeability for a Humira biosimilar is necessary to effectively convert the market, especially during the time where the originator remains on formulary. And with that, I would like to pass the presentation over to Anil Okay, our Chief Commercial Officer, to cover our pipeline and provide a commercial update. Over to you, Anil.

Thank you, Robert. I will start by providing a broader update on our disclosed pipeline. Of course, as a company that develops products from scratch, we do maintain an active list of early development targets within R&D, and we do expect to add more products over time as our disclosed pipeline continues to progress. Firstly, we are pleased to announce that we have initiated patient studies for AVT05, a biosimilar candidate to Simponi and Simponi Aria. AVT05 was developed using a murine cell line and utilizes a perfusion production process. This is similar to AVT04, our proposed biosimilar to Stelara. On AVT05, we are currently aware of only one other company that has a clinical-stage asset for a biosimilar to Simponi, and we are the only company with a clinical-stage asset for golimumab that has launched biosimilars in multiple global markets. Worldwide revenues of Simponi and Simponi Aria exceeded US$2 billion in 2022. The initiation of patient studies for AVT05 represents the fifth product to reach this stage in our portfolio, which demonstrates the development capabilities of our biosimilar platform. Included in this group of products is, of course, AVT02, which has begun commercialization in a number of markets, including Canada and Europe, and AVT04, a biosimilar candidate to Stelara, which is filed in major markets globally, including Japan, the US, Europe, and Canada. On this call, we would also like to provide updates and unveil two previously undisclosed pipeline opportunities. The first of which is AVT16, a biosimilar candidate to Entyvio, which is a leading immunology product with over US$5 billion in global sales in 2022 and has shown significant growth since the product's launch. Current analyst estimates view the growth potential for the brand to exceed US$8 billion. We have developed our biosimilar to the stage of at-scale manufacturing and hope to provide further updates as the development program progresses. The next previously undisclosed biosimilar candidate is AVT33, which is a proposed biosimilar to Keytruda, a leading oncology product. With worldwide sales in 2022 of over US$20 billion, Keytruda is in the top five products globally in terms of revenue. AVT33 is our first disclosed product in the oncology space, which is an area we intend to expand further into as we continue to build our pipeline. The program has completed our clone selection phase. Again, we look forward to providing updates on this exciting opportunity going forward. As mentioned in our press release yesterday evening and in accordance with our contractual rights, we have provided BiosanaPharma a Notice of Termination for the global licensing agreement between the two companies covering AVT23, our proposed biosimilar to Xolair. We are currently evaluating alternative options for the program and intend to provide further updates as we finalize the strategy. AVT23 was our first proposed biosimilar that was not developed in-house, and it is also important to note that based on the timing of the licensing agreement, potential revenues from AVT23 were not included in the long-term forecasts provided during Alvotech's first Analyst Day as part of the company's SPAC process. On the commercial front, Alvotech continues to make strides in our partnership network and our launches. As a reminder, Alvotech has a B2B model that generates revenues through substantial milestone payments from our commercial partners, as well as revenue sharing after launch that provides us with approximately 40% of net sales in any particular region. Since the start of the year, we have expanded or added partnerships in various markets around the world, including Japan and Turkey. We continue to maintain a robust pipeline of business development opportunities similar to our existing arrangements for unlicensed pipeline candidates that are both disclosed and undisclosed. We truly believe in this model for the long term as the best way to leverage our platform and to create value and growth going forward. As of today, we have 18 distinct partners covering over 90 markets for our portfolio and pipeline. We continue to work with our partners to progress launches for AVT02, our biosimilar to Humira, in Canada and Europe, where we have launched in 17 markets to date. In 2023, we are planning for an additional seven launches in various markets for AVT02, where we are already in the pricing and reimbursement stage in various geographies. This number at the moment excludes the US market until we have further clarity on regulatory timing. Additionally, we are already making commercial preparations and have received purchase orders for AVT04, our biosimilar candidate for Stelara for various markets. We believe we were the first to submit this product in several key markets and anticipate being in a strong position to compete globally in ustekinumab, which has an addressable market approaching US$10 billion. We are working with our partners to launch our proposed biosimilar at the earliest possible date. With that, I would like to hand the presentation over to our CFO, Joel Morales.

Thanks, Anil. I'll now provide some brief financial highlights for the period ending March 31st, 2023. In our previous earnings call in March, we reported that during the first quarter, we had closed on a private placement with Icelandic investors of approximately $137 million in gross proceeds. In addition, during the quarter, we collected the remaining proceeds of approximately $14 million from our convertible bond issuance, which we initiated last December. With this financing activity now completed, we ended the first quarter with approximately $116 million cash on hand as of March 31st, excluding restricted cash of $25 million. In terms of our operating performance, the company recorded $16 million in total revenue for the first quarter of 2023 versus $1 million during the same period in the prior year. This sharp increase is driven by our first launch in the prior year, which meaningfully commenced in the second quarter of 2022. There were no milestone revenues recognized in the period, given the timing of our performance-based licensing and R&D milestones. We expect to recognize most of our milestone and licensing revenue in the second half of 2023. A point worth noting is that the cost of product revenue for the quarter is disproportionate relative to product revenue due to the timing of new launches and elevated production-related charges resulting in higher costs than revenues recognized for the period. We do expect this to normalize as we increase the scale of manufacturing and expand our launches. We anticipate that this increase in volumes will have a favorable impact on cost of product revenues, particularly as we increase the absorption of our fixed costs. As a reminder, at this juncture, we are planning to wait to provide our 2023 financial guidance until after we have further clarity from the FDA on the potential approval of AVT02 and the impact on the timing of commercial contracting. In terms of near-term liquidity, given the lack of clarity regarding the exact timing of the potential approval of AVT02, we have begun to explore options to raise further capital to continue advancing our pipeline over the near term with the goal of obtaining approval for and launching all of our programs in the US and the rest of the world over time. While we remain focused on driving towards a positive outcome with the FDA, we are preparing for potential scenarios that may impact our previously communicated timelines. We will keep you updated on any developments at the appropriate time. Until then, you can expect that we will continue to expand our launch of AVT02 into more markets and expect shipments to our commercial partners to increase in the second half of the year. As highlighted to you in the past, we are currently increasing the scale for our AVT02 manufacturing process to support these launches as well as new launches that we are anticipating later this year, including in the US. Our prelaunch preparations will result in a build-up of inventory, which we expect to continue through the first half of this year. Finally, we closed the period with 263.5 million shares outstanding, including unvested earnout shares. With that, I'd like to turn the call back over to the operator for Q&A.

Thank you. We will take our first question and the question comes from the line of Andrew Baum from Citigroup. Please go ahead. Your line is open.

Thank you. A couple of questions. First, in light of the FDA's inspection and the measures you've put in place to address their concerns, I'm assuming Stelara is manufactured at the same site. Is there any need to amend your filing or put in place additional remediation measures to ensure US approval? And then, second, I'd be curious if you have any thoughts on the impact for your future development given the denial of Teva's addition to the Supreme Court in relation to Coreg versus Avandia. It would seem that skinny labels are going to be somewhat more problematic in future and I can foresee cases with your existing portfolios that may make prosecution of these in the US challenging. Thank you.

Thank you, Andrew. Robert Wessman here. We have a BsUFA date on the 11th of October for our AVT04. Even though it is produced at the same manufacturing facility, we still believe we have a pretty good and sufficient time to resolve that. Coming to AVT02, there is not clarity yet, and that has been confirmed by the FDA, but they have not made a decision yet on whether reinspection is needed or not. As I mentioned in my intro, we are seeking a meeting with OPMA, which is by a recommendation from the FDA to seek clarity on whether they have finalized their review of our responses and if those responses are adequate, and if inspection or reinspection is needed or not, in which kind of a format that would be. The second question is for Anil.

Andrew, I can take the second question. We are aware of the Supreme Court decision. We would not believe that this impacts either our portfolio or launch decisions in the US market.

Thank you. We will take our next question. Your next question comes from the line of Thibault Boutherin from Morgan Stanley. Please go ahead. Your line is open.

Yes, thank you for taking my question. A couple on the Humira biosimilar. First, can you give any indication on your expected timing for the meeting with the FDA? And second question, just to clarify, if you have to actually resubmit the BLA after the 28th of June, will it necessarily be a resubmission of the original BLA, or could you potentially, at that time, already resubmit a BLA with interchangeability?

Robert Wessman here. Generally, we assume, as we have done in the past, that we will resubmit our biosimilar BLA. We will do that once we have completed the commitments towards the FDA, which are related to the manufacturing and supply deficiencies. We assume to close them all by the 1st of June. We will then resubmit, and this would initiate a six-month clock, which would likely give us a BsUFA date six months later. Within that timeframe, of course, the FDA would then decide whether reinspection is needed or not, if that is not already clear at that time. So that's the framework.

The first part of the question, Thibault, was about the potential meeting timing. Unlike a Type 1, there's no defined process, but we are engaging and already working on scheduling that. We don't have a defined date, but we believe it will be within 30 days or less. That's our assumption.

Thank you.

Thank you. We will take our next question, and the question comes from the line of Ashish Verma from UBS. Please go ahead. Your line is open.

Hi. Good morning. Thank you for taking my question. I have a few. So first one, just on the biosimilar Humira. I wanted to understand a little bit like what the nature of the observations that you received from the FDA this time was. Are the previous observations completely resolved? Secondly, on Stelara, do you have freedom to operate in this market or does it still need to go through litigation with J&J? I'm just curious, from the perspective of interchangeability, do you think this matters for Stelara, and your reason for not pursuing it at this stage? Finally, a third one that I had was on Keytruda biosimilar. This can be a huge market. I think what I wanted to understand was that is there anything unique about the PD-1 design of the palindrome molecule that may not lend itself well to a biosimilar market? We've seen competing PD-1 Opdivo not able to show the same level of clinical results as Keytruda. Is there something unique about Keytruda that a biosimilar studies might not be able to replicate the same level of clinical efficacy? Thanks.

Hi, Ashish. This is Ming. Thank you for the question. Maybe I'll answer in a different order and then pass it over to Anil. From the previous inspection, which, of course, was in March of '22, there were no repeat observations. I think that's an important thing to note. The observations provided in the '23 inspection focused mainly on the quality system and quality units. I would describe them as pointing to upstream observations rather than downstream problems. I think that 483 is public. We have, but the responses to those are not public. We approached them by addressing those specifically as well as making changes at the macro level and conducting retrospective analyses to ensure that these downstream problems didn't exist historically. As you know, we currently manufacture commercially, of course, not for the US, but for other places, so there's a history there. Let me pass that to Anil.

Thanks, Ming. Hi, Ashish. Good to hear from you. When it comes to the AVT04 question, we cannot comment on that. We cannot give guidance on that. So I will pass that question. However, we have not made a final decision on pursuing interchangeability for AVT04 as of yet. The reason for that is related to the product profile. The product does not have the same regional profile as Humira, and the level of competition is much lower. Because of those reasons, we have not initiated yet, but we still have the potential to consider it if we want. Regarding your third question about Keytruda and its efficacy, these biosimilars are efficacious products. This is no different than ustekinumab or trastuzumab biosimilars, which have seen over 70% penetration across the world. So we expect the same with the Keytruda biosimilars. Concerning study design, we are working with authorities globally, both in the US, Europe, Japan, and global authorities in the design phase of our studies. Of course, we consult with them and jointly design our clinical product.

Thank you. We will take our next question. Your next question comes from the line of Carl Byrnes from Northland Capital Markets. Please go ahead. Your line is open.

Thanks for the question and apologies if I missed this. But if the FDA does not require reinspection of the facility, when would be the earliest that you'd be made aware of that? Conversely, if they do require reinspection, when would be the earliest that you'd be made aware of that? Thanks so much.

Yes, thank you for that question. Robert Wessman here. We are working, of course, with the FDA. They have said that they are not going to take any earlier action, which means that the 28th is the date, when we would either understand if we got approval, or potentially find out that reinspection is needed. We want to highlight that we are still hopeful about the meeting with OPMA, which we are scheduling, and we are in interaction with the FDA on specific questions we have. We hope to get clarity out of that meeting, if you will. In the worst case, we would learn this by the 28th, but of course, we are hopeful that we can understand this sooner than that.

Great. Thanks so much.

Thank you. There seems to be no further questions. So I would like to hand back to Robert Wessman for closing remarks.

Actually, Benedikt Stefansson here. Thank you. On behalf of the Alvotech team, I would like to thank everybody who participated today, and we wish you a good rest of the day and look forward to speaking to you all again. Thanks.

This concludes today's conference call. Thank you for participating. You may now disconnect.