Earnings Call Transcript - ALVO Q2 2022

Operator, Operator

[Call Started Abruptly] 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 and the Nasdaq Iceland Stock Exchange. These risks and uncertainties could cause actual results to differ materially from forward-looking statements that are made. With me on today's call are Robert Wessman, Executive Chairman and Founder of Alvotech, who will give you a quick overview and recap recent strategic milestones. Mark Levick, Chief Executive Officer will cover our portfolio and competitive landscape. Anil Okay, Chief Commercial Officer, who will give a commercial update. Joel Morales, Chief Financial Officer, who will review the financial highlights. And finally, Ming Li, Chief Strategic Officer, who will present our newly published ESG portal and ESG disclosures for 2020 to 2021. With that, I would like to turn the call over to Robert Wessman, who is Executive Chairman and Founder of Alvotech.

Robert Wessman, Executive Chairman and Founder

Thank you, Benedict. I want to welcome everyone to our second quarter earnings call. This is actually our first earnings call for Alvotech as a public company. We believe that biosimilars stand to benefit in the long term as healthcare systems are struggling with costs. Biosimilars have the potential to help make healthcare more sustainable. On June 15, we made our debut at NASDAQ in New York and on June 23, we listed on the NASDAQ personal market in Reykjavik, Iceland. Alvotech is one of the only companies that is listed in both the US and Iceland, and one of the few publicly traded biosimilar companies with scale. Alvotech is a company that has taken 10 years and over a billion dollars to build. We have been fortunate to make these investments while being private. We are very proud of our strong R&D and manufacturing platform and our pipeline of eight biosimilar candidates with an addressable market exceeding $85 billion. We employ over 800 people globally, with more than 85% focused on R&D, technical operations, and quality. Our state-of-the-art facility in Reykjavik is designed to support the growth of our pipeline through 2030, handling end-to-end manufacturing of products both finished and unfinished. We have established global reach across six continents, with a network of high-quality regional partners that are experts in their home markets. This allows us to leverage our partners' expertise and commercial infrastructure, and we are entitled to substantial milestones and approximately 40% of in-market sales. The backbone of the company is our leadership team. Although the biosimilars industry is relatively young, we have been fortunate to recruit experienced leaders with relevant experience. This includes our CEO, Mark Levick, who previously led Sandoz's biosimilars. Most of our senior executives have direct experience with biosimilars, which we believe has helped navigate Alvotech to where we are today. Before I pass the presentation over to Mark, I want to highlight the main changes in the business since we announced our business combination. We have had substantial advancements across our portfolio, including IP clearance for our product AVT02, a high-concentration biosimilar to Humira, as well as FDA acceptance of our BLA, which included supporting data to gain interchangeability for the US market. We have also launched the product in multiple markets. Importantly, we are committed to being a multi-product company. We are developing biosimilar candidates for STELARA, EYLEA, PROLIA, and XGEVA. Regarding STELARA, we reported positive top-line results, becoming only the second company to do so. On the corporate side, we have recently announced plans to move our Icelandic listing from the first north market to the main port, which we believe can open up more opportunities for Alvotech. We have also expanded our Board of Directors to increase both diversity and independence. Finally, we have made available an ESG portal, which provides further transparency for our sustainability efforts and performance metrics. We look forward to updating our stakeholders and shareholders on our progress as we continue to execute our strategy, focusing on biosimilars and the promise of bringing valuable medicines to patients worldwide. With that, I would like to turn the presentation over to Mark Levick, our Chief Executive Officer. Over to you, Mark.

Mark Levick, Chief Executive Officer

Thank you, Robert. I will be covering our portfolio, and it is important to reiterate our global multi-product approach. Diversification in both markets and products is key for creating a sustained growth model with biosimilars, which we aim to achieve. Our portfolio includes eight biosimilars and biosimilar candidates with a total addressable market of over $85 billion, based on estimated peak sales of the referenced products. After we announced our intention to list, we launched our first biosimilar and announced top-line results from clinical studies for one biosimilar candidate and transitioned additional proposed biosimilars into clinical patient studies. In addition to the full products that have either initiated or completed clinical studies, we continue to progress biosimilar candidates in preclinical phases of development, targeting respiratory diseases, immunology, and oncology, which represent a substantial addressable market. Our first biosimilar, AVT02, a high-concentration, low-volume biosimilar to Humira, has now launched in the EU as Hukyndra and in Canada as Simlandi. Later in the presentation, I will break down the opportunity for AVT02 in the US in further detail. In May, we announced top-line results from our confirmatory patient studies for AVT04, ustekinumab, a biosimilar to STELARA, becoming only the second company to reach this milestone. We will discuss this program in more detail later. In July of this year, we initiated a patient study for AVT06, aflibercept, the biosimilar candidate to EYLEA, a leading ophthalmology therapeutic that has experienced double-digit annual growth. In July and August of this year, respectively, we initiated pharmacokinetic and patient studies for AVT03, denosumab, a biosimilar candidate to PROLIA and XGEVA. The combined market for these two products has been growing by over 10% annually, representing an addressable market of more than $5 billion based on 2021 data. Now, I'd like to delve deeper into AVT02, our biosimilar to Humira, and AVT04, our proposed biosimilar to STELARA. While we have launched AVT02 in Canada and various European markets, the largest opportunity remains the US, which alone represents a $17 billion addressable market based on 2021 data. We expect to launch AVT02 on July 1, 2023, in the US market. It is worth noting that the innovative company switched to a new strength for the product in 2018 in the US, which has gradually shifted most of the volume to this new strength. Today, over 80% of all Humira volume used in the US is of the high concentration formulation. Alvotech has developed that form and completed a switching study to support potential interchangeability. We believe this positions us uniquely to potentially be the only company with both a high concentration and interchangeability on July 1 next year. Having the high-concentration product, along with creating a potentially better patient experience with less volume on injection, allows us to offer specific offerings only available in that strength, which can lower doses for certain indications. Interchangeability could potentially allow switching between an approved biosimilar and over 80% of the US market. We believe our proposed biosimilar utilizing a premium auto-injector has the best product profile and will be important for realizing commercial success. From a competitive standpoint, several developers of adalimumab have experienced shifts in strategy, moving programs to high concentration forms or initiating switching studies in pursuit of interchangeability; however, Alvotech remains the only company that has completed a switching study utilizing a high concentration form of adalimumab. We have also received filing acceptance for a BLA including data to support both biosimilarity and interchangeability, with a goal date in December of this year. From public disclosures, we know that both Amgen and Celltrion have initiated interchangeability studies with the high-strength formulation; however, they remain behind us from a timing perspective. Our second potential offering is a proposed biosimilar to STELARA, AVT04. We are working towards filing a product in major markets this year. We are among the two companies that have announced positive top-line results from patient studies utilizing a STELARA biosimilar candidate. As of today, no company has publicly disclosed filings for STELARA biosimilars in the US or Europe. Furthermore, we are utilizing the same cell line as is used to produce STELARA, known as SP2/0, which we believe will reduce development risk. Using the SP2/0 host cell line facilitates the production of monoclonal antibodies associated with longer half-life, which can support more infrequent dosing. The product is sold at a premium price point, making it an excellent target from both patient need and company profitability perspectives. Concerning the competitive landscape, we were the second company to report top-line results from a patient study, and so far, the competitive environment seems somewhat limited given the market size exceeding $9 billion in 2021. Year-over-year growth in this market since the product's launch may increase potential as the basic patent expires in major markets. We believe that part of the driving factors for this limitation is the complexity and barriers involved with the SP2/0 cell line and perfusion technology used to produce monoclonal antibodies. At the core, we are pleased with the steady progress in our pipeline since our transaction announcement and hope to maintain a similar pace of updates as our business evolves. We anticipate the most significant near-term catalysts will be the acceptance of our proposed STELARA biosimilar filing in major markets and regulatory clearance in the US for our interchangeable biosimilar to Hukyndra, both of which we hope to announce before the close of 2022. With that, I'd like to turn the call over to Anil Okay, our Chief Commercial Officer. Anil?

Anil Okay, Chief Commercial Officer

Thank you, Mark. As we have announced, Alvotech has started commercializing our high-concentration biosimilar to Hukyndra in Canada and select European markets. This is an exciting time for Alvotech as we are adding product revenues in addition to the milestone revenues we have been collecting as an R&D-based B2B company. In April of this year, it was announced that JAMP Pharma group, through their biosimilar division, launched a high-concentration biosimilar to Hukyndra for Canadian patients. JAMP is a well-established pharmaceutical company in the local market, marketing nearly 300 different products, including a number of respected over-the-counter offerings. They have extensive commercial infrastructure covering all parts of the country and support many of their launches, including Simlandi with JAMP Chair, a critical patient support program for biosimilar launches. JAMP is our exclusive strategic partner in Canada, not only for adalimumab but also for other biosimilar candidates. The combination of our biosimilars with JAMP's established and recognized infrastructure sets us up well to access the Canadian biologics market. In Canada, along with Simlandi, our biosimilar was the first high-concentration biosimilar to enter the market in Europe before the originator broadly launched the high-concentration form for adult patients. In June of this year, we also launched Humira in France, Germany, Finland, and Sweden, and we have gradually expanded the scope of our launch in recent days. Our strategic partner Stada is a global company with strong roots and coverage across Europe, particularly in retail markets. We believe the reputation and recognition of our partner is critical to maximizing the commercial potential for our biosimilars and candidates. Stada is a long-standing company and a reliable provider for more than a century in their home market. Unlike JAMP, Stada has a broad strategic partnership handling seven biosimilars and biosimilar candidates under our exclusive agreement. We look forward to the evolution of our launch and our partnership as we continue to grow as a company. While these are our first launches, we plan to expand across global markets with our portfolio; we have partnerships in most markets, both large and small. We believe our global approach is the most effective way to maximize the value of our assets, and our partners are some of the most respected names in their markets, including Teva in the US, Fuji Pharma in Japan, JAMP in Canada, and Stada in Europe. Additionally, we have quality partners in several emerging markets across Asia, Latin America, and the MENA region. We have been fortunate to build a robust network of strategic partners, which we believe is the best way to navigate the complexities of market access globally. All of our partnerships are exclusive, and most are multi-product. This lets us balance the benefits of private partnerships by utilizing the specialized local expertise of our partners while managing the complexities of handling multiple partnerships. Lastly, I want to highlight our commercial setup, which allows us to create a highly leverageable infrastructure, letting us focus on R&D and manufacturing. This infrastructure helps us add new markets and launches on a stable basis. Now, I would like to turn the call to our Chief Financial Officer, Joel Morales.

Joel Morales, Chief Financial Officer

Thanks, Anil. I'll now provide some brief financial highlights for the period ending June 30, 2022. We closed our transaction with OECD on June 15, providing the company with net proceeds of approximately $140 million. We closed the period with approximately $128 million in cash on hand as of June 30, which includes proceeds from the transaction, excluding an additional $25 million of restricted cash that we have on reserve to meet the requirements of our bond agreement. However, redemptions resulted in less cash contributed from the trust than originally planned. As previously disclosed, prior to the close of the deal, we explored two financing options to strengthen liquidity against potential redemptions. Firstly, we are negotiating final terms for a second lien loan facility. Higher redemptions and unexpected global market conditions have delayed this process, but we expect to finalize the terms with lenders in our capital structure for this facility in the second half of 2022. Secondly, we secured a standby equity purchase agreement with Yorkville, allowing us to raise up to $150 million for enhancing liquidity and free float, both of which are potential needs resulting from higher-than-expected redemptions. Most recently, in August, to further enhance our liquidity profile, our Board of Directors and shareholders agreed to convert $50 million of shareholder advances to equity at the original pipe valuation of $10 per share, which we view as favorable terms for the company. Additionally, our shareholders have extended repayment terms on the remaining $60 million of shareholder loans to coincide with future capital raises, such as when we utilize our separate facility. Regarding operating performance, the company reaffirms its prior financial guidance for 2022, as presented during our Analyst Day last March. We launched AVT02 in certain European markets and Canada, expecting those markets to start showing meaningful revenue towards the end of the second half of this year. We are currently increasing the scale of our AVT02 manufacturing process to support ongoing and new product launches expected next year, including in the US. Debt stockpiling during the scaled-up process has resulted in increased inventory through June 30, and we expect this trend to continue over the next several quarters, particularly as we prepare for new launches in 2023. A key point worth noting is that our year-to-date cost of product revenues are disproportionate relative to revenues during the period. We expect this to normalize as we increase scale and expand our launches. The increase in volumes is anticipated to favorably impact product revenues, particularly as we see further absorption of fixed costs. With equity and debt facilities and settlements in place, and based on our current operating plans, we believe we will have sufficient cash runway to continue investing in our platform and pipeline to achieve positive cash flows over time. Finally, we closed the period with 243.6 million shares outstanding, including earn-out shares, which have not yet vested. With that, I'd like to pass the presentation to Ming to cover sustainability at Alvotech. Ming?

Ming Li, Chief Strategic Officer

Thank you, Joel. As Benedict mentioned earlier, I am the Chief Strategy Officer at Alvotech, and more recently, I have been appointed head of our sustainability efforts at the company. At Alvotech, we believe a structured sustainability program is essential for our long-term success. We believe this can help identify risks we face and new opportunities that may create lasting benefits for all stakeholders. Moreover, we see Alvotech in a unique position to participate in a more evolved sustainability framework. We strongly feel that increased affordability driven by biosimilars can promote the sustainability of healthcare systems globally. Biologics in some markets, like the US, represent a disproportionate share of spending compared to the total amount of prescriptions. In many emerging markets, biologics are underutilized due to the high prices and limited reimbursement of effective biologic medicines. In both situations, biosimilars can address the need stemming from the therapeutic prominence of biologic medicines. Additionally, as Robert noted earlier, there are limited pure-play biosimilar companies, thus few ways to gain direct exposure to what we believe is the promise of biosimilars. On top of affordability, Alvotech possesses several intrinsic qualities relevant to sustainability strategies. The location of our manufacturing site in Reykjavik, Iceland provides access to substantial renewable energy resources on an isolated grid, which helps us offset our minimal scope one and two emissions footprint. As a result, we have been carbon neutral for scope one and two since 2020. Furthermore, our main manufacturing site, conveniently located between the large biologics market of the US and the EU, faces less water scarcity and wildfires, which are two risks often analyzed within an ESG framework. However, intrinsic qualities alone are insufficient; sustainability is a commitment and evolving process. Recently, we made our ESG portal available on our website, allowing stakeholders to access data and information useful for assessing our commitment. This applies to environmental, social, and governance factors that might interest our stakeholders. We encourage all stakeholders to review the information and data provided, in line with NASDAQ and GRI frameworks. As we globally commercialize our portfolio and grow our company, it was crucial for our Board of Directors and management team to establish a solid information baseline for sustainability program decision-making. Lastly, we have instituted several policies leading up to our listing, supporting good governance and transparency, along with making relevant outputs publicly accessible. As our ESG framework evolves, we look forward to continually updating our stakeholders about our initiatives. With that, I would like to turn the presentation back to Benedict Stephan.

Operator, Operator

Thank you, Ming. With that, we conclude our formal remarks, and we now open the floor for questions from the audience.

Robert Wessman, Executive Chairman and Founder

However, before we start the Q&A session, Mark Leonard will make a quick remark regarding the presentation deck. Mark.

Mark Levick, Chief Executive Officer

Hello, everyone. I wanted to note that since the drafting of our prepared remarks, there has been a recent addition to the Clinical Trial Registry from Samsung that includes a switching study for adalimumab utilizing the high concentration form. In the presentation materials, that update has been made. For us, this reinforces that we have taken the proper strategy regarding the $17 billion US biosimilar market. With that, I'll turn it over to the Q&A.

Operator, Operator

[Operator Instructions] And your first question comes from the line of Tybalt Mornan from Morgan Stanley. Please proceed with your question.

Tybalt Mornan, Analyst

Hello. Hi, can you hear me?

Mark Levick, Chief Executive Officer

Yes, we can.

Tybalt Mornan, Analyst

Perfect. Thank you very much. Well, both on Sunday. I have two questions, please. The first question is on the launch of the biosimilar Humira in Europe by your partner Stada. It's obviously a very competitive environment; it's quite a mature market with established competitors. Have you heard this formulation here, but since we launched a few months ago, they have struggled to gain market share? My question is, what are your expectations for this market, and what market share can you realistically take? Is it possible to see Stada reaching double digits in markets in Europe? So that's my first question. My second question is on the high concentration; what we've seen in Europe is before the launch of biosimilars, the high concentration represented over 90% of the Humira volume, yet low concentration biosimilars managed to take 60% market share. So I wanted to put this in context with the launch in the US. Lastly, what kind of reassurance are you providing to PBMs in the US about your ability to supply? You have the facilities and talent for execution, but you don't have the track record of competitors like Amgen and Sandoz, who have been supplying biologics for years. What steps can you take to reassure PBMs that Alvotech can supply large volumes to the market? Thank you very much.

Anil Okay, Chief Commercial Officer

Thank you for your questions. Anil Okay speaking. Regarding our European launch, first of all, I want to underscore that Stada is a well-established name in Europe, which adds value to Alvotech's success on top of our product profile. The European landscape differs from the US; typically, physicians and buyers prefer a long history of the players before making their decisions, which is what Stada provides. Lastly, Stada has a unique go-to-market model that increases our chances of success. In short, we are very pleased with our progress in Europe with Stada as our commercial partner. For the US, I’d like to remind you that our launch date is July 1, 2023. It's also significant that we are the only company that has successfully completed an interchangeability study on the high-concentration formulation of the adalimumab biosimilar. As we have gathered information from multiple stakeholders, our product profile is preferred based on various elements. Therefore, we are positive and well-prepared for our US launch on July 1, 2022. In regards to your question about capacity, one unique feature of Alvotech is that we have operated as a private company for nearly a decade. This has allowed us to invest heavily in our infrastructure. As Robert mentioned, we have invested over a billion dollars in our infrastructure since the company's foundation. Consequently, we built our facility well before commercializing a product. This puts us at a long-term advantage over our partners. We are a vertically integrated company, which is crucial for cell line reliability. We aim to be a leading supplier of adalimumab in the US and globally for the long term. Thank you.

Tybalt Mornan, Analyst

Thank you.

Operator, Operator

Thank you. We will take our next question. [Operator Instructions] And your question comes from the line of Karen from Northland. Please ask your question.

Karen Marchetti, Analyst

Thank you for the question and congratulations on your progress. With respect to AVT04, you're looking at the regulatory submission prior to year-end 2022. Would you expect the commercial launch to be in late 2023, or would it fall into early 2024? Thanks.

Ming Li, Chief Strategic Officer

Thank you, Karen. This is Ming Li. We haven't determined specific launch timing expectations outside of adalimumab. So we won't provide new launch timing today. Biosimilar market formation tends to be an IP-driven event. In this case, the main patent for AbbVie in Europe expires in 2024, and the main patent in the US expires in late 2023. We certainly want to be prepared with our product as early as possible.

Karen Marchetti, Analyst

Definitely. Thanks so much. And just a follow-up: I know that AVT16 and AVT33 are in early stages of development, but do you have any comments on potential timelines concerning confirmatory and PK studies? When might those be initiated? Thanks.

Ming Li, Chief Strategic Officer

Yes, these are all in preclinical development. So, the most recent news is about our first AVT04, and again, AVT05 and AVT06 will follow. I think we're a bit early to provide any guidance on AVT16 and AVT33.

Karen Marchetti, Analyst

Great, thanks, and congratulations again. Thank you.

Operator, Operator

Thank you. [Operator Instructions] We will take our next question. And the question comes from Jason Guerra from Bank of America. Please ask your question.

Jason Guerra, Analyst

Hey, guys, thanks for taking my question. I wanted to understand the relationship between the two approval events in the US for the biosimilar Humira, the low concentration and high concentration. You guys had the FDA visit your site for manufacturing and are just waiting for approval. Does the low concentration approval somehow gate the high concentration interchangeable action date approval decision in December? Just wondering if there's any connection there. Thanks.

Ming Li, Chief Strategic Officer

Hi, Jason, thank you for the question. To clarify, it's relevant to both applications for high concentration and low concentration; they are separate BLAs. We are working with the FDA on both through parallel stream approval processes.

Jason Guerra, Analyst

Thanks.

Operator, Operator

Thank you. There seems to be no further questions. I will hand the call back over to management for closing remarks.

Mark Levick, Chief Executive Officer

Yes, on behalf of the Alvotech team, I want to thank everyone who participated in today’s call and those listening on the webcast. We look forward to seeing you all again. Thank you.

Operator, Operator

This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.