Earnings Call
Alvotech (ALVO)
Earnings Call Transcript - ALVO Q4 2025
Operator, Operator
Good day, and thank you for standing by. Welcome to the Alvotech Q4 2025 and Full Year 2025 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mikaela Vilchez. Please go ahead.
Mikaela Vilchez, Head of Investor Relations
Thank you, and welcome to our listeners. Yesterday evening, the company issued a press release announcing our financial results for the full year and fourth quarter of 2025. Material accompanying today's earnings call was also published on our investor portal, investors.alvotech.com in the earnings calendar section. Our press release, presentation and statements that we make on the call today may include forward-looking statements. These statements do not ensure future performance and are subject to risks and uncertainties that are outlined in the company filings with the Securities and Exchange Commission. Any risks and uncertainties could cause actual results to differ materially from forward-looking statements that are made. Presenting on today's call are Robert Wessman, Founder and Executive Chairman; Lisa Graver, Chief Executive Officer; Joseph McClellan, Chief Operating Officer; Linda Jonsdottir, Chief Financial Officer. Also with us on the call is Balaji Prasad, Chief Strategy Officer. Robert will begin today's presentation with a summary of business highlights. Lisa will then present a commercial update. Joseph will discuss the status of our pending biologics license applications with the FDA and our R&D pipeline. Linda will then conclude with a discussion of the financial results. Following the introductions, our team will be happy to take your questions. With that, I would like to turn the call over to Robert Wessman.
Robert Wessman, Founder and Executive Chairman
Hello, everyone, and thank you for joining us today. 2025 was an important year for Alvotech. We continue to strengthen our position as one of the leading global developers of biosimilars. We expanded our commercial footprint, advanced several pipeline programs and strengthened the financial position of the company through successful capital market transactions and our listing on NASDAQ Stockholm. At the same time, we have addressed the regulatory observation of the FDA inspection of our Reykjavik manufacturing facility, and we implemented a comprehensive quality improvement program. Based on the progress made so far, we expect to resubmit the affected applications to the FDA during the second quarter of 2026. We will, of course, update the market once those submissions have been accepted. We have addressed regulatory observations before in the industry, and we know how to solve them. Our focus has been on strengthening the operational platform so that we can continue to scale the business globally going forward. Alvotech has 30 biosimilars in development today. We are advancing plans to have a second source manufacturing site for some of our key products going forward. This includes manufacturing of drug substance and drug product at a strategic CMO partner based in the United States. This will give us greater operational flexibility and over time, reduce operational dependence on a single manufacturing site. Lisa will provide more details on the progress we are making with this initiative. Stepping back for a moment. The long-term drivers of the biosimilar market remain very strong. Across the pharmaceutical industry, we are seeing a continued shift towards biologic medicines. Today, around 40% of global pharmaceutical sales come from biologics. But if you look at the development pipeline, this shift is even more pronounced, around 60% of Phase II and Phase III pharmaceutical development today involves biologics. This tells us that the reliance on biologics will only increase over time as more targeted therapies are developed. At the same time, more than 100 biologics are expected to lose patent protection over the next decade. While healthcare systems around the world are under increasing pressure to reduce costs, this creates a very significant opportunity for biosimilars. Another important development for the industry was the FDA draft guidance related to biosimilar development. In practice, it means that large expensive efficacy trials will increasingly not be required. Some studies in the past have cost around $100 million per program and added 1 to 2 years to development times. Reducing that requirement substantially lowered the development cost and time needed to bring biosimilars to market. At Alvotech, we anticipated those changes, and we adopted our development strategy already several years ago. The new FDA guidance, therefore, does not change our strategy, but rather validates the approach we have already taken. Importantly, we are now well positioned to benefit from those changes compared to many of the other companies that are still set up for the older model. Joseph will discuss this in more detail and explain how these changes may benefit our pipeline. Turning to the next slide. Our ongoing investment into our platform mean that today, we can initiate development of a new biosimilar program roughly every 2 months. This has enabled us to build one of the most comprehensive biosimilar pipelines in the industry. We now have 30 biosimilars in development, representing more than $185 billion in global sales. This pipeline is what will drive Alvotech's future growth, and we will continue to, of course, expand it. Before handing over, I would also briefly highlight our financial performance for the year. In 2025, total revenues increased by 21% to $593 million while adjusted EBITDA increased by 27% to $137 million. Linda will discuss the financial results in more detail shortly. Finally, as we have announced earlier this year, Lisa Graver has joined Alvotech as the Chief Executive Officer. From the beginning, I saw my role as a CEO to be a time-defined appointment focused on building the company's platform and global partnerships. Lisa and I have worked together over 20 years, and she has served as an Alvotech Board member since 2022. Lisa brings a wealth of experience in commercial, R&D, manufacturing and quality compliance. With Lisa's appointment as our CEO, Linda's appointment as CFO, and Joseph and Anthony stepping into expanded roles, the key management positions are now all based on-site in Iceland, and the senior leadership has been strengthened. With the platform of people now firmly in place, the company is entering into a new phase focused on operational execution and commercial scale. I will continue to serve as Executive Chairman and be actively engaged in the business, and I'm very much looking forward to working closely with Lisa and the leadership team. We, as a team, will of course, continue to build Alvotech into a leading global biosimilar company. And with that, I will hand the call over to Lisa.
Lisa Graver, Chief Executive Officer
Thank you, Robert, and hello, everyone. In addition to continuing my collaboration with Robert, I'm excited to help maximize the full potential of the robust pipeline Alvotech has built and is continuing to build. Before going into an overview of 2025 achievements, I want to address upfront a key priority of the team and myself. The team has been executing on an extensive improvement plan to address all outstanding issues related to the FDA inspection in July 2025 to ensure we receive FDA approval for all pending applications for AVT03, 05 and 06 this year. Despite continuing to commercialize our existing products in the U.S. and receiving approval for and commercializing AVT03, 05 and 06 in markets outside the U.S., we are committed to addressing all areas where improvement is required. To that end, I want to highlight an initiative that we have been advancing since last year that looks to dual source the manufacturing of some of our key products. As part of strengthening the long-term resilience and scalability of our platform, we are also evaluating opportunities to broaden our manufacturing footprint for selected products. Importantly, any future expansion would build on the strong manufacturing platform we've established in Iceland, which remains the cornerstone of our global production network and a critical source of our technical expertise and operational scale. As we evaluate options to broaden our manufacturing footprint, the United States is a natural area of focus given the importance of the U.S. market for biosimilars and the increasing emphasis on supply resilience within the U.S. healthcare system. Expanding our manufacturing base for selected products would support several important objectives. First, it would strengthen supply resilience by reducing reliance on a single manufacturing site. Second, it will support future launches and increasing commercial volumes across global markets. Third, a more diversified manufacturing platform strengthens our value proposition to commercial partners who prioritize supply reliability alongside product quality and economics. And finally, it provides greater strategic flexibility in a more complex external environment, including evolving healthcare policy environments as well as broader supply chain dynamics. Taken together, these steps will further strengthen the resilience and scalability of our manufacturing platform as we support future launches and increasing global demand. Turning to our 2025 achievements. Over the past year, we have continued to expand the commercial footprint of our biosimilars portfolio while strengthening the operational foundation that supports long-term growth. Our focus has been on three priorities. First, continuing the rollout of our approved biosimilars across global markets through our commercial partners. Second, ensuring reliable and scalable supply as volume increases. And third, positioning the company to capture the next phase of biosimilar market evolution, particularly in the United States. During 2025, we achieved several important milestones across the company. Our commercial partner, Teva, launched Selarsdi in the United States, marking our second biosimilar launch in the U.S. market and demonstrating the strength of our global partnership model. We also received geographic expansion with approvals and first launches for golimumab, denosumab and aflibercept across Europe, the United Kingdom and Japan, targeting some of the largest biologic franchises in medicine. As we continue to build our pipeline, we formed new commercial partnership agreements with Advanz Pharma, which included our Cimzia program, and with Dr. Reddy's for our Keytruda program. We further expanded our global commercial partnership network with the addition of Sandoz to broaden our reach across major pharmaceutical markets. As part of our efforts to further strengthen our technical and regulatory capabilities, we continue to expand our process development organization. Integrating Xbrane’s R&D team in Stockholm has added highly experienced scientists with deep expertise in biosimilar development and enhanced our ability to advance multiple programs in parallel. The acquisition of Ivers-Lee assembly and packaging business gave us greater flexibility and added capacity to meet increasing global demand for our biosimilars. It establishes a centralized assembly and packaging hub from which we can serve multiple global markets from a single location. From a corporate perspective, we further strengthened our financial position during the year, raising close to $300 million from the capital markets to support continued investment in our development programs and manufacturing platform. We also broadened our investor base through the listing of Alvotech shares on Nasdaq Stockholm, providing greater access to Nordic and European investors and further strengthening our presence in the region. These transactions are a testament to the strength of our platform, our strategy and our execution capabilities. Turning to our on-market portfolio, Humira remains one of the largest biologics markets globally, and biosimilars continue to gain share. At the beginning of 2025, the originator held roughly 70% of the U.S. market. By the end of the year, that share has declined to around 45% and continues to fall as patients switch to biosimilars. This continued shift toward biosimilars in the Humira market reflects strong payer support and growing physician confidence. In the United States, Simlandi saw continued volume growth between the third and fourth quarters, and we are expecting further growth in 2026. Simlandi now holds approximately 9% of the market in the U.S., making it the second largest and one of the fastest-growing biosimilars in the segment. In Europe, Hukyndra continues to demonstrate a consistent performance despite entering the crowded market. Elsewhere, our partners continue to extend access across Latin America and Middle East markets. In 2026, we anticipate further launches in rest-of-world markets, and AVT02 will remain an important contributor to our commercial portfolio. Stelara represents another large and attractive biologics market with significant biosimilar opportunity, and we continue to see strong rollout of AVT04 across key regions. In the United States, where biosimilars now account for approximately 40% of the market, Teva continues to expand formulary coverage for Selarsdi, holding a strong and growing market position. In Europe, Uzpruvo has established a leading position with more than 20% share of the biosimilars segment. We expect continued biosimilar adoption across this market in 2026. Turning to AVT05, our biosimilar to Simponi, which currently faces very limited competition in markets where it has been approved. We expect to be first to launch in several key markets and potentially the only biosimilar option for a period of time. Being first to market in a highly attractive biologics segment with limited competition represents a significant commercial opportunity for Alvotech, and we expect commercial momentum to build across launch markets through 2026. In Europe, AVT05 was the first biosimilar to Simponi to be approved by both the EMA and the MHRA. Marketed under the Gobivaz brand, our partner, Advanz Pharma, began launch activities following shipment of product in December and had a successful National Health Service tender award in the U.K. In Japan, AVT05 is also the first and only approved biosimilar to Simponi. Our partner, Fuji Pharma, has announced a market entry date of May 2026, and we anticipate being the first to launch a Simponi biosimilar in this market and for there to be limited competition for some considerable time. Elsewhere, we have filed for approval in several additional rest-of-world markets. In Canada, we are the only company to have filed to date based on available information and we expect a decision in the first half of 2026. Following approval of AVT06 in Europe, the United Kingdom and Japan in the second half of 2025, we announced a licensing and settlement agreement that resolves all remaining patent disputes related to aflibercept 2-milligram worldwide. The agreement provides clear pathways for market entry of AVT06 across key global markets and allows our partners to prepare for launches with confidence. In the U.S., we have a licensed entry date in the fourth quarter of 2026 or earlier under certain circumstances, which positions Alvotech and our commercial partner, Teva, for a potential launch in the U.S. market this year, pending FDA approval. Following the shipment of product to Japan, our partner, Fuji Pharma, launched in February this year with the first and only aflibercept biosimilar in that market, and they are reporting strong early demand. Products have also been shipped to Europe. While we expect this market to be more competitive, our partners expect to gain a strong market share. Together with our commercial partners, we believe this positions Alvotech well to compete in the global aflibercept market, which is evolving toward longer-acting dosing regimens that reduce the burden on both patients and physicians. The high-dose version of aflibercept supports extended dosing intervals compared with the original formulation and is expected to represent an important part of the future market. In anticipation of this shift, we have been developing a biosimilar candidate for Eylea HD. We are targeting a first regulatory submission in 2026, which would potentially put us in the first wave of biosimilar launches for the high-dose product. Having both low dose and high dose aflibercept programs allows Alvotech to participate across the full evolution of the global aflibercept market, which remains one of the largest for ophthalmology globally. Following the approval of AVT03 in Europe in November 2025, first-wave launch supplies were shipped to our commercial partners in December. Our partner, STADA and DRL have successfully launched in Germany and select European markets. As we anticipated, early pricing dynamics have been competitive, particularly in tender-driven segments. Despite the competitive environment, we believe that AVT03 represents an important addition to the denosumab biosimilar landscape, and we expect commercial momentum to build gradually through 2026 as launches expand and biosimilar adoption increases. In Japan, AVT03 remains the first and only biosimilar to have secured approval, with our partner, Fuji Pharma preparing for market entry in 2026. I want to emphasize the continued expansion of our commercial portfolio is closely linked to the strength of our development pipeline, the investments therein and the licensing revenue from that portfolio. The performance of our business going forward is also reliant upon our focus on cost optimization across all aspects of the company, which Linda will address later. I will now pass it to Joseph, who will provide an update on our R&D programs and our continued success in building that pipeline.
Joseph McClellan, Chief Operating Officer
Thank you, Lisa. I will briefly cover three areas today. First, the status of our U.S. regulatory submissions. Second, progress across our development pipeline. And third, recent regulatory communications impacting biosimilar development. Last year, Alvotech had four active U.S. biologics license applications with the FDA for proposed biosimilars to Simponi, Simponi Aria, the dual products Prolia/Xgeva and Eylea. In the fourth quarter of 2025, we received complete response letters from the FDA for these applications. Further, after receiving the CRLs, we received a post application action letter or PAAL, detailing the remaining open items with the FDA after review of our 483 response. The CRLs were related to issues identified following the FDA's inspection of our Reykjavik facility in July of 2025. No issues were raised regarding the analytical, pharmacokinetics or clinical efficacy and safety data submitted in the applications. The dossiers themselves were considered complete. Following the inspection, we initiated a comprehensive remediation program addressing the FDA's observations. By the end of 2025, we had implemented most of the required corrective actions, our focus since then has been on demonstrating that these improvements are effective and sustainable over time, which is a normal part of the quality process to ensure that improvements are durable before resubmission. Based on current progress, we remain on track to resubmit the BLAs in the second quarter of this year, which would position us for FDA decisions before the end of the year. Importantly, our Reykjavik facility remains an FDA-approved manufacturing site, and we continue to manufacture our on-market products for both the U.S. and the rest-of-world markets. Turning to the pipeline. Over the next decade, more than 100 biological medicines are expected to lose exclusivity. Against that backdrop, Alvotech continues to build one of the largest biosimilar pipelines in the industry with more than 30 candidates currently in development. When selecting new programs, we focus on biologics where we see a combination of multiple factors, including significant market opportunity, durable mechanism of action, high scientific barriers to entry where Alvotech can be successful and opportunities where Alvotech's integrated development and manufacturing platform can create meaningful differentiation. Consistent with our strategy, we are excited with the progress we are making with our biosimilar candidates to both the intravenous and high-concentration subcutaneous usage forms of Entyvio. Earlier this year, we announced positive top-line results from a pivotal pharmacokinetic study, which allows us to move forward with regulatory submissions in major markets with all dosage forms and strengths currently approved for Entyvio. Entyvio is an important therapy for inflammatory bowel disease and represents a multibillion-dollar opportunity in the immunology market. Based on current plans, we expect to submit regulatory applications later in 2026. Importantly, we anticipate being among the first companies to launch a biosimilar to Entyvio including both the intravenous and subcutaneous use presentations. Another important program in development is our biosimilar candidate for Keytruda, one of the highest selling medicines in the world with annual sales exceeding $30 billion. Keytruda has transformed treatment across multiple oncology indications and continues to expand into new therapeutic areas. Through our collaboration with Dr. Reddy's Laboratories, we are combining development expertise with global commercial capabilities to pursue this opportunity, sharing development costs and marketing rights for Keytruda biosimilar targeting global markets. We are anticipating submitting a therapeutic pharmacokinetic study for our proposed biosimilar to Keytruda and are on track to submit a marketing application in 2028. This would position us for a launch upon Merck's loss of exclusivity. More broadly, we continue to expand the capabilities of our integrated biosimilars platform. Last year, we increased our R&D capacity through the acquisition of a new center of excellence in Stockholm. In manufacturing, we strengthened our downstream integration through the acquisition of Ivers-Lee, which adds capabilities into device assembly, packaging and logistics. In Iceland, we've added to our perfusion capacity which supports production of our Stelara and Simponi biosimilars, and we continue to implement improvements for both perfusion and fed-batch production. Also, we are adding new drug substance and new drug production suites in our existing Reykjavik facility expanding our manufacturing capacity. This additional capacity will enable us to support demand for approved products as well as our development pipeline. These investments further strengthen our end-to-end development and manufacturing platform. Before closing, I would like to briefly comment on the recent FDA draft guidance related to biosimilars development. Up until now, to support the approval of a biosimilar application in both the EU and the U.S., developers may have been expected to conduct a three-way pharmacokinetic similarity study and a comparative clinical efficacy and safety study, in addition to a comprehensive analytical similarity assessment. The draft guidance reflects a move toward a more efficient and science-based development pathway. In particular, it reduces the need for a large comparative efficacy and safety clinical study as well as providing flexibility in the use of reference products. In practical terms, this means that in most cases, companies will be able to support the demonstration of biosimilarity with a two-arm pharmacokinetic study, either in a healthy subject population or a therapeutic setting. Further, it gives study sponsors flexibility in the selection of reference products for the study and foregoes the need of a three-way pharmacokinetic bridging study. Importantly, Alvotech anticipated this regulatory evolution. Over the past years, we proactively aligned our development strategies with both the FDA and the EMA, engaging early and often across multiple programs to obtain scientific advice. Notably, the FDA provided early recommendations for our early-stage products even prior to issuing the draft guidance, encouraging streamlined development and clarifying when a two-arm PK study without a U.S.-sourced comparator is acceptable. This foresight by Alvotech, and proactive regulatory engagement uniquely positions us to capitalize immediately on the streamlined framework, reducing costs and strengthening our leadership in global biosimilar development. To summarize, Alvotech continues to make progress across its late-stage pipeline and its research, development and platform capabilities. With a broad pipeline and fully integrated development and manufacturing platform, we believe we are well positioned to address the growing global demand for lower-cost biologic medicines. With that, I will hand the call over to Linda, who will provide an overview of our financial results.
Linda Jonsdottir, Chief Financial Officer
Thank you, Joe. Indeed, it has been an eventful year for Alvotech. Since joining in July last year, I've had the privilege of witnessing firsthand just how much this team can accomplish in a short period of time. Despite the challenging operating environment, the company delivered important operational, financial and commercial milestones, advancing major launches, expanding our global footprint and strengthening our financial position. What has stood out most for me since day one is a strong belief in delivering on our mission, not just at the leadership level, but across the organization. With that context, let me walk you through the fourth quarter and full year financial results. Unless otherwise stated, the figures discussed today are adjusted numbers. Reconciliations to the corresponding IFRS measures are included in our earnings materials. Starting with highlights from Q4 2025, performance landed within our guidance with a strong close to the year. Growth was primarily driven by licensing revenues on the back of continued development progress and successful achievement of several performance milestones related to our new launches outside the U.S., when product sales were softer. Total revenues in the quarter were up 13% compared to the same quarter last year, at $173 million with licensing revenues making up 75% of the total and being the key driver of the quarter. This mix lifted gross margin to 66% and adjusted EBITDA to $69 million or a 40% margin. On the product side, revenues were $43 million and product margin negative by 37%, reflecting timing of orders and planned facility upgrades to support upcoming launches. As noted last quarter, we did expect product margin to be impacted by facility improvements and lower throughput in the second half of 2025. Looking towards 2026, we are expecting operating performance to be back-end loaded in Q4, in line with trends in 2025 and previous years. Operating cash flow was negative at $28 million, mainly impacted by lower revenue collections from soft product revenues in the second half of 2025 and inventory build-up related to upcoming launches. Our year-end cash balance was $172 million, supported by the financing transactions completed in Q4, the $108 million convertible bonds and the $100 million senior term loan. These transactions strengthen the balance sheet, provide more operational flexibility and support our launch program heading into 2026. So overall, we closed the year with strong gross margin driven by licensing revenues, while we continue to invest in product launches and market expansion. Turning now to the full year of 2025. This slide summarizes the highlights for a year that delivered solid top-line growth, strong licensing contributions and positive operational cash flow for the first time. Total revenues for the year were $593 million, up 21% year-on-year. The mix was split evenly between product revenues and licensing revenues demonstrating the continued strength of our licensing model and its important role in funding R&D activity and pipeline progression. Product revenues were driven by commercial momentum for our Humira biosimilar AVT02 and for our Stelara biosimilar AVT04, which launched in the U.S. in Q1 2025. In addition to the three new approved products, we delivered shipments for those products to our commercial partners in December, and these new products will continue to deepen our commercial footprint. Gross margin finished at 61%, showing the benefit of licensing revenues within the mix. As we convert our R&D pipeline into commercialized products, we expect product revenues to become a larger share of the mix over time, with licensing milestone revenues at similar levels as now. Adjusted EBITDA for the year was $137 million, up 27% over the year. That represents a margin of 23%, reflecting strong licensing income translating directly to EBITDA. Operating cash flow for the year was positive for the first time at $7 million, and reflects the company's commercial inflection point in 2024 to 2025. Turning to cash flow. The main impact on our cash flow is around our inventory build-up related to launch preparation, our acquisitions, alongside the impact of our financing actions in the fourth quarter. The full year bridge shows a movement from $51 million in opening cash to $172 million in cash balance at year-end. Looking at the three first bars together, we see positive operating cash flow before interest and tax of $7 million. Working capital outflows are largely tied to inventory build for multiple upcoming launches, CapEx and M&A investment, including the bolt-on acquisitions of Ivers-Lee and Xbrane reflected under CapEx and acquisitions. You also see a significant step-up from new equity and net borrowings in 2025. In Q4 specifically, operating cash flow was negative by $28 million, mainly driven by timing of collections in the quarter, CapEx and intangibles totaling $16 million, reflecting ongoing investments in manufacturing capacity and pipeline investments. Net interest payments were $35 million, following the transition from PIK to cash interest on the existing term loans, and net borrowings were $207 million driven by the completion of the financing package in Q4 which strengthened liquidity and enhanced our financial flexibility heading into 2026. The next slide summarizes the financing activities completed in Q4 and how they enhance our liquidity and financial flexibility heading into 2026. The capital structure is now balanced between term debt, senior secured facilities and the new convertible bond. While net debt increased with the Q4 financing inflows, our leverage ratio being net debt to adjusted EBITDA, lowered to 9.3x and is expected to improve meaningfully in line with our 2026 outlook, with double-digit revenue growth and expanding EBITDA. And on the prospect of revenue growth, the next slide summarizes how we continue building a diversified resilient revenue base supported by more products on the market, broader geographical reach and sustained progress across the R&D pipeline and future product launches. With an R&D pipeline of around 30 products, licensing milestone revenues are starting to continue on an annual basis, consistent with prior years. Additionally, incremental launches add diversification and improve visibility into future revenues and strengthen quality of earnings. Turning to the 2026 financial outlook, we are reaffirming the outlook for 2026 with revenues in the range of $650 million to $700 million, which reflects continued double-digit sales growth as we expand our commercial portfolio and bring additional products to market across approved geographies. Adjusted EBITDA is expected to increase to $180 million to $220 million, supported by portfolio expansion and increased operating scale. The lower end of the range assumes no U.S. launches in 2026. Just to briefly summarize key items on the asset side of our balance sheet. Our asset base increased during the year, supported by strategic acquisitions and ongoing pipeline investments. Total noncurrent assets increased by 19%, driven primarily by the bolt-on acquisitions of Ivers-Lee and Xbrane, capacity expansions, capitalized pipeline investments and higher contract assets due to timing of revenue recognition and payments. Deferred tax assets adjusted downwards by $130 million, inventory increased by $92 million over the year as we built ahead of upcoming product launches across approved markets. Trade receivables decreased by $70 million, largely due to timing of product shipments and improved collection cycles. Next, a few comments on the key movements across equity and liabilities. Our equity position improved by $128 million, mainly driven by profits for the period and capital contributions linked to our Swedish listing. The movement in derivative financial liabilities decreased by $156 million, mainly reflecting fair value changes on earn-out shares. Borrowings increased primarily due to the convertible bonds and $100 million senior term loan facility completed in Q4 2025. To summarize, this is the last slide I want to leave you with here today. Q4 landed in line with our outlook for the full year, a very strong finish driven primarily by licensing revenues, while product sales were softer, reflecting timing of orders and planned facility upgrades to support upcoming launches. Revenue diversification continues to strengthen as more of the portfolio is launched across Europe, Japan and other regions. This diversification reduces concentration risk and supports long-term sustainable growth. As stated before, there is high focus on reaching cash flow positivity by the year-end of 2026. Operating cash flow was positive in Q4 2025 for the first time at $7 million. The average is trending down, and we expect that to continue in line with our reaffirmed 2026 outlook for double-digit revenue growth and margin expansion. And with that, I'd like to hand over to Lisa.
Lisa Graver, Chief Executive Officer
Thank you, Linda. Before we open the call for questions, I would like to briefly summarize where we are today. Alvotech has built a fully integrated biosimilars platform supported by a broad pipeline, global manufacturing capabilities and strong commercial partnerships. During 2025, we continued to expand that platform while also strengthening our operational foundation through significant investments in quality systems and compliance. Looking ahead, our priorities remain clear. We will continue advancing our biosimilar portfolio toward approval and commercialization in all markets, including the U.S. We will maintain strong focus on operational excellence, efficiency and regulatory compliance, which includes expanding our manufacturing footprint with key dual sourcing initiatives, and we will continue expanding our pipeline in the most cost-effective way and strengthening our global partnerships. The biosimilars opportunity remains large and durable, and we believe Alvotech is well positioned to capture that opportunity. With that, operator, we would be happy to take questions.
Operator, Operator
We'll take our first question, which comes from Ash Verma of UBS.
Ashwani Verma, Analyst, UBS
Maybe just like on the U.S. approvals where you said that you completed the remediation program. Can you give us a sense of what are the pending items between now and the filing? How confident are you this time that this would result in an approval, any chances of additional inspection from the FDA? And then second question, I'm trying to understand the guidance that you provided, the $650 million to $700 million compared to what you did for 2025 at $593 million. Is there any assumption of these three new products for the U.S. market at all at the low end of the guide? If you strip that out, what would be the outlook for the full year?
Joseph McClellan, Chief Operating Officer
This is Joseph McClellan. Thank you for the question. I'll take the first part, and then I'll hand it over to Linda for the second. So we, as I said, completed our remediation efforts. We are now gathering the information showing that our changes are effective. And so we're compiling that information and putting that forth. So that is why we're in the final stretches of being ready to submit. We're working really hard to do it by the end of the first quarter, but we're also prepared that it could be in the second, but definitely in the first half of this year. The approval process has a six-month clock based on the BsUFA guidelines. And then, yes, there is an opportunity for them to inspect the FDA again. However, we are working to have as comprehensive as a response as possible that would potentially not require them to come and inspect again. I'll hand over to Linda.
Linda Jonsdottir, Chief Financial Officer
Yes. And on the guidance question, on the outlook for 2026, on the lower end of the range we are not including revenues from our U.S. launches. So yes, the lower end assumes no U.S. revenues. The upper end is what we're striving for, which would include potential U.S. launches.
Operator, Operator
The question comes from the line of Glen Santangelo from Barclays.
Glen Santangelo, Analyst, Barclays
Just two quick ones for me. Linda, I did also want to follow up on the guidance. And I think I hear you loud and clear that you're not really building much in terms of the U.S. approvals into the guidance. But when I sort of walk that bridge from the $593 million you generated this year to the $650 million to $700 million for fiscal 2026, can you just give us a sense for what type of incremental commercial approvals outside of the U.S. may be required to sort of get into that range? Or are you not building in any incremental approvals into that guidance? And then secondly, Lisa, curious to follow up on your comments about expanding the manufacturing platform. I just wonder if you can give us a better sense for timing, how you're thinking about that, the cost associated with that? And also to follow up on Joe's comments with respect to the FDA draft guidance changes, how that may impact your R&D costs and your operating expenses. I'm just trying to get a sense for how the cap structure may evolve here over the next sort of 12 to 18 months based upon your ambitions. Thanks so much.
Linda Jonsdottir, Chief Financial Officer
On the guidance question, what we're building in there is just the momentum on the launches we've already gotten approval for, looking at Europe and rest-of-world. And then as I stated before, what we are firmly targeting is to get approvals in the U.S. before year-end and getting to the upper end of the range.
Lisa Graver, Chief Executive Officer
Thank you for the question. Regarding the dual sourcing and the capacity, so it's something that we've been evolving. It's certainly something that, as Joe has detailed in the past, as we look at our expanding portfolio and pipeline, that certainly is needed in order for us to capitalize and maximize on commercial potential. From a timing point of view, I think we're aiming for this to be a first half event in terms of being able to secure that. We're not in a position today to name the party or parties we're talking about, but we will certainly announce once we've secured that. From a cost and CapEx perspective, this does somewhat dovetail with the changes that we had been anticipating in terms of R&D expenditure. For us, this allows us to do more for the same cost base that we've been anticipating over the last few years. So it allows us to do more in terms of actual programs, but it also allows us to be able to build into that the anticipation around capacity building. So I think what we'll see as we unfold the year is it's very much within scope of our expectations in terms of spend, both CapEx and I include in that R&D spend as well.
Operator, Operator
The question comes from the line of Christopher Uhde from SEB.
Christopher Uhde, Analyst, SEB
Christopher Uhde from SEB. I'd like to start with some big picture things. Lisa, congratulations on the new role. As you take the reins, how should we think about your aims and ambitions? Is this continuation, evolution or revolution? I know you highlighted manufacturing investments, but what do you see as the most pressing short-term priorities and in particular, anything you think needs to be done differently or emphasized differently, both short term and long term?
Lisa Graver, Chief Executive Officer
So I think it's very much evolution, not revolution. I think the team has certainly built a solid platform, as I've said in my remarks. So I think it's really ensuring that we execute truly on the pipeline that we're building and continue to make sure that we launch those programs through our partners, of course, but that partnership model really is very heavily reliant on our performance, not only on R&D, but ultimately approval and being able to supply. From a priority perspective, there is no question, and I think that was outlined as well in our remarks, that is sort of number one, two and three across the board. Working alongside on the compliance piece, the U.S. market obviously continues to be important to us. Europe and other markets continue to perform very well for us, as you saw through 2025 and we anticipate that continuing in 2026. So we do need to make sure, and it's my intent to work with the team that we continue to build upon the scaling that we've done so far from a commercial production perspective.
Christopher Uhde, Analyst, SEB
If I could ask a little more specific question. Could you talk a bit about Iran war disruption risk to your supply chain and logistics? Where is there more exposure — manufacturing like disposables, tissue culture, media, other items or shipping costs?
Lisa Graver, Chief Executive Officer
I think from our point of view right now, we do have markets that we're expanding to in the Middle East, but those are still early days in terms of expansion. Most of what we're anticipating from a contribution point of view continues to come from the key markets, U.S., EU, Japan. So right now, we are not seeing that as an immediate direct impact on procurement or supply.
Christopher Uhde, Analyst, SEB
The big concern we hear back from investors is around the competitive landscape. Can you walk us through an update on your thinking around how you can mitigate competitive exposure, whether that be development strategy or niches or other types of innovation that could insulate you?
Lisa Graver, Chief Executive Officer
Yes, absolutely. I think we anticipated some of the changes on the regulatory front, particularly in the U.S. I think we started early, which allowed us to do a larger subset of programs, being first and forming in the first wave. Ultimately being first to market is our goal; that comes from the speed of our development, which I think has been strong, and we have a good track record. It then comes to approval and our IP positioning, which we're strategic about in how we design our products, both from an IP perspective in the U.S. as well as other markets. So we try and choose programs where we can enable that first-mover advantage, which comes from both the complexity of the program and our investment in it, as well as our commercial strategy, including partnerships with players that can penetrate quickly like STADA and Advanz.
Operator, Operator
We will take our next question, and the question comes from the line of Arvid Necander from DNB Carnegie.
Arvid Necander, Analyst, DNB Carnegie
First, trying to understand the underlying momentum of the established portfolio. Product sales have been a bit on the softer side over the past two quarters. The data we can track is incomplete, but it seems like TRx growth for AVT02 seems to be moderating into 2026 and PBM dynamics are intensifying. Are the scripts and sales trends a true signal or just noise? Can you say anything on the revenue growth trajectory you expect for AVT02 and how it will evolve through the year? Secondly, on R&D spend, which steps down quite significantly in Q4 while your guidance implies an increase on a total spend basis for 2026. How should we think about the sequencing of R&D through 2026? Is this more likely to be back-end loaded?
Lisa Graver, Chief Executive Officer
Maybe I'll start on the performance of our commercialized programs. Looking at 2025, exiting the year from a sales-out perspective in the U.S., we've seen growth in AVT02 and AVT04. We expect that growth in 2026. A lot of that growth in the U.S. is through our partnership with Teva. In rest-of-world markets, we do have uptake for AVT02 and AVT04. AVT02 in Europe is a bit more challenging from a growth perspective, but we're still anticipating growth. We have secured leading positions in some European markets like Austria and Sweden. So we are still anticipating top-line growth on AVT02 and certainly on AVT04. We were sitting at around a 5% share in some measurements and about a 9% share on AVT02 in the U.S. So we believe there is continued momentum in the near term. We're positioned well with our partners even given some PBM pressures. Our formulary business and unbranded business both contribute to overall growth. These markets are still evolving in terms of erosion of the branded base. We expect further exclusions for the branded product in 2026, which will help our ability to secure new business and maintain and grow through volume the business we've secured today.
Linda Jonsdottir, Chief Financial Officer
On the revenue piece, as a B2B company you can expect some quarter-to-quarter fluctuations depending on timing. On R&D spend, it's expected to be fairly balanced throughout next year. We continue to invest in our R&D efforts, which have been paying off given our pipeline. As I mentioned in the call, we expect 2026 to be back-end loaded towards the end of Q4, so please keep that in mind.
Operator, Operator
The question comes from the line of Christopher Uhde from SEB.
Christopher Uhde, Analyst, SEB
A follow-up around dynamics with Simlandi and the Humira biosimilar market. What can you say about the overall market dynamics over the past year and the future of private label sales for you in the U.S.? In the past management said you could have three to four years of sales growth from a given product before erosion could start. Do you still see that as the case?
Lisa Graver, Chief Executive Officer
We have seen continued growth through the end of 2025, largely from loss of business for the innovative product. The exit showed biosimilars at roughly 55% share in the U.S., so there's continued opportunity among the subset of players in the market today. We're in a decent position with around a 9% share for AVT02 in the U.S., and we believe there's continued growth for formulary business as branded erosion continues. Regarding private label for AVT02, we continue to seek opportunities. The formulary business will remain a focus for 2026 and beyond. For AVT04, which is a more recent launch, we are seeing decent growth and expect continued opportunity as the biosimilar share grows; the exit was about 41% in 2025 for biosimilar share. Teva has been a very good commercial partner in growing the market and partnering on both unbranded and formulary pieces. We're optimistic we will continue to see growth over the next few years and are not ready to say the market has plateaued given ongoing brand erosion.
Christopher Uhde, Analyst, SEB
Can you quantify the product sales from the three new launches that happened in 2025?
Linda Jonsdottir, Chief Financial Officer
We don't quantify that specifically by product in the call, but it did contribute to our Q4 results.
Christopher Uhde, Analyst, SEB
For the guidance high end, the lower end excludes U.S. launches, but at the high end would it include licensing revenues only or also product sales?
Linda Jonsdottir, Chief Financial Officer
It will be both on the high end.
Robert Wessman, Founder and Executive Chairman
The high end mainly reflects growth in supply revenues. It is both licensing and supply growth contributing to that scenario.
Christopher Uhde, Analyst, SEB
Is it still fair to say your six months visibility remains extremely high, essentially that the orders have been placed?
Linda Jonsdottir, Chief Financial Officer
Yes. We have good visibility into the next six months.
Christopher Uhde, Analyst, SEB
When do you expect the portfolio to deliver gross margin leverage again given the negative product gross margins for the past two quarters?
Linda Jonsdottir, Chief Financial Officer
We have been impacted by facility improvements in Q3 and Q4, and that will flow into Q4. Things are moving well on that front, and we should see trends improving in 2026.
Robert Wessman, Founder and Executive Chairman
If you look at our overall gross margin, which includes both licensing and supply revenues, there is always a trade-off between milestone timing and supply margin. We delivered around 62% gross margin in 2025, which compares favorably to some peers. Revenues can be lumpy because licensing milestones and shipments vary quarter to quarter, and we experienced some shutdowns due to FDA remediation a few times this year, which has affected shipments.
Operator, Operator
Thank you. This concludes today's question-and-answer session. I'll now hand back for closing remarks.
Mikaela Vilchez, Head of Investor Relations
Thank you. On behalf of the team presenting today and all of us at Alvotech, I want to thank everyone who joined us for this webcast. We look forward to talking to you again and wish you a wonderful day.
Operator, Operator
This concludes today's conference call. Thank you for participating. You may now disconnect.