Alvotech SA
NASDAQ:ALVO
Earnings Call Analysis
Q2-2023 Analysis
Alvotech SA
Alvotech made a strategic $40 million investment into a partnership with Teva, focusing on biosimilars development—a testament to the potential inherent in a robust B2B business model. This move aligns with Alvotech's intention to strengthen its position in biosimilars, particularly with AVT02, a biosimilar to HUMIRA. With an ongoing bid for interchangeable FDA approval slated for 2024, Alvotech foresees this as a significant growth opportunity if it secures a first-mover advantage over competitors. Alvotech's portfolio also includes AVT04, a proposed biosimilar to Stelara, targeting a $10 billion market, and the company is well-poised for an early launch in multiple markets including the U.S. by 2025. Alvotech has further reiterated the strategic advantage of holding multiple leading biosimilars in its portfolio, positioning itself as a one-stop solution for immunology treatments.
Financially, Alvotech underscored a sharp increase in revenue to $22.7 million in the first half of 2023, driven by launch timings and product uptake. However, the company is currently not providing specific financial guidance due to uncertainties surrounding FDA approvals and potential business development results. Instead, Alvotech emphasized the strength of its cash position, standing at approximately $180 million post-financing rounds. Moreover, the company acknowledges the disproportionate cost of product revenues as a temporary effect that should normalize with scaling and will improve as manufacturing volumes grow, contributing to better cost absorption.
Regarding the biosimilar market landscape, notably for HUMIRA, Alvotech is monitoring the evolution closely, expressing confidence that hurdles impeding biosimilar adoption will gradually diminish. The company is also exploring innovative commercial strategies with Teva, aiming to penetrate the U.S. market effectively once its AVT02 biosimilar receives approval. Despite potential alignment with existing market disruptors like CVS, Alvotech has stayed non-committal on precise pricing strategies or deals, pointing instead to ongoing discussions that suggest a flexible approach towards market entry hinging on the interchangeability and competitive advantages of their biosimilars.
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Welcome to the Second Quarter 2023 Earnings Call for Alvotech. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded.
I would now like to introduce and hand the conference over to Mr. Benedikt Stefansson, Senior Director of Investor Relations and Global Communications at Alvotech. Please proceed.
Thank you. Good morning to our U.S. audience and good afternoon to our listeners in Iceland, Europe and Asia. Yesterday evening the company issued a press release that can be found in the News section of our investor portal investors.alvotech.com. The release outlines key highlights related to our second quarter results. Additionally, presentation slides that cover our call today have been posted on our website in the Events section of investors.alvotech.com. We will be referring to these slides during our presentation today.
Our presentation materials and some of the 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 are inherently subject to risks, variability and contingencies, many of which are beyond Alvotech's control and could cause actual results to differ materially from forward-looking statements that are made.
With me on today's call are Robert Wessman, Chairman and CEO of Alvotech. Anil Okay, Chief Commercial Officer; Joel Morales, Chief Financial Officer; and Ming Li, Chief Strategy Officer.
With that, I would like to turn the call over to Robert Wessman, Founder, Chairman and CEO of Alvotech. Robert?
Thank you, Benedikt. Thank you all for joining us here today. Allow me to kick-off today’s discussion by sharing some pivotal update since our last public communication. To begin with, we have resubmitted interchangeable BLA for our proposed biosimilar to HUMIRA, also known as a AVT02. As a reminder, we have developed a high concentration formulation of adalimumab, which is the predominant form on the market today and we have met all requirements to secure interchangeability.
FDA teams, our application approval for both biosimilarity and the changeability, subject to a positive reinspection of our facility in Reykjavik, Iceland. We aim to complete a satisfactory inspection during the review period for the resubmitted application and expect AVT02 to be a material contributor in 2024, if given final approval. Over the course of past 18 months, Alvotech has undergone significant changes as we transition from a development stage company to a full scale commercial operation.
We have made and continue to make significant investments in our manufacturing and quality processes and have taken the feedback received from FDA inspections to focus these investments. We are confident that the changes that we have made at our site to put the company in the best positions for our satisfactory reinspection. Our team has been supported by qualified expert consultants on site and we have also been working closely with our partner in U.S., Teva Pharmaceuticals to ensure that we are putting the company in the best position to succeed.
And while that coming inspection is of critical importance to us, it's equally crucial that we have and maintain a continuous improvement mindset, when it comes to quality and compliance. We will be able to demonstrate that culture during the next inspection as well as for future inspections.
Next, I would like to highlight the recent business development progress, we have made at the company. In late May of this year, we signed a new partnership with Advanz, which includes five biosimilar candidates. The transaction includes two previously identified proposed biosimilars, as well as three new early-stage candidates that were previously undisclosed.
More recently in late July, we expanded our collaboration with Teva, our U.S. commercial partner to include two new biosimilar candidates as well as line extension for two proposed biosimilars that were part of our initial agreement. Both transactions that executed after substantial due diligence on Alvotech's business and demonstrate the confidence that others have in the future potential of Alvotech. We continue to maintain an active pipeline of business development opportunities. As we continue to complete the licensing of our existing pipeline and add further opportunities to our portfolio.
Additionally, I'm pleased to report that June of this year, we announced a settlement agreement between Alvotech and Johnson & Johnson with regards to AVT04, or proposed biosimilar to Stelara, a leading immunology treatment globally. This agreement grants Alvotech a license and predate (ph) in the U.S. now later on February 21 towards 25. Having this settlements now in place provides IP certainty for our second potential offering in the U.S. market. AVT04 is also filed the multiple markets outside the U.S., including Canada, Japan and Europe, and we continue to seek earliest possible entry date in each country where we expect approval.
Finally, we recently announced an additional capital raise in Alvotech, which allows us the ability to continue to invest in our broad pipeline of biosimilar candidates. Teva, our U.S. commercial partner, Aztiq, the leading shareholder in Alvotech, along with a number of other new and existing investors subscribe to $140 million of convertible bonds on the same terms as our last issuance in the fourth quarter of 2022. This transaction underscores the company capability to access the capital markets and also highlights the backing from both long-standing and new stakeholders that the company enjoys.
As you may recall, last December, trading in Alvotech stock and Iceland moved from the first North growth market to NASDAQ, Iceland's main market. We noted at the time, but this might lead to inclusion in both domestic and international stock market indexes. In February this year, MSCI announced the addition of Alvotech stock to the MSCI frontier market index. In June, Alvotech's stock was added to the domestic index here in Iceland, which includes the top 10 share run by trading volume on the NASDAQ Iceland main markets.
On August 18, [indiscernible] announced that Alvotech stock is being considered for potential inclusion in several of the FTSE Global Equity Emerging Europe Index. Including the all world large cap and total cap indexes. The proposed inclusion may be subject to revision and the close of business day tomorrow. And the final change will be known by Monte (ph) September 4. The FTSE index changes will then become effective on Monday, September 18. Finally, we look forward to providing further updates as we progress through the year.
And with this, I would like to turn the call over to Anil Okay, our Chief Commercial Officer, to provide further updates on the business. So over to you, Anil.
Thank you, Robert. I would like to start with a business development update. Firstly, since our last public call in May, we have expanded our partnership with Advanz Pharma. The enhanced partnership adds five additional proposed biosimilars that are targeted for European markets. These include the biosimilar candidates to SIMPONI and Entyvio as well as three early-stage undisclosed biosimilars. This brings our total pipeline products to 11.
The transaction brought an upfront payment of approximately $61 million, as well as additional potential milestone based payments of over $287 million. The in-market revenue share is similar to previous deals that we have executed across other markets as 40% of in-market sales to Alvotech. The transaction was executed after significant due diligence by our partner, which demonstrates the strength of our programs and the company's overall capabilities as a biosimilar developer and manufacturer.
Furthermore, it highlights the ability to leverage our platform and monetize assets even in the early stages of development, which we view as a key strength in a business-to-business model. Finally, our business development pipeline remains active. While we have successfully licensed many of our products and territories, we are also in the process of seeking a commercial partner for AVT03 a proposed biosimilar to Prolia and Xgeva, together with AVT03. a biosimilar candidate to KEYTRUDA. Both proposed biosimilars are in the oncology space, where we intend to expand in the future. We hope to provide updates as our business development progress continues.
Turning to the next slide. We have also provided a summary of the recent expansion in our partnership with Teva for the U.S. market. Teva continues to be steadfastly committed to both the biosimilar market and its partnership with Alvotech. The recent licensing deal and investment in Alvotech serve to a firm Teva's commitment on both firms. The expanded partnership includes two new biosimilar candidates, which are both exclusive arrangements for the U.S. market. Alvotech may receive up to approximately $160 million in additional potential milestone payments from Teva.
The majority of which will be due at the time of April and open achieving significant sales targets in addition to the customer revenue share of approximately 40%. The agreement also includes two additional line extensions to previously partnered biosimilar also exclusive for the U.S. market.
Additionally, there has and will be increased involvement from Teva to supporting FDA readiness activities at our site in Iceland. We welcome this type of participation and it only strengthens the company's result and confidence in meeting the criteria to support the approval of AVT02 in the U.S. market. Keep in mind the only outstanding item prior to approval of AVT02 is a satisfactory reinspection of the facility.
Last but not least, outside of the licensing agreements, Teva subscribed to a $40 million investment into Alvotech in the form of subordinated convertible bonds. The expanded commercial partnership, collaboration around the inspection revenues and the direct investment made by Teva after significant due diligence demonstrates some of the strengths of having a B2B business model, there are numerous stakeholders that have a vested interest in our success.
Moving on, I would like to provide some more specific product updates. Starting, of course, with AVT02 in the U.S. As Robert noted, we have submitted our interchangeable BLA for our biosimilar to HUMIRA. We expect to receive a new BsUFA date and we'll update the market once that has taken place. This is an important step as it is a communication to the agency, signing that we are prepared to host a reinspection which is required to support approval of AVT02.
We anticipate the potential of HUMIRA launch in the U.S. to be a material event for the company in 2024. And we believe that a product profile that could include interchangeability with a high concentration form of adalimumab, combined with the dedicated biosimilar manufacturing facility and experienced commercial partner are factors that could not only allow us to access formularies, but also allows us to convert the market more efficiently.
We are also together with our partners exploring various go-to-market strategies and remain flexible in our approach. The recent news from CVS demonstrate that the story of retail biosimilars in the U.S. and for HUMIRA for that matter is still being written. There is a long-term need for biosimilars in the U.S., and we believe that adalimumab is a long-term opportunity for the company.
With regards to the competition, there are currently only three approved high concentration adalimumab biosimilars that are on the U.S. market today. None of these have an interchangeability designation to the high concentration form of [indiscernible] . There are three companies that have registered trials using the high-concentration form and has stated publicly that they are seeking high concentration interchangeability for the U.S. market.
We maintain our view that this differentiation is a significant market advantage and hope that we may gain approval in advance of others as we prepare for the long-term adalimumab market in the U.S. Finally, we are commercially launched in 19 markets as of today, which includes two additional markets since our last quarter update, and we intend to launch in two additional markets before year-end.
Next, I would like to cover off on AVT04, our proposed biosimilar to Stelara, another leading global immunology treatment. We are currently on file in seven markets with our approval pending in major markets such as the U.S., EU, Japan and Canada. We intend to file globally and in some cases, need to wait on approvals or launches before we make submissions in some of the smaller markets.
We review those taking up opportunity to be substantial. The global market size for the product based on the last four quarters ending June 30, 2023, exceeds $10 billion. Additionally, in June of this year, we announced that we reached a settlement agreement with Johnson & Johnson that gives us the ability, subject to regulatory approval to launch AVT04 in the U.S. market, no later than February 21, 2025.
In markets outside the U.S., we continue to seek the earliest possible entry dates and we are actively working with our partners in each market on the best go-to-market strategies. Please note that as a B2B company, we realized revenues in advance of commercial launch. As we supply our partners in any given market. To wrap up on 04, we note that based on public information, there are only three companies besides Alvotech that have filed their biosimilar versions for Stelara.
We maintain the view that the significant absence of many firms that were involved in the development and commercialization of prior biosimilars as seen in the HUMIRA case creates a favorable market environment for those that can successfully develop a Stelara biosimilar and have coupled it with a robust commercial strategy.
In closing, before we move to the financials, I would like to briefly touch on the rest of the portfolio. Currently, we have a pipeline and portfolio of 11 biosimilars. And in our last call, we unmailed the specific reference products for AVT16 and AVT23, bringing our disclosed number to eight. We currently are advancing three pipeline candidates in patient studies. These are AVT03 by a similar candidate to Prolia and XGEVA, AVT06 proposed biosimilar to EYLEA and AVT05 are proposed biosimilar to SIMPONI and SIMPONI ARIA.
With regards to AVT05, we note that only one other company as a public active development program in clinical studies for the target biology. As a reminder, AVT02, AVT04 and AVT05 are all leading immunology treatments. We believe Alvotech is one of very few companies who are able to offer all these three immunology treatments at the same time. We view of the inclusion of all three of these immunology treatments in our portfolio as a strategic advantage.
With respect to AVT16, we are able to scale our phase. We have seen limited announcements so far on advanced programs from other companies. and we view this as a very exciting long-term opportunity for Alvotech. Overall, we believe that the global multi-product approach that utilizes our platform is the best strategy to be successful in the long term for biosimilars. As we continue to transition from an R&D only company to a commercial one, we are committed to not losing the size of pipeline and portfolio focus. We do expect to add further products in our portfolio in the future and we have a number of early development candidates that are being secreted at any given time.
With that, I would like to turn the presentation over to Joel Morales, our Chief Financial Officer. Thank you.
Thanks, Anil. I'll now provide some brief financial highlights for the period ending June 30, 2023. On our last earnings call in May, we reported that we were exploring financing options to raise additional capital as a result of the uncertainty stemming from the timing of the FDA approval for our BLAs for AVT02.
Since then, and as Robert mentioned earlier, we have recently completed a private placement of subordinated convertible bonds for $140 million with a strong participation from a diverse group of Icelandic institutional investors as well as Teva and [indiscernible], which subscribed to $40 million and $30 million investments, respectively.
In addition, during the quarter, we collected over $60 million in cash, primarily from the signing of the licensing deal with Advanz. We ended the first half with $60.5 million of cash on hand. Giving effect to the private placement we recently finalized our pro forma cash balance as of June 30 is approximately $180 million excluding $25 million of restricted cash.
In terms of our operating performance, the company recorded $22.7 million in product revenue for the first six months of 2023 versus $3.9 million during the same period in the prior year. This sharp increase is driven by the timing of launches that started in the second quarter of 2022. Since then, our partners have continued to expand on share in existing markets, primarily in Europe and Canada, and we have also launched into additional markets throughout the rest of the world.
Milestone revenues are negative for the period due to the net impact of licensing arrangements closed during the second quarter. We are in active pursuit of additional licensing opportunities for our pipeline assets as indicated by our most recent deal with Teva and continue to advance the programs in our pipeline, which we anticipate triggering additional revenue recognition and cash collections in the future.
As I've mentioned on previous calls, we expect to recognize most of our milestone and licensing revenue for this year in the second half of 2023. Keep in mind that the timing of when we recognize revenue differs from cash collections as a portion of cash collection is attributed to R&D development milestones and are recognized over time.
Another point worthwhile noting is that cost of product revenue for the first half 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 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 absorption of our fixed costs.
In terms of liquidity, based on our current operating plans and the latest round of financing, we believe we have adequate cash runway to continue investing behind our operations and the pipeline. As noted earlier, we are waiting for an FDA response to our recently resubmitted AVT02 BLA, which will determine the time lines going forward. Marketing applications for AVT04 are also currently under review in major markets, including by the EMA, Health Canada and Japan, which could reach regulatory conclusion in the second half of this year, potentially allowing us to realize revenue for AVT04 in certain markets before the end of the year.
Additionally, approvals in various markets may lead to milestone payments and revenue recognition with certain partners. The exact timing and results of these events is, however, currently subject to uncertainty. Also, as noted earlier in the presentation by Anil, we have an active BD pipeline that has more recently been focused on partnering with our oncology and oncology-related assets. The potential closing of BD transactions fall within 2023, however, are subject to timing uncertainty as well.
Uncertainty about the timing and outcome of each of these positive events leads us to the conclusion that providing guidance based on the information available at this time would not be particularly constructive. As our business matures with more regulatory certainty in the U.S. and there becomes a more stable base of business with less uncertainty, it will become easier to incorporate ranges of outcome on our numerous opportunities and become more specific and accurate with guidance. We will continue to determine the right stage to provide guidance going forward.
On a final note, we closed the period with 266 million shares outstanding, including unvested earn-out shares.
And with that, I'd like to turn the call back over to the operator for Q&A.
Thank you, Joel. With that, we conclude our formal remarks. We are now open for questions from the audience. [Operator Instructions] And the questions come from the line of Carl Byrnes from Northland Capital Markets. Please ask your question.
Thanks so much for the question and congratulations on your progress. First off, can you reconcile the second quarter '23 net product revenue with that in the first quarter of '23, given that it looks like it's sequentially down?
Yeah. I think -- Robert Wessman, here. So overall, I would want to maybe use opportunity to explain why we saw the revenues from first quarter to second quarter this year -- in the first half, we have been prioritizing the FDA inspection we had and the responses to the observations and we clearly pulled some of the key resources away from day to day, so that's one point. But the main point more importantly is that we have been producing and we have a large stock of finished goods on hand, which will be shipped in third quarter and fourth quarter this year. Part of this volume was used to validate our increased [indiscernible] size and expanding regulatory approval in Europe. So we expect that this year. So basically, in the second quarter this year, we used the sizable capacity of the business to basically produce inventories, which will be released, as I said, later this year.
Great. Thank you. And then just one follow-up. Is it possible to provide any thoughts and anticipated be like filing time lines for 03, 05, 06 in '23? Thanks.
Yeah. We haven't provided updates for future filing dates, but the next one you could assume would be 06. It's the one that's the most advanced.
Got it. Congratulations and thanks again.
We are now going to proceed with our next question. And the questions come from Thibault Boutherin from Morgan Stanley. Please ask your question.
Hello. Thank you for taking my questions. Just a couple on the U.S. market for HUMIRA and biosimilar. Clearly, ATP (ph) been holding more volume share in this market than anyone expected and has had on their perspective, quite a successful contracting strategy. So I just wanted to have kind of an update on your side, on your view on when this market will open to biosimilar in terms of timing. So is it kind of H1 next year? Is it kind of middle of next year? And is there a catalyst or is there something specific that could kind of force PBM to become more friendly -- more biosimilar friendly, I would say, and see the kind of share of biosimilar in the volume increase over time. So that's my first question?
Second one, you mentioned the innovative commercial models that we are seeing emerging on the U.S. in biosimilar market. So we saw first [indiscernible] did something doing something a little bit innovative and Sandoz having this deal with CVS as well, which both seem to focus on reducing the price discount on the list price. So do you expect this to be restricted to HUMIRA because of the competitive situation or could we see this type of deal, in your view, becoming more prevalent on the U.S. biosimilar market? And is it impacting in any way how you are thinking about your own commercial strategy in partnership with Teva for the U.S. market? Thank you.
Thank you, Thibaut. Anil is here, let me take your questions. On the first one, you are right, the conversion has been relatively limited for the biosimilars. We have believed that while ATP (ph) remains primary on the formulary non-interchangeable products and particularly the low concentration forms would have a difficult time converting large pieces of the market, even despite formulary positions. We have been very consistent on that. So we do not -- we are not surprised with this situation as of now. We continue to believe that a high concentration interchanging with adalimumab would be more efficient in converting market even without this current formulary position. So we see adalimumab more like in 2024 material event for Alvotech.
On your second question, at this stage, what I would like to say and have said in the earlier remarks is that the story of HUMIRA biosimilars is still being written. We believe that the market will find their way ultimately to support by biosimilars and within that market, we continue to believe that differentiation matters. Of course, there is a potential for other type of arrangements, but I wouldn't want to comment further on that. What I can say, we have probably the best commercial partner in the U.S. market, together with our partner, Teva, we are exploring multiple approaches, but I wouldn't want to telegraph that at this stage. We continue to stay engaged with the market are also laser focused on approval, which will be perquisite to test our strategies. Thank you.
Thank you.
We are now going to proceed with our next question. And the questions come from Niall Alexander (ph) from Deutsche Bank.
Niall Alexander from Deutsche Bank. Two questions, please. Just wanted to confirm when we would receive guidance FY guidance? I'm guessing we may not receive it this year, but would we receive a sort of for FY '24 or can you give any guidance whatsoever this year? That's the first question. And then second one would be good to get your -- if you could provide any color and thoughts into potential pricing of AVT02 subject to approval in the U.S. Thank you.
Hi. This is Joel. So I can answer the first question. I think as highlighted in my opening remarks, we have quite a number of positive items that we have in our outlook that are still bound by uncertainty in terms of timing, which is what's driving or not providing guidance at this time, though we are excited for them to play out in our near future. That being said, in terms of the timing of when we expect to provide guidance, as you've heard from me in the past, I think the timing of U.S. approval, in particular, is a large driver. It is a material driver of top line and bottom line for our company. And so I can't tell you right now exactly when it is, we'll be in the best position to provide guidance, but I think you can expect that it will largely be connected to the timing of approval and commercial contracting so that I can be more precise with giving guidance.
I can take the second question. In terms of pricing, of course, we cannot give a guidance. As I said before, we have the best commercial partner in the U.S. market. Teva has been very successful with both biosimilars as well as with the specialty products in the U.S. market. They have a very clear pricing strategy when it comes to AVT02. Also, we have very good engagements with the players when it comes to pricing and different models. So we have pretty good visibility on that, but I would not like to give a guidance at this stage.
Thank you.
[Operator Instructions] We are now going to proceed with our next question. And the questions come from the line of Andrew Baum from Citi. Please ask your question.
Thank you. Two questions. Number one, should I assume that CVS will now only be contracting with Sandoz (ph) for biosimilars adalimumab a following the [indiscernible] JV? And then second, obviously, there are two other major PBMs that cover with CVS, 8% of covered lives in the U.S. to my mind, neither of those was yet to sign a similar deal. Are you in active discussions with either of them in a similar type structure as the one that Sandoz (ph) has entered. Thank you.
Thank you for the question. I would like to say, as also iterated before, HUMIRA market in the U.S. is still being written. So we have, of course, through Teva multiple interactions going on with all the players you named [Technical Difficulty] some of them you didn't name. So we clearly understand their expectations, and we are flexible in our approach. But we believe that AVT02 is still going to be a substantial opportunity both for Alvotech and for us. And I would like to also remind that still today, Alvotech is the only candidate to bring the best product profile to the U.S. market with our interchangeability designation with our device and with all other features that we have added in our products that we believe is going to be appreciated by the payers and the U.S. market.
We have no further questions at this time. I will now hand back to Mr. Benedikt Stefansson for closing remarks.
Thank you, [indiscernible]. On behalf of the Alvotech team, I would like to thank all the participants in our webcast today and the participants on the Q&A. We wish you a good rest of the day and look forward to speaking to you all again. Thank you.
Thank you. This concludes today’s conference call. Thank you for participating. You may now disconnect your lines. Thank you.