Alvotech Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 29, 2023

There are 7 speakers on the call.

Operator

Welcome to Alvatech's Earnings Call for the 1st 9 Months of 2023. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer I would now like to hand I'd now like to introduce and hand over the call to Benedikt Stettinson, Senior Director of Investor Relations and Global Communications of Alvatech. Please proceed.

Speaker 1

Thank you, and good morning or afternoon to everyone joining this call today. Yesterday evening, the company issued a press release can be found in the News section of our investor portal, investors. Alvotek.com. The release outlines key highlights related to our Q3 results. Additionally, presentation slides that cover our call today have been posted on our website in the Events section of investors.

Speaker 1

Alvotec.com. Our presentation materials and some of our statements that we make today may include forward looking statements. These statements do not ensure future performance and are subject to risks and uncertainties that are outlined in company filings with the Securities and Exchange Commission 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 Westman, Chairman and CEO of Alvotech Anil O'Kai, Chief Commercial Officer Joel Morales, Chief Financial Officer and Ming Li, Chief Strategy Officer.

Speaker 1

With that, I would like to turn the call over to Robert Westman, Founder, Chairman and CEO of Albo Tech. Robert?

Speaker 2

Thank you, Benedetti. Thank you all for joining us on this earnings call today and the business update. I would like to start today's presentation by going over some key updates to the business. The company continues to prepare for the coming inspection with the U. S.

Speaker 2

FDA, which we now expect to start on January 11 in the New Year. This inspection, if successful, could pave the way of approvals in the U. S. For both EBITDA 2 and EBITDA 4. These are biosimilars to Humira and Stellara.

Speaker 2

Inspection status of our manufacturing facility is the only outstanding requirement in order to gain approval for both of these applications in the U. S. While we understand that the upcoming inspection is of critical importance, we continue to receive positive confirmation to gain global regulatory approvals. Our second product in our portfolio, AVT-four, a biosimilar to Stellara, has recently received approval in Japan and Canada. Additionally, we also received confirmation of a positive CHRP opinion in Europe, which should soon lead to final approval.

Speaker 2

Finally, in U. S, the review of AAVT-four has been completed and the application is deemed approvable subject only to inspection status as noted earlier. Since our last business update, we have secured rights to a proposed biosimilar to solar identified as AVT23 with Kashif Bioscience. This transaction allows us to follow through on our commitments to our commercial business partners. AOVT23 is the only program in our current pipeline and portfolio that does not originate in house.

Speaker 2

Our global footprint of commercial partners allows us to enter strategic partnerships like we now have with CACIB to accelerate our portfolio expansion. In our partner Kasiv, we have found a company that has proven ability to develop approvable biosimilars in regulated markets. We look forward to provide further updates on the program. On that note, passive announced in October of this year that our AVP-twenty 3 entered into confirmatory clinical study. Including Apt-twenty 3, Alvote has now 4 different biosimilar programs that are in active patient studies.

Speaker 2

We expect in 2024 to file at least 3 additional products in major global markets, including the U. S. And EU. And with that, I would like to turn the call over to Anil Okei, our Chief Commercial Officer, to provide further updates. Over to you, Anil.

Speaker 3

Thank you, Robert. Regarding AVP-two in the U. S, subject to a satisfactory inspection in January, we expect to gain approval of an interchangeable high concentration biosimilar to HUMIRA on February 24, 2024 or earlier. We continue to strongly believe that if approved, our product profile would position ABT-two well amongst current biosimilars that have yet to penetrate the existing adalimumab market. Furthermore, timing for approval could yield exclusivity for interchangeability for a period of up to 12 months post launch.

Speaker 3

If approved, ahead of competition, which makes this potential event much more attractive for Alvotech from commercial perspective. As we discussed on the last call, the story of Humira biosimilars in the U. S. Is still evolving. Thus far, there has been limited uptake of biosimilars, which is a function of a number of factors in our view, which includes product profile.

Speaker 3

As a reminder, the predominant form of Humira on the market is the high concentration form. Of the crop of current biosimilars on the market, none of them have the combination of high concentration and interchangeability. And while some of the competitors are developing that form, we believe an approval in February for an interchangeable high concentration adalimumab would likely be the first. We believe this combination would be differentiated and have the ability to convert the market more efficiently. Moving to the next slide and turning our attention to AVT-four, our biosimilar to Stelara, we are very pleased with our regulatory progress in a number of different markets.

Speaker 3

ALDOTEC is the 1st company to gain approvals in Japan and Canada and also the 1st company to receive positive CHMP opinion by the European Medicines Agency, which should pave the way for the 1st approval in the European Union. Per IQVIA, the market sizes for those regions collectively exceed $3,000,000,000 with the global market of Stelara exceeding $10,500,000,000 based on public disclosures. However, ustekinumab, in our view, is a molecule that could see material growth in the overall market with the introduction of biosimilars. Keep in mind that volume of adalimumab increased by double digits for several years after its introduction in European markets. Stelara is a premium priced product that could see improved access to the treatment at a potentially higher rate than what was seen in the Humira market.

Speaker 3

In the U. S, we have a confirmed license entry date in February of 2025, which should put us in the 1st wave of biosimilars. One point that we have not previously disclosed is that we now expect to gain intertangibility for ABT-four in the U. S. Based on already generated clinical data.

Speaker 3

We expect to gain intangibility shortly after our license date when exclusivity for Amgen's product would terminate. Based on our interpretation of the BPCIA and the provision surrounding exclusivity for interchangeability, we would expect that to occur in April of 2025. While we don't see interchangeability in the future, stellar biosimilar market as critical as with Humira, gaining interchangeability designation can certainly help with the conversion of the market as we have seen in recent days with ranibizumab market. Outside the U. S, we aim to launch our product at the earliest possible date post approval.

Speaker 3

What I can publicly disclose that we expect AVT-four to be launched in various markets during 2024. The precise launch dates will be announced with each market's commercial rollout as early as Q1 next year. Finally, the development of Stelara biosimilars is a challenging one. In this market, we expect less competition than in the HUMIRA market and many of the big name companies that have competed in the past in biosimilars are not seen as developers in the Stelara market. Based on this backdrop, we are highly excited about the prospects of our Stelara biosimilar.

Speaker 3

Moving to the next slide, I can provide a brief business development update. It was announced earlier in October that Alvotech reached an agreement with Kashif Biosciences to license the company's proposed biosimilar to Xolair. The execution of this agreement ensures continuity to our AVP23 program and improves various aspects to the program, including dossier readiness. It also provides access to an advanced program for multiple major markets. Kashif has announced successful results in a PK study and also initiated earlier this year its confirmatory patient study.

Speaker 3

Kashif is a proven developer of biosimilars and our agreement allows us to leverage Alvotech's commercial network and market access and regulatory platform to reach key markets that include the European Union, Australia, Canada, the UK and New Zealand. Based on public information, only Celltrion has filed a Xolair biosimilar candidate in the European Union, with only 2 other companies that have active ongoing clinical programs. In addition to cashier agreement, Alvotech maintains a healthy pipeline of business development activities. On our last call, we discussed our agreement with Advante covering multiple products in key markets, including Europe. We have demonstrated the ability to generate significant milestone revenues with reputable partners for assets, both in late stage and early stage development.

Speaker 3

Our current BD activities are focused in the oncology and oncology related sectors as we have assets in this space, both early and advanced that remain available in various geographies. We are currently in late stage discussions with a strategic partner for some of these assets, and we look forward to providing updates in the near future on further BD transactions. Finally, on my side, I would like to finish with an overall pipeline update. In total, we have 11 disclosed programs in our portfolio and pipeline. We have demonstrated our ability to gain approval on products across numerous regulatory environments as evidenced by AVT-two and more recently AVT-four.

Speaker 3

As Robert noted in his earlier opening remarks, we have 4 active late stage clinical assets in our portfolio and expect to submit a number of them in major markets in 2024. Beyond that, AVP16, our biosimilar candidate to Entvio is at the scale up phase and we are seeking to be the 1st company to enter a proposed biosimilar into clinical studies, which we expect to comment sometime in 2024. Overall, we are pleased with the progression of our pipeline and look forward to further updates as the portfolio continues to progress. As you can hear, 2024 will be a pivotal year for Alvotech as we expect 2 commercial products and 4 active late stage clinical assets that will allow us to have one of the most attractive and advanced position among biosimilar players. With that, I will turn the call over to Joao Moreles, who is our Chief Financial Officer.

Speaker 4

Thanks, Anil. I'll now provide some brief financial highlights for the period ending September 30, 2023. On our last earnings call in June, we reported that we had recently completed a private placement of subordinated convertible bonds for $140,000,000 with the strong participation from a diverse group of Icelandic institutional investors as well as Teva and Ateeq, which subscribed to $40,000,000 $30,000,000 investments respectively. This transaction closed and funded during the Q3 and as of September 30, we closed with $68,300,000 of cash on hand, excluding $25,200,000 of restricted cash. In terms of our operating performance, the company recorded $29,800,000 in product revenue for the 1st 9 months of 2023 versus $11,100,000 during the same period in the prior year.

Speaker 4

This sharp increase is driven by the timing of our launches that started in the Q2 of 2022. Since then, our partners have continued to expand on share in existing markets throughout Europe and Canada. As we mentioned during our last quarter call, our shipments to our commercial partners have increased during the Q3 versus Q2. From a geographic mix perspective, our product is being sold into multiple countries across Europe and this can lead to both favorable and unfavorable pricing dynamics based on how our products pull through this mix of markets during any given period. In Q3, our product was sold disproportionately in lower priced countries.

Speaker 4

We expect to see strong volume and product revenue growth and milestone revenue recognition in the Q4 as indicated on our last earnings call. We recognized $8,000,000 of milestone revenues during the Q3, primarily driven by a development milestone for our AVT23 program. We are in active pursuit of additional licensing opportunities for our pipeline assets and continue to advance the programs in our pipeline, which we anticipate could trigger additional milestone revenue recognition and cash collections in the final weeks of the year. Another point worthwhile noting is that the cost of product revenue for the 9 months ended September 30, 2023 is disproportionate relative to the product revenue due to the timing of new product launches, scale up manufacturing activities, production related charges and costs associated with FDA inspection readiness. We do expect this to normalize once we obtain FDA approval, realize increased scale of manufacturing and expand on our launches.

Speaker 4

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. As we approach the end of the year, you can expect that we will continue to expand our launches of AVT-two into existing and additional markets and expect shipments to our commercial partners to increase. Our pre launch preparations and scale up manufacturing activities will result in a build of inventory, which we expect to continue through the end of the year and into 2024. As highlighted earlier on the call, we are taking all the necessary actions to prepare for the next FDA inspection in January, which is the remaining step towards access to the U. S.

Speaker 4

Market for both AAVT-two and AAVT-four. Meantime, we are pleased to see approvals for our marketing applications for AVT-four in Canada and Japan and expect the same from the European Commission in January. This potentially allows us to commence shipments of AVT-four to our commercial partners before the end of the year. Additionally, approvals in various markets may lead to additional milestone revenues and collections as per our commercial agreements. The exact timing and result of these events will be made clear by the end of the year.

Speaker 4

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. Accordingly, the company is actively pursuing licensing deals for early phase programs with a strategic partner or partners providing upfront cash and milestones over time. On a final note, we closed the period with 266,000,000 shares outstanding, including unvested earn out shares. And with that, I'd like to turn the call back over to the operator for Q and A. Operator?

Operator

Thank you, Joel. With that, we conclude our formal remarks. We now open for questions from the audience. Our first question comes from the line of Bilaji Prasad from Barclays. Please go ahead.

Operator

Hi, everyone. This is Mikaela on for Bilaji. Just a quick one from me. Just with the facility reinspection set for early next year, could you help us better understand more about Teva's contribution in getting the facility ready for approval? Any additional details there would be helpful.

Operator

Thanks so much.

Speaker 2

Yes. Robert Friesman here. Happy to answer that. So basically, we have been addressing all the observation we got from the previous inspection. So we believe that we have answered those already in our previous answers to FDA, but likely is that those answers will be reviewed once inspection happen on-site, which is 10th to 19th January.

Speaker 2

But overall, we believe that this will be a general inspection, if you will. So we are preparing ourselves for a general GMP inspection. We have been, of course, using the time very well since the last inspection. And we believe, based on the effort and the resources we have put into the quality system and the people and training that we are in a good place to basically receive FDA now in January.

Operator

Our next question comes from the line of Niall Alexander from Deutsche Bank. Please go ahead.

Speaker 5

Hi, guys. It's Niall Alexander from Deutsche Bank. Two questions, please. More one on just the U. S.

Speaker 5

Market as a whole. So like you said, we're seeing limited uptake of the current U. S. HUMIRA biosimilars with 98% of the market sort of really being made up by the HUMIRA brand still. I know you can't comment on behalf of other HUMIRA biosimilars, but I guess it'd be good to understand from your view why we're seeing this slow uptake.

Speaker 5

You mentioned this uptake was due to product profile, but could it be anything else? I'm asking, I'm just trying to understand if AV TiO2 could potentially fall to the same bucket. So that's my first question. And then the second question on AV TiO2 pricing, it would be good if we could get any takes on pricing since we've already seen a range of biosimilars enter the space and how that pricing can compare to the HUMIRA brand themselves? Thank you.

Speaker 3

Thank you, Neil, for the question. Anil Okais speaking. First of all, on the adalimumab commercial for the U. S. And the conversion rates.

Speaker 3

The conversion has been relatively limited. We have believed that while AbbVie remains primarily 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 actually see this as an opportunity for Alvotech and our partner Teva. We continue to believe that a high concentration interchangeable adalimumab would be more efficient in converting market even with obvious current formulary position. Regarding pricing for 2 or 4, unfortunately, I will not be able to comment neither on our strategy or the market situation.

Speaker 3

So would need to pass this question, but thank you very much.

Speaker 5

That was helpful. Thank you.

Operator

Thank you. We'll now move on to our next question. Our next question comes from the line of Thibault Boutherin from Morgan Stanley. Please go ahead.

Speaker 6

Hello. Thank you. So my first question is on the international ability on STELARA. I think you mentioned your expectations of seeing the exclusivity from AbbVieren expiring in Apri 25. If you could just give us more details on the assumptions behind the reasoning and when the clock starts ticking?

Speaker 6

2nd question on Jumira. Also the exclusivity of the high dose interchangeability. And just if you could give more details on your confidence on getting this exclusivity because I think it's a little bit confusing. And just trying to understand exactly what the situation is here. And maybe third, on the revenues in Q3, I think some elements have been mentioned, but is there any destocking impact or anything else from a seasonality perspective as well impacting the revenue in the Q1?

Speaker 6

Thank you.

Speaker 3

Thank you, Thibault. Alun is here again. On the interchangeability and exclusivity questions, actually, I will bundle my answer for both of the assets because the logic is pretty much dissimilar. The BP CIA legislation outlines various ways to interpret the timing based on a number of earlier off clauses. Here, the definition as we see it is 18 months after approval.

Speaker 3

Therefore, 402 sorry, 404, we expect that to run its course shortly after our license date. So the same is valid for ADT-two. With the same logic, we also expect the exclusivity as well. And we are expecting to be the 1st interchangeable and high concentration other limb up biosimilar into the U. S.

Speaker 3

Market. So this is how we are interpreting exclusivity when it comes to 2 and 4. Over to you Joel for the revenue, please.

Speaker 4

Thanks, Sunil. Yes, I think on the revenue, nothing more to add than what I mentioned in my opening remarks. Geographic mix quarter over quarter can lead to both favorable and unfavorable impacts. And in Q3, in particular, our products were shipped into disproportionately into lower priced markets. That said, in the Q4, we do expect our shipments to continue increasing.

Speaker 6

Thank you.

Operator

Thank you. There are no further questions at this time. So I'll hand the call back to Benedikt Stefansson for closing remarks.

Speaker 1

Thank you. And on behalf of the Evotec team here today, I would like to thank all who participated by the web stream and the participants on the Q and A, of course. And we wish you a good rest of the day and look forward to speaking to you all again. Thank you.

Operator

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

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Earnings Conference Call
Alvotech Q3 2023
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