Alvotech Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 31, 2023

There are 9 speakers on the call.

Operator

Welcome to the Second Quarter 2023 Earnings Call for AlveTech. At this time, all participants are in listen only mode. After the speakers' presentation, there will be a question and answer session. Please note that today's conference is being recorded. I would now like to introduce and hand the conference over to Mr.

Operator

Benedicte Stevenson, Senior Director of Investor Relations and Global Communications of Alvotec. Please proceed.

Speaker 1

Thank you, and 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. Alvotec.com.

Speaker 1

The release outlines key highlights related to our 2nd quarter results. Additionally, presentation slides that cover our call today have been posted on our website in the Events section of investors. Alvotek.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.

Speaker 1

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 double tax control and 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 Oke, 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 Westman, Founder, Chairman and CEO of Avotec. Robert?

Speaker 2

Thank you, Benedek. Thank you all for joining us here today. Allow me to kick off the today's discussion by sharing some pivotal updates since our last public communication. To begin with, we have resubmitted the interchangeable BLA for our proposed biosimilar to Humira, also known as AVT-two. 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.

Speaker 2

The FDA teams our application approval for both biosimilarity and interchangeability, subject to a positive reinspection of our facility in Reykjavik, Iceland. We aim to complete a satisfactory inspection during the review period for the submitted application and expect AVE-two to be a material contributor in 20 24 if given final approval. Over the course of past 18 months, AlboTech 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 investment 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 put the company in the best positions for a satisfactory reinspection.

Speaker 2

Our team has been supported by qualified expert consultants on-site, and we have also been working closely with our partner in the U. S, Teva Pharmaceuticals, to ensure that we are putting the company in the best position to succeed. And while the upcoming 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.

Speaker 2

In late May of this year, we signed a new partnership with Atwans, which includes 5 biosimilar candidates. The transaction includes 2 previously identified proposed biosimilars as well as 3 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 2 new biosimilar candidates as well as line extension for 2 proposed biosimilars that were part of our initial agreement.

Speaker 2

Both transactions were executed after substantial due diligence on Alvotech's business and demonstrate the confidence that the 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 AlgoTech and Johnson and Johnson with regards to AVP-four, our proposed biosimilar to Stelera, a leading immunology treatment globally. This agreement grants Allotek a license entry date in the U. S.

Speaker 2

No later than February 21, 2025. Having this settlement now in place provides IP certainty for our second potential offering in the U. S. Market. ABT-four is also filed in multiple markets outside the U.

Speaker 2

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 into Alvotech, which allows us the ability to continue to invest in our broad pipeline of biosimilar candidates. Teva, our U. S.

Speaker 2

Commercial partner, Astik, the leading shareholder in Alotec, along with a number of other new and existing investors, that's tied to €140,000,000 of convertible bonds on the same terms as our last issuance in the 4th 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 Alovotec stock in Iceland moved from the 1st North Growth Market to Nasdaq, Iceland's main market. We noted at the time that 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.

Speaker 2

In June, Alvatech stock was added to the domestic index here in Iceland, which includes the top 10 share ranked by trading volume on the NASDAQ Iceland main markets. On August 18, FTSE Russell announced that Alvotech stock is being considered for potential inclusion in several of the FTSE Global Equity Emerging Europe Index Series, 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 Monday, September 4. The food chain tax changes will then become effective on Monday, September 18. Finally, we look forward to providing further updates as we progress through the year.

Speaker 2

And with this, I would like to turn the call over to Anil Okai, our Chief Commercial Officer, to provide further updates on the business. So over to you, Anil.

Speaker 3

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 Advanced Pharma. The ENHANZE partnership adds 5 additional proposed biosimilars that are targeted for European markets. These include the biosimilar candidates to Symphony and NTO as well as 3 early stage undisclosed biosimilars.

Speaker 3

This brings our total pipeline products to 11. The transaction brought an upfront payment of approximately US61 $1,000,000 as well as additional potential milestone based payments of over US287 $1,000,000 The in market revenue share is similar to previous deals that we have executed across other markets at 40% of in market sales to Allotec. 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.

Speaker 3

While we have successfully licensed many of products and territories, we are also in the process of seeking a commercial partner for ADT03, a proposed biosimilar to Prolia and Nextiva together with AVT33, 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.

Speaker 3

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 served to affirm Teva's commitment on both fronts. The expanded partnership includes 2 new biosimilar candidates, which are both exclusive arrangements for the U. S.

Speaker 3

Market. PaloTech may receive up to approximately US160 $1,000,000 in additional potential milestone payments from Teva, the majority of which will be due at the time of approval and upon achieving significant sales targets in addition to the customer revenue share of approximately 40%. The agreement also includes 2 additional line extensions to previously partnered biosimilars, also exclusive for the U. S. Market.

Speaker 3

Additionally, there has and will be increased involvement from Teva to support in FDA readiness activities at our site in Iceland. We welcome this type of participation and it only strengthens the company's resolve and confidence in meeting the criteria to support the approval of ADT-two in the U. S. Market. Keep in mind, the only outstanding item prior to approval of ADT-two is a satisfactory inspection of the facility.

Speaker 3

Last but not least, outside of the licensing agreements, Teva subscribed to a US40 $1,000,000 investment into Alvotech in the form of subordinated convertible bonds. The expanded commercial partnership, collaboration around inspection readiness and the direct investment made by Teva after significant due diligence demonstrates some of the strengths of having a B2B business model where 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 AVP-two in the U. S. As Robert noted, we have submitted our interchangeable BLA for our biosimilar to HEMIRA.

Speaker 3

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, signaling that we are prepared to host a reinspection, which is required to support approval of Apt-two. We anticipate the potential of Humira launch in the U. S. To be a material event for the company in 2024.

Speaker 3

And we believe that a product profile that could include interchangeability with a high concentration form of adalimumab combined with a 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 Vemira for that matter is still being written.

Speaker 3

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 3 approved high concentration adalimumab biosimilars that are on the U. S.

Speaker 3

Market today. None of these have an interchangeability designation to the high concentration form of immune. There are 3 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.

Speaker 3

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 2 additional markets since our last quarter update, and we intend to launch in 2 additional markets before year end. Next, I would like to cover off on AAV204, our proposed biosimilar to Stelara, another leading global immunologist treatment. We are currently on file in 7 markets with our approval pending in major markets such as the U.

Speaker 3

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 view those takinamap opportunity to be substantial. The global market size for the product based on the last four quarters ending June 30, 2023, exceeds US10 $1,000,000,000 Additionally, in June of this year, we announced that we reached a settlement agreement with Johnson and Johnson that gives us the ability subject to regulatory approval to launch ADT-four in the U. S.

Speaker 3

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 realize revenues in advance of commercial launch as we supply our partners in any given market. To wrap up on 4, we note that based on public information, there are only 3 companies besides Alvotech that have filed their biosimilar versions for Stelara.

Speaker 3

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 Stelvera 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 unveiled the specific reference products for ADT-sixteen and ADT-thirty three, bringing our disclosed number to 8. We currently are advancing 3 pipeline candidates in patient studies.

Speaker 3

These are AVT03 biosimilar candidate to Prolia and XGEVA AVT-six, proposed biosimilar to Eylea and AVT-five are proposed biosimilar to SYMPONY and SYMPONIARIA. With regards to AVT-five, we note that only one other company has a public active development program in clinical studies for the target biology. As a reminder, AAVT-two, AAVT-four and AAVT-five are all leading immunology treatments. We believe Alvotech is one of very few companies who are able to offer all these 3 immunology treatments at the same time. We view the inclusion of all 3 of these immunology treatments in our portfolio as a strategic advantage.

Speaker 3

With respect to AVP16, we are at the scale up 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 Altek. Overall, we believe that the global multiproduct 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 and D only company to a commercial one, we are committed to not losing the sight 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 screened at any given time.

Speaker 3

With that, I would like to turn the presentation over to Joel Morales, our Chief Financial Officer. Thank you.

Speaker 4

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 ABT-two. Since then, and as Robert mentioned earlier, we have 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 Azteek, which subscribed to $40,000,000 $30,000,000 investments respectively. In addition, during the quarter, we collected over $60,000,000 in cash, primarily from the signing of the licensing deal with Advance.

Speaker 4

We ended the first half with $60,500,000 of cash on hand, Giving effect to the private placement we recently finalized, our pro form a cash balance as of June 30 is approximately 180,000,000 dollars excluding $25,000,000 of restricted cash. In terms of our operating performance, the company recorded $22,700,000 in product revenue for the 1st 6 months of 2023 versus $3,900,000 during the same period in the prior year. This sharp increase is driven by the timing of launches that started in the Q2 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 world. Milestone revenues are negative for the period due to the net impact of licensing arrangements closed during the Q2.

Speaker 4

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 twenty twenty three. 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 and 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.

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. In terms of liquidity, based on our current operating plans and 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 AVT-two BLA, which will determine the timelines going forward. Marketing applications for AVT-four 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 AVT-four 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.

Speaker 4

The exact timing and result 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.

Speaker 4

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 2 66,000,000 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

Thank you, Jean. With that, we conclude our formal remarks. We'll now open for questions from the audience. And the questions come from the line of Carl Byrnes from Northland Capital Markets. Please ask your question.

Speaker 4

Thanks so much for the question and congratulations on your progress. First off, can you reconcile the Q2 2023 net product revenue with that of the Q1 of 'twenty three given that it looks like it's sequentially down?

Speaker 2

Yes. I think Robert Friesman here. So overall, I would want to maybe use the opportunity to explain why we saw the revenues from Q1 to Q2 this year, I think. 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.

Speaker 2

So that's one point. But the main point and more importantly is that we have been producing and we have a large stock of finished goods on hand, which will be shipped in Q3 Q4 this year. Part of this volume was used to validate our increased batch size and is pending regulatory approval in Europe. So we expect that this year. So basically, in the Q2 this year, we used sizable capacity of the business to basically produce inventories, which will be released, as I said, later this year.

Speaker 4

Great. Thank you. And then just one follow-up. Is it possible to provide any thoughts on anticipated BLA filing timelines for 'three, 'five, 'six and 'twenty three? Thanks.

Speaker 5

Yes. We haven't provided updates for future filing dates, but the next one you could assume would be 6. It's the one that's the most

Speaker 4

advanced. Got it. Congratulations and thanks again.

Operator

We are now going to proceed with our next question. And the questions come from the line of Thibault Boutere from Morgan Stanley. Please ask your question.

Speaker 6

Hello. Thank you for taking my questions. Just a couple on the U. S. Market for Humira and biosimilar.

Speaker 6

Clearly, AbbVie has been holding more volume share in this market than anyone expected and has had on their perspective quite a successful contracting strategy. So 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?

Speaker 6

So that's my first question. And then second one, you mentioned the innovative commercial models that we are seeing emerging on the U. S. Immunohab biosimilar market. So we saw first Coerus 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 list price discount and the list price.

Speaker 6

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 Stella for the U.

Speaker 6

S. Market? Thank you.

Speaker 3

Thank you, Thibault. On this year, 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 AbbVie 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.

Speaker 3

So we do not we are not surprised with this situation as of now. We continue to believe that a high concentration in test changeable adalimumab would be more efficient in converting market even with obvious current formulary position. So we see adalimumab more like a 2024 material event for AlboTech. 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 biosimilar is still being written. We believe that the market will find a way ultimately to support biosimilars.

Speaker 3

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.

Speaker 3

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 KPI approval, which will be prerequisite to test our strategies. Thank you.

Speaker 2

Thank you.

Operator

We are now going to proceed with our next question. And the questions come from the line of Neil Alexander from Deutsche Bank. Please ask your question.

Speaker 7

Hi, how's it going? It's Neil 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 it sort of for FY 'twenty four?

Speaker 7

Or can you give any guidance whatsoever this year? That's the first question. And then second one, it'd be good to get your if you could provide any color and thoughts into potential pricing of AAV-two subject to approval in the U. S? Thank you.

Speaker 4

Hi, this is Joel.

Speaker 5

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.

Speaker 5

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.

Speaker 3

I can take the second question. In terms of pricing, of course, we cannot give guidance. As I said before, we have the best commercial partner in the U. S. Market.

Speaker 3

Teva has been very successful with both biosimilars as well as with the specialty products in the U. S. Market. They have very clear pricing strategy when it comes to A BTO2. Also, we have very good engagements with the players when it comes to pricing and different models.

Speaker 3

So we have pretty good visibility on that, but I would not like to give a guidance at this stage.

Speaker 7

Thank you.

Operator

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.

Speaker 8

Thank you. Two questions. Number 1, should I assume that CVS will now only be contracting with Sandoz for biosimilars of adalimumab following the Corvavis announced JV. And then second, obviously, there are 2 other major PBMs that cover with CVS, 80% of covered lives in the U. S.

Speaker 8

To my mind, neither of those has 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 has entered? Thank you.

Speaker 3

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 to have multiple interactions going on with all the payers you named and some of them you didn't name.

Speaker 3

So we clearly understand their expectations, and we are flexible in our approach. But we believe that AVT-two 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.

Speaker 3

S. Market.

Operator

We have no further questions at this time. I will now hand back to Mr. Benelnik Stefansson for closing remarks.

Speaker 1

Thank you, Retsya. On behalf of the AVOTEC team, I would like to thank all the participants in our webcast today and the participants on the Q and A. 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 your lines.

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