Alvotech SA

NASDAQ:ALVO

Earnings Call Analysis

Alvotech Achieves Significant Milestones in Q1 2024

Alvotech reported strong Q1 2024 results, with revenues increasing 132% to $36.9 million compared to the previous year. The gross margin improved to a positive $17 million from a negative $23 million last year. The launch of biosimilars to HUMIRA and STELARA contributed to these results. Alvotech's EBITDA improved significantly to negative $38 million, a $27 million improvement. The company raised its 2024 revenue guidance to $400-$500 million and expects EBITDA of $100-$150 million, driven by new product launches and milestones achievements. Alvotech emphasizes its transition from an R&D company to a fully commercial entity.

A Promising Start: Q1 2024 Financials

Alvotech reported impressive financial results for the first quarter of 2024, achieving total revenues of $36.9 million, a staggering 132% increase from $15.9 million during the same period last year. This notable growth was mainly driven by milestone revenues linked to their biosimilar candidates, particularly the ongoing progress with AVT16 and AVT04. However, product revenues dipped slightly to $12.4 million, impacted by strategic reallocation of resources for FDA preparation. Crucially, gross margins showed significant improvement, shifting from a loss of $23 million in Q1 2023 to a gain of $17 million, marking a $40 million turnaround.

Revised Guidance: Enhanced Revenue Expectations

Due to positive developments in contracts and licensing agreements, Alvotech has raised its revenue guidance for 2024 to a range of $400 million to $500 million, up from earlier projections. Furthermore, adjusted EBITDA is also revised to $100 million to $150 million, reflecting strong operational performance as the company transitions towards profitability. It is anticipated that the financial contributions from adjusted EBITDA will be more evenly distributed between the first and second halves of the year.

Key Product Launches: AVT02 and AVT04 Take Center Stage

Alvotech is set to capitalize on strategic product launches, including its biosimilar to HUMIRA (AVT02) in the U.S. market and STELARA (AVT04) globally. With over 1 million units in binding purchase orders for AVT02 already, the company is gearing up to drive substantial revenue growth. Additionally, AVT04 launched successfully in Canada, with further launches anticipated in Japan, Europe, and potentially the U.S. by late 2024. The company is targeting V positive adjusted EBITDA for the first time in its history as soon as Q2 2024.

Pipeline Progress and Long-term Strategy

In 2024, Alvotech's robust pipeline is highlighted by anticipated filings in major markets, including three additional biosimilar candidates, and the commencement of clinical trials for AVT16, aimed at enhancing revenue streams significantly. The company’s commitment to developing a diverse and expansive portfolio positions it well for sustainable growth and a competitive advantage in the biosimilar sector.

New Partnerships and Commercial Relationships

Alvotech has forged critical partnerships, notably with Dr. Reddy's Laboratories, to commercialize biosimilars in the U.S. and Europe. Enhanced licensing deals and private label agreements, including a partnership with Cigna's Quallent, will further strengthen market presence. These partnerships are essential not only for immediate revenue boosts but also for establishing a long-term competitive advantage.

Market Considerations: Navigating Future Challenges

Despite the promising outlook, industry dynamics and regulatory challenges remain a pertinent consideration. While Alvotech navigates potential market impacts driven by evolving pharmacy benefits and competition in the biosimilar field, enhanced profit margins and growing product revenues may cushion potential volatility. Indexes towards achieving higher gross margins, driven by production scale, should be monitored closely.

Earnings Call Transcript 2024-Q1

[Operator]

Good day, and thank you for standing by. Welcome to the Alvotech Q1 2024 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Benedikt Stefansson. Please go ahead.

[Benedikt Stefansson, executive]

Thank you, and good morning or afternoon to everyone joining this call today. 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 first quarter results. Additionally, we have posted with the call and information for today's event, a slide presentation, which we will be referring to during today's call. Please go to the Events section of our Investor site to download the slide deck, if you haven't already done so.

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 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?

[Robert Wessman, executive]

Thank you, Benedikt. And thank you to everyone for joining us here today.

On our last earnings call, we laid out a list of ambitious goals that we aim to accomplish this year. Today, I will briefly cover each of those goals and our progress towards achieving them. Our team will then provide further details throughout today's presentation, which we hope can give you a sense of the tremendous progress, which we have made thus far.

Our first initiative is commercializing our biosimilar to HUMIRA in the U.S. market. Our product is interchangeable with the reference product, and we were the first to achieve [indiscernible] with a high concentration from HUMIRA, which currently holds a dominant market share in the U.S. market. As a reminder, we have received exclusivity for our approved strengths, and expect to maintain that exclusivity into May of next year.

Much progress has been made since our last public update. Late last month, we updated the market on our agreement with Quallent, the private label unit for the Cigna Group in the U.S. Evernorth, a wholly owned subsidiary of Cigna, announced that Alvotech product would be offered with a 0 out-of-pocket costs and notice there are over 100,000 patients currently using HUMIRA through Cigna Accredo specialty pharmacy. This partnership is a win for Alvotech, the Cigna Group and for patients across the country.

What we are witnessing today is a rapid evolution of pharmacy benefit biosimilars in U.S., and we welcome that change. The introduction of private label as a method of commercializing AVT02 and the increase in conversion from HUMIRA to biosimilars, strengthens further our view of the HUMIRA biosimilar opportunity. Furthermore, this evolution speaks to further potential when it comes to other products in our portfolio, including SELARSDI, our biosimilar to STELARA; AVT03, our proposed biosimilar to Prolia; and AVT05, our biosimilar candidate to SIMPONI.

In addition to the private label contract, our commercial partner, Teva, is making great progress on formulary discussion, and we believe we will be well positioned this year with our interchangeable product. Contracting on the formulary business is well advanced and details on final formulary position will likely be announced by the PBMs themselves on or around July 1.

As of today, I'm happy to say that we have received binding purchase orders for over 1 million units to support our launch of the biosimilar to HUMIRA in the U.S. market. And we have announced that we have already started to supply our partners with our interchangeable high concentration biosimilar into U.S. markets.

As excited as we are for our launch of biosimilar to Humira, we are equally excited at the opportunity for our second product. Keep in mind, Alvotech's strategy is to have a broad portfolio of products offered in almost every market in the world. A global launch of our second product helps demonstrate to the market our long view of biosimilars as we establish ourselves as a preferred partner in this rapidly growing and evolving space.

With AVT04, we have received approvals in all major markets. We have already launched or are actively preparing to launch this product across all major markets within the next 10 months.

We have now launched our biosimilar to STELARA in Canada. We just recently did in Japan. In Europe, we started in July this year. And in U.S., we are starting to launch in February 2025.

Although we are focused on the near-term commercial opportunities, we must also continue to advance the pipeline to make sure that we have consistent year-over-year growth in mid and long term. And 2024 is set to be busiest year in the history of Alvotech for our pipeline. We expect at least 3 additional filings in major markets this year. This pipeline success brings near-term revenues to the business, but more importantly, it allows us to drive further growth and diversification in the business. And looking forward, we continue to work on business development deals for remaining licenses.

We are happy to announce to have announced recently that we partnered with Dr. Reddy's laboratories on AVT03 for the U.S. and the European market. AVT03 is our proposed biosimilar to Prolia and XGEVA and we expect to file the application later this year. The transaction will generate significant milestone revenues this year due to the advanced status of the development, and also secures a key partner in a critical market for our midterm portfolio. I want to welcome Dr. Reddy's to our family of partners, which now stands at 19 globally, and which covers over 90 markets around the world.

And finally, on our year-end call, we provided guidance for 2024 and 2025. Based on the progress we are seeing on the commercial front and in our pipeline, we are in the position to raise the top line guidance for 2024 to $400 million to $500 million. And furthermore, we are tightening our EBITDA guidance from $50 million to $150 million to $100 million to $150 million for the year to 2024. With our multiple launches and more clarity on commercial and regulatory, Alvotech currently sits at an inflection point, but we are transitioning the company from R&D company into full-scale total commercial biologic company, what we have always hoped to be.

We could not be more excited at the opportunity that biosimilar presents, and I would like to pass the presentation over to Anil Okay, our Chief Commercial Officer, to provide further details on progress that we have made.

[Anil Okay, executive]

Thank you, Robert, and thank you for those joining today's call. I would like to start by providing further details on our exciting launch of biosimilar to HUMIRA in the U.S. market. As we have said on previous calls, our product profile has allowed us and our partner, Teva, to have broad engagement with the U.S. market. That engagement is starting to bear fruit. Having interchangeability with exclusivity to the dominant firms on the market, combining that with a premium auto injector that is also deemed as interchangeable and having dedicated manufacturing capacity for biosimilars, has put us in a position to address ports private label and nonprivate label business.

On the private label part of the market, we are very excited to have teamed up with Quallent, which is the private label arm for the Cigna network. In late April, Evernorth, a wholly owned subsidiary of Cigna announced that they will be making available HUMIRA biosimilars at 0 out-of-pocket costs through their Accredo specialty pharmacy, which supports over 100,000 patients currently utilizing HUMIRA. It goes without saying that we are very excited about this partnership with Quallent and the Cigna Group.

The changing environment in pharmacy benefit biosimilars is, in our view, a positive development not only for HUMIRA, but also for future pharmacy benefit products, of which we have a number in our portfolio. Because of the unique nature of the arrangements, which was not contemplated in our original partnership with Teva, we have mutually agreed to change the economics from a revenue share model to a cost plus profit share model, which makes more sense for these type of arrangements where the payer is actually taking ownership of the product itself. The program kicks off in June, and we have begun supplying our partner with product.

On the nonprivate label side, we are excited to introduce with our partner, Teva, SIMLANDI, which is an interchangeable high concentration biosimilar to HUMIRA. While I cannot provide specific updates on today's call, what I can say is there is positive momentum, and we expect substantial coverage in the market to include at least one large payer.

These changes, once finalized, will take place on first of July and we expect that an interchangeable biosimilar to the high concentration form can drive uptake in the second half of the year. The product is now formally launched as of Monday by our partner, Teva, and we look forward to providing updates as we move through the year. As Robert noted, we have exceeded 1 million units in binding purchase orders for our HUMIRA biosimilars in the U.S. market, which shows the commitment by our partners to drive biosimilar uptake within the HUMIRA market.

Moving to the second objective that Robert mentioned earlier, we are very pleased at the continued progress with our biosimilar to STELARA. First, in the U.S. market, SELARSDI has been approved, which marks the second approval in the U.S. market for Alvotech, and the second product to gain approval under our partnership with Teva.

Currently, only Amgen has secured approval for STELARA biosimilar in the U.S. We have a license date of February 21 of next year, and our commercial supply production has already begun. We expect to initiate supply of SELARSDI to our partner in Q4, which is the trigger for our revenue recognition. We also expect to gain interchangeability for SELARSDI, and expect to get designation either at the end of this year, which would be in time for our launch date or shortly after launch.

Timing of interchangeability designation hinges on the FDA's interpretation of the BPCIA and provisions that determine exclusivity time lines. In either case, we believe we are in a strong position to address this high-value market on a product that costs over USD 150,000 per patient per year in the U.S.

And of course, as excited as we are with SELARSDI, we view STELARA opportunity through a global lens. We have launched our STELARA biosimilar in Canada, March of this year, under the brand name Jamteki. Our partner in Canada is JAMP, and currently, [indiscernible] is the only other approval.

In Japan, we have launched AVT04 this month through our partnership with Fuji Pharma. In Europe, we are approved in all markets and have planned launches commencing in Q3 of this year under the brand name of [indiscernible].

We believe we are well positioned in all of those markets to be on the leading edge of the market formation, which puts us in a good position to compete broadly. We also feel, particularly in Europe, that the introduction of biosimilars can have a meaningful positive impact in overall growth of the molecule, as STELARA is a particularly high-priced product.

Please keep in mind that HUMIRA biosimilars helped contribute to 4 years of double-digit volume growth and we see that biosimilars may have a similar, if not more significant impact in ex U.S. volumes for [indiscernible].

Moving to the next slide, I would like to discuss the progress expected within our pipeline for 2024. Alvotech is a young company. And for the first time in our history, we have a visible schedule of multiple high-value launches across multiple products and markets. This is truly an exciting time for the company. But while these launches are crucial, the ongoing advancement of our pipeline is essential to ensuring our continued success in the years to come. And 2024 is shaping up to be a banner year for our R&D team that has already demonstrated their ability to navigate the global regulatory environment with efficiency and purpose.

This year, we are expecting 3 additional filings in major markets, starting with AVT06, our biosimilar to EYLEA, a leading product in the ophthalmology space. Unlike HUMIRA and STELARA, which are primarily pharmacy benefit products, EYLEA is a medical benefit medicine in the U.S. The recent success of the [ Lucentis ] biosimilar in accessing the U.S. market, we think, is an important precursor to EYLEA biosimilar adoption. We also expect to gain interchangeability for EYLEA in a similar fashion as biosimilar Lucentis.

Finally, it is important to note that we are also developing the high dose form of EYLEA. While we are not expecting submission this year, it is again validation to the market that Alvotech remains nimble in our development programs and dedicated to biosimilars broadly. We believe having high dose form of EYLEA will differentiate Alvotech in the marketplace. This forward-looking message and commitment to future biosimilars, we believe impacts our current discussions in the market, and that applies to all global markets.

We are also expecting to file AVT03 our biosimilar to Prolia and XGEVA. While it's the same development program, there are 2 distinct market segments here as both a pharmacy benefit product and the medical benefit product as well.

On Tuesday, we announced jointly with Dr. Reddy's Laboratories that we have finalized the licensing agreement for the U.S. market and the EU market. Dr. Reddy's is a multinational pharmaceutical company with a substantial presence in the U.S. and in Europe. We are excited to welcome Dr. Reddy's as our partner for AVT03 in the U.S. and in Europe, and look forward to further updates on the program.

Moving on to AVT05. We recently announced positive top line results on our patient trial. This provides us significant confidence in the finalization of this program in 2024. AVT05 is a proposed biosimilar to both SIMPONI and SIMPONI ARIA, which also makes it a combination pharmacy benefit and medical benefit product. Again, we intend to seek interchangeability for our biosimilar candidates.

For this program, I would like to highlight a couple of very important points. First of all, there is only one other company that we are aware of that has registered the patient trial. Secondly, only a handful of companies can boast having HUMIRA and STELARA biosimilars in their portfolio, Moreover, no company can claim to have a portfolio that includes HUMIRA, STELARA and SIMPONI. This is yet another example of our portfolio approach to the market, which we believe fosters a welcoming environment in discussions with customers, by both ourselves and our partners.

Finally, I would like to add that all of the progress you see in our pipeline will lead to substantial revenue for the company, and we expect significant impact from the milestones in 2024 with a sharp increase expected in the second quarter.

Moving to the next slide, I would like to briefly touch on our longer-term portfolio. With regards to AVT16, our proposed biosimilar to Entyvio, we remain on track to initiate patient trials this year. There is currently only one other registered patient trial that we are aware of, and this is for a brand that has been rapidly beating market expectations year-over-year. Initiation of patient trials for AVT16 should also generate milestone revenue in 2024.

Looking longer term, we continue advancing a number of programs, including AVT33, our biosimilar candidate to KEYTRUDA. As a reminder, Alvotech aims to add 1 to 2 products every 12 months, which we believe is the optimal pace to sustain long-term growth for the company.

Finally, I would like to close my portion of our prepared remarks by covering the fourth key priority that Robert mentioned in his opening statement, and that's regarding our ongoing business development efforts. I'm very proud of the fact that we have been able to build a global commercial presence through a network of sophisticated and knowledgeable partners that allow our portfolio access in nearly every market around the world. This has continued recently, as I have just mentioned, with the addition of Dr. Reddy's partnership into our network of various partners. We are extremely proud of our pipeline, which we consider one of the most extensive in the industry.

Our next major target is to continue to partner our future pipeline programs, including AVT33, which is our KEYTRUDA biosimilar candidate. We remain in ongoing conversations with multiple parties for global commercialization rights, and hope to provide updates when progress is finalized. Outside of KEYTRUDA, the continued engaging potential or existing partners for our long-term portfolio in markets, both large and small.

And with that, I would like to turn the call over to Joel Morales for the financial update.

[Joel Morales, executive]

Thank you, Anil. I'll now provide some brief financial highlights for the quarter ending March 31, 2024.

In terms of liquidity, we previously announced that we accepted offers for the sale of shares from Icelandic and other European investors totaling $166 million. As of March 31, we closed the period with $65 million of cash on hand, excluding $25 million of restricted cash.

Regarding our operating performance, total revenues for Q1 2024 were $36.9 million versus $15.9 million in the prior year, an increase of 132%. This sharp increase is driven by milestone revenues generated from our CTA submission for the AVT16 program, our biosimilar candidate to Entyvio and as a result of our achievement of European approval to market AVT04, our biosimilar to STELARA, under the brand [indiscernible].

Product revenues in Q1 were $12.4 million, down $3.4 million versus prior year. This decrease was expected due to focus and resource allocation for remediation and inspection readiness for the FDA, which has ultimately led to the approval of 2 separate applications in the U.S. market. This was also partially driven by a heightened amount of production to support R&D that will support 3 submissions in major markets this year. Already in Q2, we have ramped up production and expect a progressive increase in product revenue throughout the year, in particular, as our commercial partners launch AVT02 into the U.S. market.

We are also pleased to report that our commercialization partner in Canada launched AVT04 under the brand name Jamteki in late Q1. So our product revenues include some contribution from initial shipments to our partner. We expect revenues from AVT04 to increase throughout 2024, as we continue to launch into additional markets globally, such as Japan, Europe and potentially from initial prelaunch shipments into the U.S.

Our gross margin increased from negative $23 million in Q1 2023 to positive $17 million in Q1 2024, an increase of $40 million versus prior year. This was driven by the timing of milestone revenues, AVT04 shipments into Canada and lower production related charges and other costs associated with FDA inspection readiness. We do expect our gross margin to continue to increase, as we realize increased scale of manufacturing while expanding on our launches. We anticipate that higher volumes will have a favorable impact on our margins, particularly as we increase absorption of our fixed costs.

In Q1 2024, we reported adjusted EBITDA of negative $38 million, which represents an improvement of $27 million versus the same period in the prior year. This is largely driven by the gross margin contribution in the period, coupled with overall lower R&D and G&A costs on an adjusted basis. Please see the table provided in the appendix for a reconciliation of our reported to adjusted results.

We closed the period with 277.9 million shares outstanding, including unvested earn-out shares. I'd like to highlight that during the quarter, 19.8 million earn-out shares vested, reducing the unvested portion to 19.2 million predecessor earn-out shares. This was the result of the performance of our stock during the quarter.

Turning to the next slide, you will find our revised outlook for 2024. Given the positive commercial contracting updates for AVT02 provided by Anil earlier and the recently signed licensing agreements we've executed with new and existing commercial partners, we are raising our revenue guidance to between $400 million and $500 million. We are also revising EBITDA guidance to $100 million to $150 million, which is the upper end of our previously provided range. We expect EBITDA contribution for the full year to be relatively balanced between the first and second half of 2024.

As mentioned on our last call, we expect this year to be lumpy in terms of our operating results. We previously guided Q1 total revenues to be lower than Q4 2023, and that adjusted EBITDA would be negative, for reasons I described earlier. That said, we did significantly reduce our negative adjusted EBITDA year-on-year, signaling the beginning of our transition to profitability.

We will continue building on this momentum in Q2, where we expect to deliver the strongest quarter yet for the company in terms of revenue and for the first time in the history of our company, positive adjusted EBITDA. This will be driven partially by an increase in product revenues due to the initial launch of AVT02 in the U.S. and AVT04 globally.

Milestone revenues will disproportionately contribute to total revenues in Q2, as we have good visibility in achieving a number of milestone recognition triggers in the quarter, such as positive top line results for AVT03 and AVT05, Teva's first launch of AVT02 into the U.S. market and Fuji's first launch of AVT04 into the Japanese market and initial 04 launch quantities to our European partner in preparation for their commercial launch in Q3.

Delivering our first positive EBITDA quarter and half year is a significant milestone for Alvotech, and we will continue to be focused on operational execution to maximize the potential of our launches in the second half of 2024, where we expect product revenue to overtake milestone revenues towards the end of 2024, driving overall revenues and positive adjusted EBITDA.

As I mentioned, adjusted EBITDA for the year is forecasted in the range of $100 million to $150 million. This includes continued R&D investment behind our pipeline as we advance 3 of our programs through final stages of clinical and transition our AVT16 program into the clinical phase.

Turning to the next slide, you'll see that this guidance is driven by a combination of our newly planned product launches and significant development and performance-based milestones we expect to achieve throughout the year. We have begun to take all the necessary steps to successfully enable our planned launches in 2024.

Upon approval of AVT02, our high concentration and interchangeable version of HUMIRA, we filed variations with the FDA that will enable us to manufacture at an optimize scale. We have, in fact, already begun to manufacture at this scale for our rest of world markets as of the end of last year, and expect to be manufacturing at the same scale for the U.S. by midyear 2024. In the meantime, we have supplied our U.S. commercial partner, Teva, with initial prelaunch stock for commercialization, which has now started as we recently announced. Our revenue guidance assumes successful contracting on formulary with key payers with modest penetration, making a significant contribution to our top line.

This year, we also expect to launch our biosimilar to HUMIRA into several additional global markets, including Latin America and the Middle East. With respect to AVT04, our biosimilar to STELARA, we have already launched in Canada in Q1 and in Japan this month, followed by Europe in the third quarter of this year. All requisite regulatory approvals have been secured for these markets.

With FDA approval already achieved, our launch of SELARSDI for the U.S. is planned for February of 2025. However, our forecast assumes modest revenues in late fourth quarter of this year as we start shipping prelaunch inventory. These launches are not only driving growth in product revenues, but also providing greater diversification in terms of our commercial product offering and geographic concentration. They are thus important cornerstones of our strategy to drive growth and profitability over the mid- to long term.

In terms of milestone revenues, as mentioned earlier, we are anticipating completing clinical development and submitting marketing applications for 3 additional biosimilar candidates in major markets this year, namely biosimilar candidates for Prolia, XGEVA, SIMPONI, SIMPONI ARIA and EYLEA. Additionally, we plan to commence clinical studies for our AVT16 program, our proposed biosimilar to ENTYVIO. Commencing and successfully completing clinical phases of development and regulatory submissions of our biosimilar programs are key events that will continue to drive milestone revenue recognition.

We're also expecting to recognize milestone revenues based on the achievement of certain performance-based targets such as first launch of our biosimilar to HUMIRA and STELARA into new markets globally as well as the achievement of cumulative net sales targets for these launched products.

Overall, we expect milestone revenue contributions to be significant this year, as they could range up to 35% to 45% of total revenues in 2024. We're excited to demonstrate the continued advancement of our pipeline, which will propel sustainable long-term growth for the company.

The last point I'd like to make is with respect to licensing. As noted earlier in the presentation by Anil, we have an active BD pipeline, which includes our AVT03 program in bone disease. Just yesterday, we announced a new deal for commercialization of AVT03 in the U.S. and Europe, including the U.K., with related upfront payment and near-term milestones. Our BD activity has also focused on our oncology and early phased assets, and we are actively pursuing licensing deals for these programs with a strategic partner or partners, providing upfront cash and milestones over time.

As we wrap up today's earnings call, I want to take a moment to reflect on the positive developments we've shared. Our recent successes highlight the strength of our strategy and the dedication of our team. In light of this positive momentum, I'm pleased to inform you that we have begun to proactively explore refinancing options for our current debt. Our objective is to reduce the cost of capital and extend any near-term maturities. This initiative aligns with our commitment to enhancing financial flexibility and sustaining long-term growth. We believe these efforts will position us even more favorably for the future.

And with that, I'd like to turn the call back over to the operator for Q&A. Operator?

[Operator]

[Operator Instructions] We will take our first question your first question comes from the line of Balaji Prasad from Barclays.

[Balaji Prasad, analyst]

Great to see the progress achieved till now and also the guidance raise. Quite a few questions, but I'll stick to 2 and come back later on. Firstly, on the guidance, is it fair to say that the majority of the guidance revision owes to the private label deal with Quallent? And also maybe I think I'm being reasonable in assuming that the 1 million purchase orders that you commented upon is all going to be booked in 2024? Lastly, on the question on guidance itself, did STELARA play any part in your guidance revision?

Second question is on gross margins. Similar to what I asked last quarter, I understand that your revenue recognition and incurred COGS can vary also based on our milestones hit. But it looks like consensus is struggling to model gross margins accurately. So can you help us understand better the gross margin for 1Q itself as consensus has [indiscernible] by nearly 25%.

[Joel Morales, executive]

To answer your first question -- Hi, Balaji, it's Joel. Thank you so much for your question. To answer your first question, I think you are correct. I think the guidance change was really driven by the contracting outcomes in the U.S., in particular, driven by 02. And also to answer your question, 04, there was no change in our assumptions around STELARA in the U.S. in changing that.

[Balaji Prasad, analyst]

The 1 million units, Joel?

[Joel Morales, executive]

Yes. And it does include the 1 million units and yes, confirm the 1 million units are expected to be sold this year in 2024.

Further to your question on margin, we haven't provided any guidance on margin, just given the number of variables that we have, in particular, having significant swings in margin. We have multiple product launches into multiple markets. We also have a number of milestones, which also dropped through at 100% margin in our outlook, meaning $1 of milestone revenue drops down to margin.

But I will say that Q1 has a lower margin than we are expecting full year in particular because you haven't seen the full impact of the milestone contributions. You saw in our prepared remarks that we are expecting more significant step-up in milestone revenues in the second quarter, which are going to drive our margins higher as we start inching towards the second quarter as well as the second half of the year.

I will say in terms of our spend in Q1, you can, maybe to provide a little bit more clarity, you can expect our Q1 run rate to temper in the second half of the year, in particular on R&D spend by about 20%. And so those are the remarks that I can make maybe first half versus second half as it relates to margins. But surely, you can appreciate the number of variables here that we're trying to be transparent on.

[Operator]

Your next question comes from the line of [ Vineet Agra ] from Citi.

[Unknown Analyst]

[ Vineet ] from Citi. First on guidance. For 2025, do you continue to expect twice the growth of -- based on the revised guidance as you did out previously? And just wanted to check on AVT06, your biosimilar for EYLEA. Just wanted to understand what are the launch time lines you're working on in the U.S., given the IP litigation?

And maybe if I can just ask one question on GLP-1. I wanted to understand if you have any GLP-1 capabilities or ambitions, given such an attractive market developing there?

[Joel Morales, executive]

Thank you for your question. This is Joel. Just on the first part of this. We have not changed our guidance as it relates to 2025, in particular, in light of our change to 2024 guidance. And so I would say that we're still targeting in the $600 million to $800 million range of revenues for 2025.

I'll hand it over to Anil.

[Anil Okay, executive]

Thank you very much, Joel. Hi, [ Vineet ]. It's nice to hear your questions. Regarding AVT06, as we announced, we are filing our program within this year. So we will have the approval already within next year.

In terms of launch timing, we have not guided the market on a specific launch timing. But what you are aware, of course, AVT02 and AVT04, we have made very strategic attempts on the IP litigations and securing early market entries in various geographies. So for AVT06 also, we have a strategy in play and we will, of course, deploy our strategy after the filing.

On your last question, when it comes to GLP-1s. As a company, we have capabilities to develop all these products. And also we have a full play in motion here when it comes to different therapeutic areas, the technologies and everything. As of today, we do not have a GLP-1 in our portfolio. However, in the similar domain, we have multiple ideas in our long-term pipeline.

[Operator]

[Operator Instructions] Your next question comes from the line of Balaji Prasad from Barclays.

[Balaji Prasad, analyst]

Following up on your Reddy's collaboration. While Reddy's is a company have followed from nearly 20 years, I still thought it was a difficult choice. Help us understand what you saw Reddy's is bringing to the table and how different or similar are the economics for Alvotech in this? Are you getting better or favorable terms?

And lastly, maybe if you could just sum up the expectations around the formulary changes expected on the first of July? And what do you think would be an optimal scenario for Alvotech?

[Anil Okay, executive]

Thank you, Balaji, for the questions. So let me start it -- start with authorities. First of all, we are very proud to have a long-standing partner like Dr. Reddy's for the U.S. and for the European market.

A couple of things to point out here. First of all, in Europe, it's a [ semi-exclusive ] arrangement. So we do have still one right available for the European market to strengthen our coverage, and we are working on that coverage as we speak. We will announce that in due time.

When it comes to Dr. Reddy's as a partner, as you very well know, especially in the U.S., they have been one of the fastest-growing companies lately. There are capabilities on the injectable space and the hospital space is very strong. And they have a big vision for the U.S. market. And as you also know that [ denosumab ] among all other pipeline assets is one of the -- probably the most competitive space. So having a partner like Dr. Reddy's who knows how to play the brand as well as the generic game is a significant advantage.

Last but not least, on AVT03. Specifically, we have an innovative, highly productive cell line, which will also position us competitively in the market space when it comes to cost of goods leadership. So we have multiple fronts here, including Alvotech product profile and Dr. Reddy's capabilities that are really strengthening the market position of Alvotech in the marketplace.

When it comes to your next question on the formularies. So we -- what I can, in summary, say we will be definitely having formulary coverage in one of the large formularies. Of course, we will and our partner Teva would announce that when the time is right. But what I can say is that all the conversations we are doing right now is very positive towards our product. And as you have heard, we reinforced that by disclosing having over 1 million units of purchase orders just for the U.S. market. I think these 2 information should already give a comfort to the market that we are going to be one of the leading [indiscernible] biosimilars in the U.S. market.

[Operator]

Your next question comes from the line of [ Ashwani Verma ] from UBS.

[Unknown Analyst]

Congrats on the progress. Just a clarification on the 1 million units that you mentioned about biosimilar HUMIRA. Is that -- is that unit [ pence ] or is it [indiscernible]? I just wanted to give this clarification on that.

[Anil Okay, executive]

Thank you, Ashwani, for the questions. So yes, it is in units per [ pence ], so we basically have POs over 1 million [ pence ].

[Operator]

[Operator Instructions] There seems to be no further questions at this time. I will hand back for closing remarks.

Apologies. We do have a question that's come through. Please stand by. Your question comes from the line of [indiscernible] from Citi.

[Unknown Analyst]

I just wanted to check on the interchangeability. Just wanted to understand how significant that is in your view in terms of gaining market share because one of your competitors seems pretty relaxed, not having that interchangeable designation. And also given that there is a push from FDA for more sort of general labeling. So I just wanted to understand there's sort of [ 2 ] different views in the market from 2 different players. How significant that is in terms of gaining market share?

[Anil Okay, executive]

Thank you for the question. We believe it's a significant advantage, not only from interchangeability perspective, but also the exclusivity that comes with interchangeability. As we have announced, we also have exclusivity on the leading presentation up until minimum May 2025, which we believe is a significant competitive advantage.

We also believe that interchangeability is very helpful in reducing the friction of conversion. So of course, our competition might have different ideas and different positions. But in our view, having an entire changeability versus not having an entire changeability is a better position to be in the marketplace.

[Operator]

There seems to be no further questions. I will hand back to Benedikt Stefansson for closing remarks.

[Benedikt Stefansson, executive]

Thank you, Heidi, and thanks to all our participants in the call today and on the webcast. On behalf of the Alvotech team, I just wish you a productive rest of the day and look forward to speaking to you all again. Thank you.

[Operator]

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