Alvotech SA

NASDAQ:ALVO

Earnings Call Transcript 2022-Q2

[Benedict Stephan, Investor Relations]

[Call Started Abruptly] 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, Executive Chairman and Founder of Alvotech, who will give you a quick overview and recap recent strategic milestones. Mark Levick, Chief Executive Officer will cover our portfolio and competitive landscape. Anil Okay, Chief Commercial Officer, who will give a commercial update. Joel Morales, Chief Financial Officer, who will review the financial highlights. And finally, Ming Li, Chief Strategic Officer, who will present our newly published ESG portal and ESG disclosures for 2020 to 2021.

With that, I would like to turn the call over to Robert Wessman, who is Executive Chairman and Founder of Alvotech.

[Robert Wessman, Executive Chairman & Founder]

Thank you, Benedict. I want to welcome everyone to our second quarter earnings call. This is actually our first started call for Alvotech as a public company. We believe that biosimilar stands to benefit the long term as the healthcare systems are struggling with cost. Biosimilars have the potential to help make health care more sustainable. On June 15, we made those deputes at NASDAQ in New York and on June 23, we listed on NASDAQ personal market in Reykjavik, Iceland. Alvotech is the only companies who are listed in both US, and Iceland, and one of the few to play by similar companies with scale that are publicly traded. Alvotech is a company that has taken 10 years and over a billion dollars to build.

We have been fortunate to make these investments and built our company mean, meanwhile being private. We are very proud of being on having very strong R&D and manufacturing platform and having pipeline of eight biosimilar sub biosimilar candidates with an addressable market over $85 billion. We employ over 800 people around the world with more than 85% focus on R&D, technical operational quality. Our state-of-the-art facility in Reykjavik is designed to support the growth of our pipeline through 2030. Handling end-to-end manufacturing of products substance, product as well as unfinished.

We have established global rates across six continents, and well over 90 countries with a network of pitch team, high quality regional partners that are experts in the home markets. In addition to allowing us to leverage our partners expertise and commercial infrastructure, we are entitled to substantial milestones and approximately 40% of in market sales, of course, the backbone of the company is our leadership team. Although biosimilars are very young industry, they have also been quite blessed to recruit experienced and accomplished leaders with relevant experience to join us.

This includes our CEO, Mark Levick, who previously led by system set Sandoz. And Joseph Mcclellan, our Chief Scientific Officer, who led biosimilar development, Pfizer. Most of our senior executives have had direct experience with biosimilars. And we believe that historical knowledge has helped us to navigate Alvotech to where we are today. Before I pass the presentation over to our CEO, Mark, I want to highlight the main changes in the business that have taken place since we announced our business combination with all the acquisition costs to. Since then, we have had substantial advancements across our portfolio, including IP clearance around totally product AVT02, a high concentration biosimilar to Hukyndra, as well as FDA acceptance of our BLA included supporting data to gain interchangeability for the US market.

We have also launched the product in multiple markets. But beyond that, it is important that buyers be similar to be multi product. We have a bunch of biosimilar candidates for STELARA, EYLEA, PROLIA and XGEVA. In case of STELARA, we have reported positive top line results make universe, only the second company to do so. On the corporate side, we have of course listed in both the US, and Iceland. And we have recently announced plans to move our Icelandic listing from first north market to the main port, which we believe can open up more opportunities for Alvotech. We have also expanded our Board of Directors to increase both diversity and independence.

Finally, we have made available on ESG portal which provides further transparency for sustainability efforts and performance metrics. We look forward to continue to update our stakeholders and shareholders on our progress as we continue to execute on our strategy, our focus on biosimilars and the promise to bring these valuable medicines to patients around the world.

With that, I would like to turn the presentation over to Mark Levick, our Chief Executive Officer. Over to you, Mark.

[Mark Levick, Chief Executive Officer]

Thank you, Robert. I will be covering our portfolio and it is important to reiterate our global multi product approach. Diversification in both markets and products will be key if we are to create a sustained growth model with biosimilars as we aim to do. Other tests portfolio includes eight biosimilars and biosimilar candidates with a total addressable market of over US$85 billion, based on estimated peak sales of the reference products. After we announced our intention to lift the company, we've launched our first biosimilar announced top line results from clinical and safety studies for one biosimilar candidate and transition to additional proposed biosimilars into clinical patient studies.

In addition to the full products, which have either initiated or completed clinical studies, we continue to progress biosimilar candidates in preclinical phases of development, which target respiratory disease, immunology and oncology representing a substantial addressable market. Our first biosimilar AVT02 a high concentration, low volume biosimilar to Humira has now launched in the EU, as Hukyndra and in Canada as Simlandi.

Later in the presentation, I will break down the opportunity for AVT02 in the US in further detail. In May, we announced top line results from our confirmatory patient studies, AVT04, ustekinumab, a biosimilar to STELARA, becoming only the second company to reach this milestone. We will also go into this program in a bit more detail in subsequent slides.

In July of this year, we initiated a patient study for AVT06, aflibercept biosimilar candidate to EYLEA, a leading ophthalmology therapeutic that has experienced double digit annual growth. In July and August of this year, respectively, we initiated a pharmacokinetic and patient study for AVT03, denosumab biosimilar candidate to PROLIA and XGEVA. The market for these two products, which are two presentations of the same biologic have been growing by over 10% annually over the past five years, and represents an addressable market of more than $5 billion collectively, based on 2021 biosimilar.

Now, I'd like to dig a bit deeper into both AVT02 are biosimilar to Humira, and AVT04 our proposed biosimilar to STELARA. While we have launched AVT02, in Canada and in multiple markets in Europe, the largest opportunity remains the US market, which alone represents $17 billion addressable market based on 2021 data. And we expect to launch AVT02 on July the first 2023 in the US market. It is important to note that the innovative company switch strength for the product in 2018 in the US, and has gradually through prescribing patterns moved the majority of the volume to this new strength.

Today, over 80% of all volume of Humira used in the US is the high concentration for. Alvotech has developed that form and has completed a switching study to support potential interchangeability. This we believe puts us in a position to potentially be the only company to have both the high concentration and interchangeability on the first of July next year.

Having the high concentration products in addition to creating a potentially better patient experience with less volume on injection allows you to offer specific offerings only available in that strength, which can lower doses forces indications having interchangeability could potentially allow switching between an approved biosimilar and well over 80% of the US market. We believe our proposed biosimilar that also utilizes a premium auto injector has the best product profile, and we believe that it will be important in order to realize commercial success. From a competitive standpoint, there are a number of developers of adalimumab. And there have been shifts in strategy among developers to move their programs to the high concentration form and or initiate a switching study in pursuit of interchangeability.

However, we are still the only company that has completed a switching study utilizing a high concentration form of adalimumab. We have also received filing acceptance about BLA that includes data to support both biosimilarity and interchangeability and have a gold date in December of this year.

From public disclosures, we know that both Amgen and Celltrion have initiated interchangeability studies utilizing the high strength for, however, they remain behind out from a timing perspective. Our second potential offering is a proposed by cell line as STELARA, AVT04. We're working towards filing a product in major markets this year in 2022. And we are one of two companies which have announced positive top line results from patient studies utilizing a STELARA biosimilar candidate. As of today, no company has publicly disclosed filings for STELARA biosimilar in the US or Europe.

Furthermore, we have utilized the same post cell line as is used to produce STELARA, called SP2/0, which we believe will reduce development risk. Utilizing the SP2/0 host, cell line facilitates violation of the monoclonal antibody that is associated with longer half-life, which can support more infrequent dosing. The product is also sold at a premium price point, which we believe make it an excellent on cell line target, both from a patient need and a company profitability perspective.

With regards to the competitive landscape, we were the second company to have reported top line results in a patient's study. And we believe that thus far, the competitive landscape remains somewhat limited, considering the size of the market which exceeded $9 billion in 2021. The year-over-year growth rate in the market since the product was first launched a potential lie based on the expiry of the basic pattern in major markets.

We believe that part of the reasons the landscape is driven by the complexity and barriers around SP2/0 and perfusion technology, which is the process required to produce monoclonal antibodies when using them in cell line. At our core architecture as a portfolio company, we have been pleased with our steady progress that we've made in our pipeline since our transaction was announced. And we hope to continue with similar cadence of updates as our business continues to evolve.

We anticipate that most significant near-term catalysts on a filing acceptance about proposed STELARA biosimilar in major markets and regulatory clearance in the US for interchangeable biosimilar to Hukyndra both of which we hope to be in position to announce before the close of 2022.

With that, I'd like to turn the call over to Anil Okay, our Chief Commercial Officer. Anil?

[Anil Okay, Chief Commercial Officer]

Thank you, Mark. As we have recently announced, Alvotech has started to commercialize our high concentration biosimilar to Hukyndra in Canada and certain European markets. This is a very exciting time for Alvotech as we are adding product revenues in addition to the milestone revenues that we have been collecting as an R&D based B2B company thus far. In April of this year, it was announced that JAMP Pharma group through the biosimilar division launched to NAMI, offering Canadian patients a high concentration biosimilar to Hukyndra.

JAMP is a well-established pharmaceutical company in the local market, and markets close to 300 different products in addition to a number of well recognized over the counter products. They have extensive commercial infrastructure, covering all parts of the country and support many of their launches, including Simlandi with JAMP chair, which is the Patient Support Program that's critical to the success of biosimilar launches. JAMP is our exclusive strategic partner in Canada, and not just for adalimumab but also for other biosimilar candidates.

The combination of our biosimilars with JAMP well established and well recognized infrastructure and name, we believe sets us up well for accessing the Canadian biologics market. In Canada in NAMI, along with Simlandi’s biosimilar were the first to high concentration in Europe biosimilars to enter the market. And even the originator had not broadly launched the high concentration form in adult patients prior to our launch. In June of this year, we also launched to Humira in France, Germany, Finland, and Sweden, and we have been gradually expanding the scope of our launch in recent days.

Our strategic partners Stada is a global company with strong roots and coverage across Europe. Particularly in retail markets, we believe that the reputation and recognition of our partner is an important element to maximize the commercial potential for our partner biosimilars and biosimilar candidates. Stada is a long-standing company, and has been a reliable and trustworthy provider for more than a century in their home market. Unlike the JAMP, Stada as a broad strategic partner, and color seven biosimilars and biosimilar candidates under our exclusive agreement.

We look forward to the evolution of our launch, and our partnership as we continue to mature as a company. And while these are our first launches, our intention is to go broadly across global markets with our portfolio, we have partnerships in most markets, large and small. And we believe that the global approach is the most effective way to maximize the value of our assets. Our partners are some of the most respected and well recognized names in their respective markets, including Teva in the US, Fuji Pharma in Japan. And as mentioned earlier, JAMP in Canada. Stada in Europe.

We are also well represented by quality partners in many of the emerging markets across Asia, Latin America, and the Middle East and North African region. They have been incredibly fortunate to build this network of strategic partners. And I believe this is the best way to navigate the complicated nature of market access globally. All of our partnerships are exclusive, nearly all our multi products. This allows us to balance the benefits of private partnerships, that we may benefit from the specialized local and regional expertise of our partners with the complexity of handling multiple partnerships.

One final point that I would like to say about our commercial setup is that we believe it allows us to create a highly leverageable infrastructure, which led us to focus on R&D, and manufacturing. And infrastructure helps us to add markets and launches on top of relatively stable infrastructure.

And now, I would like to turn the call to our Chief Financial Officer, Joel Morales.

[Joel Morales, Chief Financial Officer]

Thanks, Anil. I'll now provide some brief financial highlights for the period ending June 30, 2022. As mentioned, we closed our transaction with OECD on June 15, which provided the company with net proceeds of approximately $140 million. We closed the period with approximately $128 million of cash on hand as of June 30, which includes proceeds from the transaction, but excludes an additional $25 million of restricted cash we have on reserve to satisfy the requirements of our bond agreement.

However, redemptions resulted in less cash contributed from the trust than originally planned. However, as we previously disclosed, prior to the close of the transaction, we explored two financing options to further strengthen our access to liquidity to offset the potential of redemptions. Firstly, we continue to negotiate final terms of a second lien loan facility. Higher redemptions and unexpected global market conditions have delayed this process. However, we are now negotiating final terms of this facility with lenders who are currently in our cap structure, and we expect to have the facility in place by the second half of 2022.

And secondly, we've secured a standby equity purchase agreement with Yorkville with the capacity to raise up to $150 million of additional funding for the company that can enhance cash liquidity as well as free float, which are both potential needs resulting from higher-than-expected redemptions. Most recently, in August to further enhance our liquidity profile, our Board of Directors and Shareholder others agreed to settle $50 million of shareholder advances in equity at the original pipe valuation of $10 per share, which we view as favorable terms to the company.

Additionally, our shareholders have extended the repayment terms of the remaining $60 million of shareholder loans to coincide with additional capital raises in the future, such as when we utilize our separate facility. In terms of operating performance, the company is reaffirming its prior financial guidance for 2022 as presented during our Analyst Day last March. As we have mentioned, we launched AVT02 in certain European markets in Canada.

We expect those markets to materialize more meaningfully towards the end of the second half of this year. We're currently increasing scale for our AVT02 manufacturing process to support our ongoing launches, as well as new launches that we're expecting next year, including in the US. Debt stockpiling using the scaled-up process has resulted in a buildup of inventory through June 30. And we expect that to continue over the next several quarters, particularly as we prepare for our new launches in 2023.

And other points of clarification that is worthwhile noting is that our year-to-date cost of product revenues are disproportionate relative to our revenues in the period. We do expect this to normalize as we increase scale and expand on our launches. This increase in volumes we expect to have a favorable impact on cost of product revenues, particularly as we see increased absorption of our fixed costs. With the equity and debt facilities and settlements in place. And based on our current operating plans, we believe we will have sufficient cash runway to continue investing in our platform and pipeline and achieve positive cash flows over time.

And finally, we close the period with $243.6 million shares outstanding including the earnout shares, which have not yet invested.

And with that, I'd like to turn the presentation over to Ming to cover sustainability at Alvotech. Ming?

[Ming Li, Chief Strategic Officer]

Thank you, Joel. And as Benedict mentioned earlier, I am the Chief Strategy Officer at Alvotech. But more recently, I have been appointed as the head of our sustainability efforts at the company. At Alvotech, we believe that a well-structured sustainability program is essential to the long-term success of our business. We believe this can help identify incremental risks that face us and new opportunities that may create long lasting benefits for all of our stakeholders.

Furthermore, we also believe that Alvotech is in a special position to participate in a more evolved sustainability framework. We strongly believe that increased affordability driven by biosimilars can promote the sustainability of healthcare systems globally. Biologics in some markets like the US represent a disproportionate share of pharmaceutical spending when compared to the total share of prescriptions. In many emerging markets, biologics are often not fully utilized due to the high price and limited reimbursement of many of today's effective biologic medicines. In either case, Biosimilars are well positioned to address the need that has arisen from the therapeutic prominence of biologic medicines.

Moreover, as Robert noted earlier, there are limited pure play biosimilar companies that exist and therefore there are limited ways to gain direct exposure to what we believe is the promise of biosimilars. In addition to the importance that biosimilars can play in healthcare sustainability, Alvotech has a few additional intrinsic qualities that are relevant when considering a broader strategy around sustainability. The location of our manufacturing site in Reykjavik, Iceland allows access of our main production site to substantial renewable energy resources on an isolated grid. This allows us to easily offset our minimal scope one and two emissions footprint, and thus we have been carbon neutral for scope one and two since 2020.

Additionally, the location of our main manufacturing side conveniently located between the large biologics market of the US and the EU, is subject to less water scarcity and wildfires, which are two risks that are commonly analyzed within an ESG framework. However, intrinsic qualities alone will not be sufficient. We understand that sustainability is a commitment and a process to a framework that will evolve over time. Just recently, we have made available on our website, and ESG portal to allow our stakeholders to access information and data that will be useful in assessing that commitment. This applies to environmental, social and governance factors that may be of interest to our stakeholders.

We welcome all stakeholders to review the information and data that have been made available. The metrics released are consistent with NASDAQ and or GRI frameworks. As we globally commercialize our portfolio and increase scale as a company. It was important for our Board of Directors and management team to have a good baseline of information from which to make decisions regarding our sustainability program.

Finally, we have instituted a number of policies in the lead up to our listing that helps support proper governance and transparency. And it made the policies and in certain cases the output of these policies available for public viewing. As their ESG framework evolves, we look forward to continuing to update our stakeholders on our evolving program.

With that, I would like to turn the presentation back over to Benedict Stephan, Benedict?

[Benedict Stephan, Investor Relations]

Thank you, Ming. And with that, we conclude our formal remarks, and we now open up for questions from the audience.

[Robert Wessman, Executive Chairman & Founder]

However, before we start the Q&A session, Mark Leonard will make a quick remark regarding the presentation deck, Mark.

[Mark Levick, Chief Executive Officer]

Hello, everyone. I wanted to note that since the drafting of our prepared remarks, there has been a recent addition to the Clinical Trial Registry from Samsung. That includes a switching study for adalimumab utilizing the high concentration form. In the presentation materials that have been made available, that update has been made. For us, this reinforces that we have taken the proper strategy when it comes to addressing the $17 billion US biosimilar market.

And with that, I'll turn it over to the Q&A.

[Operator]

[Operator Instructions] And your first question comes from the line of Tybalt Mornan from Morgan Stanley. Please proceed with your question.

[Tybalt Mornan, Morgan Stanley]

Hello. Hi, can you hear me?

[Mark Levick, Chief Executive Officer]

Yes, we can.

[Tybalt Mornan, Morgan Stanley]

Perfect. Thank you very much. Well, both on Sunday. I have two questions, please. So the first question is on the launch of the biosimilar Humira in Europe by your partner study. It's obviously a very competitive environment. It's a quite a mature market with established competitors. Have you ever heard this formulation here, but since we launched a few months ago with the hybrids as well, and they struggled to take market share? So I guess my question is, how, what are your expectations for this market? And what market share can you realistically take? Is it possible to see start reaching double digit in markets in Europe? So that's my first question.

My second question is, is on the high concentration, what we've seen in Europe is before the launch of biosimilars high concentration was about above 90%, of the volume of Humira and low concentration biosimilar still managed to take 60% market share. So it looks like the high concentration didn't really prevalent by a low dose biosimilar from taking share. So just wanted to kind of, if you could put this in context with the launch in the US.

And the third question is, is basically on what kind of reaction reassuring PBMs in the US on your ability to supply because, it looks like you have all the facility and your talents to execute on Alvotech's supply, but obviously, you don't have the track record of some of your competitors such as Amazon, Sandoz and so on, who has been obviously supplying biologics to the market for certain number of years. So, what steps can you take to, in order to reassure PBM spouse, any clients in the US that you that Alvotech can actually supply large amounts of volumes to the market? Thank you very much.

[Anil Okay, Chief Commercial Officer]

Thank you to both for the questions. Anil Okay speaking Chief Commercial Officer of Alvotech, of course, there are three questions. So I will start with the first one and give you a bit of a flavor regarding our thinking in the US. So the question was regarding our European launch, first of all we are I would like to underline that Stada is a very well established name in Europe. So their brand name as a company is also a very important element in Alvotech success on top of our product profile.

As you know, European landscape is different landscape than the US typically the physicians and the buyers would like to see long history of the of the players before they make their decisions. And this is what Stada is really providing here. Last but not least, shudders go to market model in the retail market. So I notice, of course, I will not be able to disclose the details. But Stada there is applying different go to market models, which is basically increasing our chances of success. In a nutshell, we are very happy with the progress we are making in Europe with our commercial partner with Stada.

When it comes to the US, and just to remind our launch date is first of July 2023, based on the settlement that we have made with Alvotech. Also, again, just to remind, we are the only company who has successfully announced an interchangeability study on high concentration, sites rate free, low volume adalimumab biosimilar. What we know as part of our conversations with stakeholders, and not only players, but several stakeholders, the product profile that we have is a preferred product profile based on various elements.

Therefore, we are very positive. And we are very well preparing for our launch in the US by first of July 2022. When it comes to your third question around capacity and our capability, capacity will certainly be important. One of the unique attributes to Alvotech as a company is that we have been operating as a private company for nearly a decade. And we have been able to finance significant investment into our infrastructure. As Robert mentioned, we have put over a billion dollar into our infrastructure since the foundation of the company. And as such, we build the facility well before we expect to commercialize a product.

And we feel that is long term differentiated for Alvotech than our partners. Also, it is important to remind that I will take his widely controlling the value chain, including key production elements, instead of relying on third party CMOS, like some of our competitors. Our take is a vertically integrated company. I would like to underline that that's a very important differentiation when it comes to cell line liability. I won't provide a specific number here on this call about we do aim to be a leading supplier of aluminum up not only in the US, but globally for the long term. Thank you.

[Tybalt Mornan, Morgan Stanley]

Thank you.

[Operator]

Thank you. We will take our next question. [Operator Instructions] And your question comes from the line of Karen from Northland. Please ask your question.

[Karen Marchetti, Northland]

Thank you for the question. And congratulations on your progress. With respect to AVT04, you're looking at the regulatory submission prior to year-end ‘22. Would you expect the commercial launch to be in late ’23? Or would it fall into early ‘24? Thanks.

[Ming Li, Chief Strategic Officer]

Thanks. Thank you, Karen, this is Ming Li, Chief Strategy Officer. Thank question. So we haven't [indiscernible] providing specific launch timing expectations outside of adalimumab. So we won't we won't provide, any new launch timing today. Obviously biosimilar market formation tends to be an IP driven event. And the facts here are AbbVie in Europe is sometime in 2024. The main patent expires in the US in late 2023. So that's the patent environment. We certainly want to be ready with our product at the earliest possible date of that that helps answer the question.

[Karen Marchetti, Northland]

Definitely. Thanks so much. And just a follow up and I know that AVT16 and AVT33 Are you an early stage in terms of development, but as you have any comments in terms of potential timeline with respect to confirmatory and PK studies when they would be initiated? Thanks.

[Ming Li, Chief Strategic Officer]

Yes, these are all in in preclinical development. So, the most recent news on our first, AVT04, and then and again, we're the AVT05 and AVT06 are going to be next. So I think we're a little bit early to provide any guidance to on AVT16 and AVT33.

[Karen Marchetti, Northland]

Great, thanks. And congratulations, again. Thank you.

[Operator]

Thank you. [Operator Instructions] We will take our next question. And the question comes from Jason Guerra from Bank of America, please ask your question.

[Jason Guerra, Bank of America]

Hey, guys, thanks for taking my question. I just wanted to understand perhaps you guys have addressed this before in a public forum and I missed it. But the relationship between the two approval events in the US for biosimilar, Humira, the low concentration and I you guys had the FDA, visit the site for the manufacturing and you're just kind of awaiting approval. Does the low concentrate approval in any way gate? The high concentrate interchangeable action date approval decision in December, just wondering if there's any interlinkage there. Thanks.

[Ming Li, Chief Strategic Officer]

Hi, Jason, thank you for the question, I think for just a point of clarification, is that low on both applications or high concentration? So there's no low versus high. The second is another BLA that includes biosimilarity and interchangeability. Mark, I think I'll pass it on to you for further clarification.

[Mark Levick, Chief Executive Officer]

Yes. Great. Thanks, Ming and thanks, Jason for the question. So just following on from things clarification, we do have two BLAs, one for the biosimilarity and one for the interchangeability. They are separate BLAs. We're working with the FDA on both those in parallel stream approval processes.

[Jason Guerra, Bank of America]

Thanks.

[Operator]

Thank you. There seems to be no further questions. I will hand the call back over to management for closing remarks.

[Mark Levick, Chief Executive Officer]

Yes, on behalf of the Alvotech team, I want to thank everybody who participated in today's call and was listening on the webcast. We look forward to seeing you all again. Thank you.

[Operator]

This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.