Alvotech

Welcome to Alvitek's earnings call for the first nine months of 2023. At this time all participants are in a listen only mode. After the speaker's presentation there will be a question and answer session. To ask a question during the session you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question please press star 1 1 again. I would now like to hand I'd now like to introduce and hand over the call to Benedikt Steffensen, Senior Director of Investor Relations and Global Communications of Alvatech. Please proceed.

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.alvatech.com. The release outlines key highlights related to our third quarter results. Additionally, presentation slides that cover our call today have been posted on our website in the events section of investors.albotech.com. Our presentation materials and some of our statements that we make today may include forward-looking statements. These statements do not ensure future performance and are subject to risks and uncertainties that are outlined in company filings with the Securities and Exchange Commission and the Nasdaq Iceland Stock Exchange. These risks and uncertainties could cause actual results to differ materially from forward-looking statements that are made. With me on today's call are Robert Westman, Chairman and CEO of Alvotech, Anil 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 Alvotech. Robert?

Thank you, Benedikt. Thank you all for joining us on this earnings call today and the business update. I would like to start today's presentation by going over some key updates to the business. The company continues to prepare for the upcoming inspection with the US FDA, which we now expect to start on January 11 in the new year. This inspection, if successful, could pave the way of approvals in the U.S. for both ABT02 and ABT04. These are biosimilars to Humira and Stellara. Inspection status of our manufacturing facility is the only outstanding requirement in order to gain approval for both of these applications in the U.S. While we understand that the upcoming inspection is of critical importance, we continue to receive positive confirmation to gain global regulatory approvals. Our second product in our portfolio, AVT04, a biosimilar to Stellara, has recently received approval in Japan and Canada. Additionally, we also receive confirmation of a positive CHMP opinion in Europe, which should soon lead to final approval. Finally, in U.S., the review of AVT04 has been completed, and the application is deemed approvable, subject only to inspection status, as noted earlier. Since our last business update, we have secured rights to a proposed biosimilar to solar, identified as AVT23, with CASI Bioscience. This transaction allows us to follow through on our commitments to our commercial business partners. AVT23 is the only program in our current pipeline and portfolio that does not originate in-house. Our global footprint of commercial partners allows us to enter strategic partnerships like we now have with CACI to accelerate our portfolio expansion. In our partner CASIF, we have found a company that has proven ability to develop approvable biosimilars in regulated markets. We look forward to provide further updates on the program. On that note, CASIF announced in October of this year that our AVT23 entered into confirmatory clinical study. Including AVT23, AlvoTech has now four different biosimilar programs that are in active patient studies. We expect in 2024 to file at least three additional products in major global markets, including the US and EU. And with that, I would like to turn the call over to Anil Oke, our Chief Commercial Officer, to provide further updates. Over to you, Anil.

Thank you, Robert. Regarding ADT02 in the U.S., subject to a satisfactory inspection in January, we expect to gain approval of an interchangeable high concentration biosimilar to Humira on February 24th of 2024 or earlier. We continue to strongly believe that, if approved, our product profile would position AVTO2 well amongst current biosimilars that have yet to penetrate the existing Adalimumab market. Furthermore, timing for approval could yield exclusivity for interchangeability for a period of up to 12 months post-launch. ahead of competition, which makes this potential event much more attractive for AlvoTech from commercial perspective. As we discussed on the last call, the story of Humira biosimilars in the U.S. is still evolving. Thus far, there has been limited uptake of biosimilars, which is a function of a number of factors in our view, which includes product profile. As a reminder, the predominant form of Humira on the market is the high concentration form. Of the crop of current biosimilars on the market, none of them have the combination of high concentration and interchangeability. And while some of the competitors are developing that form, we believe an approval in February for an interchangeable high concentration adalimumab would likely be the first. We believe this combination would be differentiated and have the ability to convert the market more efficiently. Moving to the next slide and turning our attention to AVTO4, our biosimilar to Stellara, we are very pleased with our regulatory progress in a number of different markets. Alvotec is the first company to gain approvals in Japan and Canada, and also the first company to receive positive CHMP opinion by the European Medicines Agency, which should pave the way for the first approval in the European Union. Per IQIA, the market sizes for those regions collectively exceed $3 billion, with the global market of Celera exceeding $10.5 billion based on public disclosures. However, ustekinumab, in our view, is a molecule that could see material growth in the overall market with the introduction of biosimilars. Keep in mind that volume of adalimumab increased by double digits for several years after its introduction in European markets. Stellara is a premium-priced product that could see improved access to the treatment at a potentially higher rate than what was seen in the Humira market. In the US, we have a confirmed license entry date in February of 2025, which should put us in the first wave of biosimilars. One point that we have not previously disclosed is that we now expect to gain interchangeability for ABT04 in the U.S. based on already generated clinical data. We expect to gain interchangeability shortly after our license date when exclusivity for Amgen's product will terminate. Based on our interpretation of the BPCIA and the provisions surrounding exclusivity for interchangeability, we would expect that to occur in April of 2025. While we don't see interchangeability in the future stellar over a similar market as critical as with Humira, gaining interchangeability designation can certainly help with the conversion of the market, as we have seen in recent days with Ranibizumab market. Outside the US, we aim to launch our product at the earliest possible date post-approval. But I can publicly disclose that we expect AVT04 to be launched in various markets during 2024. The precise launch dates will be announced with each market's commercial rollout as early as Q1 next year. Finally, the development of Stellara biosimilars is a challenging one. In this market, we expect less competition than in the Humira market, and many of the big name companies that have competed in the past in biosimilars are not seen as developers in the Stellara market. Based on this backdrop, we are highly excited about the prospects of our Stellara biosimilar. Moving to the next slide, I can provide a brief business development update. It was announced earlier in October that AlvoTech reached an agreement with Kashif Biosciences to license the company's proposed biosimilar to Zolaire. The execution of this agreement ensures continuity to our AVT23 program and improves various aspects to the program, including dossier readiness. It also provides access to an advanced program for multiple major markets. Kashif has announced successful results in a PK study and also initiated earlier this year its confirmatory patient study. Kashif is a proven developer of biosimilars, and our agreement allows us to leverage Alutech's commercial network and market access and regulatory platform to reach key markets that include the European Union, Australia, Canada, the UK, and New Zealand. Based on public information, only Celtrion has filed a Zoller biosimilar candidate in the European Union, with only two other companies that have active ongoing clinical programs. In addition to Kashif agreement, AlvoTech maintains a healthy pipeline of business development activities. On our last call, we discussed our agreement with Advance, covering multiple products in key markets, including Europe. We have demonstrated the ability to generate significant milestone revenues with reputable partners for assets both in late-stage and early-stage development. Our current BD activities are focused in the oncology and oncology-related sectors as we have assets in this space, both early and advanced, that remain available in various geographies. We are currently in late stage discussions with a strategic partner for some of these assets, and we look forward to providing updates in the near future on further BD transactions. Finally, on my side, I would like to finish with an overall pipeline update. In total, we have 11 disclosed programs in our portfolio and pipeline, We have demonstrated our ability to gain approval on products across numerous regulatory environments as evidenced by ABT02 and more recently ABT04. As Robert noted in his earlier opening remarks, we have four active late-stage clinical assets in our portfolio and expect to submit a number of them in major markets in 2024. Beyond that, ABT16, our biosimilar candidate to NTVO, is at the scale-up phase, and we are seeking to be the first company to enter a proposed biosimilarity into clinical studies, which we expect to commence sometime in 2024. Overall, we are pleased with the progression of our pipeline and look forward to further updates as the portfolio continues to progress. As you can hear, 2024 will be a pivotal year for AlvoTech. as we expect two commercial products and four active late-stage clinical assets that will allow us to have one of the most attractive and advanced position among biosimilar players. With that, I will turn the call over to Joel Morales, who is our Chief Financial Officer.

Thanks, Enil. I'll now provide some brief financial highlights for the period ending September 30th, 2023. On our last earnings call in June, we reported that we had recently completed a private placement of subordinated convertible bonds for $140 million with the strong participation from a diverse group of Icelandic institutional investors, as well as Teva and Estique, which subscribed to $40 million and $30 million investments, respectively. This transaction closed and funded during the third quarter, and as of September 30th, we closed with $68.3 million of cash on hand, excluding $25.2 million of restricted cash. In terms of our operating performance, the company recorded $29.8 million in product revenue for the first nine months of 2023 versus $11.1 million during the same period in the prior year. This sharp increase is driven by the timing of our launches that started in the second quarter of 2022. Since then, our partners have continued to expand on share in existing markets throughout Europe and Canada. As we mentioned during our last quarter call, our shipments to our commercial partners have increased during the third quarter versus Q2. From a geographic mix perspective, our product is being sold into multiple countries across Europe, and this can lead to both favorable and unfavorable pricing dynamics based on how our products pull through this mix of markets during any given period. In Q3, our product was sold disproportionately in lower priced countries. We expect to see strong volume and product revenue growth and milestone revenue recognition in the fourth quarter, as indicated on our last earnings call. We recognized $8 million of milestone revenues during the third quarter, primarily driven by a development milestone for our AVT23 program. We are in active pursuit of additional licensing opportunities for our pipeline assets and continue to advance the programs in our pipeline, which we anticipate could trigger additional milestone revenue recognition and cash collections in the final weeks of the year. Another point worthwhile noting is that the cost of product revenue for the nine months ended September 30, 2023 is disproportionate relative to the product revenue due to the timing of new product launches, scale of manufacturing activities, production-related charges, and costs associated with FDA inspection readiness. We do expect this to normalize once we obtain FDA approval, realize increased scale of manufacturing, and expand on our launches. We anticipate that this increase in volumes will have a favorable impact on cost of product revenues, particularly as we increase absorption of our fixed costs. As we approach the end of the year, you can expect that we will continue to expand our launches of ABT02 into existing and additional markets and expect shipments to our commercial partners to increase. Our pre-launch preparations and scale-up manufacturing activities will result in a build of inventory, which we expect to continue through the end of the year and into 2024. As highlighted earlier on the call, we are taking all the necessary actions to prepare for the next FDA inspection in January, which is the remaining step towards access to the U.S. market for both ABT02 and ABT04. Meantime, we are pleased to see approvals for our marketing applications for AVTO4 in Canada and Japan and expect the same from the European Commission in January. This potentially allows us to commence shipments of AVTO4 to our commercial partners before the end of the year. Additionally, approvals in various markets may lead to additional milestone revenues and collections as per our commercial agreements. The exact timing and result of these events will be made clear by the end of the year. Also, as noted earlier in the presentation by Anil, we have an active BD pipeline that has more recently been focused on partnering with our oncology and oncology related assets. Accordingly, the company is actively pursuing licensing deals for early phase programs with a strategic partner or partners providing upfront cash and milestones over time. On a final note, We closed the period with 266 million shares outstanding, including unvested or not shares. And with that, I'd like to turn the call back over to the operator for Q&A. Operator?

Thank you, Joel. With that, we conclude our formal remarks. We now open for questions from the audience. As a reminder, to ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. We'll now move to our first question. Our first question comes from the line of Balaji Prasad from Barclays. Please go ahead.

Hi, everyone. This is Michaela on for Balaji. Thanks for taking our questions. Just a quick one from me. Just with the facility re-inspection set for early next year, Could you help us better understand more about TEVA's contribution in getting the facility ready for approval? Any additional details there would be helpful. Thanks so much.

Yeah, Robert Pressman here. Happy to answer that. So basically, we have been addressing all the observation we got from the previous inspection. So we believe that we have answered those already. in our previous answers to FDA, but likely that those answers will be reviewed once inspection happens on site, which is 10th to 19th of January. But overall, we believe that this will be a general inspection, if you will. So we are preparing ourselves for a general GMP inspection. We have been, of course, using the time very well since the last inspection. And we believe, based on the effort and the resources we have put into the quality system and the people and training, that we are in a good place to basically receive FDA now in January.

Thank you. We'll now move on to our next question. Our next question comes from the line of Niall Alexander from Deutsche Bank. Please go ahead.

Hi, guys. It's Niall Alexander from Deutsche Bank. Two questions, please. More one on just the U.S. market as a whole. So like you said, we're seeing limited uptake of the current U.S. Humira biosimilars with 98% of the markets are really being made up by the Humira brand still. I know you can't comment on behalf of other Humira biosimilars, but I guess it'd be good to understand from your view why we're seeing this slow uptake. You mentioned this uptake was due to product profile, but could it be anything else? I'm asking if I'm just trying to understand if AVT02 could potentially fall into the same bucket. So that's my first question. And then the second question on AVT02 pricing, it'd be good if we could get any takes on pricing since we've already seen a range of biosimilars enter the space, and how that pricing can compare to the Humira brand itself. Thank you.

Thank you, Neil, for the question. Anil Oka is speaking. First of all, on the Darimab commercial for the US and the conversion rates, the conversion has been relatively limited. We have believed that while ABDI remains primarily on the formulary, non-interchangeable products, and particularly the low-concentration forms, would have at a difficult time, converting large pieces of the market, even despite formulary positions. We actually see this as an opportunity for Alvotek and our partner Tela. We continue to believe that a high concentration interchangeable Adeliumab would be more efficient in converting market, even with obvious current formulary position. Regarding pricing, for 02 or 04. Unfortunately, I will not be able to comment neither on our strategy or the market situation. So I would need to pass this question, but thank you very much.

That was helpful. Thank you.

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

Hello, thank you. So my first question is on the interchangeability on Stellara. I think you mentioned your expectations of seeing the exclusivity from AppGen expiring in April 25. If you could just give us more details on the assumptions behind the reasoning and when the clock starts ticking. Second question on Umira, also the exclusivity of the high-dose interchangeability, and just if you could give more details on your confidence on getting this exclusivity, because I think it's a little bit confusing, and just to understand exactly what the situation is here. And maybe third, on the revenues in Q3, I think some elements have been mentioned, but is there any destocking impact or anything else from a sustainability perspective as well impacting the revenue in the third quarter? Thank you.

Thank you, Thibault. Anu is here again. On the interchangeability and exclusivity questions, actually I will bundle my answer for both of the assets because the logic is pretty much similar. CIA legislation outlines various ways to interpret the timing based on a number of earlier off clauses. Here the definition as we see it is 18 months after approval. Therefore 402, sorry 404, we expect that to run its course shortly after our license date. So the same is valid for ADT02. With the same logic, we also expect the exclusivity as well. And we are expecting to be the first interchangeable and high concentration other limbaupai similar into the US market. So this is how we are interpreting exclusivity when it comes to O2 and O4. Over to you, Joel, for the revenue piece.

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

Thank you. As a reminder, to ask a question, you will need to press star 1 and 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 and 1 again. Please stand by while we form the Q&A queue. There are no further questions at this time, so I'll hand the call back to Benedikt Steffensen for closing remarks.

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

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