Welcome to the Second Quarter 2023 Earnings Call for Alvotech. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to introduce and hand the conference over to Mr. Benedikt Stefansson, Senior Director of Investor Relations and Global Communications at Alvotech. Please proceed.

Thank you. Good morning to our U.S. audience and good afternoon to our listeners in Iceland, Europe and Asia. Yesterday evening the company issued a press release that can be found in the News section of our investor portal investors.alvotech.com. The release outlines key highlights related to our second quarter results. Additionally, presentation slides that cover our call today have been posted on our website in the Events section of investors.alvotech.com. We will be referring to these slides during our presentation today. Our presentation materials and some of the statements that we make today may include forward-looking statements. These statements do not ensure future performance and are subject to risks and uncertainties that are outlined in company filings with the Securities and Exchange Commission and the NASDAQ Iceland Stock Exchange. These risks and uncertainties are inherently subject to risks, variability and contingencies, many of which are beyond Alvotech's control and 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?

Thank you, Benedikt. Thank you all for joining us here today. Allow me to kick-off today’s discussion by sharing some pivotal update since our last public communication. To begin with, we have resubmitted interchangeable BLA for our proposed biosimilar to HUMIRA, also known as a AVT02. As a reminder, we have developed a high concentration formulation of adalimumab, which is the predominant form on the market today and we have met all requirements to secure interchangeability. FDA teams, our application approval for both biosimilarity and the changeability, subject to a positive reinspection of our facility in Reykjavik, Iceland. We aim to complete a satisfactory inspection during the review period for the resubmitted application and expect AVT02 to be a material contributor in 2024, if given final approval. Over the course of past 18 months, Alvotech has undergone significant changes as we transition from a development stage company to a full scale commercial operation. We have made and continue to make significant investments in our manufacturing and quality processes and have taken the feedback received from FDA inspections to focus these investments. We are confident that the changes that we have made at our site to put the company in the best positions for our satisfactory reinspection. Our team has been supported by qualified expert consultants on site and we have also been working closely with our partner in U.S., Teva Pharmaceuticals to ensure that we are putting the company in the best position to succeed. And while that coming inspection is of critical importance to us, it's equally crucial that we have and maintain a continuous improvement mindset, when it comes to quality and compliance. We will be able to demonstrate that culture during the next inspection as well as for future inspections. Next, I would like to highlight the…

Thank you, Robert. I would like to start with a business development update. Firstly, since our last public call in May, we have expanded our partnership with Advanz Pharma. The enhanced partnership adds five additional proposed biosimilars that are targeted for European markets. These include the biosimilar candidates to SIMPONI and Entyvio as well as three early-stage undisclosed biosimilars. This brings our total pipeline products to 11. The transaction brought an upfront payment of approximately $61 million, as well as additional potential milestone based payments of over $287 million. The in-market revenue share is similar to previous deals that we have executed across other markets as 40% of in-market sales to Alvotech. The transaction was executed after significant due diligence by our partner, which demonstrates the strength of our programs and the company's overall capabilities as a biosimilar developer and manufacturer. Furthermore, it highlights the ability to leverage our platform and monetize assets even in the early stages of development, which we view as a key strength in a business-to-business model. Finally, our business development pipeline remains active. While we have successfully licensed many of our products and territories, we are also in the process of seeking a commercial partner for AVT03 a proposed biosimilar to Prolia and Xgeva, together with AVT03. a biosimilar candidate to KEYTRUDA. Both proposed biosimilars are in the oncology space, where we intend to expand in the future. We hope to provide updates as our business development progress continues. Turning to the next slide. We have also provided a summary of the recent expansion in our partnership with Teva for the U.S. market. Teva continues to be steadfastly committed to both the biosimilar market and its partnership with Alvotech. The recent licensing deal and investment in Alvotech serve to a firm Teva's commitment on both…

Thanks, Anil. I'll now provide some brief financial highlights for the period ending June 30, 2023. On our last earnings call in May, we reported that we were exploring financing options to raise additional capital as a result of the uncertainty stemming from the timing of the FDA approval for our BLAs for AVT02. Since then, and as Robert mentioned earlier, we have recently completed a private placement of subordinated convertible bonds for $140 million with a strong participation from a diverse group of Icelandic institutional investors as well as Teva and [indiscernible], which subscribed to $40 million and $30 million investments, respectively. In addition, during the quarter, we collected over $60 million in cash, primarily from the signing of the licensing deal with Advanz. We ended the first half with $60.5 million of cash on hand. Giving effect to the private placement we recently finalized our pro forma cash balance as of June 30 is approximately $180 million excluding $25 million of restricted cash. In terms of our operating performance, the company recorded $22.7 million in product revenue for the first six months of 2023 versus $3.9 million during the same period in the prior year. This sharp increase is driven by the timing of launches that started in the second quarter of 2022. Since then, our partners have continued to expand on share in existing markets, primarily in Europe and Canada, and we have also launched into additional markets throughout the rest of the world. Milestone revenues are negative for the period due to the net impact of licensing arrangements closed during the second quarter. We are in active pursuit of additional licensing opportunities for our pipeline assets as indicated by our most recent deal with Teva and continue to advance the programs in our pipeline, which we…

Thank you, Joel. With that, we conclude our formal remarks. We are now open for questions from the audience. [Operator Instructions] And the questions come from the line of Carl Byrnes from Northland Capital Markets. Please ask your question.

Thanks so much for the question and congratulations on your progress. First off, can you reconcile the second quarter '23 net product revenue with that in the first quarter of '23, given that it looks like it's sequentially down?

Yeah. I think -- Robert Wessman, here. So overall, I would want to maybe use opportunity to explain why we saw the revenues from first quarter to second quarter this year -- in the first half, we have been prioritizing the FDA inspection we had and the responses to the observations and we clearly pulled some of the key resources away from day to day, so that's one point. But the main point more importantly is that we have been producing and we have a large stock of finished goods on hand, which will be shipped in third quarter and fourth quarter this year. Part of this volume was used to validate our increased [indiscernible] size and expanding regulatory approval in Europe. So we expect that this year. So basically, in the second quarter this year, we used the sizable capacity of the business to basically produce inventories, which will be released, as I said, later this year.

Great. Thank you. And then just one follow-up. Is it possible to provide any thoughts and anticipated be like filing time lines for 03, 05, 06 in '23? Thanks.

Yeah. We haven't provided updates for future filing dates, but the next one you could assume would be 06. It's the one that's the most advanced.

Got it. Congratulations and thanks again.

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

Hello. Thank you for taking my questions. Just a couple on the U.S. market for HUMIRA and biosimilar. Clearly, ATP (ph) been holding more volume share in this market than anyone expected and has had on their perspective, quite a successful contracting strategy. So I just wanted to have kind of an update on your side, on your view on when this market will open to biosimilar in terms of timing. So is it kind of H1 next year? Is it kind of middle of next year? And is there a catalyst or is there something specific that could kind of force PBM to become more friendly -- more biosimilar friendly, I would say, and see the kind of share of biosimilar in the volume increase over time. So that's my first question? Second one, you mentioned the innovative commercial models that we are seeing emerging on the U.S. in biosimilar market. So we saw first [indiscernible] did something doing something a little bit innovative and Sandoz having this deal with CVS as well, which both seem to focus on reducing the price discount on the list price. So do you expect this to be restricted to HUMIRA because of the competitive situation or could we see this type of deal, in your view, becoming more prevalent on the U.S. biosimilar market? And is it impacting in any way how you are thinking about your own commercial strategy in partnership with Teva for the U.S. market? Thank you.

Thank you, Thibaut. Anil is here, let me take your questions. On the first one, you are right, the conversion has been relatively limited for the biosimilars. We have believed that while ATP (ph) remains primary on the formulary non-interchangeable products and particularly the low concentration forms would have a difficult time converting large pieces of the market, even despite formulary positions. We have been very consistent on that. So we do not -- we are not surprised with this situation as of now. We continue to believe that a high concentration interchanging with adalimumab would be more efficient in converting market even without this current formulary position. So we see adalimumab more like in 2024 material event for Alvotech. On your second question, at this stage, what I would like to say and have said in the earlier remarks is that the story of HUMIRA biosimilars is still being written. We believe that the market will find their way ultimately to support by biosimilars and within that market, we continue to believe that differentiation matters. Of course, there is a potential for other type of arrangements, but I wouldn't want to comment further on that. What I can say, we have probably the best commercial partner in the U.S. market, together with our partner, Teva, we are exploring multiple approaches, but I wouldn't want to telegraph that at this stage. We continue to stay engaged with the market are also laser focused on approval, which will be perquisite to test our strategies. Thank you.

Thank you.

We are now going to proceed with our next question. And the questions come from Niall Alexander (ph) from Deutsche Bank.

Niall Alexander from Deutsche Bank. Two questions, please. Just wanted to confirm when we would receive guidance FY guidance? I'm guessing we may not receive it this year, but would we receive a sort of for FY '24 or can you give any guidance whatsoever this year? That's the first question. And then second one would be good to get your -- if you could provide any color and thoughts into potential pricing of AVT02 subject to approval in the U.S. Thank you.

Hi. This is Joel. So I can answer the first question. I think as highlighted in my opening remarks, we have quite a number of positive items that we have in our outlook that are still bound by uncertainty in terms of timing, which is what's driving or not providing guidance at this time, though we are excited for them to play out in our near future. That being said, in terms of the timing of when we expect to provide guidance, as you've heard from me in the past, I think the timing of U.S. approval, in particular, is a large driver. It is a material driver of top line and bottom line for our company. And so I can't tell you right now exactly when it is, we'll be in the best position to provide guidance, but I think you can expect that it will largely be connected to the timing of approval and commercial contracting so that I can be more precise with giving guidance.

I can take the second question. In terms of pricing, of course, we cannot give a guidance. As I said before, we have the best commercial partner in the U.S. market. Teva has been very successful with both biosimilars as well as with the specialty products in the U.S. market. They have a very clear pricing strategy when it comes to AVT02. Also, we have very good engagements with the players when it comes to pricing and different models. So we have pretty good visibility on that, but I would not like to give a guidance at this stage.

Thank you.

[Operator Instructions] We are now going to proceed with our next question. And the questions come from the line of Andrew Baum from Citi. Please ask your question.

Thank you. Two questions. Number one, should I assume that CVS will now only be contracting with Sandoz (ph) for biosimilars adalimumab a following the [indiscernible] JV? And then second, obviously, there are two other major PBMs that cover with CVS, 8% of covered lives in the U.S. to my mind, neither of those was yet to sign a similar deal. Are you in active discussions with either of them in a similar type structure as the one that Sandoz (ph) has entered. Thank you.

Thank you for the question. I would like to say, as also iterated before, HUMIRA market in the U.S. is still being written. So we have, of course, through Teva multiple interactions going on with all the players you named [Technical Difficulty] some of them you didn't name. So we clearly understand their expectations, and we are flexible in our approach. But we believe that AVT02 is still going to be a substantial opportunity both for Alvotech and for us. And I would like to also remind that still today, Alvotech is the only candidate to bring the best product profile to the U.S. market with our interchangeability designation with our device and with all other features that we have added in our products that we believe is going to be appreciated by the payers and the U.S. market.

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

Thank you, [indiscernible]. On behalf of the Alvotech team, I would like to thank all the participants in our webcast today and the participants on the Q&A. 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 your lines. Thank you.