Good day, and thank you for standing by. Welcome to the Alvotech Q1 2024 Earnings Conference Call. At this time all participants are in a 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 hand the conference over to your speaker today, Benedikt Stefansson. Please go ahead.

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 Investors 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?

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 interchangeability with a high concentration form of 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 zero out-of-pocket cost and noticed that 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;…

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 both 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 zero 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…

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 Uzpruvo. 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 two 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 three 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…

Thank you. [Operator Instructions] We will take our first question. And your first question comes from the line of Balaji Prasad from Barclays. Please go ahead, your line is open.

Hi, good morning everyone. Great to see the progress achieved till now and also the guidance raise. Quite a few questions, but I'll stick to two 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 missed it by nearly 25%.

To answer your first question -- 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.

And on the 1 million units, Joel?

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.

Great.

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%. 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.

Yes, I appreciate it. Thank you.

Thank you. We will take our next question. The next question comes from the line of Vineet Agrawal from Citi. Please go ahead. Your line is open.

Hi there, Vineet from Citi. First on guidance. For 2025, do you continue to expect twice the growth of -- based on the revised guidance as you laid 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? Thank you.

Hi, 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.

Thank you very much, Joel. 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.

Thank you.

Thank you. [Operator Instructions] We will take our next question. Your next question comes from the line of Balaji Prasad from Barclays. Please go ahead, your line is open.

All right, thanks for the questions again. Following up on your Reddy's collaboration. While Reddy's is a company I have followed from nearly 20 years, I still thought it was a difficult choice. Help us understand what you saw Reddy's 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?

Thank you, Balaji, for the questions. So let me start with -- start with Dr. Reddy's. 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. Their 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 branded 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 two information should already give a comfort to the market that we are going to be one of the leading adalimumab biosimilars in the U.S. market.

Thank you.

Thank you. We will take our next question. Your next question comes from the line of Ashwani Verma from UBS. Please go ahead. Your line is open.

Hi, congrats on the progress. Thanks for taking our question. Just a clarification on the 1 million units that you mentioned about biosimilar Humira. Is that -- is that unit pens or is it PRA? I just wanted to get this clarification on that. Thanks.

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

Thanks.

Thank you. [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 Vineet Agrawal from Citi. Please go ahead. Your line is open.

Yes, thanks for taking my follow-up. 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 two different views in the market from two different players. How significant that is in terms of gaining market share? Thank you.

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 interchangeability versus not having an interchangeability is a better position to be in the marketplace.

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

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.

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