Earnings Labs

Alvotech (ALVO)

Q3 2024 Earnings Call· Thu, Nov 14, 2024

$3.55

+7.42%

Key Takeaways · AI generated
AI summary not yet generated for this transcript. Generation in progress for older transcripts; check back soon, or browse the full transcript below.

Same-Day

-2.82%

1 Week

+3.07%

1 Month

+0.33%

vs S&P

-1.51%

Transcript

Operator

Operator

Good day, and thank you for standing by. Welcome to the Alvotech's Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your first speaker today. Benedikt Stefansson. Please go ahead.

Benedikt Stefansson

Analyst

Thank you, and good morning or afternoon to everyone joining us on this call today. Yesterday evening, the company issued a press release that can be found on our website, www.alvotech.com. The release reports financial results for the first nine months of 2024 and provides a business update. Additionally, presentation slides that cover our call today have been posted on our investor website. You'll find all materials posted for the first nine months 2024 earnings call under News and Events in the Events and Presentations section on investors.alvotec.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. 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 Chief Executive Officer 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. Robert?

Robert Wessman

Analyst

Thank you, Benedict, and greetings to everyone joining us on the call today. We are very pleased with the results on the quarter and the first nine months of 2024 and as well as the continued progress we are seeing in the business overall. Total revenues for the first nine months of 2024 increased nearly 9 times when we compared to the same period in 2023. Revenues from the products for the first nine months rose to $128 million, which was driven by an increase in product revenues in the third quarter as compared to the second quarter in 2024. As importantly, the company realized a material step-up of underlying product gross margins, which more than doubled in the third quarter when compared to the second quarter. As we have discussed in the past, we expect a material increase in product gross margin in the second half of the year compared to the first half of the year. The drivers of improved margin are increased utilization of the manufacturing site and realization of the scale of activities for on-market products and ex-U.S. revenues for our biosimilars to Stelara. We do expect continued margin expansion due to better utilization and the shift in the product mix that will start to include Stelara biosimilar for U.S. as well as expected contribution from new products such as AVT06, our proposed biosimilar to Eylea and AVT05, our biosimilar candidate to Simponi and, AVT03, our biosimilar candidate to Prolia and Xgeva. Milestone revenues year-to-date reached over $210 million. While the majority of the revenue came in in the second quarter of this year, the third quarter saw expected revenues from existing partnerships and a few new partnerships deals. We are thrilled with our ongoing progress and our path to become a leading global biosimilar company.…

Anil Okay

Analyst

Thank you, Robert. I will start with a commercial update in the U.S. We continue to ramp up our supply to our U.S. partners, which include both Quallent, private label as well as Teva. As we noted, we have approximately 1.3 million units in committed purchase orders for 2024 that we intend to supply this year. Just over 40% of that has now been fulfilled through the third quarter. So we do expect a meaningful step-up in biosimilar Humira revenue for the U.S. in the fourth quarter. With the order cycle we have, we are also seeing first quarter shaping up nicely as well. On the formulary side, we do expect expanded commercial coverage in the U.S. and additional exclusionary actions by payers in the U.S. markets which we believe will contribute to a growth year for the product in 2025. Moving to biosimilar Stelara, we recently announced that we have received approval on all indications for SELARSDI, ensuring a full label launch in February of next year. We have submitted the necessary supplements to also gain interchangeability for the U.S. market. And the BSUFA date for that is set for February 19th of next year. If approved, we expect the approval to be provisional with final approval for interchangeability to happen in April as exclusivity for the first interchangeable product expires. On the commercial front, we expect formulary coverage in 2025 and remain in conversations for potential private label businesses. We look forward to our year end call to provide further updates as well as an outlook for both opportunities in the near year. Moving to the next slide. I would like to briefly discuss our commercialization efforts outside the U.S. AVT02, our biosimilar to Humira has now been launched in 26 markets globally, including Canada and various European…

Joel Morales

Analyst

Thank you, Anil. I'll now provide financial highlights for the period ending September 30, 2024. With respect to our operating performance overall during the third quarter, we continued to build upon the positive momentum we established during Q2. Product revenues are growing as our partners launch our products into U.S. and rest of world markets, the company has delivered our second consecutive positive operating profit and adjusted EBITDA quarter, and we continue to be focused on operational execution to maximize the potential of our launches as we conclude the final quarter of the year. Total revenues for the nine months ended were $339 million versus $38 million during the same period in the prior year, representing an almost nine times increase. Product revenues were $128 million, an increase of $98 million or 330% versus the prior year. And milestone revenues were $211 million versus $8 million for the same period in '23. This topline performance was driven by another consecutive quarter of increasing product revenues and continued milestone revenue recognition, where total revenues for the third quarter were $103 million versus $18 million in the prior year. Product revenues in the third quarter were $62 million, the highest recorded quarter by Alvotech, an increase of 16% from Q2. This quarter-over-quarter increase is driven by higher shipments of AVT02 for the U.S. market as we continue to ship product in line with the orders we've received and we expect these shipments to continue stepping up into the fourth quarter. Additionally, in Q3, we also continued to expand upon our launches of AVT04, our biosimilar to Stelara into ex- U.S. markets as our commercial partner expands their presence into European markets. And we also continue to supply into the Japanese market. Product margin in Q3 specifically reached 37% compared to 17% in…

Operator

Operator

[Operator Instructions] And the first question comes from the line of Balaji Prasad from Barclays. Please go ahead. Your line is now open.

Balaji Prasad

Analyst

Hi, good morning, everyone, and congratulations on the quarter. So I have a few, but I'll restrict to two. Firstly, on the 483s, they were a bit of a surprise for me because as per my understanding when we visited the facility, I thought the facility was good for the next two years following the Jan '24 inspection and the next major inspection will be Jan '26 at least. So it looks like there's been an earlier inspection. Can you comment on that? And since you categorize this as a successful inspection, I would imagine the 483s were fairly benign. So could you also elaborate on that? That's one. Two, I would want to understand the guidance a bit more. I understand the uncertainties by partnership, but considering that we are nine months done, $339 million revenue is delivered till now, I'm surprised that the guidance wasn't tightened further. There's still a $100 million spread with a $400 million to $500 million guidance. If you could help me understand that too. Thanks.

Robert Wessman

Analyst

Yes. Thank you for the question. Robert Wessman here. So basically, FDA will most likely come with the cadence of every second year to inspect the facility. We, of course went through a pre-approval inspection on two products which are AVT02 and AVT04, but we always knew that they would come again for a regular commercial GMP inspection, if you will. So as we saw it, FDA was combining few inspections out of Scandinavia and most likely came to Iceland to combine that. The outcome of the second inspection actually came with a very short notice, was a very successful one, we believe. And I would say those two observations we got are easily addressable. But of course, by saying that, I mean, we take every inspection and observation seriously, if you will. I mean, if you look at the overall the two observation, one was pointing at a past action, I believed back to 2022, with how we were handling the reporting on our autoinjector and we just committed to change that reporting going forward that was related to different market and even U.S. And the other one was related to an assay, which is commonly used and we are using with the same outcome and success as everyone else. But overall FDA is starting to divert the industry as a whole away from that method. And we already had starting to use a different method, which for U.S. markets, we have already submitted a variation because we need a variation to include a different type of method. But overall, it was in my mind, a great success. And just underlined on a very short notice, the company was very much ready for FDA and we will continue to be inspection-ready at any given time. And the just to highlight that also, we are submitting three products into U.S. and it's highly likely that we will have a inspection again -- prior approval inspection, if you will, already next year because of the three submission. But the cadence of general GMP inspection is every two year. And this is what that was the second one.

Balaji Prasad

Analyst

Thanks, Robert.

Joel Morales

Analyst

And hi, Balaji, this is Joel. Thanks for your question. I think with respect to guidance, as 2024 progresses, we are seeing quite a rapid ramp in our revenues and you can see that in second and third quarter results. And as we mentioned, we expect to see that continue to increase in the fourth quarter. But there still remains, as you highlight, a wide variety of outcomes that could impact the product mix and profitability and this includes some expected shipments that may move into very early in '25, which would have no negative commercial bearing, but it does somewhat restrict our ability to refine our guidance any further for the calendar year.

Balaji Prasad

Analyst

Thanks, Joel. If I could just maybe pursue that a bit more. Considering that you have product revenues of around $62 million in Q3 and that is -- huge portion of Humira is going to be boosted in Q4, I would have thought that just product revenues from Humira alone would take you through the beyond the $400 million mark.

Joel Morales

Analyst

Yes. I mean, in the fourth quarter, we are, as we mentioned, planning to continue shipments in the fourth quarter. It is a high volume of shipments. And again, it's a question of how much of that could potentially cross over into '25. That's both for the launch of -- or I should say products related to Humira, but also new product launches as well.

Balaji Prasad

Analyst

Got it.

Robert Wessman

Analyst

Yes, it's kind of inconvenient that the December month is end of the calendar year, if you will. So it's a matter of how much we ship in December versus January and the business is there. And just to underline that what the question is related to, as we have said, our fourth quarter will be by far the strongest shipment of products in the entire year towards '24. And we are gearing well to it. We are seeing -- that is shaping up very nicely. But again, there might be some spillover to -- towards '25, which we don't want to really commit to 100% now, whether it ends all in December or whether it spills over to next year..

Operator

Operator

Thank you. We will now take our next question. Please stand by. And the next question comes from the line of Niall Alexander from Deutsche Bank. Please go ahead. Your line is now open.

Niall Alexander

Analyst

Hi, it's Niall Alexander from Deutsche Bank. Thanks for taking my questions. So just two, please for now. The FDA inspection, I guess just push a little bit more on that. Will that have, or could it have any impact on the launch of Stelara biosimilar at the beginning of next year? On top of the guidance as well, sorry. So it was early on in the year. You've communicated $600 million to $800 million revenue guidance with the news of the change in supply shipment, the news on the FDA inspection, is there -- should we assume that that guidance is reasonable to have for the time being? And sorry, if I can just squeeze in one more on the Eylea biosimilar. I guess in your view, what do you think Alvotech -- or sorry, in your view, what do you think Amgen is doing right to get over the line? And what do you think Alvotech needs to do to get them -- get their Eylea biosimilar in the U.S. potentially over the line? Thank you.

Robert Wessman

Analyst

Yes. Robert here, thanks for the question. So if you look at our first successful FDA inspection at the beginning of the year, it was a pre-approval inspection for two products. And we went through that in a stellar way with one 483. When you have a general GMP inspection is a little bit different inspection, but usually broader on the whole systems and being first time commercial -- first time commercial inspection, if you will, it reaches out in a little bit different areas. Clearly and surely this is not going to hold off any launches having two 483s, the first one had one 483, this one had two 483s. The two 483s are easily addressable, as I mentioned, surely will not hold off any launches and having those two 483, I believe is a great success, to be honest being easily addressable. On the guidance, we have not given out a guidance as new guidance for 2025. We will do that once the commercial negotiation has completed for AVT04. So I -- meanwhile, we have not given out the new guidance. I think it's very fair to assume that the old guidance is still basically valis, $600 million to $800 million, as you mentioned. So, we should generally assume that is still in place until we come in with something else. And Anil can talk about the opportunity which we saw in Amen but just one sentence on that for me is that we think this could create amazing opportunity for us. We are of course evaluating the opportunity. We know how our product is differently developed from the one which are injuncted. So it was exciting news when Amgen came out. But Anil, you want to add to that?

Anil Okay

Analyst

Thank you, Robert. So first of all, we'd like to remind you that we will be launching in Europe in day-one, which will be still next year in 2025. When it comes to the U.S., as you can appreciate, at this time, I won't comment further on our IP strategy. For us, the first step will be gaining -- filing acceptance, which should happen soon. And from there, I would assume there will be more public information that becomes available. But as Robert mentioned, we are very excited of this opportunity. It's an interesting opportunity here and we have a clear strategy to hopefully be in the market as soon as possible.

Operator

Operator

Thank you. We will now take our next question. Please stand by. And the next question comes from the line of Carl Byrnes from Northland Capital Markets. Please go ahead. Your line is now open.

Carl Byrnes

Analyst

Thanks for the question and congratulations on your progress. I'm wondering if you can comment at all in-terms of your expectation of where gross profit margin might be over the next 12 months to 18 months considering product sales ramp and efficiencies that you've achieved? Thanks.

Anil Okay

Analyst

Hi, Carl [technical difficulty] thanks for your question. You saw in my opening remarks, our product margins in particular went from 17% to 37% in the third-quarter. We do expect our product margins to continue to expand as we exit the year. At this point in time, we're not providing any guidance for 2025.

Carl Byrnes

Analyst

Great. Fair enough. And then just as a quick follow-up. Can you provide any breakout on U.S. product sales for the third quarter and nine months? Thanks.

Anil Okay

Analyst

We currently do not provide any breakout of our U.S. product sales by product. But what we can say is that our ex- U.S. contribution is significant and can reach up to a third we're expecting of our total revenues by the end-of-the year.

Robert Wessman

Analyst

Yes, Carl, I think as we mature and diversify, you're going to see more granular reporting, but obviously, these are early launches and there's one-product currently launched in the U.S.

Carl Byrnes

Analyst

Exactly. No worries. Thank you.

Operator

Operator

Thank you. As there are no further questions, I would like to hand back to Benedikt Stefansson for any closing remarks.

Benedikt Stefansson

Analyst

Okay. On behalf of the Alvotech team, I would like to thank you all for participating in today's call. We look forward to talking to you all again, and I wish you a very good end of the day. Thank you goodbye.

Operator

Operator

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