Alvotech (ALVO) Earnings Call Transcript & Summary

So thanks, everyone, for joining this session of the Morgan Stanley Global Healthcare Conference. My name is Thibault Boutherin. I'm part of the pharma equity research team based in London. Before we start, I need to refer to important disclosures. Please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. And if you have any questions, please reach out to your Morgan Stanley sales representatives. So for this session, I am delighted to have with me Ming Li, Chief Strategy Officer at Alvotech. So thank you very much for joining us today. I will kick off the Q&A and if you also want to ask any questions, please do.

But before we start, Ming Li, maybe you would start with, for investors who are less familiar, presentation of the business and maybe some of the key characteristics of your business model.

Yes, absolutely. And first of all, thank you for having me. So Alvotech is here to try to solve a problem or what we believe to be a problem, which is that over $0.40 of every dollar in the U.S. and Europe spent on pharma is on biologic medicine. So we think there's a significant need for biosimilars, which can reduce the cost of healthcare and the cost of biologics. We believe it's a global need. We also believe it's a long-term need, meaning that a lot of the originator companies have pipelines that are heavily weighted towards biologics, monoclonal antibodies, and so we believe this is a long-term proposition for the company. In order to address that problem, what we have done is we've invested in infrastructure to do everything from early cell line development, which is the first part of a biosimilar life cycle, all the way through cell finish production. What we don't do is sell our own products, for many different reasons. The chief among them is that we want to be global and we want to be global quickly. And there's also, of course, commercial risk that is mitigated by the partners that we've partnered with. So we have global presence on the commercial side across over 90 markets. We started commercializing our first product, I think, now in 20 markets. But we intend to build this infrastructure and utilize it solely for the purpose of biosimilars.

Okay. And maybe before we start to turn to the products. If you could talk a little bit about what differentiates your development process and your manufacturing facilities, I'm thinking from technology standpoint, quality, ESG?

Got you. So I think the main differentiation about our infrastructure is that we have it, right? I think a lot of companies that are attacking the biosimilar space may be doing it on a virtual basis through development partners or through a web of CMOs. Our thesis is that we need to have that infrastructure in-house and be vertically integrated and all of those assets need to be targeted to biosimilars. So we don't have to weigh this against originator business or a generics business, we want to be fully dedicated to biosimilars. From a technological perspective, I think we have a state-of-the-art facility. We've proven that we can develop biosimilars and get them approved in multiple markets. From an ESG standpoint, there's many ways to think of ESG, but if you think of it from a risk perspective, the facility is located in Iceland where there is a significant amount of renewable energy on an isolated grid, so almost all the energy that the factory uses is renewable. And in addition to that, water, we're not operating in India or Mexico or California. It's something that's abundant, clean, hot and also important in biologic production.

And maybe a [ difficult ] question before we [ talk and ] go on to your business. We've been talking through this conference a lot about the Inflation Reduction Act. So if you could give us your view on the way this [indiscernible] could potentially impact the biosimilars industry. In particular, could we see the potential litigation between originator and biosimilar companies allowing the progressive [ inclusion ] of biosimilars ahead of a potential inclusion of [indiscernible] biologics on the Medicare Part D price negotiation list?

That's obviously a good question. I think any time there's major legislation like this that's passed, a lot of that is still up to interpretation. And the lead-up to implementation obviously means a lot to how it will ultimately impact the industry, pharma broadly, but also biosimilars specifically. On your specific -- and I do think it's a little bit too early to tell. But on the specific question about settlements, it certainly could impact the incentives that govern how companies, both originator and biosimilars, approach litigation and settlement. But again, I think it's a little bit too early to tell. I think our goal is always to get on the market as early as possible. And if the environment in which -- changes around that, it would just change our approach to that.

Looking at -- starting at your product portfolio. Can you give us an update on the regulatory situation and your expected approval and timing of launch for your key biosimilar HUMIRA in the U.S.?

So we're looking at -- and obviously, we're launching HUMIRA in other markets, but we're looking at the U.S. opportunity as a 2024 event. We have resubmitted our application, as we said on our previous earnings call. We're waiting on BsUFA date. And we're also preparing for what would need to be an inspection, which is the only real hurdle to getting the product approved.

If you -- when we look at the HUMIRA market in the U.S -- or maybe for that, maybe if you could talk a little bit about the key points of differentiation of your product versus the offering of your competition, some of them are already in the market.

So as you know, AbbVie has converted the market in the U.S. It's over 85%, a new form, the high concentration form. So we have developed that. But as importantly, we think we've also -- are approvable, pending the FDA site inspection for interchangeability. So it's the combination of those 2 elements that we find to be the differentiating factor, and we hope to be able to bring that to the market in '24.

That's clear. If you could just maybe spend a little bit more time on the kind of site inspection side of things. You had an inspection last time in March '23. So what can -- what details can you give us on the observation actions that have been taken in the context of your refiling and potentially future inspection to come as well?

Got you. So maybe I'll just take a step back and talk also because this will -- we've had 2 inspections. The first inspection, we've cleared out all of the observations, and there were no repeated inspections and -- or repeat observations in the second inspection. We feel very confident that we've cleared out all of the specific observations in the second inspection as well. I think a lot of the changes were process, personnel, but also culture. And I think that going into this next inspection, which of course, is very big for the company, I think it's less about whether or not we've cleared up an observation or a deficiency that was observed because clearly, I think we feel confident that we have, but it's about being inspection-ready at any time and also just having a continuous environment of adhering to compliance -- sustainable compliance, if you will.

Looking at the U.S. biosimilar market for HUMIRA in the U.S. is a combination of market formation. So you had one competitor launching around February this year, then a series of other launches in July. So it's still very fresh. But when we look at the data in terms of volume, at least there seems to be still maintaining a very high-volume share of the market. I mean from the look of it, we see it looks like [ 29% ] type of market share. So if you could just give us some kind of insight into why you think this penetration has been maybe slower in terms of biosimilars? And when do you think we could see biosimilars as a group taking more share in the U.S. market?

So I think what's important in the HUMIRA market as of today is the position that AbbVie is on the market, that's how they've contracted and the fact that they are primary, right? The biosimilars that are on the market today are either low concentration, low-concentration interchangeable or high-concentration noninterchangeable. And I think that clearly, as of yet, they've had -- it's been a difficult road to convert the market. I think there's a couple of things. One, we do believe that a high-concentration interchangeable product can be more efficient in a market such as this. But having said that, going into '24 and '25, the evolution of where HUMIRA sits in the formulary and also the mechanisms at which the PBMs choose to manage the market, I think are subject to change. So some of it is specific to us, but also for the broader market, we should expect to see some changes as well.

And on the contracting situation in particular, so you just touched a little bit about that, but what could prevent AbbVie from continuing the strategy of kind of locking contracts with payers for several years, I guess is the first part of the question. And the second part, when you think in terms of partnerships between payers and biosimilar providers, do you expect some kind of stable relationships going on with kind of clear [ ownership ] or do you think it's going to be a more dynamic market where you could see a formulary change in year-over-year for [indiscernible]?

Yes. So obviously, AbbVie is going to have a strategy, as they had leading into the market formation of this. But at the same time, this is an open market, right? There is -- we believe there is going to be competition. We believe it will come from us, but it will also come from others, and that the environment can change over time. As far as the existing partnerships, obviously, I don't want to comment too much on other companies' strategies. However, a lot of the formulary positions are public. So there's certainly been contracting going on from the existing biosimilar competition. I think whether how fluid it will be, I think it's very specific to specific situations. But again, from our perspective, with an offer that we believe is differentiated, we believe we can get the position necessary.

And just maybe a little more specific on this. We are seeing this kind of innovative deals, at least innovative for the biosimilar market, emerging with companies associating with PBMs to, for example, offer kind of [ biosimilars ] very low, list price -- list price discounts quite [ with the transparency ] which we are not used to seeing. So how are you thinking about this innovative approach to the biosimilar market and how it is impacting your own commercial strategy and thinking about partnering with PBMs?

Got you. So just at a high level, obviously, there's different parts in the market. Some parts of the market are more sensitive or more interested in [ low acts ]. Some would like the ability to pass on value to their downstream accounts with higher pricing and higher rebates. I think it's hard for us to say anything commercially now. First of all, our partner is Teva. And also, we're still awaiting approval, right? So obviously, we have a strategy that we would employ and then we rely a lot on our partner here. But there is a dynamic where companies are trying to address different parts of the market.

First for the U.S., and if you could give us a little bit ex U.S. how the launch is progressing in different markets, maybe some key upcoming launches to come from maybe ex U.S.?

So as far as key upcoming launches, we're in 20 markets today. We're in most of the retail markets in Europe. The biggest launch to come this year would probably be Australia. That's our biggest one. Obviously, we're waiting on news and the ability to launch in the U.S., which we expect to be a '24 event. As far as the launches, the most mature is in Canada. That launch is going well. I believe we're approaching double-digit share there. In Europe, it's still early days for us, and we're in the low single digits from a share perspective. But we expect to continue to ramp up in that market over time. And I think even in the last call, we're increasing our scale on some of our drug product sizes and expect to see an increase in the second half of this year.

When we think about the ex-U.S. opportunities for biosimilars in general, not just HUMIRA, but in a broader portfolio, you have extensive partnerships in other regions. So where do you see the largest opportunity in terms of the different markets, maybe some markets which are less mature today in terms of biologic presence that can grow with biosimilar introduction? And how do you expect your revenues to shape over time between U.S. and ex-U.S. regions across your overall portfolio?

Yes. I think as I said, we have a partnership model, and the reason why we chose that, one of the reasons is because we can go global more quickly, right? Setting up this infrastructure in markets large and small comes with challenges and risks that are obviously difficult for a young company to navigate. We think, in general, global is important. I mean everyone focuses on the U.S., and it's roughly 70% of the biologics market. And it is the biggest opportunity, let's be fair. But to go global in all of these markets, we think, helps the durability of like an overall program, right, not just focusing on big markets but being able to launch in markets both large and small. And as you said, some of the smaller markets in biologics today are muted because of access and availability, and biosimilars have the potential to increase that. As far as how the U.S. and rest of world split, if you call it 70-30 today, our thinking is that it might be U.S., non-U.S., that biosimilar market would be maybe a little bit more on the ex-U.S. side relatively speaking because of the ability to grow markets. In Europe, I think the first 3 years of adalimumab launch led to double-digit growth just in volume.

Another industry trend I wanted to touch on is consolidation, because when we think about a few years back, we had like a very large number of companies developing biosimilars. Some of them [ won off ] biosimilars. We saw a lot of players getting interested in the field. And then I feel over the last 2 years, there was a sort of variation that you probably get scared, you probably get some focus. And so we are seeing this consolidation move. So there was a Viatris - Biocon deal. You have the defensive Biogen. [indiscernible] Biogen [ suddenly taking a JV ]. There is also news that Biogen might be trying to [ give back their ] biosimilar portfolio. So it looks like we're seeing this consolidation happening. So what's your thought on this? And how do you think this going to shape in terms of competitive landscape in the future?

Yes. So one of the reasons why we wanted to invest so much in the infrastructure is because, obviously, we wanted all of this in-house, but we have the luxury of doing so as a private company, right? So most of our investment in our infrastructure and our pipeline was done privately. A lot of the companies that are in biosimilars, not all, but a lot of them, use different mechanisms to try to get biosimilar programs off the ground. And I think what you're seeing now is a little bit of a cleanup of that. That's likely to continue. And -- but I think that doesn't change our strategy at all.

Moving on from kind of HUMIRA and the big picture and going through your product pipeline, probably your next second biggest product is going to be STELARA. We are starting to see the timing of launches of different players, so the second launch is Johnson & Johnson. The public information seems to indicate that you and your partner Teva could be soon to launch in this market after Amgen. And I think so far, we have seen 5 biosimilar makers setting with Johnson & Johnson. So if you could just come back on the kind of key factors that could allow you to take a dominant market share on the STELARA biosimilar market?

Yes. So we're very excited about the STELARA launch. I think, generally speaking, some of the competitors that were in some of the earlier biosimilars, even ones in immunology, are not present in STELARA. So we feel very excited about the launch of it. You're right, we have the second date, but we are going to be in the first wave. And so that's something we're extremely excited about. As far as the differentiation, I think the competition's landscape is a little bit different than HUMIRA. But also as a company, as we start to continue to build our portfolio, like we're the only company that I'm aware of that could potentially offer HUMIRA, STELARA, SIMPONI, all 3 in the immunology space.

And just maybe one specific question related to IRA. I mean we've seen STELARA being included in the Medicare Part D price negotiation list from [ Fortune 26 ]. So how do you think this could impact the market and the biosimilars market?

So similar to the previous question, I think it's very early to tell on potential, if any, impact. The bottom line is we have a settlement that can get us out there in early '25, potentially earlier. And so I think it's a wait and see for us.

Moving on to biosimilar EYLEA. The competitive landscape is also shaping up. We have biosimilars already filed, maybe other 4 companies going up this year for filing. So if you could remind us the status of your program and kind of approximate timeline for filing in the U.S., maybe starting there?

Okay. So we have currently 3 products outside of STELARA and HUMIRA that are in the clinical stage. The most advanced one is EYLEA, behind that is PROLIA/XGEVA and SIMPONI/SIMPONI ARIA. For EYLEA, we've completed the recruitment and the screening of all the patients, and it's just active clinical trial at the moment. We haven't put out a specific date on when we expect to file. So I won't say that here.

And any key set differentiation of your program versus the competition?

It's not as clear cut in our view as with HUMIRA. I mean we're doing our best to develop the most relevant presentation, which is prefilled syringe in the low dose. So we're moving forward with that program and making sure we have the presentations necessary.

And you just mentioned the dose. Obviously, STELARA is starting to roll out the high dose and the market is going to kind of evolve from there. So what are your plans on a potential high dose biosimilar?

So we do believe that there is a potential for -- a lower-cost biosimilar even on the low dose. But having said that, clearly Regeneron will be moving the market. We haven't said anything publicly on the high dose yet.

Understood. Let's maybe mention a little bit some of your additional opportunities. So starting with denosumab here as well, if you could come back on how -- like the key [indiscernible] products and how you see the market shaping and the place you could take in this market?

Got you. So on the 2 remaining that are in clinical trials that I mentioned earlier, the denosumab one is sort of similar stage as the SIMPONI biosimilar. That one is currently not partnered in the major markets, it is partnered in some of the smaller markets. And so it's a focus of business development for us, particularly because it's related to oncology and KEYTRUDA and it's part of our BD efforts today. On SIMPONI, that's an exciting product for us. Again, another immunology product, but also one where there's only one known developer in Phase III aside from us. So I think you might start to see companies target some of these products that are niche, for lack of a better term.

If we look a little bit about funding. So if you could talk a little bit the funding situation today, how much cash on the way you have? And what are the kind of key factors that could impact the timing of a potential runoff of fundings?

Got you. So it's hard to think of it in runway because, a, we have developing launches. We're launching new products. We have milestone revenues that at this stage are material to us. And in addition, we have a BD pipeline that can generate cash even at signing, right? So it's hard to think of it that way because we have those revenue streams. As far as commenting on future funding, it's hard to do so either in form or even necessity at this point. We continue to invest behind our pipeline and continue to drive the business.

And maybe the question on the evolution of your revenue stream and the shape of your P&L in the long term. So we see [ basically the odds in the ] industry. It's a bit difficult to think of how revenues for biosimilars are going to emerge in the long term because of the moving parts you mentioned, volumes going up in some markets, obviously price, we see continued price erosion. Competition, it's a bit unclear now if you're going to see increase of competition over time or consolidation in some markets. So when you kind of put all of these moving parts together, how do you think about the long-term kind of revenues and profits of each biosimilar opportunities and then of your business as well?

Got you. So as of now, we just started our commercial journey, so the milestone revenues, which will continue to come in over time, are much more material. But the goal, of course, is to build these launches on top of each other. And it's always going to be a staggered basis, right? So every market has an entry point that's going to be different from another. And that's another reason why we want to go global, so that we can create this idea where we have new things coming all the time. And once we start to layer in that base of revenue, I think it will be a little bit easier for us to predict. And then, of course, we want to just pull through products as quickly as possible, right? So we want to add new products, we're going to launch new products, and then the milestone revenues will be a much smaller portion of our revenue going forward.

That's clear. And maybe one last question. When you meet investors today, what are the kind of the key elements of the Alvotech investment thesis that you want to highlight?

Yes. And I think some of it, for us, it's -- obviously, you had some questions about the IRA and the CMS and other things. I think longer term globally, we believe biosimilars should be well positioned, right, to take advantage of the need and the desire to reduce health care inflation. And so some of the specific questions are obviously important to answer, but a lot of what's the story of biosimilars, I think is to be written, right? And so it will be interesting to watch over the next 20 years what happens, but we believe that longer term, the industry should and will be supported.

I think there is no more questions on my side, unless there is one in the room? Can we bring...

Just a logistical question on HUMIRA contracting in the U.S. If you launch in mid-2024, does that lock you out or limit payer negotiations for the year and then we don't expect much uptake until 2025? Or I guess said a different way, what would timelines for payer negotiations look like? How quickly could you get on formulary and do payers reevaluate formularies during the middle of the year?

So here's what I'd say, is that we obviously have been through the last year, right, where we've had a delay as a result of the inspection status. Even during that time, there was open transparent discussions through our partner, Teva, and I think what allows us to have that is product differentiation. And even in '24, we believe we have differentiation amongst a significant portion of the market. So that helps us engage in that conversation. So we feel confident that should we gain approval, that we can be in a position to have -- for us a material commercial event.

I think we can conclude the session. So Ming, thank you very much for joining us today and for participating in the conference.

Absolutely. Thank you for having us.