Alvotech (ALVO) Earnings Call Transcript & Summary

Good morning, everyone. My name is Balaji Prasad. I'm the senior analyst for the U.S. specialty pharmaceutical sector. Continuing our spec pharma track for the day. I'm delighted to have the management team from Alvotech here with us. Alvotech is a company we've been covering for the past couple of years and one of the very few limited pure-play biosimilars companies -- listed biosimilars companies globally. So we have with us Robert Wessman, the CEO of Alvotech; Joel Morales, the CFO of Alvotech; and Joseph, great seeing you again. So thank you for joining us.

So Robert, to kickstart the proceedings, could you introduce the company and provide an overview around Alvotech and what it does to investors and can then parse through some of the questions there.

Yes, yes, sure. Thanks, Balaji. Pleasure to be here, of course. Thanks for inviting. Yes. So Alvotech, I started up 2013. We have invested into the business till date around $2 billion. So highly committed to being a pure-play biosimilars. We felt the success would be driven by a few things. First of all, having all the R&D in-house from cell line development, having the production in-house, and we have built out the capacity, which will last us for the entire portfolio well north of 2030. The third element was global reach. We have 20 extremely strong commercial partners and selected being the leading companies in different regions and markets. And we can cover over 90 countries in the world upon launch and approval. Of course, we have to roll out to get those products approved everywhere. So we can compete with the brands, more than 95% of addressable market globally. If you look at the biotech industry, we can compete with more than 95% of the global brand sales. Where we are today, what is very exciting. We have launched biosimilar to HUMIRA, both in U.S. and Europe and many of the rest of the world markets. STELARA, we were the first to Europe, Japan, Canada and we are rolling out good strong success with that product in Europe. And we are then launching biosimilar to STELARA into the U.S. market, as you know, this year, already volume shipped. But what is more important is that with all this, having the capacity, having amazing R&D capabilities, having the global market reach is that, we have, in addition to the 2 products on the market, we have 10 advanced products in our pipeline. We will talk about that. And we have 15 in addition in early stage. And we believe that total addressable market for our pipeline products, excluding the early days products is around $200 billion. And this is, I believe, 40%, 50% higher value of pipeline than second in line when it comes to top-tier pure-play biosimilar companies. So this is a long-term game for us. We are only in pure-play biosimilars. We are there to stay. There are companies, which, of course, are there still today, but some of them have a product or 2. So the market is at an interesting inflection point where I think long-term winners will be seen. And with the commitment we have shown the market with a $2 billion investment, we are in an extremely strong position when it comes to sustaining the industry with biosimilars going forward.

Great. Thanks for that overview, Robert. I've been watching the company over the last 3, 3.5 years now from the time listed. And clearly on the path that you have been articulating. So what you said in 2025 at that point of time, you are on track to reach there and would love to see where you go. But starting maybe with recent -- in Q3 earnings, you stated that you were on track to do around $600 million to $800 million for 2025. Help us understand the path to this and what would put you at either end of these ranges for the year?

Yes. Should -- maybe you cover this one?

Yes, sure. So I think what I can say for 2025 is, we do expect '25 to be another year of growth, both top and bottom line. We do expect to land within the range of the guidance that we've provided. And there are a number of pushes and pulls in particular, as Robert just mentioned, right now, our priority is maximizing penetration of our biosimilar to HUMIRA. That's both across U.S. and ex U.S. markets. We have the new launch of biosimilar to STELARA in the U.S. as well. And we're also preparing for the potential launch in the U.S. of an additional product as we get into the fourth quarter of this year. As I think about our international markets, it's really about driving the already successful launch of biosimilar to STELARA through Europe, again, continued penetration of HUMIRA. And then we're also gearing up to launch 3 new products, introduce 3 more biosimilars at the end of this year. That's all related to product revenue. But as I think about our milestones, Robert just highlighted the attractiveness of our pipeline. And so you can expect ongoing milestone revenues as well. We have new partnerships always in discussion. And at the right time, we'll be excited to announce those as well in combination with all of the regulatory milestones that we expect to recognize, in particular, when we get approval. So I think those are just some of the dynamics. I think maybe one item that's worthy of note is really the strength of our international business as well in Europe as well. We're really proud of the performance of our launches in that market. And hopefully, we're excited to report more details on that as we get to our year-end earnings call in a couple of weeks.

Got it, Joel. So if I understand you right, depending on the regulatory advancements of progress, especially on the pipeline side, there are incremental milestones that will take you towards the higher end of this range and potentially, yes.

Well, we're not commenting on the range, but it is a significant driver. Our milestone revenue, you can see this year, was a significant contribution, not only at revenue, but also at our overall margin. And we expect that milestone revenues will continue to be a significant contributor in particular, as we continue to expand our pipeline.

Got it. Great. Maybe let's dig a bit more into HUMIRA. I mean SIMLANDI launch has gone extremely well for you last year, an incredible amount of cushions. And then there's this whole partnership dynamic with Cigna. So starting with SIMLANDI, help us understand where it's positioned and stands in the broader biosimilar HUMIRA market now? And what are the share dynamics looking at both the private label and the formulary version?

Yes. I think overall, I mean, we were very pleased with 2024. We shipped 1.3 million units into the U.S. market, which would represent around 12% market share. Of course, this has a lag because our clients are basically taking the product and then placing it. So it's not all converted into script yet. I would say that if you take first the private label, private label was successful. We saw that Cigna announced 50% conversion. They did better than we expected, to be honest, and done a good job. We are also seeing that Teva is gaining momentum. Teva has now secured formulary at 2 out of the 3 big PBMs, which is very important. And many would say then what is the inflection point next when it comes to biosimilar to HUMIRA. As we know, HUMIRA was excluded on the formulary last year with CVS, was excluded by Optum and ESI beginning of this year. We believe that there might be some grandfathering on current patients that it will not be a full hard switch. So there might be, towards second half of the year, more momentum on the formulary. And we think that biosimilar conversion exit rate end of this year should be at least 50%, we believe.

Understood. And just on the formulary front, 2 of the 3 major PBMs have been placed in the preferred formulary list. So from a commercial standpoint, what else is left to do there? And two, as you speak about acceleration in the second half, would it be like a step-up acceleration? Or would it be like a hockey-stick acceleration? How do you think about it?

Yes. I think the main milestone for the conversion is basically the exclusion of HUMIRA. And we will have to see how fast kind of the grandfathering will happen. There will be some grandfathering. So patients which are on HUMIRA today, we see some indication that some of the formularies are not going to do a hard switch overnight. So they might allow patients to stay on there for -- until midyear, we think. So the main -- we believe that the stronger conversion will happen in the second half of this year. And of course, we will see not necessarily hockey stick, but we will see, hopefully, a nice growth in the formulary business second half. But the private label has been a majority of our business so far.

Got it. And maybe shifting towards biosimilar to STELARA. I know that you have -- the volumes have been shipped. So the partners have launched here. So how should we think about the opportunity from a 2025 standpoint? And could we see the size and scale of STELARA be similar to HUMIRA in year one, considering that there's much less competition versus what you saw in HUMIRA?

Yes. I think -- so basically, with STELARA, we could be seeing exit market share of biosimilar being somewhere, I think, 20%, 25%. And this will be both private label and the formulary business, if you will. With this -- as with biosimilar to HUMIRA, we are not chasing market share. Some of the companies think the valuations are counted by market share, not the profitability. That's not us. We are there long term for our customers with, we believe, the strongest pipeline in the industry with one of the best capacity, proven having excellent quality, a novel approach to a high dose on HUMIRA. We believe that with perfusion on STELARA, we are in a better position. So overall, I mean, our value proposition to our key long-term customers is not nickel and diming down to the bare cost plus. So we believe that we will gradually get more than a fair share out of the market. But the market is still a bit playing out. How much will be private label, how will be the formulary, both will be important, I think. But overall, I mean, for us, based on what we have already in the back, we see that rest of the world is going to be majority of our volume. And that's simply because of the conversion, as I mentioned, and the time it takes to convert the U.S. market. And secondly, I mean, if you look at last year, Europe was already 20% converted where we had 30% market share. So majority of our volume will go outside U.S. to capitalize on profitability long term.

Got it. And I definitely do plan to speak about the ex U.S. market. I think most investors tend to focus on the U.S. dynamics. For you, the ex U.S. part of the business is equally important and as large. So we'll cover that, too. I have a question around interchangeability. Could you compare and contrast the interchangeability and how important it is with SIMLANDI versus STELARA? And how would you think about the role of interchangeability with regard to STELARA, especially to gain market share?

Yes. I think overall, the interchangeability when you have a retail product, if you will, is important. We saw though Cordavis CVS converting biosimilar to HUMIRA without interchangeability. So it is possible, but it's much more effort, much more commitment. And yes, but overall, I think interchangeability is playing a big role. We are with preliminary approval for interchangeability ourselves end of April, we'll get the final approval as interchangeable when Amgen exclusivity expires. But overall, I mean, it's difficult for us to judge whom else will be there when it comes to interchangeability. So we are not really able to comment on that, to be honest.

Understood. As I said, I do want to focus on the OUS part of the business. So can you provide an overview around it? Again, a very unique model in terms of partnerships across every geography, and how critical will the ex U.S. business be in driving the next 3, 4 years of the growth for the company?

Yes. I mean if you look at the investment into R&D, it's pretty substantial per product. And to get the best return of that investment, create more opportunities and balance the risk in the business, we decided back in time 2013 to focus on global reach. Europe, of course, being as -- if you look at Europe as one market being the second far biggest outside U.S. But we have built out the business throughout the world. So our approach to it is business-to-business. So we have early commitment from our marketing partners. They are investing into our R&D with us. So we are covering all of our R&D costs annually and more than that with the milestones, which we have paid for the access to the intellectual property. So this is signed up with up to 20 different partners to cover 90 countries plus in the world. And then typically, we either have a profit sharing or we have a revenue sharing. And this model allows us to be flexible, allows us to have risk sharing in R&D. We don't have any marketing costs. We think this model will drive this share through the best-in-class marketing partners throughout the world.

I would add that we've mentioned in the past that our ex U.S. business is roughly 1/3 at product revenues as well. And we can expect that to grow proportionately, right, to our total product revenue business. So it is a significant contributor.

Yes. Yes. I mean, like Joel is saying, it used to be 30% and growing. So you can imagine how important this is. And typically when you have a product launched into 60, 70 markets, there are some markets doing not as well as you hoped for, but there are other markets doing better than you hoped for. So it's kind of the balance of not only having a strong portfolio, but having access to different countries and markets, if you will.

And this is important in particular because we are in a period of high growth. And so what you're seeing is in the early stages, you have certain markets, as Robert just mentioned, that are performing better. And you have other markets that are maybe taking a little bit longer to develop and evolve than we had expected. But overall, net-net, you can see that we are balancing the risks and driving overall growth in the meantime.

Joe, I do want to spend some time on the pipeline because, I mean, clearly, one of the most comprehensive biosimilar pipelines that we're aware of. So help us understand the current state of the pipeline, the next key milestones that we need to look for, Joe, and what is exiting you the most currently?

Yes, absolutely. First, I want to just say thanks to Robert and the complement of our R&D organization, right? We spent a lot of time over the last 5-plus years, really building a very integrated R&D organization from cell line development all the way through a very strong regulatory affairs organization. And that does give us strength that other biosimilar companies do not have, right? Having that integrated R&D, especially since the fact that we're co-located with our in-house manufacturing, which makes us very strong. And with that, we've been very much focused on developing what we believe is the best pipeline in the industry. And not only do we have our 2 marketed products, we have 10 named programs that are currently in development, and they're moving quite quickly through. And 3 of them are currently under global regulatory review, where in the second half of this year, we are expected to start seeing approvals for our proposed biosimilars to Prolia, XGEVA, to SIMPONI and to EYLEA. So those are moving nicely, and we're looking forward to them launching quickly after approval in as many markets as possible. And then if we think about what's exciting us next, it's really about where we can differentiate ourselves by being first to launch, especially in an uncrowded market, which we do expect for SIMPONI, but then also beyond that, EYLEA high dose, where we believe we are in lead for that development and also Entyvio, once again, where we do believe we're in the lead, right? And so those are also molecules that are moving quickly through. We continue to invest in our early pipeline. We have over 15 molecules that we have started in early phase and are looking to bring them forward. So with that, as Robert said, we have approximately $200 billion and not including those early products in total addressable market, which we believe is larger than the other Tier 1 pure-play players that are between $100 million and $140 billion.

And maybe just 1 or 2 points just to underline what Joe said is that, I mean, biosimilar to SIMPONI, we will get approval end of this year. And we believe global reach, we will be the first and alone on the market for a while. So we are super excited about that. That's a product which we will start to roll out, as I said, end of this year, beginning of next year. And also the EYLEA, I mean, the high concentration we have, we are super excited about that. We saw that the conversion is happening with a high dose of EYLEA itself, even though the OcuClick has not yet been launched in the U.S., which we think will be kind of the turning point of conversion. But on the load dose, we did a different approach to it, different formulation approach to it, which is pretty unique and strong. We know that Amgen launched at risk. So we have not committed to launch that product into U.S. at all. But we think we are in a very strong position with that product because we know that others, at least 3 companies have injunction for now, which will take quite a while to untangle, if you will.

Yes. We're tracking those litigations closely, and we'll see when there's some clarity there, but good to see you're clearly differentiated both with SIMPONI and EYLEA. Maybe just to cover it fully, also thoughts around Prolia and what should we think about the opportunity and the competitor dynamics?

Yes. I mean, overall, we have strong partners in Europe. We went for semi-exclusivity with STADA and Dr. Reddy's. We have Dr. Reddy's, which have a strong outlet in U.S. to market our product there. I think the competitive dynamics overall in U.S., especially will be quite a bit. So we expect the competition around the product to be pretty strong. But contracting will start in near term. We have not started contracting for U.S. as we speak.

Understood. And speaking about investments in the cell line and all. 2 years ago, I think one of the questions I was getting the most was around capacity. Like does Alvotech have the capacity to supply 10% of the market of biosimilars to HUMIRA or like 20% of biosimilars to STELARA market. And your comments around capacity being fully set for 2030 is very reassuring.

Yes. I mean if you want to turn into a biosimilar HUMIRA plant, we can supply the entire globe or more. So we are in a good position. The company, as I said, before we launched the first single product to the market because this company was built out from 2013, as I mentioned. So before the first product came to market, I built out and doubled the capacity in Iceland. So we have this beautiful facility, which counts now, I believe, 40,000 square meters in Iceland with everything, which is going to support our pipeline because all those investments have to be backed up with a best-in-class facility, and we really have that.

Yes. I think we'll say more on our call at the end of the month, but you'll see in terms of the volumes that we delivered in the fourth quarter, it's a testament to the capacity. And this is early days. We expect that capacity to continue to grow, but it is an early sign of what we're capable of. As Robert mentioned, we've been investing behind this for quite some time. We have our R&D and our manufacturing colleagues, which are co-located at the site, which we think is a differentiating factor for us from a capacity perspective, but also from a speed and execution. It derisks the entire development process when you have the same teams working from early phase development to launch. And so we're excited about what we've done here in Iceland.

Absolutely.

Fantastic. We'll look forward to that and look forward to more updates from you and your progress. Robert, Joel and Joe, thank you so much for joining us this morning, and I wish you a very productive conference at Barclays.

Yes. Thank you so much. Thanks for the invitation. Pleasure. Thank you so much.

Thank you.