Alvotech (ALVO) Earnings Call Transcript & Summary

Okay. Perfect. So we'll start. So good morning, everyone in the room. Thank you for joining this session of the Morgan Stanley Global Healthcare Conference. I am Thibault Boutherin. I am co-head of the European Pharma Equity Research team based in London. Before we start the session, I need to refer to important disclosures. Please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan sales representative. So for this session with Alvotech, I am delighted to have with me Balaji Prasad, Chief Strategy Officer of the company. Thank you for joining us today. We will shortly go through a Q&A. But before that, Balaji, do you want to start with some introductory comments on Alvotech and the outlook of the company.

Sure. Thank you, Thibault. Firstly, let me thank Morgan Stanley for inviting us. It's been a very productive day of conference meetings yesterday for us and delighted to be participating in this fireside. So thank you Thibault for doing that. About Alvotec, so we have had a journey now over the last 12 years. We've started selling in the U.S. from last year with biosimilar Humira and this year with biosimilar Stelara, [ Selarsdi ] last year, respectively. We are at the edge of what we believe is the next phase of our growth trajectory with a few key approvals that we are awaiting. So that would take us from like a 2-product company primarily to a 5 to 6 products company by next year, and we are really excited about it, right? And as we see today with the approvals for biosimilar to Hylia, Prolia, Xgeva and Symphony, Symphony ARIA. We are really excited to be standing at this threshold and to expand our offerings to the public for improving health care and at a lower cost, right? So really excited about it and looking forward to these and to our next phase of growth. Over to you. Thank you.

Thank you for the introduction. So -- just maybe very quickly before we move on to actually talking about the business. Just want to mention the current U.S. policy contacts with tariff. So obviously, your business model is very unique. You out-license products to partners who then do the commercialization. So in that context, how the U.S. pharma tariff impact you in any way? Does it have an influence on your recent discussions with partners?

So like the -- getting the easy questions out of the way, right. Luckily for us, it's actually a relatively easier viewpoint for us from it. So as you know, all of our R&D and manufacturing is based in Iceland. So everything we sell in the U.S., it's exported from Iceland to here. And the way the setup is that we manufacture, package and then our partners pick it up from us. And our partners are responsible or all of the tariffs or any duties or anything else that they have to pay, right? Stepping aside from that model, just on the tariffs itself, right, as things stand today, there have been multiple tariff rates that are floated around. But as we sit today, it looks like there's possibly a 15% tariff on pharmaceutical goods and with a possible 0% cargo for biosimilars and generics. So we do not expect to pay any tariffs on that, if this comes out to be the case. But beyond that, even if you think about it, if we are looking at tariffs in the double-digit rate for instance. It as we have said before, there's no material impact for us, right? We sell it with partners pay through it and so for us in terms of actual impact, it's limited. But if we get to a 0% tariff rate on biosimilars and generics, that's the best case policy outcome for us.

Okay. Perfect. I want to maybe talk about your 2025 outlook, the split between recurring revenues and milestone and the bridge to the '28 guidance. So for this year, you provided a guidance for $600 million to $700 million of revenues with a bit more than half coming from product revenues and declare on half from milestones. Is this a particularly strong on the milestone side? How should we think about the split between recurring revenues and milestone beyond this year?

Sure. The milestone story is the natural part of our evolutionary process of the company. We were milestone heavy in the start where we didn't have commercial products in the market. So all of our earnings were coming from milestones. And as we progress through, milestones will still be substantial on an absolute basis, but we would want it to be as a relative part of proportionate to our overall revenues. Milestones will go down, we will see more and more royalties? That's a natural part of our evolution. Before I get into the guidance, I just want to make clear, the 2028, I think, we've said $1.5 billion it's -- we would not call it a guidance. It's our aspirational target. I think I can see both upside scenarios to this, downside scenarios to this. But I think if we do what we are doing, which should be somewhere in that ballpark. And of course, to come to a more precise guidance for 2028, we'll probably be doing at the early phase of 2028 or somewhere around that timeframe, right? Coming to the 2025 guidance, $600 million to $700 million. So we're looking to generate at least $600 million of revenues, at least $200 million of EBITDA and within that, of course, as you called out, milestones is a fairly chunky part of it, and that is linked to multiple things with regard to milestones on commercial achievements, milestones and improvements, so there are quite a few components to this milestone. And as we called out, we are at the cusp of multiple approvals -- potential approvals that we are looking forward to eagerly. And as and when these approvals come through in Q4, we should be taking these milestones and that really forms the base of our outlook for the year.

Okay. That's very clear. And now I want to touch a bit on your product portfolio and the current products on the market. You have 2 products on the U.S. and excess market, as you mentioned, the biosimilar Humira and Stelara. Maybe if we start with biosimilar Humira. Can you touch a little bit on how the U.S. market is developing how you see the performance between the private label, but also on the -- outside of the private label segment maybe starting here?

Yes. Biosimilar Humira market, it's a very interesting 1 because that's 1 of the first major pharmacy imbursed biosimilars market to form. We got into the market in early-2024. It's now been like around 6 to 7 quarters for us. And we are very, very excited with how we have progressed through this, right? Last year, we had a pretty substantial amount of units sold, as you know, with the purchase order that we commented on. And this year, again, we've had a pretty good first half. And as we look at the market, again, very interesting answer to it. I mean private label deals did form a meaningful part of it. But then again, there is various ways to skin the cat. And private label deals are 1 such way with the biosimilar Humira market. I can contrast this with biosimilar Stelara, where we have said that we are not actively pursuing the private label deals. We see better economics for us in other forms of contracts, right? Where is the market at this point of time, we had called out a few months ago that we would expect the biosimilar market overall in Humira to be around 50%. Recent update from Cigna, I think it was last week confirmed that it is around 50%. We are very happy that we are the second largest -- we have the second largest market share both as a function of the formulary based and the private labels. As of July, we have the second largest market share. And I also want to call out our commercial partner, Teva, was doing a phenomenal job, especially on the formulary side and we have full confidence in them to continue to drive this growth on the formulary side.

Okay. Amazing. That's very clear. And outside of the U.S. how is the situation progressing here? Are you and your partner in ex-U.S. gaining share? And how should we expect the growth for this asset to develop in coming years?

Yes. Thankful to you for asking that question because Alvotech is definitely not a U.S.-only story. We are a global story. We are selling in 70 to -- 70 countries. We have bought around 20 commercial partners. We plan to pull in a few -- few more countries with 90 countries that we have partnerships for -- and Europe is a very substantial part of our growth story, too, right? We have exceptional partners with STADA and Advanz and all. So with biosimilar Humira again, we see this as a long-term growth story. We'll see -- we expect to see volume growth coming through in multiple geographies as we expand our presence, we have dominant market share in many of these countries. We'll be launching in a few more -- and as we think about you on the U.S. dynamics like we were so -- would we expect overall to continue to see this volume growth, and we'll see how pricing evolves. Sometimes it follows a natural curve of the product life cycle, but we are eagerly looking forward to continue to driving this growth.

Amazing. And can you also give us an update on situation for Stelara as well? We -- yes, so for Stelara, maybe similar question between the evolution of the situation in U.S. versus ex-U.S.?

Yes. So it's been around 4 or 5 months since we launched SELARSDI biosimilar to Stelara in the U.S. As I said, it's -- the market is still forming. It's still in early stage. That said, at around this point, the market is definitely a bit more advanced than what the biosimilar Humira market look like, where it was around 4% to 5% conversion. We are at around 13%, 14% conversion. And we continue to win newer contracts. I mean, we have -- as I said, there are multiple ways to skin a cat and we are looking at unbranded deals. We're looking at multiple adoptions. And we called out in our Q2 call that we are not actively pursuing private label deals because we think that from a Alvotech perspective and where we want to ensure that we have a sustainable, profitable business model, there are deals, other forms of deals that we would also want to pursue, okay? So that's in the U.S. We'll look forward to driving this, and we'll provide an update as we come towards the end of the year. In Europe, it is definitely been a very strong success story for us. We launched in multiple major markets in Europe, Germany, France. And in most of the key markets, we are either #1 or #2 in terms of market share. So we're extremely happy with how our partners have succeeded commercially, and we expect that would continue to be the case. Japan is another strong growth story for us, where we launched it in Japan and Canada, and we are seeing market share traction in these geographies, too, and we expect that to continue the case. So continuing to reiterate that our model of global growth continues to deliver across not just the U.S., but all major geographies.

That's clear. And if we take a step back and we look at the U.S. biosimilar market, obviously have been evolving a lot since the launch of Humira for the pharmacy dispensed biosimilars. It's interesting that you decided not to go private label with Stelara. Can you just tell us sort of how you see the U.S. biosimilar landscape evolving in the future. And that decision it took with Stelara, is it something that we expect will be replicated in the future? Or is sort of a case-by-case decision you're going to make?

Yes. The U.S. biosimilar market, since the first biosimilar launched in 2015 has gone through multiple phases. I mean, the whole 2015 to 2019 phase, where biosimilars really achieve -- struggled to achieve traction 2019 [indiscernible] was 1 of the first ones, which actually achieved meaningful traction there on the buy-and-bill side. And then Humira market 2023 onwards, that was a different case right now for the pharmacy reimburse side. And as we stand today, 2 years post the Humira market went biosimilar way, it's -- we are standing at a 50% conversion and this conversion will continue to expand further. So we've had 2 case studies now with the pharmacy reimburse side with Humira and Stelara. Now the next set of launches are back to the buy-and-bill model, where since you asked about private label deals, we don't think private label deals will matter meaningfully on the buy-and-bill side. There are different aspects of buy-and-bill -- those will drive having a strong brand positioning with maybe associated patient services as the case may be, those would drive, and we have confidence in our commercial partners, so far Prolia and Xgeva, it's Dr. Reddy's and for Symphony and Eylea, it's Teva. We have confidence in our commercial partners that they will deliver. I want to reiterate again that our choice of a commercial partner is really like going for the strongest local player. It's not a global partnership as we won't tie-up with 1 company for a global partnership, but see, which is a dominant company need geography commercially and tie-up with them. And that way, they have Teva's really done a great job till now for us.

Okay. Amazing. And so you just mentioned a bit about your near-term pipeline, you're going to launch several assets in the future, including biosimilars of denosumab, Prolia, Xgeva, Symphony, Eylea, which 1 of these opportunities -- are you and the organization most excited about?

So it's like me asking you which of your bio-rated companies are most excited about, right? So -- all of these opportunities are equally exciting. That said, I've called out that Prolia we expect it to be a competitive market. We think that where we are, but it's still going to be an important -- very important asset for us. Coming next to Eylea, again, we would expect to be one of the first we said we would be second to market, but we'll be 1 of the early entrants in -- with Eylea for sure. And it is an important opportunity, especially as the anti-VEGF market opens up. And I mean, when we saw incentives a few years ago and now Eylea coming through. We expect to see the physicians definitely opt-in for biosimilars and the conversion to happen. So Eylea is going to be an important asset for us. And also because we have both forms of presentations, both the PFS and vile forms of presentation, right? Now this plus our future anticipated launch with Eylea, high dose that we are expected to bring to the market in a couple of years, I think these 2 would form a strong combination in the anti-VEGF market for us. And then coming to Symphony, again, very excited about it because we'll expect to be the first to market, and we expect to be the first market for some time. So it's going to be a limited competition opportunity for us. And as you know very well Thibault, economics is, especially if you're sold biosimilar or you're 1 of the early ones, definitely, it's an attractive asset and market size overall is also very attractive. So...

Amazing. And if we zoom a little bit on Eylea, obviously, biosimilar launching, first on the low dose, Regeneron in the U.S. and Bayer ex-U.S. are working very hard try to switch as much patient as they can to the high dose. So how do you see sort of that market evolving? And if you can tell us a little bit about your ambition for the high-dose formulation?

Yes. It's still in the clinical development phase. So it's probably early days to really call out how to -- how we see the market develop itself as we come to the market we'll wait for approval, and then we will give better indications around when we expect to launch. As I said, we expect to launch as soon as possible post approval. And it's a buy-and-bill market. It's 1 of our first buy-and-bill markets. So we will be on top of a commercial aspect. But getting into how the market itself would shape up post our approval, I think it's premature at this point of time. But we'll definitely give more color on it, when -- as and when the time is right.

That's very clear. And beyond these launches, when we think about your long-term pipeline, you have obviously a very broad biosimilar pipeline. So can you talk a little bit about how this is going to unfold over the next few years, sort of cadence of launches and how you see the portfolio evolving in the medium term?

Yes. We had our first set of launches? And then over the next after this phase, we have another phase of approvals coming through. We have -- we'll be awaiting approvals to biosimilar Entyvio on high dose Eylea as I called out, biosimilar Xolair. Those would be the next 3 approvals that we'll look forward to in the 2027, 2028 time frame. Beyond 2028, we would also be looking forward towards biosimilar to KEYTRUDA, biosimilar to Dupixent, amongst others, biosimlar Cimzia, some of these are like exclusive assets like Entyvio is something, where we expect it to be a limited competition market. Cimzia, a very attractive asset for us. We expect it to be a limited competition product. I mean, as far as we know, at this point, there's only 1 other development -- developmental project called Cimzia. So this would be limited competition opportunities, right? And then beyond this, we have another 6 to 7 disclosed assets. So around 14 disclosed assets in total and then another 14 assets, 14 cell lines that we can bring to development. So 28 assets in our pipeline that we can bring to development over the next 10 years. And this would be like forming the growth trajectory for us for the foreseeable future and the distant future too. We're very excited. This is 1 of the most comprehensive biosimilar pipelines globally. And if not, we believe it's 1 of the most valuable pipelines.

Okay. That's great. And just coming back on you mentioned Cimzia. Coming back on the Xbrane deal, you acquired the R&D organization at Xbrane and including that Cimzia biosimilar. So if you can come back on this deal and what it brings beyond the Cimzia biosimilar.

Yes. Xbrane was a fantastic asset for us. I'll probably summarize it into 3 points, right? It was a great asset. We got in R&D. We got in Cimzia asset. We got around 40 experienced R&D personnel along with this asset, right? And it was great. Point 2, Cimzia itself just more than justifies the acquisition of it or more than recoups the cost for us. We have just signed an out-licensed deal with Advanz Pharma for Europe Cimzia. We are getting calls. We are fielding calls for the U.S. market or for the ROW markets for partnering on Cimzia. Why? Because it's a unique asset in the immunology space. It's 1 of the rare ones, which is approved for rheumatoid arthritis and other chronic immunology conditions for women of child-bearing age. So it's a very unique asset that we were smart enough to identify. Our team was looking enough to get the deal done, yes. Point 3, as I said, we are looking to expand our R&D filings programs from around 3 to 4 a year to 4 to 6 a year. Xbrane was 1 of the reasons that allows us to make this possible because it expands our R&D developmental capability of bandwidth. We plan to take the Swedish operations from 40 to 200 FTEs over the next couple of years. So we definitely have greater ambitions for Xbrane and how we can leverage and capitalize on this and expands our number of assets that we can bring into the market at a more rapid pace.

Okay. That's clear. And on the biosimilar Cimzia in particular, can you remind us the timeline of this program when you think you could launch the asset? Because I think IP is not going to be the limiting factor, right? It's going to be depending on how fast you can develop the assets?

Yes. It's not an asset that we called out as something that we would launch before 2028. So it's going to be some time after that. As and when our -- we complete the documental part of it and we have better visibility on the timelines, we'll definitely announce it. But it's at least for the time being, what I would like you to take away with this is that in our 2028 aspirational dollar from $1.5 billion seems that does not form a part of it. It's excluding it.

Very clear. And 1 thing that's been quite remarkable on the biosimilar industry over the recent past was -- we started to see players sort of skipping or downsizing some Phase III programs on their assets based on feedback from the [ EMA ] and the FDA basically sort of lightening the regulatory requirements to get biosimilars approved. So it seems that there is sort of a real opportunity to streamline biosimilar development. So what does it mean in terms of sort of development timeline and cost? And how are you thinking about this?

Yes. The biosimilar developmental timelines and costs has evolved over the years, right? When I was looking at biosimilars for the first time as an analyst many years ago, and we are all thinking -- speaking about biosimilar development cost being $300 million, that kept a lot of companies, especially companies who are not serious about biosimilars out of it. So out of this, right? And then as things evolve, there have definitely been some economies that have brought some cost down, but we are very excited about this development because a, it brings down the cost of development. We can advance more programs into the developmental phase. B, it also compresses the time line -- and what also means on the other side is that the FDA is not just going to reduce these requirements and not be more stringent than others. There's going to be greater PK data, which is needed. There's going to be a greater focus on CMC. And we, as a company, pride on our quality controls and our manufacturing process. So we think that this definitely brings us a complete advantage. Earlier, I said that we plan to take go from 3 to 4 products a year to 4 to 6 projects and Xbrane makes it feasible and this lowering the cost of development also makes it feasible for the handful of biosimilar companies globally.

Okay, very clear. However, when we think about development costs being sort of lowered, definitely lower cost, lower accelerated timeline, but also probably means lower bias to entry. So how do you think about the trade-off between the opportunities provide in terms of expanding our pipeline versus the risk of seeing more competitors for which I said?

Yes. I'm glad you asked this because I think the -- there are multiple differentiating factors. I mean this is a question that I get offered where investors -- some investors could mix up the biosimilars industry for the generics industry, very different. Like the the entries to barrier, especially with technology, with access to resources with knowledge with capital is significantly higher on the biosimilar side because ultimately, it's biologics that we're developing. Let me just remind you that Alvotech [indiscernible], we have invested over $2 billion in this facility over the last 10 years. This is -- that's not going to change. The requirement of investments that's required for overall, that's not going to change. Your clinical costs may come down, and which is why I don't think that these going to open the floodgates for newer companies to Russia and saying that, hey, biosimilar cost of development has gone down from $200 million to possibly $100 million, so let's jump in. I don't think so. I don't think that's going to be the case. Could it mean that biosimilar companies could expand their pipeline. We definitely plan to expand it, and we will see some of our more serious peers also doing the same.

Okay. And maybe 1 thing that's been emerging in the biopharma industry, I think, more and more over the last few years has been the emergence of China in terms of a source of innovation for large pharma, but definitely sort of technology modalities they have has progressed very, very quickly. What does it mean for biosimilars? And what role do you see China playing in the biosimilar landscape as originator of biosimilars in the next 3 years?

Yes. Incidentally, I read your report on China and its biotechnology the team -- report that the global pharma team put out last week, I think. It's a good report. So China, especially, I think, as we think about it, I think it's a meaningful content. On the biologics side, we have 1 or 2 companies that are -- that we do see. And -- in terms of the market shape and formation itself, I think what we have seen over the last 20, 30 years, I was asked this question 20 years ago about China as a serious generic threat, which never materialized, right? While China became the API hub of the world, 90% of the API is coming from there, it never materialized as a generic threat. China, I think, has been historically reluctant to be a front-ending partner in the Western world, in Europe or in the U.S. for multiple reasons, Chinese companies. And I don't think that's going to change. The base case is likely to be the same. So they are likely looking for partners. And if there's scope for us to partner, we'll partner, but -- but otherwise, I don't expect to see a flood of bio-tech water companies on the biologics side or biosimilar side from China.

Okay. That's clear. Just to touch a bit on your long-term margin profile -- profile, sorry, 2025 guidance suggests an EBITDA margin half in the mid-30s, 2028 aspiration, roughly sort of 40%, 45% EBITDA margin. So how should we think about the long-term margin potential for Alvotech, and what could be sort of peak margin in the long term?

Okay. I wont call out a peak margin because that will be limiting ourselves. Now we will definitely continue to strive to improve margins every year. We have just started on this journey of last year of being profitable on the EBITDA side and generating this EBITDA and we would expect this to be the case for the distant future too. Right? As more and more products enter the markets globally in the U.S., we would expect to see margins expanding. So 2028, again, we will be more precise call around 2028 there, but inherently think that as our products expand, we get great economies of scale. We have presence in more geographies or more countries and especially as we get into the buy-and-bill side, too. So we'll expect to see margin improvement consistently, yes. But beyond that, I think we'll give greater color on 2028 or definitely on the peak margins, it'll strive to continue to improve.

And then I want to also talk about the sort of process to select the biosimilar opportunities you're going into. Can you run us through the sort of key consideration that you have when you select rising opportunities and the balance between the size of the drug and also the competition risk that comes with it.

Sure. Maybe before responding to that question, I want to call out our Chief Scientific Officer, Joe McClellan, I think, who I think is extremely impressive person, who has an amazing team with him. And has been 1 of the drivers for us to be in this position where we are today. And so that's really the thing, right? Being able to identify assets that in 7, 8 years from now could be material and starting development work on it, which explains why on some of the assets like biosimilar Entyvio, even highly edge, high dose or biosimlar symphony. We see limited competition or no competition, and it is there's astuteness, which is born out of decades of experience in the industry that has got us to the spot. And so I just wanted to especially call out Joe and his team there. That's 1 of the key drivers, right? Then what are the other factors? Obviously, the total addressable market, the opportunity size that matters a lot and who else we expect to be in competition for that. If we think that on $1.5 billion biologic drug will see 10 players because the technology is not that prohibitive then we are not likely to work on it. But if you think that even a $1.5 billion, $1 billion product could be 1 where we have a technology edge, and we can be in the market before or ahead of others, we'll definitely work on it. And that's really how we would think about it. And last point, again, because we are a global partnership model, we also have to think about the attractiveness of this asset to our partners, too.

Okay. That's clear. On the CapEx side. So the CapEx intensity for the company right now is very light considering that you're primarily an R&D and manufacturing business -- so how far can your current capacity carry you in terms of manufacturing the biosimilars? And should we expect at some point of another CapEx cycle to increase the capacity?

Yes. For the benefit of those following this conversation, what we have put out in terms of guidance for CapEx is around $70 million for 2025 and the next couple of years is around approximately $25 million per year for the next few years after 2028. Change, but we don't see any incremental need for capacity, it's around about way of telling you that we are very comfortable with capacity. We think that with the existing capacity, we can address both our current commercial products and future anticipated launches up to 2030 and beyond. That said, we also want to be future ready, ready for phase in 2030, 2032, and beyond where we need more capacity. And we are constantly war gaming it, and we will plan for it and expand as and when needed. Ties back to the earlier point that I said, that we already invested $2 billion over the last 10 years into the facility we have at [indiscernible]. And the CapEx investments have been done and now it's a matter of generating the returns of those CapEx investments.

And maybe in the last sort of couple of minutes that we have, can you help us understand -- and I think there's been a debate in particular from generic investors the sort of shape of revenues for biosimilar products, maybe across regions. Is it in sort of the ramp-up phase and we reach a peak and then we expect it to decline on the geographic sort of split and then when you take a product at Alvotech, where you have multiple partners on the road, what does it mean for the shape of revenues for an opportunity.

Yes. Again, glad that you asked a question too, I will take pains to stress that it's not a generic product life cycle curve, where you had a first-to-file or a 180-day exclusivity you would have like a bonanza in the first 6 months on day 181, it falls off the cliff. It is not that. So the biosimilar market is very different in its dynamics for multiple reasons, primarily being the competitive landscape being much more spares, right? We would normally expect to see, I don't think biosimilar Humira marketed has peaked. We would expect to see -- after 2 years after all the biosimilars have entered, the biosimilar Humira market hasn't peaked. I think we will expect to see greater conversion in 2026 and possibly even 2027. So that -- we are now looking at possible market life cycles of anywhere between 3 to 5 years for the -- for a product like that. And Stelara as I said, first year, we are at 15%. We would expect this biosimilar conversion to go on as greater formulary exclusions come into place just as we saw with biosimilar Humira this year in July 1, we saw the formulary exclusions taken into effect. We'll see Jan 1 again. We'll see a similar dynamic. And as these things grow, addressing from a U.S. market, we will see this volume growth trend continue. Ex-U.S., it's going to be a volume growth story for the first few years, at least. And as we introduce it into newer geographies, for us, overall, the assets as a whole will still see volume growth too.

Amazing. We are at the end of the time. So Balaji, thank you very much for your time and for joining us at the conference.

Thibault, thank you so much for the questions. And again, thank you, you and Morgan standing for inviting us to participate in the conference. And I wish you the very best. Thank you.

Thank you.