Alvotech (ALVO) Earnings Call Transcript & Summary

Thank you. So thank you for joining this session of the Morgan Stanley Global Healthcare Conference. I am Thibault Boutherin. I am part of the European 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 and if you have any questions, please reach out to your Morgan Stanley representative. So for this session with Alvotech, I am delighted to have with me Róbert Wessman, Executive Chairman of Alvotech, and Balaji Prasad, Chief Strategy Officer for Alvotech. Thank you very much for joining us. Maybe before we start with the Q&A, if you want to start with a brief comment on the situation at Alvotech, where we are today, and the outlook for the company.

Yes, thanks. It's great to be here. And I think it's fair to say that we have seen a lot of evolution, positive development with the company in the last year. First of all, we resubmitted our four BLAs for three products which we have pending with the FDA. And we are very hopeful that that will be approved by the FDA by the end of the year. We got filing or submission confirmation from the FDA on biosimilar to Entyvio, both vial and pre-filled syringe. We simply believe that we are the first, and hopefully first to market, with both presentation in Europe and the U.S. going forward. We concluded the FDA inspection at the end of July, a general surveillance inspection. And that went well. We got VAI status. And we just concluded now, the EMA inspection a few days ago. We are not seeing any major observation there. So overall, with the inspection of the facility, we are getting very hopeful and very kind of certain on approval, hopefully, in coming months or beginning of December. But in addition to that, we have seen we made a good license contract with Lotus. That's a contract which allows us for the first time to go direct ourselves in the U.S. with Hemlibra and Imfinzi, which is quite exciting. And overall, I mean, a lot of other things happening within the firm, but overall, I think we are in a good position at a strong inflection point with all the coming launches.

OK, amazing. Maybe we can start on what you just touched on, which is the evolution of your commercial model, and Alvotech taking a more direct role in commercializing products in the U.S. I mean, historically, you've been a commercial partner. So maybe if you can sort of go through what's driving this evolution of the strategy. Are there specific assets or therapeutic categories that are best suited for a direct commercial approach from Alvotech?

Yes, I think it's a good question. I mean, overall, our model is business to business, globally. And in this particular case, with those two products, we felt those two were strategically well geared to be marketed directly by Alvogen. So even we, as I said, our model is business to business. If you take, for instance, Hemlibra, which is a $6 billion product. It's a very limited patient pool if you will and more targeted to hemophilia patient treatment centers, if you will. And so on that end, it felt like in a wheelhouse of Alvotech being able to assemble a small group of team to market the product. And so that was an exciting opportunity for us. Of course, the concept is being able to capture more of the value chain, if you will. So quite exciting. So it was more strategic approach with the strategy, selecting two products which we felt could be easier to approach the market with. The team has been in the market, including myself, in the U.S. market over 20 years, so we know the channels, we know the players. And so overall, it's not the overall change in how we think about our marketing, but we felt we were in a time of our life where this was a natural next step for a strategic selected products. It might well be that we have a few more products like this coming in the U.S. going forward.

So, the rationale is clear for Hemlibra, but Imfinzi is probably more sort of a challenging place to go in. I mean, these are probably going to be quite competitive. So here as well, do you think setting up a team is going to be what you're going to do, or is there a different approach for it?

No, I think, again, I mean, it's still quite targeted, if you will. And the channels are, of course, a bit different from the big three PBMs, as you know. And we have worked with some of those in the past, clearly. And we have launched oncology products not through Alvotech, but through other portfolio companies in the past. So we felt, still being oncology, that this could be a decent fit for Alvotech to market themselves also.

OK, amazing. And there's a relatively recent development, which is the announcement of manufacturing sourcing from Fujifilm and to add a U.S.-based multi-product manufacturing capacity from next year. How much of this capacity is intended as redundancy capacity with what you have in Reykjavik, and how much is sort of incremental growth from this capacity?

Yes, I think, I mean, overall, we are an end-to-end biosimilar company. We are selling what we basically develop and manufacturing. So everything we have in our portfolio is in-house developed. So Alvotech, I believe, has one of the broadest own in-house developed portfolio pipeline in the industry. So overall, we felt that having a second source of some of the product would allow us to be more flexible. We have, of course, invested, I think our investment is north of $0.5 billion, if you will. So we have pretty substantial capacity, but we also have a lot of potential. We are seeing a lot of our approvals coming through, and there are not many companies with so many BLAs on file, which are going to be approved in a short time frame. So we felt that having the flexibility to meet the upside potential extra demands, being able to maintain a strong service level, it would be important, or very important, to have alternative sites. So we had a conversation with different potential partners. Fujifilm has a very strong track record in the U.S. so it came kind of natural to us to sign up with them. So I think to answer the question, we will still allocate manufacturing to optimize Reykjavik, which is our main facility, and utilize that facility we have invested in. And strong capacity and partner in Fujifilm to meet demand and potential upsides when they show themselves, if you will.

Okay, amazing. And when we think about the impact on the P&L in terms of gross margin, do you expect that this is going to be visible in the next few years?

Yes, I mean, we will see that, as I mentioned, the company is at an inflection point. We have been growing quite a bit throughout when we launched the first product into market. I mean, we are less than three years into commercial market, if you will, into the U.S. market, the biggest one, so we are fairly young as a commercial organization, if you will. So we will see multiple products coming to market which means that we should be seeing a strong growth continued going forward. And secondly, I mean, if you look at the gross margin, it should be pretty neutral whether products are produced in-house or with a partner like Fujifilm.

That's clear. You touched a little bit on the resubmission of the BLA, so Eylea, Prolia, Xgeva, and two presentations of Simponi in the U.S. So there was an FDA inspection. It closed with, as you mentioned, a Voluntary Action Indication. Can you just sort of help us assess, is there any risk remaining on the approval and how confident are you that this submission will go through? And what makes you confident?

So overall, so our BLAs were fully reviewed by the FDA, which we resubmitted without any observation, if you will. So the BLAs have been kind of passed the test before, which are now resubmitted. The observations were partly facility related. We think we have spent a lot of resources and energy to continue to evolve our quality system. Again, the company being young commercially, but we still are seeing a lot of growth in the or continuing to invest into our quality system and production process, if you will. The company today is approved by all major health authorities in the world. We just closed out the EU MDD, the European Health Authorities, an inspection last week, and that inspection went extremely well. We closed out the July inspection with a VAI status. We continue to evolve the quality system, if you will. So we believe that whether the FDA comes in for another inspection before they give us approval or not, we, as a company organization, we are well prepared and ready for that. So we are very confident that we have a good shot at getting approval this time around.

So just to confirm, you're not sure yet if the FDA will require another inspection?

No, we are not fully, because FDA is, this question of FDA. I mean, they just finished the inspection. As I said, it was closed out in July. So I think it's not absolutely certain that they will come.

Okay. But either way, I mean, it will be fine with us. And then you touched a little bit on this, but what structural changes have you made to the manufacturing process, the quality process, beyond just sort of resolving the specific observation?

Yes, I mean, from the inspection where we got, so we have been producing for the U.S. We have never had any product issues into the U.S. that we didn't get approval for three products which we resubmitted, so we continue to manufacture for the U.S. market successfully. Overall, I mean, there were a couple of items which the FDA pointed out when they gave us the CRL. Actually, there were two issues which we believe we have addressed very well. One was related to customer complaints, the other one using a pharma-grade silicon in our filling machine, which has been used for the last 20 years in the industry. And we have simply removed that. So I think when it comes to the PAL letter we received on preparation from the FDA, I mean, we always look holistically at what we are doing. We don't dive into one specific issue.

We should be well prepared, if you will. OK, amazing. That's very clear. And so moving on to your portfolio and your pipeline, starting with U.S. Eylea, so the market formation should be around the first quarter of this year based on when the IP goes away for Alvotech specifically. Do you expect the approval to be gated by the IP or by your own approval, assuming that they give you clearance for U.S. Eylea?

Yes, we have a settlement with Regeneron, which is allowing us to basically launch upon approval in December. So we have seen Amgen, of course, been first to market, if you will, and over a year been able to convert, I believe, close to 40% from the brand sales. And I believe that Alvotech, the two other players, are coming in now. So we feel pretty excited about the opportunity. It's close to a $4 billion market. So we are still seeing the market expanding. Exciting, even though this time around we were not first in, but we are in the second wave, in the government and was the first. So pretty good, strong opportunity in this one.

Amazing. And as a follow-on to Eylea, you are working on the high-dose formulation, the 8 mg. Can you update us on the regulatory status? You are filing in some regions in 2026. Maybe starting here, which sort of major regions can you file here for the high-dose, yes.

Yes, high-dose is a very interesting product program for us. I mean, we started developing high-dose before the brand launched 8 milligrams. So when the brand launched, we had one of our formulations matching the brand. What we did is, the formulation of 2 milligrams to 8 milligrams is not fully identical. So we made sure that 8 milligrams was a bit different because of the IP. So the European health authorities, they believe that no efficacy or safety study was required. So we are working hard on that filing this year. Basically, in the U.S., we are based on the requirement by the FDA. We are running a safety and efficacy study, which will be basically running next year, if you will. So submission most likely.

Early 2028. OK. And to confirm on the high dose, because there was slightly different molecule, this is going to be the approval that's going to condition the launch. It's not a residual IP situation on the high dose.

No, I mean, we believe that we are in a very strong position with IP. And especially with the final tweak we did to the formulation, we are very confident that we are not infringing any of the patents. And it's all IP situations are partly complex, but they can also be fairly simple when you know the way you're going and that's in this particular case we know well where we are and we think we are in a good position. It doesn't mean that we will not have some litigation challenges or that they might be sued, but we are in a good position to bring the product to market. And maybe to say that also, I mean, we are also with a safety device, as you know, high-dose in Europe is 80% with OcuClick and safety device. 20% is the vial. And I think we are the only one I know of, at least, which have developed the safety device, which is important.

That's clear. Moving on to Simponi in the U.S. So I think the only competitor here is Biothera. They are gearing up for launch in the fourth quarter. If your CRL is resolved, do you think you can launch it at the same time? Is there a remaining IP challenge? I think Biothera is dealing with a lawsuit from Johnson & Johnson on Simponi.

Yes, I think on IP, again, without going into that in specifics, I mean, we are in a very strong position. Position or IP position with the product and basically the patent is basically put forward by J&J on potential PI, we are absolutely certain we are not infringing that. So we think that the launch should be... We have, of course, launched the product into Europe and we have been on the market since late last year. Biothera was got approval, which you mentioned, which is the only known other party with the product, and they have had their own GMP challenges, so they have not been on the market last year. I believe, nine or 10 months. So we remained to be seen whether we are in the same way safe Atlantis in the U.S. as they are, or if you manage to get there first.