Alvotech - Earnings Call - Q2 2025

Transcript

Speaker 6

Today, and thank you for standing by. Welcome to the Alvotech second quarter 2025 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be the question and answer session. To ask a question during the session, you need to press star one, one on your telephone keypad. You will then hear an automatic message advising your hand is raised. To withdraw a question, please press star one and one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our first speaker today, Benedikt Stefansson, Vice President of Investor Relations and Global Communication. Please go ahead, sir.

Speaker 2

Thank you, and welcome to our listeners. Yesterday evening, the company issued a press release announcing our financial results for the first six months of 2025. A presentation accompanying today's earnings call was also published last night on our investor portal, investors.alvotech.com, under News and Events. We will be referring to individual slides during the presentation today. Our press release, presentation, and statements that we make on the call today may include forward-looking statements. Please see our disclaimers on slide number two of the presentation. 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. Any risks and uncertainties could cause actual results to differ materially from forward-looking statements that are made. Presenting on today's call are Róbert Wessman, Chairman and Chief Executive Officer of Alvotech, and Linda Jónsdóttir, Chief Financial Officer.

We also have with us on the call Anil Okay, Chief Commercial Officer, and Joel Morales, Outgoing CFO. Róbert will begin today's presentation with a summary of the first half of the year and quarter, including financial and business highlights. Linda will cover the financial performance in more detail. Following that, Róbert has some closing statements, and the team will be happy to take your questions. With that, I would like to turn the call over to Róbert Wessman. Róbert?

Speaker 7

Thank you, Benedikt, and thanks to everyone for joining us here today. I'm very pleased to have with me today our new CFO, Linda Jónsdóttir, who joined our team in July. Linda has a background in finance and corporate leadership internationally, has worked across different industries as transportation, banking, food technology, and healthcare, both as a CFO and COO and Chairman. At the same time, I want to thank Joel Morales for his valuable part in Alvotech's journey as a CFO. We are very pleased here today to announce our operating result for the first half of the year and this quarter. These results confirm our continuing momentum as a leading global fully integrated biosimilar company. Alvotech's strong growth momentum in the first half of the year can be attributed to strong reorders, successful product launches, development progress, and improved efficiency in manufacturing.

Among the highlights from this quarter, we saw good performance in major markets from our two marketed products. We signed significant partnership agreements for our early-stage pipeline. We increased our revenues in the first half of the year by 30% year-on-year, and we also delivered the fifth consecutive quarter of positive adjusted EBITDA. The cash flow of the quarter from the operating activities reached $77 million, which is an improvement of $161 million year-on-year. Product revenues in the first half of the year grew by over 200%, and product revenues in the second quarter of 2025 grew by 77% year-on-year. Product margin was 33%, driven by new product launches, growth in revenues from existing markets, and increased product volumes. Linda will talk more about these financial results later in the call. Let's now switch gears and discuss the performance of our marketed products.

Starting with our biosimilar, Humira, which is marketed as Simlandi in the U.S. and some other parts of the world, and as Huqindra in Europe. In Europe, our partner continues to gain market share with Huqindra, which has now entered its fourth year in the market in Europe. We are quite pleased with the solid performance of the biosimilars despite entering a fairly crowded market back in the year 2022. In the U.S., the Humira biosimilar market started opening up last year when our Humira biosimilar, Simlandi, was launched. As pharmacy benefit managers (PBMs) are starting to exclude the originator from formulary, we are now seeing an accelerated conversion to Humira biosimilars, which in July had reached over 40% share of the overall U.S. Humira market, as per our estimate. This is in line with our expectations that biosimilar conversion could reach 50% in the U.S. Humira market by year-end.

At the same time, I'm very pleased to say that Alvotech has the second largest market share as a biosimilar to Humira in the largest market in the world, the U.S. market. We also continue launching this biosimilar in markets outside North America and Europe, and our partners now are selling the biosimilar to Humira in 33 markets globally, and we have gained marketing approvals in 67 markets total, and we are therefore continuing to roll out the product into new markets going forward. Our biosimilar to Stelara, AVT04, is marketed as Selarsdi in the U.S. and Uzpruvo in Europe. We were the first entrant in Europe, Canada, and Japan last year with a very strong result. We launched with Teva in the U.S. market this February. Uzpruvo continues to outperform our expectations in Europe.

Sales volumes are very strong, and we remain the biosimilar with the first or second largest market share in all the key markets in Europe. The uptake of Stelara biosimilar in the U.S. is progressing as we expected. Biosimilar share reached over 20% of overall Stelara market in the U.S. in July, as per our estimate. With our product marketed under Selarsdi brand by Teva, we are on track with our internal forecast in terms of price and volume. As mentioned on our last call, pricing in Stelara market is quite competitive, with some of our competitors offering pricing that we believe are not sustainable in the long run. We are convinced that our strategy by focusing on product margin rather than volume and market share will prove more successful for all of our stakeholders in the long run.

In the U.S., although we have not signed any private label, we have signed unbranded product deals with a few leading players through our commercial partner, Teva. We have marketing application under review in major global markets for AVT03, our proposed biosimilar candidate to Prolia and Xgeva. AVT05, our proposed biosimilar to Symponi and Simponi Aria, and AVT06, our proposed biosimilar to Eylea. Finally, our marketing application for AVT23, our proposed biosimilar to Soliris, is currently under review in the U.K. We also plan to file with IMA an application for AVT23 in the third quarter this year. We look forward to provide further information as we near the approval and launch stage for these products. As laid out at the beginning of this year, Alvotech has decided to ramp up its R&D efforts significantly, expanding the industry's most valuable R&D pipeline.

In June, we completed our transaction of the R&D operation of Xbrane in Stockholm, and also we bought the rights to a biosimilar candidate referencing Simlandi. We continued to hire into our R&D team both in Sweden and Iceland since then. The result of our enhanced R&D activity can also be seen in the recent partnership deals announced during the quarter. During the quarter, we expanded our partnership with Advanz Pharma, licensing European rights to four biosimilar candidates referencing Elaris, Kesimpta, Simlandi, and one undisclosed biologic. Advanz Pharma has shown great confidence in Alvotech by signing license deals for biosimilars referencing now more than 10 different biologics. We also announced our second partnership deal with Dr. Reddy’s Laboratories, a collaboration to co-develop, manufacture, and commercialize a biosimilar candidate to Keytruda. The collaboration will allow us to diversify and mitigate development risk and extend the global reach of biosimilars.

Shortly after the end of the second quarter, we completed our acquisition of IWSL in Switzerland. This acquisition gives us better control of the full value chain and increases our capabilities and flexibilities in assembly and packaging of our devices. Before I conclude, I would like to extend a special greeting to our many new Swedish investors as this is the first earnings call held after our official listing of Alvotech on Nasdaq Stockholm. After initial placement of about 7.9 million STRs on the Stockholm market, float on the Stockholm exchange has continued to increase. Shareholders are now able to trade Alvotech shares on three Nasdaq exchanges in Iceland, in the U.S., and now in Sweden. The listing on the Nasdaq Stockholm further broadens our shareholder base and increases trading liquidity to the benefit of all investors interested in participating in Alvotech's exciting journey.

In summary, we are very happy about the result of the previous six months and our momentum going into the second half of the year. With that, I would like to hand the call over to Linda. Linda, over to you.

Speaker 1

Thank you, Róbert. I'm very excited to join the fantastic team at Alvotech, and even though it has only been a few weeks, I can really feel the energy, the passion, and drive of our people. I'm happy to report that this is reflected in our numbers as well. Let's move to the key highlights for the financial results for Q2 and first half of the year. Overall, our performance in the first half of the year was strong, both in terms of revenue growth, margin expansion, and continued cash flow robustness. Moving to slide nine in the deck, highlighting our adjusted financial results, let me start with the revenues. Revenues continue on a strong momentum, and we're up 30% at $306 million compared to $236 million in the first half of 2024.

Our revenue growth year-on-year was mainly driven by strong product revenues coming in at $205 million in the first half of the year compared to $66 million in the same period last year. The key driver for the increase year-on-year were increased sales of our biosimilar to Humira and continued success of our biosimilar to Stelara in Europe and its launch in the U.S. in Q1 this year. Licensing revenues in the first half were $101 million compared to a very strong first half last year when licensing revenues were $170 million. This difference in licensing revenues was driven by the timing of development progress impacting R&D milestones. Revenue recognition of milestones can be lengthy, and during Q2 last year, we achieved a number of significant development milestones. We do expect a similar dynamic to occur this year towards the latter part of the year.

Looking at Q2 specifically, we recognize total revenues of $173 million compared to $199 million in Q2 last year and $133 million in Q1 this year. The split between product revenues and licensing revenues in Q2 this year was $95 million and $78 million. After a very strong Q1 marked by the launch of our biosimilar to Stelara in the U.S., the second quarter benefited from increased demand for our biosimilar to Humira across key markets and our Stelara biosimilar in Europe. To further illustrate the inherent lengthiness I referred to earlier, in terms of quarterly phasing, we do expect product revenues as well as milestone revenues to soften in Q3, followed by a much stronger result in Q4.

Moving to operational performance and margins, in the first half of the year, the adjusted product margin was 33%, which is in line with our previously stated expectations of a mid-30% range for product margin in the period. Adjusted EBITDA in the first half was $54 million compared to $64 million during the same period in the prior year. Adjusted EBITDA in Q2 was $18 million versus $102 million during Q2 last year. This is a function of the lower contribution of licensing revenues as milestone revenues transferred directly to EBITDA. Turning to the next slide, you'll find a summary of our cash and liquidity. During the first half of 2025, we generated $77 million of positive cash flow from operations, which is a net improvement of $161 million compared to the same period last year.

In Q2 specifically, we generated $59 million of positive cash flow from operations, which is a net improvement of $73 million year-on-year. In terms of operating cash flow, Q2 2025 is the strongest quarter in the history of Alvotech and demonstrates the strength of our core business operations, which is reflected in high product revenue collections during the period, and is accomplished while we are still building inventory in preparation of new launches. We've also taken a number of important steps in the first half of the year in terms of our capital structure. We closed the period ending June 30 with $1,139 million in debt and $151 million of cash on hand, which was positively impacted by operational performance and proceeds from our Swedish offering and private placement in June.

As per the agreement reached with our lenders in late June, and on the back of our improved financial performance over the past year, we were able to reduce the rate of interest on our existing senior secured term loan facility to SOFR plus 6% with a maturity date in 2029, which will reduce our cost of capital and lower Alvotech's interest payments in the first 12 months by an estimated $8.2 million. In Q2, we completed the acquisition of the R&D organization of Xbrane in Sweden and biosimilar candidate to Simlandi. The total purchase price was $28.9 million paid in cash, by assumption of convertible debt and assumption of accounts payable. After the close of the quarter, we also announced the acquisition of IWSL in Switzerland. Both acquisitions are very important for our ongoing and future operations.

In the appendix to our presentation, you'll find a table with reconciliation of our reported to adjusted results. Finally, over the past few weeks, I have witnessed the strong team at Alvotech and their dedication to deliver with focus on operational excellence and financial performance. I'm excited to get to know the company better, both to identify and maximize the opportunities ahead, and contributing to the sustainable long-term growth of the company for the benefit of all stakeholders. With that, I would like to hand the call over to Róbert for some final remarks. Róbert.

Speaker 7

Thanks, Linda. In closing, the second quarter was another strong quarter for Alvotech. We are expanding existing products into new markets and preparing for future launches. We will maintain focus on accelerating pipeline development going forward. At the same time, we are scaling manufacturing and increasing operational efficiencies.

Speaker 2

Thank you, Róbert and Linda. Let's now turn the call back over to the operator for Q&A.

Speaker 6

Thank you, dear participants. As a reminder, if you wish to ask a question, please press star one one on your telephone keypad and wait for a name to be announced. To withdraw a question, please press star one one again. Listeners will compile the Q&A queue. This will take a few moments. Now we're going to take our first question. It comes to the line of Christopher Winston Uhde from SEB. Your line is open. Please ask your question.

Hi there. Thanks for taking my questions. I guess a few. I'll take them one by one if that's okay. Halfway through 2025, you're not changing guidance, but Q2 was clearly at least a lot better than the Street predicted. What can you tell us about your confidence in the top-line guidance going forward? You've previously indicated, if memory serves, that you have very high six-month visibility. Is it fair to say we should not expect a guidance raise in Q3 then? That's my first question.

Hi. Could you hear me?

Speaker 1

Hi. Thanks for the question. It's Linda here. I will at least touch on the guidance. Perhaps just to start by summarizing a bit, like Q2, we see a lot of strong momentum both in the Q2 numbers and the first half. Of course, underpinning the strong product revenue growth there driving solid EBITDA results. We also see that licensing revenues are impacted by timing of development milestones, and cash flow from operation is strong. I would say a number of solid steps taken now in the first half. We've also said in the past that revenue recognition is lengthy with respect to milestone revenues. If you look into, for example, 2024, we had a number of significant development milestones there. We do expect similar dynamics now this year towards the latter part of the year. That's why we also commented a bit on the quarterly phasing.

We do expect product revenues as milestone revenues to be soft in Q3. We are expecting Q4 to be much stronger. At the same time, we are coming out with new launches and we are building up inventories in connection to that. Otherwise, I only refer to our earlier guidance that we have stated before.

Okay. Thanks. That's much appreciated. Is there growth for Simlandi left from the Qualant channel in the U.S., or should we view that particular channel as maxed out?

Speaker 5

I can take this question, of course. We do have still a valid contract with Qualant. However, our focus on O2 in the U.S. market is the value rather than the volume. We do expect this business to be more challenging in the second half of the year. We had a very good first half of the year volumes going to Qualant, and we do expect this business to continue.

Okay. Thanks very much. On AVT03, AVT05, and AVT06, I guess most investors would see FDA inspections as the most likely reason for a delay to ultimate approval if one were to occur. Assuming you agree, should we expect any press releases once FDA has given feedback on the inspection outcomes? Thanks very much. That's all from me for now.

Speaker 7

Yeah. I think Róbert here. Thanks for the question. As a part of prior approval, if you will, we did have an inspection, and we believe that this is just as it is as an ordinary course of business, if you will. We, of course, are seeing we have had in the facility both European health authorities, Japanese health authorities, FDA, and this is becoming just a part of our life. We had already two FDA inspections last year. We, of course, sent out a press release on the first one when the facility got approved. The second one late last year went very well, but I don't recall we did send out any press release around that. We will keep the market open and informed once we get approved on the approval on the products, if you will, going forward.

Okay, thanks very much.

Speaker 6

Thank you. Now we're going to take our next question. The next question comes to the line of Ashwani Verma from UBS. Your line is open. Please ask your question.

Hi. Good morning. Thanks for taking my question. Congrats to Linda and Joel. You'll be missed. Maybe just a couple of questions that I wanted to ask. On the guidance, I don't see you guys reiterating or making any specific comment beyond what you're saying for 3Q. Where you are right now in terms of revenue in the first half, $306 million, that is roughly at the 50% mark, at the low end of the revenue that you had guided before, the $600 to $700 million. Are we to assume that that piece is intact? On EBITDA, $54 million adjusted EBITDA in the first half versus your prior guidance was $200 to $280 million. Where are we? That seems like roughly 20% or 25%, I'm sorry, on the EBITDA in the first half. Are those guidance ranges still intact?

I'm trying to understand, is that something that you can expect despite the strong 4Q that you are indicating?

Speaker 7

Yeah. Róbert here. I think the best answer is we are basically in line with what we expected, maybe slightly better, first six months. As Linda mentioned, there is a lengthiness in the quarters. Like last year, we will see the fourth quarter being by far the strongest quarter of the year. For now, we have, as she mentioned already, we are not changing the guidance. I would say net, net. I mean, basically what we are seeing in the first six months is in line with what we expected.

Got it. Okay. Thanks for that. Just maybe on, I think, some of the products that you mentioned, the dynamics. For Humira, you're exiting 40% and expect that you can get to 50% by the end of the year in the U.S. market share. If you can comment on the market share dynamic that you expect to happen in the next year. Just on Stelara, where do you expect to get to the market share by the end of the year from the 20% that you have here?

Speaker 5

Sure. Maybe let me take it, Ash. A couple of answers to both products. First of all, let me start with AVT02 in Europe. In Europe, we have successfully plugged in Biogaran as an additional partner in France. Remember, the French market had only 15% biosimilar penetration. We are now driving the biosimilar penetration in France, still a very sizable market for us to grow. We have the best partner in France to drive that market together with Stada. That is giving us additional volumes and better pricing. In Europe, we continue to see a significant market share increase from last year to this year, 30% growth. We are having a very steady growth and a very stable volume market share in Europe. We expect to continue to grow in those markets, mostly driven by France, but other markets are also contributing. That is the European situation.

If we go to the U.S., as you have seen, we had multiple shipments to the U.S. based on the purchase orders we had, both from Qualant and also from Teva. We continue to have a valid forecast from both companies for the second half of the year. As their purchase orders come to us, we will continue to deliver. What I can say in the U.S. market, there are actually three companies who can really claim a certain position in the adalimumab market. These are, of course, us, Sandoz, and Organon. All the other seven players are not having any meaningful shares. We are, in our opinion, in a good position to drive this market further in the U.S. When it comes to AVT04, I think we have a very good position. In both markets, let me start again with Europe, which was the earlier market that we launched.

We are still either one or number two in different markets in Europe. We continue to grow at a significant pace. We are very happy with our performance in Europe for this product, and we continue to grow market share as we go through. In the U.S. also, we had a successful launch, and we also got already a couple of downstream accounts and independent accounts through Teva. We are expecting our uptake in line with our assumptions in our 2025 guidance. There is no surprise for us coming from the U.S. market in AVT04 market.

Great. Thanks.

Thank you, Ashwani.

Speaker 6

Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star one, one on your telephone keypad. Now we're going to take our next question. Just give us a moment. The question comes to the line of Carl Byrnes from Northland Capital Markets. Your line is open. Please ask your question.

Thanks for the question and congratulations on the results. I'm wondering, with respect to the BLAs in the U.S., did you expect approval by year-end? Do you have any concerns that any of them might slip into the first quarter of 2026, or are you still remain highly confident that we'll see all of those approved as well? Thanks.

Speaker 7

Yeah. Róbert here. Thanks for the question. I mean, we have set the PDUFA dates, and we are targeting those dates. We are not given exact dates. I think we gave months. We believe that those are the dates we are still targeting. Typically, you are not seeing slippage on the PDUFA dates historically, I think.

Great. Thanks. Going back to, sorry to beat the dead horse here, but the guidance. If we look at product sales and we look at the midpoint, which is $375 million, you did $205 million already. That implies $170 million for the second half of 2025. You mentioned the third quarter would be soft and then it'd pick up in the fourth quarter. Does that $170 million gap still seem realistic? With respect to milestones, same thing. $275 million is basically the midpoint. You did a bit over $100 million, $101 million and change. That leaves about $174 million. I would imagine most of that, because of the timing of the BLAs, is going to fall in the fourth quarter. Are those proper assumptions as well? Thank you.

Róbert here again. I think overall, you are seeing a lot of the milestones coming throughout approvals and launches, and also shipments coming out of approvals and launches. I think you had the same, we had a similar situation, if you will, second quarter last year with our very high milestones, if you recall. That's the basis for our forecast and the basis for why we believe that the fourth quarter will be by far the strongest one of this year.

Great. Thanks so much, and congratulations again.

Speaker 6

Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star one, one on your telephone keypad. The speakers are no further questions. I would now like to hand the conference over to Benedikt Stefansson for any closing remarks.

Speaker 2

On behalf of the Alvotech team here in Iceland and all over the world, we want to thank you all for calling in. Please have a good day and evening wherever you are. Thanks and goodbye.

Speaker 6

This concludes today's conference call. Thank you for participating. You may now all disconnect. Have a nice day.