Alvotech (ALVO) Earnings Call Transcript
May 22, 2023
Earnings Call Speaker Segments
Good morning and good afternoon, everyone. My name is Thibault Boutherin. I'm part of the European pharma team, and I am joined on this call by my colleague, Mike Canfield, Head of EMEA Sustainability Research at Morgan Stanley. Please note that this webcast is for Morgan Stanley's clients and appropriate Morgan Stanley's employees only. This webcast is not for members of the press. If you are a member of the press, please disconnect and reach out separately. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. We are pleased to have with us Ming Li, Chief Strategy Officer at Alvotech for this session on affordable biologics. Ming, thank you for joining us.
And before we get into the details of Alvotech's ESG strategy, Ming, can I ask you to introduce the concept of biosimilars for investors who are not familiar with it? And highlight the role they play and the benefit that they bring to the healthcare system.
Yes. Absolutely, and thank you for the time today. So I think before I answer the question about biosimilars, it's important to understand biologics and biologic medicines and what they've done in the field of medicine. So today, 9 out of the top selling 15 products in the world are biologic medicines. And even more importantly, the 59% of new launches in 2022 were on biologics medicines. So there's a lot of investment in the future of originator companies as far as their biologics pipeline are concerned. In the U.S. alone, over 40% of all spending on pharmaceuticals period are on biologic medicines. So they represent a significant cost to health care systems, not just in the U.S. but all over the world. Biosimilars are therapeutically equivalent versions of these biologic medicines that are sold at a lower price. And from a societal perspective, I think there's three main things to consider: One thing that biosimilars helped to manage health care inflation, which I know is an issue around the world. They can also increase access, particularly in emerging markets where oftentimes, the biologic medicine themselves is not the standard of care, although it may should be. And biosimilars can actually increase and it's something that hasn't talked about too much innovation across the board because it creates competition more broadly in the industry across pharma in general. And so we think for those reasons, I think biosimilars are critically important to health care going forward.
Thank you. And could you also talk a little bit about Alvotech's business model, in particular, which is quite unique with a focus on product development and manufacturing and with the commercial model, which is based on partnerships?
Yes, absolutely. So today, Alvotech is roughly 1,000 people, and I would say over 85% of them are either in quality, operations or research and development. So our business model is to focus on development, manufacturing -- development and manufacturing, and we create commercial partnerships around the world, which we now have in over 90 markets. So we share the development cost of biosimilars, which is quite high through milestone payments, and we also get a substantial share of the market of the in-market sales as part of our partnerships. And we maintain that structure, which is rather unique to allow us to focus on our core competencies. I think that's number one. It also allows us to make product selection decisions that are somewhat agnostic to the therapeutic indication. We're not tied to a particular indication. And it allows us to diversify our revenue streams as we have revenue tied not only to the development success, but also through product revenue, which we believe will -- which we receive globally.
That's clear. And could you talk a little bit about what differentiates your development process and your manufacturing facilities from a technology, from quality and sustainability standpoint?
Yes. I think the biggest differentiator because, obviously, other companies develop biosimilars and biologics manufacturing, while it's challenging, it does exist in other places. I think the biggest differentiator we have is our sole focus on biosimilars. A few companies that exist today are vertically integrated and have scale that are also pure-play biosimilar companies. Most of the companies that are in the biosimilar space are large-cap pharma. So Novartis and Pfizer, and Amgen, for example, have been the biggest players in biosimilars, and we think it's important going forward that we have a pure-play platform that we can focus on biosimilars. Our agenda is very clear. Our priorities are very clear. It's 100% biosimilars. And I think that's probably the biggest differentiation that we have.
Thank you. I will pass on to Mike for questions, which are more focused on ESG.
Thanks very much, Thibault. Thanks, as well Ming for that introduction. [Operator Instructions] But maybe your first question around your access to medicine strategy and how you think about responsible sales and responsible promotional practices. If you could give us a bit of color on that and whether you have an explicit plan in place that would be a good starting point.
Yes, absolutely. So as I mentioned earlier, Alvotech is a B2B model. So we actually don't sell any other products ourselves that we developed in any given market. But that doesn't mean we deprioritize responsible practices. So the first course of action is, of course, choosing our partners wisely. So I think at this stage, we have 18 distinct partners, and we believe they're the best-in-class in biosimilars, and they were chosen for a multitude of reasons. The second step, of course, is to put in place a robust program of monitoring and reviewing and that is something we plan to continue to develop further. We're still very early in our commercialization phase as we've launched in 17 markets, our first product. But as that develops, so will our oversight across our partners.
Makes sense. And perhaps actually, to take one step back before we move into a bit more detail around your thoughts. Can you give us a sense of what you think the core hurdles are to adoption of biosimilars across the markets that you address? Is it a regulatory thing? Or is it more around the incentivization structure? Or what do you think the obstacles are there to overcome?
So it's interesting because I think biosimilars and biosimilar penetration has increased over time. And I think that time is a factor, and the market has been around for a while for biologics or biosimilars more broadly. And we have seen an improvement in how biosimilars are perceived in the medical community, and there was, of course, some skepticism in the beginning. So I think time is a big factor. I think one of the other issues is to be able to develop a competitive product. And while biosimilars are therapeutically equivalent by definition, the originator companies are always thinking of ways to maximize their market share going forward. So being able to -- and they do that by changing the way the product is presented, changing the dosage and things like that. And I think biosimilars to remain competitive need to actually move with the originator companies and lockstep so that they can make sure that they're presenting the best possible product when it's time to launch. And so I think biosimilars really need to be nimble and be able to react in a way that keeps them competitive. From a regulatory perspective, I know that was part of the question. And some of it is sort of approval regulatory and some of it, I'll call it, intellectual property from a regulatory standpoint. And I think the regulatory framework for biosimilars is relatively clear. I do think what could happen in the future is for certain products, you may see a lowering of the regulatory hurdles from a clinical perspective. And I think that will help open up to more competition and the ability for companies to target more products than they otherwise would because of the cost and expense of, call it, in-patient studies. The second obstacle -- regulatory obstacle, I think, is intellectual property. I do have to say that's mostly a U.S. construct. It's a little bit more clear elsewhere in the world, and there's been a lot of discussion about patent use patent misuse and bipartisan patent reform. And I do think that, that is something that could help clear the way for more biosimilars going forward, and we certainly are an advocate for patent reform.
Interesting. That makes complete sense. And thinking maybe a little bit about that growth strategy that you alluded to. You said you had a clear path in mind in how you see the future materializing. Can you give us a bit of color around that, how you're thinking about it perhaps regionally and in terms of products and disease areas that you might be looking to address?
Got you. So I think from a disease area, we have focused primarily on the immunology space. Of course, we have some others in the primary care area, in ophthalmology, but mostly on the immunology space, which is where biologics made -- has made a big entrance as far as the standard of care. Recently, in our last earnings call, we unveiled a biosimilar candidate to KEYTRUDA, which is our first primarily oncology product. And I think that is a space where we think we could expand further. There's obviously a lot of targets and opportunities and a lot of originator investment dollars are going into oncology from a biologics perspective. I think regionally, even as we stand today, at least for a subset of our portfolio, we have partnerships across 90 markets. So there's actually very few markets we do not intend to enter. And of course, timing is different for each one, but we intend to be a global biosimilar company. And we've already started marketing and distributing -- not marketing, but distributing into 70 markets around the world, including Canada and other markets across Europe.
Perhaps linked to that in terms of the challenges of that expansion. Can you maybe give us a sense of things like headcount, things like transitioning from being an R&D-focused institution to including fill and finish manufacturing. Can you maybe give us just a bit of color around how that experience was and what you see as the obstacles to that challenge -- to the growth story going forward.
Yes. So I think growth story going forward, obviously, it's a challenge to move from R&D into commercialization. So it's really about adapting to scale. There's been a lot of headcount growth and obviously, managing that change is a challenge. But we think we've put in the systems and the leadership in place, you can get to manage that challenge effectively. I think concurrently operating R&D at the scale at which we're trying to do and doing that scale, I think this is an important challenge for us to understand and for us to be able to bifurcate that effectively, right? So it's really about being able to keep that R&D engine with still the capacity to manage the growth and output, which we certainly have and expect to do going forward.
And you mentioned the headcount growth, very substantial in 2022, I think 40% growth in total employees if my numbers are correct. How do you think about that recruitment and attracting talent piece? Are you finding availability of a skilled workforce to be an issue? Or are you seeing significant wage inflation? How are you navigating that particular element?
Yes. So we -- it is a challenge. I think for any company to grow at the rate that we've been growing. I think from a skilled workforce perspective, we've done a good job of attracting a rather large expat community to the manufacturing side. So we have, I think, over 60 nationalities that work for Alvotech around the world, and it's also a similarly diverse at our manufacturing facility in Iceland. So I think we've done a good job of attracting folks. The other thing we do is that there are actual parts of the development process that lend themselves to decentralization, right? So we're -- as a company that's looking to access the entire globe, regulatory environments are different everywhere. So we do have centers of excellence in India, in Switzerland and the United States, for example, to help us on that front. Clinical research is obviously done in very -- in many different markets around the world. And again, that's a great place to decentralize your workforce, but still gain the kind of efficiency that we need. And of course, training, I think, is important. I think in any industry, but in the pharma industry, in particular, and how regulated it is, it's also a key piece to ensure that you can manage the growth, which, as you noted, it has been substantial over time.
Absolutely. And linked into that, how do you think practically about DE&I in your operations? Who manages that? And what practically do you do to try and maintain that diversity through your team?
Yes. So I think most of our sustainability initiatives in general are an ongoing discussion between management and the board, right? So we have a sustainability committee at the Board level that oversees our targets and our goals and we work closely with the Board to ensure that we're aligned on those things. I think on DE&I specifically, the company -- we just recently issued our recent quality report. And I would like to take a lot of credit for the results that we've been able to generate thus far. But in large part, I think it's naturally a part of the company's culture. Although we're a global company and we have sites all around the world, there is a very much Icelandic and Nordic heritage to the company, and there's a framework actually that exists in Iceland around quality, and we've tried to roll that out to our other sites. So I think that's a big part of it. The other big part of it of how to practically maintain it I would say, part of our -- the reason why we do these disclosures and collect this data is so that we can have something to work towards and do something to measure ourselves against. So I think that's one of the reasons to do that is so that we can have that practical conversation with the Board and internally at the company just to make sure that we're continuing our practices.
Absolutely. And another piece, I guess, to think about the environmental side perhaps of the expansion. Obviously, a very different environmental footprint when you expand into manufacturing from where you were with R&D. How do you think about managing that piece? Can you give us a bit of color around your processes there and the key hurdles or the things that you're identifying and working on first and foremost?
Yes, absolutely. I think from the environmental piece, one of the advantages of operating where we do is that, a, it's on an isolated grid; and b, it is -- that grid supports almost exclusively renewable energy. So from an emissions point of view, on Scope 1 and Scope 2, we're essentially close to 0 just by definition. We also have access to clean and hot water, which is incredibly important for biologics manufacturing. I think our biggest initiative now, and I think this is an initiative for any young company, is to really understand our environmental footprint more broadly because we are a global company. We intend to distribute our products globally. Biologics and all pharma actually is highly driven on a pretty complex supply chain and value chain. So as we -- and we do some disclosures on Scope 3, but it's really -- our goal is to understand what that is, so we can really do something about it. But intrinsically, I think it's a very, very good natural footprint. But as we start to globalize, I think the key thing is to understanding what it is. And again, we do publish some disclosures, but it's a process, of course, to really understand your footprint on a Scope 3 basis.
Absolutely, yes. It's always going to be iteration, especially as you say, as a young company. And linked into that, perhaps question around supply chain and just how you think about supplier standards and how you monitor and audit through your Scope 3 to that point, but also more generally across both the environmental and the social pillars?
Yes. So a good question. And I think that is one area where we plan to target in '23 is to roll out a supplier code of conduct and work with our suppliers. Interestingly enough, we are a supplier. And so we've had to answer a lot of questions on behalf of our partners more recently as they're doing their analysis. So we have a good sense of where we need to get to, and that's something that we certainly need to do, and it's a focus going forward because, as I mentioned earlier, there's a lot of inputs that goes into -- that go into pharma production and biologics production. And so that's something that is a goal for the Board and a goal for the company as well.
Thank you, Ming. And maybe just coming back a little bit to the access of medicine part. And to come back to this, it's a lot about how biosimilars are penetrating and being received in the U.S. So you touched a little bit about this at the beginning, but I just want to maybe focus on this aspect of the debate because what we've seen initially is the U.S. has very clearly lagged Europe in terms of adopting biosimilars. We've seen a lot of buyers to entry competitors have -- your competitors have taken a lot of time to launch biosimilars, the first commercial experiences as well have been quite difficult. And then overtime, we've seen this improving and the launches of the last kind of few biosimilars had much better trajectories. So if you should just could maybe come back a little bit on this and how you see the landscape right now? And what are the levers that can be activated by government, different stakeholders to further improve the success and help you in your mission to bring affordable care?
Yes, absolutely. As you mentioned, there has been an evolution. And I say the early days of biosimilar launches in the U.S. have been -- you could call it disappointing, but you've seen a lot of change in the more recent biosimilar launches, specifically in the oncology space. I think one thing that I mentioned earlier of how some of the hurdles biosimilar space is keeping up with the originator presentations, right? And so I think in our first product, which we've now launched in 17 markets, is a biosimilar HUMIRA. And here's a market where they changed the presentation from a low to high concentration. They changed the device, and they did a number of items that we reacted to as part of our development. And so in that particular case, in the U.S., that presentation that we developed is now over 85% of the HUMIRA market in the U.S. I think the second part of it, as you mentioned, different levers. And one of the levers, particularly in retail products, products for chronic treatment, PBM-driven products in the U.S. I think interchangeability can be very important, and that is something that we're a big advocate for. Two of the products in our pipeline for the U.S. market are having gone through an interchangeability study or we intend to go through an interchangeability study. And where applicable, we will look to do that more often than not. I think I think going forward, the government in the U.S. is certainly promoting biosimilars, right? So I think you can see in some of the things that have come out of the recent administration on pricing and reimbursement, biosimilars are advocated for strongly. Interchangeability is something that the FDA has advocated for as well as the government. So I think the language is there. I think, ultimately, time will be the friend of biosimilars. And then I think overall, when we see regulatory changes, we hope and we believe that those will be positive to biosimilars.
Thank you. And so that's for the U.S. very clear. And when you think about ex-U.S., and I want to talk a little bit about your global footprint with your ex-U.S. partners. Can you tell us where you see the largest opportunities outside of the U.S.? And as well, when you think over time, how do you expect your revenues to shape overtime between U.S. and ex-U.S. regions?
Yes. So I mean, obviously, Europe is the most mature biosimilar market today. So it's actually the biggest biosimilar market is in Europe. So financially, that would be target #2 behind the U.S., which is the biggest pharma market more broadly. But I think, in general, going globally, I think, has a lot of benefits because it really helps diversify. And I think particularly in some of the smaller markets is where you can see -- some of the emerging markets is where you can see the biggest difference in patient access. So we are focused and we're bound to focus because we have partnerships in markets all around the world. I'm sorry, what was the second part of that question? I just want to...
It was how you think your revenues are going to shape over time between the U.S. and ex-U.S. markets?
Yes, absolutely. So generally, biologics and pharma more broadly, I would roughly estimate somewhere between 65% and 70% is U.S. and the rest is ex U.S. And because the ex-U.S. portion has the potential of expanding access a little bit greater than the U.S. I would imagine that biosimilars would roughly break down into that ratio, except maybe a little bit higher for the ex-U.S., simply because of the opportunity to expand.
It makes sense. And also, just thinking about from a business perspective, the evolution of your revenue stream and your P&L over time. So biosimilar business is a relatively new industry overall. We are still seeing the industry shape. We are seeing consolidation. It's quite difficult to understand how revenues are going to evolve over the long term due to the number of moving parts because we are seeing volumes overall of the biologics going up with better access. We are seeing price going down. Competition seems to increase. We seem to see overtime for the same biologics new competitors coming into the market. However, we could also reach a point where it's difficult for new players to make a return on their investments and they could also drop on the market. So just when we take a biologic in particular, how do you think about the long-term revenue and profit of each opportunity. And then when you take a step back, how do you think about your business overall, considering this dynamic?
Yes. Great question. And so we see biosimilars as something that can grow over time, right? Because penetration grows over time and the details are more sustainable than, let's say, small molecule generics where the competition is higher. So I think it's a long-term race for us, and we think that these are long-term opportunities going forward. And it also helps to be global, right? A lot of these markets are retail and there's a branded element. And so we need to build that brand with our partners all over the world. And every market may have a different market dynamic. But when taken in totality, we think that these have somewhat longer tails. And our thesis as a company, right, and we discussed this going in the very beginning is that we're a B2B platform, right? We focus on manufacturing, we focus on development, and we rely on our partners for commercialization. And the theory is that we can add products over time, right, into our development pipeline, get them onto the market, and we can add them faster because of the number of opportunities that are out there faster than the tails would decline on these products. So that's how we intend to leverage the platform. So yes, we give up revenues as part of our commercial agreements for different reasons. But we believe we can add these more quickly over time. And that's really the fundamental business thesis, which maybe I forgot to mention earlier as to why we have this model is to be able to leverage this platform through a more expansive portfolio, right? We have 8 products today but that's just what we've disclosed, right? So we're -- obviously, because we do early development, early sell and development, we're always working on biosimilar targets in clone selection at an early phase, which we can then quickly move into further on in the development process.
Maybe to add a little on that point. We have a question in from the audience around the pipeline and particularly the opportunity in ophthalmology biosimilars. If you could give us a bit of color around what's happening there in your plans, that would be much appreciated.
Yes. So they're referring to AVT06, which is a biosimilar candidate for EYLEA. EYLEA is a very big product. Certainly, I think we're not the only ones working on it, right? So I think it will be a competitive space, but we intend to have the presentation that is now taking up most of the market, which is the prefilled syringe. So we're developing that as part of our program. The other thing I would say is that the ophthalmology space for biosimilars has recently formed, right? So not in EYLEA, but in LUCENTIS. And so I think similar to what we've seen in oncology, we're going to see a gradual -- and so we're happy that LUCENTIS has launched, see a gradual appreciation because it is a very targeted community, right? So ophthalmologists. And I think over time, I think time is the friend here. We think there'll be more acceptance in that community. And so we're excited about this opportunity overall.
Great. Thank you for that update. Can I maybe ask a very general question around the sustainability strategy in the organization and how accountability and responsibility is thought about at Alvotech. Can you maybe give us a bit of color on where that responsibility sits and how it factors into things like remuneration if it does or how different parts of the organization take charge of that broader E&S impact, what do you think?
Yes. No, absolutely. Good question. Again, it starts with the Board. So the Board has a conversation with management. Robert, who's our CEO is on the Sustainability Committee, right? So it's led by an independent director, but Robert is also part of that sustainability committee. So we meet throughout the year, during the Board meetings and we have discussions about targets that we set for ourselves. So we do have targets. And some of those targets are brought down to individual folks. We have yet to widely dispersed those targets across the organization. And I think that's a level of maturity that I think we can get to, and it's something that the board is certainly considering. But I think we're a relatively young company. So we're trying to make sure that we take these steps in gradual fashion so that they're not just well intentioned, but also effective. But certainly, there are targets and objectives set at the Board level, to management, management executes on those, and certain managements are tied to their personal objectives, but I think the next step would be to do that more broadly. And certainly, the company is something that the committee is definitely wanting to do.
Absolutely. That makes sense. And linked into that policy piece, perhaps, you alluded to earlier your process for thinking about partnerships and how you go about selecting your partners. Can you maybe just delve a little bit more into that? And as much as you're prepared to disclose, of course, around how you think about that selection, what sort of standards you expect and sort of how that process actually unfolds practically?
Yes. So initially, when it really starts with understanding because, again, we're not selling anything, but we can try to understand what our partners are doing to maintain their practices, right? So every company that we work with has some -- their own policies and their own procedures, and it's something that we do as part of our review process initially. Going forward, of course, I think it's about establishing a more routine oversight from our perspective. And that's not uncommon in our industry, right, because there's a lot -- even though there's not that many B2B biosimilar companies, there are B2B companies. And even companies that aren't B2B, they do a lot of things through partnerships. So it is something that we will go moving forward. But the first step is, of course, understanding what our partners do. And that's something that's done at the first step.
Perfect. Thank you. We've just had one follow-up question around the ophthalmology biosimilar. Can you just give us a sense of timeline, first of all, and whether PFS is included in the trial?
So we are currently in clinical trials. Our patient -- I should say, patient studies. And 16 is an interesting one because generally speaking, you need -- I'm sorry, 6 is an interesting one because generally speaking, you need 2 distinct studies. But for this one, because of the nature of what it is, it's all done in 1 study, right? So that study is ongoing. And PFS is part of it, yes. It is part of our program.
Understood. That's great. Thank you very much for your timing. Thibault, do you have any other -- anything else?
No, I think we covered a lot of static. So thank you very much Ming for joining us.
Yes. Thank you for having me.
Great overview. Thank you very much for your time, and great to see what the company is doing. Thanks, everyone, on the webcast for joining in. I hope you have a great rest of the day. Take care.
Read the full transcript via the API
You're viewing the first half of this call. Get the complete Alvotech transcript - plus 251,000+ transcripts from 12,000+ companies, speaker segments and full-text search - through the EarningsAPI REST API or hosted MCP server.
Get an API key View API docs →For developers and AI pipelines
Programmatic access to Alvotech earnings transcripts and 251,000+ others is available through the
EarningsAPI REST API and the hosted MCP server.
Quarterly plans from $105 - full transcripts, speaker segments, full-text search,
and the /api/v1/transcripts/recent polling endpoint for ETL pipelines.