Prepared remarks
Good day, and thank you for joining us. Welcome to Alvotech's Third Quarter 2024 Earnings Conference Call. All participants are currently in listen-only mode. After the presentations, there will be a question-and-answer session. I will now turn the call over to your first speaker, Benedikt Stefansson. Please proceed.
Thank you, and good morning or afternoon to everyone joining us on this call today. Yesterday evening, the company issued a press release that can be found on our website, www.alvotech.com. The release reports financial results for the first nine months of 2024 and provides a business update. Additionally, presentation slides that cover our call today have been posted on our investor website. You'll find all materials posted for the first nine months 2024 earnings call under News and Events in the Events and Presentations section on investors.alvotech.com. Our presentation materials and some of our statements that we make today may include forward-looking statements. 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. These risks and uncertainties could cause actual results to differ materially from forward-looking statements that are made. With me on today's call are Robert Wessman, Chairman and Chief Executive Officer of Alvotech; Anil Okay, Chief Commercial Officer; Joel Morales, Chief Financial Officer; and Ming Li, Chief Strategy Officer. With that, I would like to turn the call over to Robert Wessman. Robert?
Thank you, Benedikt, and greetings to everyone joining us on the call today. We are very pleased with the results for the quarter and the first nine months of 2024, as well as the continued progress we are seeing in the business overall. Total revenues for the first nine months of 2024 increased nearly nine times compared to the same period in 2023. Revenues from the products for the first nine months rose to $128 million, which was driven by an increase in product revenues in the third quarter as compared to the second quarter in 2024. Importantly, the company realized a material step-up in underlying product gross margins, which more than doubled in the third quarter compared to the second quarter. As we have discussed in the past, we expect a material increase in product gross margin in the second half of the year compared to the first half of the year. The drivers of improved margin are the increased utilization of the manufacturing site and the realization of the scale of activities for on-market products and ex-U.S. revenues for our biosimilars to Stelara.
We do expect continued margin expansion due to better utilization and the shift in the product mix that will start to include the Stelara biosimilar for the U.S., as well as expected contributions from new products such as AVT06, our proposed biosimilar to Eylea, AVT05, our biosimilar candidate to Simponi, and AVT03, our biosimilar candidate to Prolia and Xgeva. Milestone revenues year-to-date reached over $210 million. While the majority of the revenue occurred in the second quarter of this year, the third quarter saw expected revenues from existing partnerships and a few new partnership deals. We are thrilled with our ongoing progress and our path to becoming a leading global biosimilar company. While our historical results are indeed positive, I'm even more excited about the execution of our pipeline and the strong business fundamentals we are focusing on today. We believe these efforts are paving the way for sustained growth in the future.
With that, I would like to discuss some recent highlights in our business. In September, the company concluded an inspection by the U.S. FDA of our manufacturing site in Reykjavik, Iceland. This was an extensive general GMP inspection, taking place less than a year after the most recent inspection that paved the way for approval from both SIMLANDI and SELARSDI. It's common practice for the FDA to inspect sites after making their initial commercial entrance into the U.S. market. We of course welcomed the opportunity to test the company and its systems, which have been heavily invested in over the past few years. We received two observations during this inspection. While we take all observations very seriously, we view the overall results as a validation of our past and ongoing efforts to continuously improve compliance of our manufacturing sites. We do expect industry-standard pre-approval inspections for future filings, and we also expect future FDA general GMP inspections to take place on a two-year cadence going forward.
I would like to thank the hardworking team of Alvotech for their commitment to quality and compliance and the excellent results achieved during this latest inspection of our facility. I would also like to extend our gratitude to the commercial partners who routinely inspect our manufacturing facility. This dynamic provides us with new opportunities to enhance our quality systems and overall compliance, ensuring we will continue to remain in good standing across the global markets. In addition to the recent inspection, we have continued to establish the base for future growth by advancing our pipeline and expanding our partnerships. AVT16, our biosimilar candidate to Entyvio, is now in patient trials, and we are the second company to reach this status in this growing market. Furthermore, we have received EMA acceptance on our application for both AVT03 and AVT05. AVT03 is our proposed biosimilar to both Prolia and Xgeva, and AVT05 is our biosimilar candidate to Simponi.
Finally, in the U.S., we received approval for an additional presentation of SELARSDI, our biosimilar to Stelara. More importantly, we will be launching in the U.S. market in 2025 with all indications, which was expected, but it is also good to have completed now. Overall, we are pleased with the continued execution by the company that we have seen in 2024. On the next slide, you can see the timelines of events that demonstrate this execution, and we have steadily been updating throughout the year. As important as current financial results are, it is equally important that we continue to execute on our business development progress and our research and development to secure that we have future opportunities. This allows the company to establish a steady cadence of revenue-generating possibilities in the future to maintain growth. Additionally, it is an important goal of the company to continue to diversify both products and markets as we strive to create a sustainable growth engine in the biosimilar space. With that, I would like to turn over the call to Anil Okay, our Chief Commercial Officer, to give additional updates for the markets and the pipeline. Over to you, Anil.
Thank you, Robert. I will start with a commercial update in the U.S. We continue to ramp up our supply to our U.S. partners, which include both Quallent private label as well as Teva. As we noted, we have approximately 1.3 million units in committed purchase orders for 2024 that we intend to supply this year. Just over 40% of that has now been fulfilled through the third quarter. So we do expect a meaningful step-up in biosimilar Humira revenue for the U.S. in the fourth quarter. With the order cycle we have, we are also seeing the first quarter shaping up nicely as well. On the formulary side, we do expect expanded commercial coverage in the U.S. and additional exclusionary actions by payers in the U.S. markets, which we believe will contribute to a growth year for the product in 2025. Moving to biosimilar Stelara, we recently announced that we have received approval on all indications for SELARSDI, ensuring a full label launch in February of next year.
We have submitted the necessary supplements to also gain interchangeability for the U.S. market, and the BSUFA date for that is set for February 19th of next year. If approved, we expect the approval to be provisional, with final approval for interchangeability to happen in April as exclusivity for the first interchangeable product expires. On the commercial front, we expect formulary coverage in 2025 and remain in conversations for potential private label businesses. We look forward to our year-end call to provide further updates as well as an outlook for both opportunities in the near year. Moving to the next slide, I would like to briefly discuss our commercialization efforts outside the U.S. AVT02, our biosimilar to Humira has now been launched in 26 markets globally, including Canada and various European markets. Although these launches occurred four to five years after loss of exclusivity, these initial launches were crucial for establishing our manufacturing systems and processes, setting the stage for our global expansion.
AVT04, our biosimilar to Stelara, has now been introduced in 23 markets. Unlike AVT02, these were first-in-market launches, positioning us strongly for future growth. The European Union remains a key focus for us, and we are seeing strong demand for Uzpruvo, our Stelara biosimilar. Our partner, STADA, is a well-established brand in the region, and they are seeing success across both tender and retail channels. To put the opportunity in perspective, we anticipate that up to one-third of our product revenues will come from markets outside the U.S. in 2024, which highlights the diversification we are seeing with our global strategy. We expect this contribution to continue growing into 2025, driven by the maturation of existing launches and new launches from the three submissions we made this year. I would like to thank all of our partners across the globe for their strong efforts in driving biosimilar adoption, which we collectively believe are important to enhancing the sustainability of healthcare systems around the world.
Next, I would like to move to our near-term pipeline, which could yield launches as early as the end of 2025. Starting with Eylea, we have announced recently that our application has been accepted for review in Europe. We will also announce filing acceptance in the U.S. when that happens. Please note that some announcements may not come until next year, even if the filing and BSUFA clock begins in 2024, as there is a lag between filing and acceptance. Regarding Eylea, I would like to bring up a few relevant points. Firstly, we have developed both the pre-filled syringe and the vial presentations for AVT06, our biosimilar to the original form of Eylea. Based on our understanding of U.S. requirements, we are one of four companies to develop the pre-filled syringe as requisite studies would require patients rather than healthy volunteers because of the method of administration for this product.
We have strong partnerships on this product across the globe, and we expect to launch in Europe in 2025 as a day-one launch. While the timing in the U.S. is not 100% clear, the U.S. market for Eylea biosimilars is interesting. As we know today, Amgen has defeated a preliminary injunction and has subsequently launched their version of an Eylea biosimilar in the U.S. Others have either been permanently or preliminarily enjoined from entering the market based on existing formulation patents. While I won't get into details, we do have a different position against the patents versus the enjoined group. While I cannot commit to a date, we will certainly seek to launch as early as possible in the U.S. market. Also, as we have noted in the past, we are developing the high-dose version of Eylea, which is a product that Regeneron is keen to switch patients to. We have developed the formulation and are currently in the scale-up phase.
Additionally, we are working through the regulatory process and are seeking the most expedited path-to-market in all applicable markets. Again, there is additional IP on the formulation, and we have developed our product with that in mind. We look forward to providing updates for biosimilar candidates to high- and low-dose Eylea as the development programs progress. Moving on to the next two products in our near-term pipeline, I can provide brief updates on our candidates for biosimilars Simponi and Simponi Aria, as well as Prolia and Xgeva. In Simponi, we just announced that our marketing application has been accepted for review by EMA and we also expect submissions to occur in the U.S. still within this year. In Europe, we are the first and currently only submission for a biosimilar to Simponi, and we expect the same in the U.S. and potentially other markets where we filed. We view AVT05 as a potential end of 2025 launch opportunity and are excited about the potential to launch the product in what will clearly be a limited competition market in terms of other biosimilar players.
As a reminder, only one other company has completed a clinical trial utilizing a proposed biosimilar to Simponi. Further, in the U.S., the product is substantially split between two forms. The branded product is offered as an auto-injector as Simponi and the vial for infusion as Simponi Aria. We will be submitting our proposed biosimilar in separate filings this year. Moving on to our biosimilar candidate for Prolia and Xgeva, we have also recently announced marketing application acceptance by EMA and expect to file the product prior to year-end in the U.S. The product has both a pharmacy and a medical benefit in the U.S., and we have executed major contracts this year to ensure we have excellent commercial backing in both the U.S. and in Europe. Together with our commercial partners, we look forward to a number of exciting launches in 2025 and 2026 from our near-term pipeline. Moving to the next slide, I will close my portion of the prepared remarks with a snapshot of our overall portfolio.
As we have said in the past, we believe in a broad portfolio approach, which can concurrently increase future opportunities while enhancing opportunities for existing on-market products. While our committed portfolio remains outlined on this list, we maintain an active cell line development group that is dedicated to our R&D platform. To put that into perspective, we have developed 15 additional cell lines outside of this list and are constantly working on a broad base of opportunities, which provides us flexibility in our development as we choose to move programs forward. We are very proud of the achievements of our development team and our pipeline is one of the largest and most extensive in the industry. This underscores our long-term commitment to biosimilars. I would like to now turn the call over to Joel Morales, our Chief Financial Officer. Thank you.
Thank you, Anil. I'll now provide financial highlights for the period ending September 30, 2024. With respect to our operating performance overall during the third quarter, we continued to build upon the positive momentum we established during Q2. Product revenues are growing as our partners launch our products into U.S. and rest-of-world markets. The company has delivered our second consecutive positive operating profit and adjusted EBITDA quarter, and we continue to be focused on operational execution to maximize the potential of our launches as we conclude the final quarter of the year. Total revenues for the nine months ended were $339 million versus $38 million during the same period in the prior year, representing an almost nine times increase. Product revenues were $128 million, an increase of $98 million or 330% versus the prior year. Milestone revenues were $211 million versus $8 million for the same period in '23.
This topline performance was driven by another consecutive quarter of increasing product revenues and continued milestone revenue recognition, where total revenues for the third quarter were $103 million versus $18 million in the prior year. Product revenues in the third quarter were $62 million, the highest recorded quarter by Alvotech, an increase of 16% from Q2. This quarter-over-quarter increase is driven by higher shipments of AVT02 for the U.S. market as we continue to ship product in line with the orders we've received, and we expect these shipments to continue stepping up into the fourth quarter. Additionally, in Q3, we also continued to expand upon our launches of AVT04, our biosimilar to Stelara, into ex-U.S. markets as our commercial partner expands their presence into European markets. We also continue to supply into the Japanese market. Product margin in Q3 specifically reached 37% compared to 17% in Q2, driven by a combination of increased shipments of AVT02 into the U.S. and new product launches of AVT04 into Europe, all while we continue to scale our operations.
During Q3, we also recognized $41 million in milestones, driven by submissions of our AVT06 and AVT03 programs for marketing approval in Europe, and the launch of AVT04 into European markets. Additionally, new licensing deals for our available programs were secured, driving further revenue recognition. We continue to make significant advancements in our pipeline and where possible, pursue opportunities to accelerate the progress of our development programs. The signing of new licensing agreements and accelerated development progress can lead to higher-than-anticipated milestone revenues. Reported operating profit was $56 million for the first nine months compared to negative $278 million for the same period in 2023. The increase of $344 million was primarily attributable to our topline growth coupled with relatively flat cost of product revenues due to increasing manufacturing production, reduced production-related charges, and lower costs associated with FDA inspection readiness.
Additionally, operating expenses decreased versus the prior year, primarily due to lower R&D driven by a one-time charge of $18.5 million associated with the termination of a co-development agreement, lower overall R&D expenses, and lower G&A driven by continuing efforts of the company to optimize our operations as we drive scale. For the first nine months of 2024, we reported adjusted EBITDA of $87 million versus negative $226 million during the same period in the prior year. This is largely driven by the gross margin contribution in the period and lower OpEx, particularly lower G&A costs on an adjusted basis. In Q3 2024, we reported adjusted EBITDA of $23 million versus negative $79 million during the third quarter of 2023. Please see the table provided in the appendix for a reconciliation of our reported to adjusted results. In terms of cash and liquidity, we closed the period ending September 30, with $118 million of cash on hand and $1.28 billion in borrowings.
With our recent refinancing behind us, our major product launches underway, and continued advancement of our pipeline, the company believes it has sufficient cash on hand to achieve free cash flow positive. We closed the period ending September 30 with 301.7 million shares outstanding, including unvested earnout shares. In the appendix to our management presentation, you will find a summary of shares outstanding. I will close today's presentation with a few brief comments regarding our financial guidance. We are currently on track to lend within the ranges provided. Our revenue guidance is $400 million to $500 million and is driven by a combination of our new product launches and significant development and performance-based milestones. Overall, we expect milestone revenue contributions to be slightly higher than we guided in 2024, driven by new licensing deals and earlier achievement of development progress than planned.
We're excited to demonstrate the continued advancement of our pipeline, which we believe will propel sustainable long-term growth of the company. As for product revenues, as you heard from Anil earlier, we have orders from our U.S. partners of 1.3 million units for AVT02 in 2024 and are increasing our shipments to deliver a substantial portion in the fourth quarter. We're making preparations to fulfill all shipments in the quarter. However, there remains a possibility that some quantities could phase into Q1 '25 due to timing. Additionally, we are monitoring our mix of shipments to various geographies and customers, which could have an impact on both revenues and product margins. As we previously mentioned, we are also working on the potential for pre-launch revenues of AVT04 before year-end. Contracting remains underway in the U.S., and the timing and order size are still to be determined.
In preparation for our upcoming launch, we continue to build commercial inventory. The final outcome of these discussions should become clear in the coming weeks. This is all to say, we are managing through a potential range of outcomes that can play out for us in the remaining final weeks of 2024. Finally, in October, the company exercised its option to defer interest in the first quarterly term of our new loan facility. By deferring cash interest payments, we created greater flexibility during a time we are simultaneously increasing the capacity and scale of our manufacturing facility and building commercial inventory for new launches. This is an attractive feature for us, only available in the first year of our financing agreement. As a result of this election, we are now forecasting cash interest payments in 2024 between $45 million and $50 million. With that, I'd like to turn the call back over to the operator for Q&A.
Questions and answers
And the first question comes from Balaji Prasad from Barclays. Please go ahead. Your line is now open.
Hi, good morning, everyone, and congratulations on the quarter. So I have a few, but I'll restrict to two. Firstly, on the 483s, they were a bit of a surprise for me because, as per my understanding when we visited the facility, I thought the facility was good for the next two years following the Jan '24 inspection, and the next major inspection will be Jan '26 at least. So it looks like there's been an earlier inspection. Can you comment on that? And since you categorize this as a successful inspection, I would imagine the 483s were fairly benign. So could you also elaborate on that? That's one. Two, I would want to understand the guidance a bit more. I understand the uncertainties by partnership, but considering that we are nine months done, $339 million revenue is delivered till now, I'm surprised that the guidance wasn't tightened further. There's still a $100 million spread with a $400 million to $500 million guidance. If you could help me understand that too. Thanks.
Thank you for the question. Robert Wessman here. The FDA will likely inspect the facility every two years. We recently underwent a pre-approval inspection for two products, AVT02 and AVT04, and anticipated a routine commercial GMP inspection. The FDA combined a few inspections in Scandinavia, which likely included Iceland. The results of the second inspection were provided on short notice, and we consider it to be very successful. The two observations we received are manageable. Nevertheless, we approach every inspection and observation with seriousness. One observation pertains to a previous action from 2022 regarding our autoinjector reporting, which we have committed to adjusting going forward, affecting different markets including the U.S. The other observation involves an assay that is commonly used, and we are achieving the same results as others. However, the FDA is beginning to shift the industry away from this method.
We have already started utilizing a different approach for the U.S. markets and submitted a variation to include this new method. Overall, I view it as a great success that demonstrated our preparedness for the FDA on short notice, and we will maintain our readiness for inspections at any time. To highlight, we are submitting three products in the U.S., and it's very likely we will have another inspection, a prior approval inspection, next year due to these submissions. However, the general cadence for GMP inspections remains every two years, and this was the second inspection.
Thanks, Robert.
And hi, Balaji, this is Joel. Thanks for your question. I think with respect to guidance, as 2024 progresses, we are seeing quite a rapid ramp in our revenues, and you can see that in second and third quarter results. As we mentioned, we expect to see that continue to increase in the fourth quarter. However, there still remains, as you highlight, a wide variety of outcomes that could impact the product mix and profitability. This includes some expected shipments that may move into very early '25, which would have no negative commercial bearing; however, it does somewhat restrict our ability to refine our guidance any further for the calendar year.
Thanks, Joel. I'd like to delve deeper into that. Given that your product revenues were approximately $62 million in Q3, and considering the significant boost from Humira expected in Q4, I anticipated that the product revenues from Humira alone would push you past the $400 million mark.
Yes. In the fourth quarter, we are planning to continue shipments. It is a high volume of shipments, and again, it's a question of how much of that could potentially carry over into '25. That's both for the launch of products related to Humira and new product launches as well.
Got it.
Yes, it’s somewhat inconvenient that December marks the end of the calendar year. It will come down to how much we ship in December compared to January, and the business is there. To emphasize, our fourth quarter will be by far the strongest for product shipments throughout the year leading into 2024. We are preparing well for it and seeing positive developments, but there could be some overflow into 2025, which we cannot fully commit to at this point regarding whether everything concludes in December or spills over into next year.
Thank you. We will now take our next question. Please stand by. And the next question comes from the line of Niall Alexander from Deutsche Bank. Please go ahead. Your line is now open.
Hi, this is Niall Alexander from Deutsche Bank. Thank you for taking my questions. I have two for now. Regarding the FDA inspection, can you elaborate on whether it might impact the launch of the Stelara biosimilar at the start of next year? Also, you had communicated a revenue guidance of $600 million to $800 million earlier this year, which was accompanied by the announcement of changes in supply shipment and the FDA inspection. Should we consider that guidance to still be reasonable for now? Additionally, on the Eylea biosimilar, what do you believe Amgen is doing correctly to succeed, and what do you think Alvotech needs to accomplish to advance their Eylea biosimilar in the U.S.? Thank you.
Yes, Robert here, thanks for the question. At the start of the year, we had our first successful FDA inspection, which was a pre-approval inspection for two products. We navigated that process exceptionally well, with only one citation. A general GMP inspection is broader, covering the entire system, and being our first commercial inspection, it touches on various areas. Clearly, having two citations will not delay any launches. The first inspection had one citation, while this one had two. These citations are manageable, and I believe that having them is a significant achievement. Regarding guidance, we have not provided any for 2025. We will disclose it after completing the commercial negotiation for AVT04. Meanwhile, it's reasonable to assume that our previous guidance of $600 million to $800 million is still valid. Generally, we should expect that to remain unless we announce otherwise. Anil can share more about the prospects we see with Amen, but I will just say that we view this as a tremendous opportunity. We are evaluating it, and we understand how our product is developed differently from the one involved. This is exciting news with Amgen's announcement, but Anil, would you like to add anything?
Thank you, Robert. So first of all, we'd like to remind you that we will be launching in Europe in day-one, which will be still next year in 2025. When it comes to the U.S., as you can appreciate, at this time, I won't comment further on our IP strategy. For us, the first step will be gaining filing acceptance, which should happen soon. From there, I would assume there will be more public information that becomes available. But as Robert mentioned, we are very excited about this opportunity; it's an interesting opportunity here, and we have a clear strategy to hopefully be in the market as soon as possible.
Thank you. We will now take our next question. Please stand by. And the next question comes from the line of Carl Byrnes from Northland Capital Markets. Please go ahead. Your line is now open.
Thanks for the question and congratulations on your progress. I'm wondering if you can comment at all in terms of your expectation of where gross profit margin might be over the next 12 to 18 months considering product sales ramp and efficiencies that you've achieved? Thanks.
Hi, Carl. Thanks for your question. You saw in my opening remarks, our product margins in particular went from 17% to 37% in the third quarter. We do expect our product margins to continue to expand as we exit the year. At this point in time, we're not providing any guidance for 2025.
Great. Fair enough. And then just as a quick follow-up. Can you provide any breakout on U.S. product sales for the third quarter and nine months? Thanks.
We currently do not provide any breakout of our U.S. product sales by product. But what we can say is that our ex-U.S. contribution is significant and can reach up to a third we're expecting of our total revenues by the end of the year.
Yes, Carl, I think as we mature and diversify, you're going to see more granular reporting. But obviously, these are early launches, and there's only one product currently launched in the U.S.
Exactly. No worries. Thank you.
Thank you. As there are no further questions, I would like to hand back to Benedikt Stefansson for any closing remarks.
Okay. On behalf of the Alvotech team, I would like to thank you all for participating in today's call. We look forward to talking to you all again, and I wish you a very good end of the day. Thank you, goodbye.
This concludes today's conference call. Thank you for participating. You may now disconnect.