Alvotech 2022 Form 20-F Summary
Business context and reporting period
Alvotech is a Luxembourg-based, vertically integrated biotechnology company focused on developing and manufacturing biosimilar medicines. This Form 20-F reports the fiscal year ended December 31, 2022, under IFRS as issued by the IASB. The June 15, 2022 Business Combination with Oaktree Acquisition Corp. II and Alvotech Holdings was accounted for as a capital reorganization.
AVT02, a high-concentration adalimumab biosimilar, was launched through partners in Canada and selected European markets during 2022. The pipeline also includes AVT03, AVT04, AVT05, AVT06, AVT23 and two undisclosed programs.
Financial performance and key metrics
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Total revenue | $83.0 million | $36.8 million | +125.8% |
| Product revenue | $24.8 million | — | New revenue stream |
| License and other revenue | $58.2 million | $36.8 million | +58.2% |
| Cost of product revenue | $64.1 million | — | New commercial manufacturing costs |
| Operating loss | $346.4 million | $235.5 million | Loss increased |
| Net loss | $513.6 million | $101.5 million | Loss increased materially |
| Adjusted EBITDA | $(205.2) million | $(180.7) million | Loss increased |
| Cash used in operating activities | $312.4 million | $228.2 million | Outflow increased 36.9% |
| Capital expenditures | $37.9 million | $20.5 million | Increased |
| Cash and cash equivalents | $66.4 million | $17.6 million | Increased |
| Restricted cash | $25.2 million | $10.1 million | Increased |
| Outstanding indebtedness, including accrued and payment-in-kind interest | $810.4 million | $435.2 million | Increased materially |
| Accumulated deficit | $1.654 billion | $1.141 billion | Increased |
Product gross margin was approximately negative $39.3 million, as product costs exceeded initial launch revenue. Management expects manufacturing cost absorption to improve with greater production scale and additional launches. The filing does not provide a meaningful consolidated EBITDA margin or operating margin because revenue remains primarily milestone- and license-driven and the company is in a high-investment development phase.
Total assets were $828.4 million and total liabilities were $1.393 billion at December 31, 2022, resulting in negative equity of $564.4 million. Finance costs were $188.4 million, including substantial fair-value changes in derivative liabilities, while a $27.3 million loss on extinguishment of financial liabilities also affected results.
Material changes versus the prior comparable period
- AVT02 generated the company’s first product revenue, but launch-related manufacturing costs exceeded product revenue in the initial period.
- Research and development expense declined 5.4% to $180.6 million as AVT02 and AVT04 programs moved beyond certain development stages; spending increased for AVT03, AVT05 and AVT06 as those programs advanced.
- General and administrative expense increased 122.0% to $186.7 million, primarily because of an $83.4 million non-cash share-listing expense, $22.9 million of Business Combination-related expense, $5.8 million of share-based compensation and higher public-company costs.
- Operating cash burn increased by $84.2 million, while investing cash outflows increased by $22.9 million due mainly to facility expansion and restricted cash requirements.
- Debt increased substantially following the Senior Bond amendment and upsize, the Alvogen Facility, the Aztiq Convertible Bond, December 2022 Convertible Bonds and facility loans.
- The Reykjavik manufacturing and research facility was acquired in November 2022 for approximately $115.0 million through a related-party transaction involving the Aztiq Convertible Bond and assumed debt.
- The company issued 4,198,807 penny warrants to Senior Bond holders after failing to meet the $75.0 million equity-raising threshold by December 15, 2022.
Guidance, outlook, commentary and risks
- Subject to FDA approval, management expected to launch AVT02 in the United States on July 1, 2023. The FDA had issued complete response letters for both the biosimilarity and interchangeability applications because of deficiencies associated with the Reykjavik facility. A reinspection was scheduled for March 6–17, 2023.
- FDA accepted AVT04 for review in January 2023, and management expected review completion in the second half of 2023. The EMA accepted an AVT04 marketing authorization application in February 2023.
- Management targeted AVT06 topline data in the second half of 2023, AVT03 topline data in the second half of 2023 for its pharmacokinetic study and in 2024 for its confirmatory patient study, and AVT05 topline data in the first half of 2024.
- Management expects to continue incurring significant operating losses and research and development expenditures. The company has never generated substantial product-sales revenue and may never become profitable.
- The audited financial statements include a going-concern explanatory paragraph. Management concluded that the company could continue as a going concern for at least one year after issuance, but acknowledged a material uncertainty and substantial doubt related to future funding needs and financing availability.
- Liquidity is highly dependent on additional equity or debt financing, out-license milestones and future product commercialization. Senior Bonds mature in June 2025, while several convertible and related-party instruments mature in 2025 or later and may create substantial dilution if converted.
- Alvotech identified material weaknesses in internal control over financial reporting involving personnel and expertise, documentation and review controls, segregation of duties, information-technology general controls and monitoring. Disclosure controls and procedures were therefore not effective at year-end.
- Key operating risks include FDA and other regulatory approval delays, manufacturing and quality deficiencies, dependence on commercial and manufacturing partners, patent litigation, pricing and reimbursement pressure, foreign-exchange exposure, cybersecurity, geopolitical events and reliance on related parties for services and financing.
- Canadian litigation involving commercialization partner JAMP Pharma and AbbVie remained pending and could affect AVT02 market access in Canada.
Subsequent events relevant to investors
- On January 25, 2023, Alvotech issued an additional $10.0 million of Tranche B Convertible Bonds.
- On February 10, 2023, it completed a private placement of 11,834,061 ordinary shares at $11.57 per share for gross proceeds of $137.0 million, less $4.8 million of transaction costs.
- The February financing eliminated the obligation to issue the additional 1.0% tranche of Senior Bond penny warrants.
- In February and March 2023, certain Senior Bond and OACB warrant holders exercised warrants, resulting in additional share issuance and dilution.
- Alvotech amended its Teva license and development agreement in February 2023 and agreed to provide future financial consideration to assist Teva with launch and marketing costs.
Most important facts for an investor to verify
- Whether the FDA accepted the Reykjavik facility remediation and approved AVT02 for biosimilarity and interchangeability.
- The timing, scope and commercial economics of the U.S. AVT02 launch, including royalties payable to AbbVie and commercial terms with Teva.
- Current cash, restricted cash, operating cash burn and the amount and terms of financing raised after December 31, 2022.
- Debt maturities, interest rates, collateral and covenants, particularly the Senior Bonds and related-party financing.
- Potential dilution from convertible bonds, warrants, restricted stock units, earn-out shares and other equity-linked instruments.
- Status and potential market impact of the Canadian AbbVie litigation involving JAMP Pharma.
- Progress in remediating internal-control material weaknesses and separating Alvotech’s systems from shared Alvogen infrastructure.
- Whether AVT04, AVT03, AVT05, AVT06 and AVT23 meet stated regulatory, clinical and commercial timelines.