Business Context and Reporting Period
Alvotech’s Form 20-F covers the fiscal year ended December 31, 2023. The Luxembourg-based biotechnology company develops and manufactures biosimilar medicines through an integrated platform centered on its Reykjavik, Iceland facility. The company had two approved products, AVT02 and AVT04, and nine disclosed biosimilar candidates in its portfolio and pipeline at year-end. Alvotech reports under IFRS as issued by the IASB.
Key Financial Metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total revenue | $91.4 million | $83.0 million | 10.1% increase |
| Product revenue | $48.7 million | $24.8 million | 96.1% increase |
| License and other revenue | $42.7 million | $58.2 million | 26.6% decrease |
| Cost of product revenue | $160.9 million | $64.1 million | 151.0% increase |
| Research and development expense | $210.8 million | $180.6 million | 16.7% increase |
| General and administrative expense | $76.6 million | $186.7 million | 59.0% decrease |
| Operating loss | $354.9 million | $346.4 million | 2.4% increase |
| Net loss | $551.7 million | $513.6 million | 7.4% increase |
| Adjusted EBITDA | $(291.0) million | $(205.2) million | Loss widened |
| Operating cash flow | $(312.2) million | $(312.4) million | Essentially unchanged |
| Investing cash flow | $(46.3) million | $(63.5) million | 27.1% lower outflow |
| Financing cash flow | $301.3 million | $424.9 million | 29.1% decrease |
| Cash and cash equivalents | $11.2 million | $66.4 million | 83.2% decrease |
| Outstanding borrowings | $960.2 million | $764.6 million | 25.6% increase |
Total revenue increased because product revenue from AVT02 nearly doubled as commercialization expanded in Europe, Canada and Australia. License and other revenue declined primarily because 2022 included a $44.5 million AVT04 development milestone, while 2023 included a $31.6 million AVT06 milestone.
Product costs substantially exceeded product revenue as the company incurred elevated manufacturing and launch-related costs. On the disclosed product revenue and cost figures, product-level gross margin was approximately negative 230% in 2023; the filing attributes the disproportionate cost to new launches and elevated production charges.
Net loss increased despite lower general and administrative expense. The principal pressures were higher product costs, increased R&D spending, $267.2 million of finance costs, a $21.5 million impairment of the China joint-venture investment, and a $5.2 million foreign-exchange loss. The 2023 income tax benefit was $99.3 million, including deferred tax recognition related principally to Icelandic tax losses.
Material Changes Versus the Prior Comparable Period
- AVT02 product revenue increased from $24.8 million to $48.7 million as sales expanded, particularly in Europe. Revenue was generated through commercial partners in Europe, Canada and Australia.
- R&D expense increased by $30.2 million, driven by advancing AVT03, AVT05 and AVT06 into clinical development and an $18.5 million charge related to termination of the Biosana co-development agreement for AVT23.
- G&A expense fell by $110.2 million because 2022 included an $83.4 million non-cash share-listing expense and $22.9 million of Business Combination transaction costs.
- Finance costs increased by $78.7 million, including higher interest expense and fair-value changes in derivative liabilities associated with warrants, earn-out shares and convertible bond features.
- Debt increased by approximately $195.6 million, while unrestricted cash fell by approximately $55.3 million. Current assets were $66.1 million below current liabilities at year-end.
- The company recorded a $21.5 million impairment of its China joint-venture investment amid economic uncertainty and discussions regarding a potential buyback of Alvotech’s interest.
- Inventory reserves increased to $10.4 million from $2.1 million, principally due to product expiration and quality-control inspection results.
Guidance, Outlook, Risks and Unusual Items
- Alvotech expected to launch AVT02 in the United States with Teva during the first half of 2024 following FDA approval of SIMLANDI as an interchangeable, high-concentration, citrate-free Humira biosimilar in February 2024.
- AVT04 was approved in Japan and Canada in 2023 and in the EEA in early 2024. It launched in Canada on March 1, 2024; Japan and European launches were expected in the second and third quarters of 2024, respectively, subject to reimbursement and patent-related timing. FDA review of AVT04 was expected to conclude in April 2024, although the filing does not provide a confirmed outcome.
- Alvotech expected to file applications for AVT03, AVT05 and AVT06 in 2024. AVT23 remained in clinical development, while AVT16, AVT33 and additional candidates were in earlier-stage development.
- Management and the auditors identified a material uncertainty that may cast significant doubt on the company’s ability to continue as a going concern. The financial statements were nevertheless prepared on a going-concern basis. Management cited the February 2024 equity offering and expected product launches and partner funding as part of its liquidity plans, but no assurance was provided that sufficient funding will be available on acceptable terms.
- In February 2024, Alvotech sold 10,127,132 ordinary shares for gross proceeds of approximately $166 million and net proceeds of approximately $160 million. The filing states that this financing did not eliminate the going-concern uncertainty.
- The Senior Bonds carried a $549.4 million year-end carrying amount, mature in June 2025, bear interest generally between 10.75% and 12.00%, and are secured by intellectual property and certain facility collateral. Total borrowings mature between 2024 and 2029, with approximately $867.3 million of principal scheduled within two years according to the contractual maturity table.
- Debt instruments include convertible bonds that may convert into ordinary shares at $10.00 per share, creating potential dilution. Warrants, earn-out shares and derivative liabilities also create significant non-cash earnings volatility and potential dilution.
- Alvotech identified material weaknesses in internal control over financial reporting involving insufficient trained personnel, inconsistent control execution and documentation, segregation of duties, and information-technology general controls. Disclosure controls and internal control over financial reporting were therefore considered ineffective at December 31, 2023.
- The company remains dependent on commercial partners, including Teva, STADA and Advanz, and does not have its own direct sales and marketing organization. Manufacturing is concentrated in Iceland and relies on certain single suppliers and third parties.
- Patent and regulatory risks remain material. Canadian litigation involving partner JAMP and AbbVie continued, although the 2023 trial decision allowed continued AVT02 sales subject to a potential running royalty; appeals were pending.
Most Important Facts an Investor Should Verify
- Actual 2024 U.S. launch timing, initial demand, pricing, reimbursement and profitability of AVT02/SIMLANDI.
- FDA’s decision on AVT04 and the timing of launches in Japan, Europe and the United States.
- Cash burn, unrestricted liquidity, restricted cash, debt maturities and the company’s ability to refinance or repay the Senior Bonds beginning in 2025.
- Whether the February 2024 equity proceeds and commercial milestone receipts are sufficient to eliminate the going-concern uncertainty.
- Progress toward remediation of material weaknesses and successful implementation of the new ERP and information-technology control environment.
- Product-level manufacturing costs, inventory reserves, gross margins and the timing at which commercial scale is expected to improve profitability.
- Potential dilution from convertible bonds, warrants, earn-out shares and management equity awards.
- Outcomes of the Canadian AVT02 patent proceedings and any other patent challenges affecting launch rights or royalty obligations.