Blau Farmacêutica S.A. (BLAU3) Earnings Call Transcript & Summary

[Interpreted] Good morning, everyone, and welcome to the earnings call for the first quarter of 2023 at Blau Farmacêutica. Today we have Marcelo Hahn, the Founder and CEO, Douglas Rodrigues, our CFO, and Bruna Gamboa, our IR. At the end of our presentation, we're going to have our Q&A session and we'd ask you to all submit one question at a time to make it easier for our answers. Our call is taking place in Portuguese with simultaneous translation to English, and the webcast is also being recorded and will be available on the Company's IR website. Now I want to pass the floor on to Marcelo so we can begin our presentation.

Good morning, everyone. Thank you, Bruna, and welcome to our earnings call on the first quarter of '23. We would like to start the presentation highlighting that we ended this quarter in first place in the ranking for pharmaceutical industries in the non-retail market for hospital Institutional according to the IQVIA MAT '23 data. Blau is committed to delivering good results in the beginning of '23, we had important achievements in regards to the strategic projects that support our growth and value generation in the short term, medium term and long term. We are super happy with the results of the investments we have been working on through our R&D, an Innovation Center, Inventta and the new products. And I want to reinforce that this is a strategy, it's a winning strategy. It is going to leverage our results in the future. So in this sense, besides the new records and registrations we had in the first quarter, just in the month of April, we had a all time high of new products registered in a single month with Anvisa, the authority in Brazil. We had four new medications. I want to highlight also the acceleration of our development projects through our partnership with Similis Bio for four new monoclonal antibodies that are quite up ahead in regards to the initial schedule. Another important highlight is the license we received from Anvisa in April authorizing the commercialization trading of medication produced at Building 210 in Cotia, at our headquarters. This new production platform will be addressing the bottlenecks in the unit for specialties and we will collaborate and contribute to the increment of our revenue in the next quarters. Then to end this slide, I would also like to highlight the advances in the Pernambuco project the P1000. In this quarter we received the license for the environmental authorization of the State Authority, CPHR, and the authorization from the Secretary of Finance through PRODEP to be able to capture these tax benefits. On the next slide, we are going to provide a little more detail on the long term partnership with Similis Bio, to produce four monoclonal antibodies that are cutting edge, that have patent protection at the moment. This is a transformational and disruptive project that will place Blau at a whole nother level technologically since we are promoting these IFAs that are so complex in Brazil. We're going to be producing the IFA all the way to the finished drugs, and we are going to be exporting this with no borders or territorial limits. These anti monoclonal molecules under development, are in the most addressable market in the world. So we're placing Blau in a scenario of great relevance. In this quarter we had some important milestones in the project for the receipt of the research cells of the two MABs besides receiving the bioreactors with major capacity for production, one with 500 liters, another with 3000 liters, that are under deployment at our Building 400 for the production of these IFAs in Cotia. Moving on to slide four, I want to highlight the achievements in the Bergamo lab project that should be closing at the end of this quarter. Bergamo started off in 1946 and there is a state of the art production plant in Taboão da Serra, São Paulo, which received recurring investments in the last few years. Bergamo has two productive lines besides a oncology portfolio, important products like botulinum toxins and somatropin that will help leverage our results. And in the beginning of 2023, we hired an external consulting company to help us with this spin off project and to incorporate Bergamo in our operations. In the next months, we're going to have some shared activities between the companies, but the decision making process will continue to take place independently. We want to highlight also that ever since the signing of the contract in October last year, Bergamo already had two new records with Anvisa, with the tigecycline and fosaprepitant medications. So there is an addressable market of almost BRL 110 million. With the conclusion of this operation, with the acquisition that Blau will pay below book price. The synergies will bring important synergies and gains operationally tax aspects and also the increase of portfolio and penetration in the market. Moving on to slide five of the presentation, we're going to give you more details on our new production plant in Building 210, in Cotia, with two important lines for production of injectable drugs with high capacity production. And also very important they attracted our specialties. On the 5th of April, we received authorization from Anvisa to start trading the medication that is produced in this building. Our expectation is that this plant will increase by 30% our current production of drugs in our Specialties division. We've already hired 200 new employees and we currently have the production lines with two shifts. The new plant will already have a 4.0 concept with cutting edge equipment, artificial intelligence monitoring and an integrated system that's an audit rail with a high capacity for production with low operational costs. And so now while we move on to slide six, we have more details about the industrial complex in Pernambuco. This masterplan project with the specifications for architecture conditions and design, as well as different industrial concepts are already at very advanced phases. The preliminary schedule, financial schedule is already in a final adjustment phase, waiting for a few definitions. We already have the environmental authorization from the state authorities, CPHR and the authorization from the Ministry of Finance through PRODEP with the certification of the tax benefits for the reduction of almost 85% of the ICMS tax, that could be explored from the 1st of January '24, as long as it is at least two years before the beginning of the industrial activities in Pernambuco, through outsourcing the productive units in the Blau production plants. So at this moment we are completing the adjustments in the masterplan and executive plans and the ideas that we'll be sharing this physical financial schedule by the next quarter and start the construction work in the second semester. We're super excited with this construction and this new industrial complex in Pernambuco, which will enable the Company to start entering new markets and geographies, expanding our access in the production line with our strategic planning as well as creating significant value for our shareholders. I want to thank everyone and I will pass the floor back to Bruna. Thank you.

Thank you, Marcelo. Now, moving on to slide seven. In this quarter, we invested BRL 31 million in R&D and innovation, with a growth of almost 100% compared to the first quarter of '22, and 54% compared to fourth quarter of '22. And in this slide, I want to highlight that until the beginning of May in our pipeline that was expected for '23, we had already achieved seven of the 13 drugs that will be registered and launched this year, which demonstrates that we have a very precise strategy in the regulatory and R&D segments in the Company. During this period, we launched new presentations for Ampicillin, and Sulbactam, which is an antibiotic with BRL 47 million of addressable market. And it is important to mention that these R&D investments are an important leverage for our future growth. And every quarter we have an important shares even greater of these new products in our earnings. Moving on to slide eight, we are going to go over the main highlights of our plasma collection operation in the United States. And our first center is expanding its volumes for collection, and there was a growth of 9% compared to the fourth quarter, and almost over 70% compared to the previous year. So we've also registered a growth of about 16% of the new donors compared to the fourth quarter. And now in the beginning of the year, we started the installation of this new system that will manage all of our plasma collection chain. And about the new centers, the second center is going through a license obtention and we're hiring our teams and we should start the operation by June this year. The third Center in Flamingo is at the final phase, executive project phase, and should start construction work in the next months. Finally, we also wanted to talk about the acquisition of our fourth center. We acquired a stake of 25% in the centers in Jacksonville. It was a very important acquisition in the company because the center already has the mother license of the FDA, which is from FDA, and this is the authority in the U.S. which will help them achieve the licenses and the new centers built. The center has about 66% of its full capacity of 55,000 liters per year. Moving on to slide nine of this presentation, we're going to talk about ESG. Ever since 2021, the Company has a committee that's focused on social environment and governance things. And this supports all of the initiatives related to this topic in the Company. Now, in 2023, we set up four commissions led by employees connected directly to innovation, governance, environment, social people and social clients aspects to direct these topics with ESG in the company better. We continue to strengthen our culture that is based on ESG principles. And in this quarter, we were able to evolve and the evolution of our causes, access innovation and education. And this will be the work basis directing our initiatives and projects over time in the company. So in the sustainability front in this quarter, we defined the main initiatives for the year, which would be the reduction of water consumption, energy consumption, waste generation and gas emissions. So in social in this quarter we performed our first volunteering work with the donation of food personal hygiene items and also other items for the victims of the floods in the coast in Sao Paulo. We also took the team from the Blau Motor Sport to visit the Santa Casa de Anapolis with the patients that perform chemotherapy so we could have a special event with them. On slide number ten, we're going to start addressing the issues related to our earnings in the quarter. Here it's important to mention that due to the lack of definition in the immuno scenario, we had an expectation that the first quarter would be the basis for the year with growth at a level -- in a phased out approach throughout the quarters of 2023. We'll have more details about this in the release. But besides competition in immunoglobulin in a deregulated market, we're still experiencing an environment that's super challenging with credit crisis after the Americanas event in the beginning of the year, along with a high interest scenario that has been pressuring our entire chain, Douglas will come and get into more details about the numbers in the next slides, but I wanted to highlight that the Company is really focused still on its profitability and amidst this scenario we are still able to expand by about 50 bps our net margin compared to the first quarter of '22. So besides the earnings in the quarter, we want to highlight that the drivers for growth in the year did not change and that we continue to be confident about delivering the results according to our strategic plans. On slide 11 we have a little more of the additional challenges and the impacts we had in the earnings in this quarter. And then about Alpha, this quarter, we had a revenue that was a little lower than what we had in previous quarters, really due to the schedule for the receipts from the Ministry of Health. It's important to highlight also that we already have a significant delivery that should be delivered to the ministry in June. And on immuno, we've already spoken about this a bit, but we're still in a challenging scenario. The Company is doing all we can to address these issues, but a lot of them are kind of out of our control zone. And on the next slide, I am going to talk about this a little more as well. And when it comes to price drops, ever since the third quarter of '21, we've told you about the scenario with the competition, especially for mature synthetic products and also pressure in our entire chain. This significant price drop does not seem rational, and we've been monitoring how the scenario will behave. On productive capacity in April, we were able to unleash this bottleneck for the capacity of production with the release of P210. This was already mentioned previously by Marcelo. And finally this quarter we had impacts with the returns of about BRL 20 million above the historical level on the Company, especially due to the scenario with credit at the smaller distributors and higher default risks and also because of a recall with non-registered immunoglobulin which added to this and we had to collect these products in the first quarter. Now on slide 12 we had a bit of a discussion on the immuno market, which is one of the biggest questions we're receiving while we interact with investors. So as you can see in the graph, between 2018 and 2019 we had a normalized market with consumption of about 600,000 units of this product per year. In the beginning of 2020, we had the pandemic, the plasma, the blood collection centers were closed due to lockdowns. And then at the end of this year, we start seeing a reduction of this offering in the market. In the beginning of 2021, we had a lack of supply of immuno in the market and Anvisa then released the imports of this product without the registrations based on the resolution 203/17, which covered the criteria and procedures for exceptional conditions with these non-registered projects at Anvisa. So in 2021, the reduction we noticed in this market is mainly due to the lack of supply in the market. And so when we look at 2022, this drop in the graph is mainly due to an IQVIA issue that they're not able to capture the products without the registrations in the database. So moving on to slide 13, I wanted to highlight the reduction of the immuno reliance at Blau because the new sources of revenue in the company have been gaining significance in our revenue. And it's been losing a bit of relevance in our earnings. In the next few years the idea is that it will be less significant in the revenue, especially due to the pipeline of launches. And it's important to mention that between 2018 and 2022, there is a CAGR in the revenue ex-immuno of 24% or at least 16% when you look at the total net revenue. Right? In the same period we have a set back up of more than 14% in the market for immunoglobulin. And I will pass the floor on to Douglas, he'll continue here with the next slides in the presentation.

So thank you, Bruna. And good morning, everyone. Moving on to our presentation, we'll get into slide 14, where we'll have the evolution of our revenue in the quarter. In the first quarter of 2023, we had our revenue ending at BRL 258 million, a lower level compared to the previous quarters due to a combination of factors with immunoglobulin that was already highlighted during the presentation. We also had a occasional effect with the changes in this quarter and the productive units P210. And of course, based on the schedule for deliveries with the Alpha delivery contract, we didn't have a significant delivery. And so it's important to highlight that in this comparative with the analysis versus the first quarter of 2022, the biggest impact is the price variable and this was basically due to the price pressure in our more mature portfolio. Then when it comes to the comparison with the last quarter of 2022, we can see that the biggest effect is volume and mix. So there is no significant impact in the price, but it's important to highlight also that, as Bruna mentioned, the new sources of revenue in the Company are performing very well still. So of course it's going to gain more efficiency, but they are still not enough for the main impacts we had in the quarter, but we continue to execute our plan and deliver. So on slide 15, we want to show you the gross margin effects and also the EBITDA. So when it comes to gross margin, among all of the factors we had in the revenue and among the mix presented, this would be the best margin scenario. So our margin had a bit of a reduction in the quarter. But despite all of these factors, it's a margin that could still be considered positive. So it is important to highlight that in the comparison with the costs, we don't have much of an evolution. So the Company continues to have its financial discipline. We continue to have high efficiency in costs management, renegotiating with our suppliers, and we do expect that in the next quarters will have some positive impacts even, considering that the effect over our timeline with the dilution of our average costs with the new engines is here. So looking at the EBITDA and the effect of this revenue level does not have an SG&A dilution. So this impact of the gross margin and greater expenses will lead to a smaller EBITDA margin in the first quarter of '23. On the next slide, we are going to highlight the operational expenses. So when you look at the graph, if we don't consider the reclassifications between the third quarter and the fourth quarter of '22, we are keeping up with the same level of expenses when you look at this from a nominal perspective. This of course reflects this new structure in the company and all of the investments that we had to address the strategic plan in the company. But of course when you consider our revenue level, the revenue in the first quarter, there's not a dilution of the SG&A, there's an increased percentage of expenses. But from a nominal perspective, we continue to keep up at the same level. And just as with the cost level or cost line, the company has been super diligent and looking at and reviewing this internally and whatever can be managed or reorganized and can lead to an efficiency, then the company is really doing its homework to search for opportunities and possibly reduce its SG&A. On the next slide, slide 17, you have the net income effect, and here it is important to highlight that even with all the adversities and impacts we had compared to the first quarter of '22, the company has had a net income that's better and higher than the first quarter of '22, which demonstrates our commitment to profitability. When we look at the financial earnings compared with the first quarter of '22, we have the effect of the NDFs back then in the first quarter of '22, the adjustment of the closing currency rates. And now we have a positive effect as well in our financial results. And when you look at the effective tax rate, it's important to highlight that we had the accounting profit, but our tax profit is smaller than the accounting profit due to all the benefits we have. And the main ones are the Lei do Bem and the JCP payments which brings an effective tax rate that is lower in this quarter. And then we can deliver better net income reinforcing our commitments. On the next slide here, we are already heading to CapEx and working capital. Working capital, the company has not been able to have improvements compared to the last quarters. We're still at the same level. But the biggest evolutionary impact when it comes to stock and inventory, if you compare the last quarter of '22 with the first quarter of '23, is the immuno effect. So while the company does not have a normalized scenario for immuno, we won't be able to demonstrate a better improvement in our days of inventory and our working capital indicators. When it comes to accounts receivable, considering this mix of the sales with public and private, this is the expected level, so an average term of 90 days and will continue to vary a little upwards, downwards, etc.. But this is the average term expected, which is about 90 days. When it comes to payment terms what happened was due to a setback or restriction in the dollar in the last few days of March. We had some negotiations and we closed some currency rates that should be expiring in April and that, of course, worsened the indicator. But this is a very small temporal effect we are looking at the days and a quarter. When you look at the CapEx, the CapEx for intangibles, we had some evolution and more investments in this quarter basically connected to all the payments we had through this Similis Bio partnership that we mentioned during the presentation and the CapEx for fixed assets also. Now we are going to start accelerating our plan, especially when it comes to bigger investments in Pernambuco and this should be like the basis for 2023 and then we'll be evolving in the next quarters with investments that are even a little greater than this level that we presented in the first quarter. So moving on to slide 19, so we can end financial earnings in this presentation of the first quarter. We have our cash position and our gross debt. So once again, the company has been ending with a free cash flow position and this is super strategic in a moment where you have more adversity, more challenges, and the company has a cash position that can help address strategic plans and also explore opportunities. We have a gross debt of 278, which is our position in the last quarter. But for the second quarter, we have been amortizing the first debentures, the last three installments, but the first amortization also of our second debenture. And so this is going to position us in this level of 200 million by the end of the second quarter. Our cash position in the first quarter is 621 million, which gives us a position of almost 350 million. Once again, we reinforce our commitment to keep up this cash position at a healthy level to be able to address our strategic plan. Now, I will pass the floor on to Marcelo so he can have his final remarks, and then we'll open up for Q&A.

Well, thank you, Douglas. Guys, before we end, I just want to thank you all for watching this earnings call and for really trusting this journey in growth ever since we started in 1987. At Blau we've already faced many challenging moments at the political or economic fronts, and we never stopped growing. So actually we took advantage of the opportunities and we're able to reinvent ourselves. We search for new sources of revenue, invest in new markets, and we continue to grow. So we are included in a resilient market that has already gone through many adverse scenarios and was able to keep its growth. We have a solid track record of over 35 years and a cash position that's very comfortable. That makes it a lot easier for us to go through turbulent moments and more than ever this highlights the opportunity to search for operational improvements and reduction of costs and expenses and operational gains as well. We are always focused on our portfolio of healthy receivables. I am really proud to share a bit of this history so far, and I know we have a successful journey ahead, although I am not satisfied with our financial earnings in the first quarter that were below our expectations because of everything we can deliver at Blau. So two years after the IPO, I am convinced of our strategic plan and of our levers for growth. And we have been keeping our eyes open with the opportunities for M&A and we're very confident about our deliveries in 2023. We are just starting. Thank you, everyone, and I will pass the floor on to Bruna.

Thank you, Marcelo. Thank you, guys. Now we're going to open up tp the Q&A session. Thank you. Before we start the session here for Q&A, let me just give you an important announcement. Yesterday, we had the CADE, the antitrust body's approval. So we disclosed this, which is also on the Company's website. We're going to go over the first question from Vinicius Figueiredo in Itaú:

Douglas and Bruna. Thank you for taking my question. I want to explore this issue with P210 now with a license from the Anvisa Authority. You have the expansion, the productive capacity for specialties and how can we imagine the ramp up of the volumes sold and these 30% additional? And so is there already a strong demand? Have you been able to operate with this expansion at full capacity? And the second point, would be the stock level. So you guys talked about a sale in the public channel, and this should help with the reduction of the stock levels and normalization as well. And also I wanted to understand the level of this variation. I want to know if this is a concern from your guys' side.

I am going to answer this first question on -- we've been expanding this production. So the idea is that we'll have a recurring demand. And over these years we've been carrying on some orders in our portfolio that we can't service, they go up from one month to another. But we have been able to place this product in the market. There is a demand for this. We were the ones that were not able to offer this before. So for us, it is super important because as we always mention, we are addressing the bottlenecks in this offering. So the demand existed, we were just lacking a bit of the offer. So we are going back to achieving an -- this increase in the market share. So you're going to notice we're going to increase our market share and some molecules that weren't serviced or met as they should be. Another important aspect is that we have this portfolio of drugs that we also don't trade recurrently, which we have like this difficult choice to make, right? Because we don't have the productive capacity. This is another situation where we have different products that we're going to go back to producing with greater offering or greater supply. And when we think about the situation with expanding our capacity, we've already anticipated ourselves and expanded this registrations out of the country. So our exports are also growing and the offer for these medications are also growing. So we're moving well with this. On the stock question, we have a higher stock. Ever since the lockdowns and the pandemic, we increased a lot of our stock and we've been allocating this. But about the validity year, we have a lot of active principles and inputs. Right? So, when you produce this drug, this validity period is renewed. Right? So here you have these two valid periods or terms. So one Is -- normally like 24 to 60 months, so you have a lot of elasticity with this. And after this you have 24 to 36 months normally. So you have a pretty good guarantee period, warranty period. So we should be producing and distributing all of this, this year. So with this we'll improve our cash position as well. So I think this has been a good answer to your question.

Next question is from Leandro Bastos from Citi.

On my side, I have two questions also. The first one is about immunos. You mentioned this a bit in the call. With the scenario of lack of definition and competition with products that don't have registration. How are you looking at this market when you look at the public and private markets? And what are your perspectives for normalizing this over the year? That's the first question. The second question is, I wanted to cover this point with the returns. In the second quarter, it seems to be a little higher. This trend is a little higher. You also mentioned the immuno issue with your release. Was this a more occasional situation? But also, could you talk about the credit situation that you've been noticing in the distribution channel. What's the situation like now? What are you looking at up ahead in regards to this dynamic?

Great. So let's start off with this answer. Thanks for the question. And on immunoglobulin in the public market, we continue to see some public bids taking place with drugs that are not registered. We had a question by the TCU court. They mentioned that when there would be a lack of product you could buy without the registration. And it was kind of strange because the Ministry, despite receiving offerings from the same public bid or the same emergency purchase, they've chosen to buy products that don't have the registration. And this kind of product is a lot lower than the product with the registration, obviously, because there's not so much trackability and there's no other regulatory requirements. The production plants are not inspected. These are products that come from China. So it's -- unfair competition basically. We've been discussing this topic. We've been notifying the Court. We actually started a lawsuit with this from the Supreme Court about this issue. And we've been notifying the Ministry of Health, even Anvisa, on this situation. We've been engaging all of the associations and industry unions because this is generating precedent. So we're seeing insulin being imported without a registration in the country. And there are other demands also that are appearing with the acquisition of drugs that don't have registration. So this is super bad for a regulated industry and we're facing this kind of situation with this government. So we went through this during the pandemic with a lack of offspring due to the lockdowns. But now it doesn't make sense to keep this up after the supply being normalized with companies that have stock and the ministry using, It created this perception that there is a lack of product that doesn't exist. Blau has the medication and we have been participating in this process and the companies that have the registration have also been participating. So with the same quantities and needs that the ministry has, but they've still chosen to buy differently. So Blau is implementing all of the measures and we're struggling on the legal front in the different courts. With these initiatives and bids that are taking place like this. This is point number one. The second question. I do not know if Douglas and Bruna wanted to mention that.

Yeah, I can talk about the returns. Well, let's just separate this. When we go back to this you see there's an effect where you don't have much of an impact in the net revenue. It was a tax issue and eventually you may have a process where you go over the cancellation term and then you have the returns. But let's remove this support. But now, when you talk about the first quarter, basically you have the effect of the non-registered immuno and that we're collecting that and they have this recall. And the last topic, which is more specific, after all of the issues with credit limitations, we were a lot more restrictive and careful with credit analysis now in the first quarter, especially after Americanas, as everyone noticed, the whole market became a little drier when it comes to credit and liquidity. And we preferred to have this situation with our distributors instead of going through possible risks with nonpayment, NPL, we would bring the stock back in-house. But this is a very occasional situation.

Okay, perfect. And then just a quick follow up, if possible. When we get to the immuno topic, I think this is clear. Just to mention a bit of the private market. Do you still see a competitive dynamic with a lot of products that don't have the registration? Or is this already more normalized?

Good question. Actually, I wanted to mention that here in Brazil, the immunoglobulin consumption is a lot lower per capita compared to other first in-class world countries. So we've seen a setback from the payers, the health insurance companies that have been really affecting the financial flows with the hospitals and distributors. But we've had a growing demand for immunoglobulin in the private market that was more stationary in the first quarter due to the economic scenario. But the market has been growing and we've been going back to some kind of normality. There are still very few points that have a non-registered immunoglobulin, but a lot of hospitals, as they prefer to have the drugs with the registration, they rather buy the product even if they have to pay a little more to have the registered product. We have seen this normalized and the sales in the private market have been getting back to normal scenarios month over month. And we've been growing and getting back to this market once again.

Perfect. Thank you so much.

So I wanted to take advantage of this opportunity to answer about credit. You asked about this together with our distributors and hospitals, the company is keeping an eye open. We've been using tools that are important and there's actually an association with the [ Creditinfo ] where the pharmaceutical industry mostly exchanges information, and then we can view this and see if there's any kind of financial difficulty or postponing payments. And this is what guides us to improve this process month over month, besides the sell out. And so the occasional cases were really looking at this loss. And so we rather receive the product back than have losses. So historically -- and so there's not a non payment rate that's too high. And we're really keeping our eyes open to this. We're a team that really is very focused on this and we use different tools so that this doesn't happen and this is what's going on. We're avoiding any kind of loss.

Okay. Thank you Marcelo. Super clear.

Next question is from Gustavo Miele from Goldman Sachs.

Well, good morning, Marcelo, Douglas and Bruna. Thank you so much for this presentation. I have two questions here. The first one is that I would like to get back to the stock level discussion a bit more. When we get into the explanatory notes # 9, we noticed that the finished products vary a lot quarter-over-quarter, but the semi-finished products and the raw materials are practically flat. So what we wanted to know is besides the impact with restrained immunoglobulin that you mentioned at the beginning of the presentation, do you have any type of concern with an increase in the security or safety stocks up ahead when you interact with the main suppliers for raw materials? Is there any kind of big change in the dialogue in regards to this? Are you comfortable with the level of stock that you have for raw materials up ahead? Just so we can get a feel and understand if once you distribute the stock of immunoglobulin, maybe we would have any other kind of impact in this stock level. That is the first question. The second point is about specialties. You talked about the new products, and I wanted to hear from you guys about the legacy portfolio. What is it like for the competition in regards to a more mature portfolio? During the pandemic you mentioned that important competitors were focusing a bit more on drugs that are more COVID related. How does this number behave compared to the current scenario? Competitors are already in a more regular portfolio from a pre-pandemic period, or do you think this outlook could change a bit up ahead? Those are the two points. Thanks.

Well, about the stocks, I think Douglas could add on to that. But I wanted to say the following: from a regulatory perspective, we need to have these products in a quarantine, which would be the semi-finished period, for 14 days. So most of them have drugs that are like 95% produced that are injectable. And so if we have a stock level of semi-finished products that's recurrent or flat, then this demonstrates that we are always producing and we're always waiting for this period to be able to release this product and have it as a finished product. So within the lead time you have all the analysis of the packaging. And after all, this changes the level of stock with the increase of some semi-finished products like the toxins and the immunos. So Douglas can get into more details about that, of course.

Yeah. So when you look at this and you see this new expectation -- you see the raw materials and semi-finished products. And basically we started noticing that we transformed that producing into finished products in our P210, it could still not be commercialized. This varied a lot with the raw materials, semi-finished products and finished products and were due to the deliveries of Alpha contracts, in the second quarter we're going to start this productive process as well. And there is this kind of variation we're producing and so the net effect of all of this is if you take a look at the major impacts, this was really with immuno where we had higher expectations. And the rest of the company follows along with this effect. And Marcelo already mentioned this. We can renegotiate up ahead. And of course, we'll be distributing this inventory. But the biggest impact is the immunoglobulin. In that explanatory note we implemented with greater evolution in finished products.

So just to add on to that. We are not happy with this stock level today because we have been struggling with our suppliers and service providers to lower their costs and prices, and we've seen an opportunity ahead. So besides negotiating future purchases, we're negotiating opportunities to reduce our costs in our stock today. So we've been working on this discussion with all of our suppliers and we've had pretty good success in most of the negotiations. So we're also recovering and replacing our stock at lower costs. And we see pressure in price from the IFA produce suppliers all the way to the finished product. So it's an opportunity we've been searching for to resume our margin historically. And do you want to answer the second question, Douglas? Yes, I think we already covered that.

The second question would be about the mature portfolio for specialties and what their competition level is. So you talked about the new products that are entering your base. If you could talk about the non mature competition, it would be great.

Well, yeah, we've been suffering a lot of pressure ever since the end of the pandemic, where a lot of people started producing these products again. And we've been compensating or offsetting the price with volume. So we've been increasing our market share and the credit is really focusing on that. So we've been offering more products with lower operational costs and conquering more market share. So Bruna can get into more of this up ahead. But she can show you some of the market shares for some specialty products. We're growing our share to offset the loss in price.

Next question is from Samuel Alves from BTG.

Hi, guys. Good morning Marcelo, Douglas and Bruna. We have two quick questions here, the first one is more like a follow up based on these two prior questions on immunoglobulin. You had mentioned that in the private market, you've already noticed better functionality in the market because there are very few commercial stores or spots selling non-registered immunoglobulin. I just wanted to understand if you have a market share in the private market. So if there is kind of a loss of share even if you just look at the drugs with the registration. So you also mentioned relevant delivery for Alphapoetin in the second quarter. Is there any quantitative factors you would like to share? The absolute amount of sales or the flasks. That would be great.

Well, I didn't understand your second question.

Well, you talked about the relevant delivery of Alphapoetin for the public channel in the second quarter. And so we wanted to know if you could share how much this could represent from a quantitative aspect like the volumes or the values.

About BRL 100 million would be of this delivery. And when it comes to immunoglobulin the IQVIA since Blau is the only company that when we sell Immunoglobulin in the market, the sale is done directly by Blau in Brazil to the public entity. So when you see this in IQVIA, you see the market share that Blau has. And you see it's more relevant. And we normally have like 65 % or 60% with public sales. When we separate this public sales to the private sector, which is like half half, 30%, 35% from the private sector and maybe of this total market, then Blau keeps its share. The Company keeps the same kind of share it's had historically. And so this has really made us one of the searches for, which is being closer to hospitals and increasing our share in the private market as well. So this is one of our strategies to offset this lack of purchases that we were waiting on this major relevant quantity sold to the government that we had sold in the past as well.

So the next question is from Estela Strano from JPMorgan

It's really quick here on our side. When we look at the gross margins we believe that there is an effect with volumes negatively impacting our margin. But could you maybe disclose the different product mix and how this has led to results and the gross margin in the Company?

Hi Estela. Well, we don't disclose this kind of gross margin per product, but maybe to give you a little bit more color on the margin per quarter. Yes, we had all these effects. So basically volume and the mix. And it's important to highlight that what you see in the report between the fourth quarter and the first quarter, we don't have an issue with price, once again, or cost. So the Company continues to keep this cost control that's very effective. And this point that Marcelo mentioned, we start renegotiating with our suppliers. So of course there is a average cost recovery factor, but it's important to mention that we don't see an evolution of the costs between one product and another. So it' more likely the effect of the actual revenue of the price and sales mix in this first quarter. It's important to mention also that just as we reinforced in the last quarter, we still have operations where we could classify as pre operational that still don't have a significant contribution. But these are issues we're addressing in the long term. We had the operation in the U.S., P400 P210. So there are many different factors and these results come over time.

The last question was sent on our chat. It's from Jose Daronco. When it comes to R&D, can we annualize the expenses in the first quarter to the rest of the year? And about the public notice for the purchase of immuno by the Ministry of Health, was there any update?

Well, the first is about R&D. In this first quarter, considering the revenue levels and the payments that we had of JSR, the percentage, it's higher but of course, it's fair to think about the percentage of the revenue over the year, and the idea is that the company will reach a level of 8% of the revenue over '23 with R&D investments in intangibles and expenses.

The second one. Do you want to talk about the notice for the purchase of immunos?

Well, the idea for the fourth and third quarters is that we'll have the deliveries that are most important at Alpha, and we'll also have the production of the 210 and all of the new launches that the company has been working on during the year. That will increment our revenue. So we are also disputing, along with the authorities and together with the legal front. But we're also applying all of our efforts to be closer to the hospitals and increasing our market share. So we are super confident that we are going to improve this in the next quarter as we understand the scenario in the first quarter. And we are not satisfied. We're actually very unsatisfied and we're implementing all of the measures we can to really make sure we can expand our market share. So we believe that the new products are going to bring more revenue and more margins to the Company.

Okay, guys. So since we do not have any other questions, we are going to end. Marcelo, if you have any final remarks. If not, we will end the call here.

Well, I just want to thank everyone and say that the entire Blau team is engaged in bringing in the expected results and to follow the business plan. We, from a business plan perspective, without considering the financial aspects we've been delivering and all of our promises and projects are in line with our schedule. The P1000 that we mentioned in Pernambuco has really advanced a lot and we plan to share this construction schedule. We're really excited with this project. We're excited with this Similis Bio project. And these are way ahead of the expected timelines. And we're super happy with the achievements in the R&D and innovation areas that have been submitting new registrations in this month of April. We've been able to have over four new drugs registered in Brazil in a single month. And so Blau didn't have this history before. And what we've been doing has been intense work, but we're going to bring in the expected results and we wont make you disappointed as investors. And we want to thank you all for your trust and thank you so much for your time here during our presentation and Q&A. [Statements in English on this transcript were spoken by an interpreter present on the live call.]