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

Good morning, everyone. Welcome to the Blau Farmacêutica's First Quarter 2025 Earnings Call. We are live at the Blau studies with Marcelo Hahn, the CEO and Founder, Douglas Rodrigues; and Matheus Fujisawa , Investor Relations. Our call is going to be recorded in Portuguese with some of the translation in English. [Operator Instructions] Now I'd like to pass on the floor to Marcelo.

The most important message here is that we were able to balance out the results. The present appeared to be challenging with the scenario of high interest rates and the dollar impacts that we had in the quarter with the displacement of part of the revenue in the public channel and performance with only one Botulinum toxin quarter '25. And here, it's worth noting that we have already returned to operating with both brands and still had growth in the quarter, demonstrating our resilience. In other times, this would be a lot more of a relevant effect on the company's results, but this is also due to the result of the investments we're making. When we analyze the private hospital segment, we had growth of 15%, more than offsetting the aforementioned impact and again, outperforming the market, just as we did it last year. This is a result of the company's portfolio, which is in constant evolution. These effects are temporary and this allows the company to be confident in continuing its ongoing upward trajectory for results. Among some novelties, we had the first revenue -- this is an important step also to help with the anticipation of tax benefits, very significant, but it should be an important lever in the future. We had the approval of 14 new registrations in the first quarter of '25, most of them in Latin America. The company has invested to grow organically in the region is replicating its portfolio in Brazil and in other geographies. So the numbers presented in this slide will highlight recurring net income. [Technical Difficulty] showing a delivery of results in the short term despite all the challenges we mentioned, setting the scene for our future, which is even more [Technical Difficulty] than our present. On the next slide, I want to highlight the qualities we already have today. We already have the largest portfolio of leadership in the Onco-Hemato market with over 100 different molecules and service to more than 9,500 institutions. This portfolio combines biological and synthetic molecules. We have 5 factories in Brazil and with API factory as well. This is an important competitive differential with high scale competitors as well as in direct with over 3,000 operating in 10 different countries, and we continue to invest in the future that's even more promising. In the last 5 years, we invested more than BRL 1.7 billion, an amount equivalent to our revenue last year. These investments of people, technology, innovation and the capital market are already building the future as well. So I had to also mention our IO convention sales we performed in April, which gave us the necessary energy to deliver the results in the recurring year, which is a small move, but very important to help us prepare and capture the blue ocean of opportunities that are going to be transformational in biotechnology, so we can provide an even better future. Blau of the future seeks for differentiation and expansion of its portfolio, focusing on high value-added products. And here are the best examples of monoclonal antibodies. We also have an incredible pipeline of other relevant products in our market. So to support this portfolio growth, we're expanding our productive capacity. At first, in our current factories will include the API factory. And the second step is the centralization of it's production with the portfolio and scale and fiscal incentives, strengthening our competitive advantage at Blau, consolidating our leadership in the local market and expanding into Latin America with access into new global [Audio Gap]

Thank you, Marcelo. On Slide 5, once again, we're going to reinforce our launch pipeline that should be accelerated in the coming years due to the investments of approximately 10% of our revenue that we're making. We've analyzed the investments in '22 to 2024, we had a TAM of about BRL 2 billion in the period. This should be growing about 50% in the period between '25 and '27, approximately BRL 3 billion, considering only the drugs that have still not yet been launched that we've already been submitted for ANVISA's approval. Finally, considering the first 3 monoclonal antibodies we're developing, we can reach an incremental TAM of BRL 6 billion between 2028 and 2030. So it will be doubled in the previous period. Moving on to Slide 6 and the revenue, we can see Blau grew 4% in the first quarter of '25 compared to the first quarter of '24, reaching BRL 373 million. As shown in the chart on the left, we need to analyze the right side chart to understand different dynamics in the quarter. So for the private hospital segment, we had solid performance, growing 15% in the period and once again outperforming the market. According to IQVIA, there was a growth of approximately 5%. However, we had some temporary impacts that reduced our consolidated growth in the quarter. First, we had a shift in part of the public bidding delivery from the first quarter of '25 to the second quarter of '25, leading to a 5% drop in revenue in the channel. The second impact was on the aesthetics business unit. As we have mentioned, the sale of the botulinum toxin registration was $7.5 million, which led to the operation of only one brand in the first quarter, which Marcelo already mentioned, and this is already normalized in the second quarter. We already have both brands. And finally, we did not have plasma revenue this quarter due to the negotiations and the price that we've been discussing at [ Emirates ]. And that's also along with the impacts we had in the aesthetic business unit, which leaded to a relevant drop of 24% in revenue in the retail Aesthetics and Plasma segment. And it's also important to reinforce the negative seasonality of the first quarter compared to other quarters. That's where we have the preventive maintenance in the factories. And we also have vacations for the commercial teams. We have less business days for production and also sales. And finally, the quarter was another proof of resilience. We had many impacts with high interest rates and dollar. But even so, we were able to grow our revenue in our consolidated results. When we look at the private hospital segment, we were above the market level. So we understand it was a very resilient result. Now I'll pass the floor on to Douglas to continue the presentation.

Thank you, Matheus. Good morning, everyone. Clearly, now in the next slides, we'll see the financial indicators as they carry out a bit of this impact and the revenue. Our revenue if compared with the last quarter of '24, there's a bit of a slowdown due to the other points mentioned. When the core business unit grew, that was very solid, and that's important to highlight. But then, of course, in regards to the first quarter of '24, there was a growth at [indiscernible], but so important to consider since the first quarter has a seasonality factor. So all of these impacts do not remove the company's conditions to deliver the annual plan, which is in line with the consensus. Moving on to the gross margin. We see another quarter where the company has been able to lever and improve its gross margin. If you only look at Blau, we have a stabilized gross margin, which is the same margin we had in the previous period. And Bergamo has another quarter scaling up, and we're already reaching close to 30% within Bergamo. And I think these are the main levers and the dynamic to continue to scale up our margins and once again, resuming another level of revenue, this should be leveraging. But if you look at this, it's an evolution that is very significant during this period, growing over 25% compared to the previous quarter and almost 700 bps. So I think this is the process. This is how we're going to look at the year. And of course, the recovery in the revenue and the consistency of the execution of the deliveries. Moving on to the next slide. When you look at the expenses, they're going to carry on the effect of the revenue levels. The expenses compared to the previous quarter in nominal volumes is the same level. But of course, with lower revenue, you have the impact of non-dilution. Revenue versus the first quarter of '24 had an impact of over 30%. And if we compare, you can see the EBITDA margin is also going to be impacted, of course, with very significant evolution versus the first quarter of '24 and then basically carrying on all of the gross margin evolution, which is going to be a little easier considering the nondilution of the expense. And then in regards to the last quarter, you have stability in the gross margin, but the revenue level impacts the EBITDA margin. But it's still a margin for the first quarter and very consistent when you indicate the recovery for the next quarters. Net income was impacted by the operational dynamics. Of course, the currency variation from 31st of December we had one value and now a whole another value in dollars. But if you look at the first quarter of '24, the FX also is favorable. But I think it's worth highlighting that we also have the tax efficiency in the company that has basically been able to offset the effects of the recurring income tax, and that also helps lever the net income. So here, we have an evolution of 50% to the company when it comes to short-term delivery has consistency in its results. Now moving on, I think another point that is more challenging is working capital, but nothing that will make us lose conviction about our deliveries. So when we look at the first quarter, of course, all of the impact in the revenue, the company already had inventory in-house and you have this impact, elevating the margins and the comparison of the working capital versus net revenue from 45% to 48%. But once again, while you recover revenue, you should get back to levels before that the company always highlights. So we have 180 days of inventory. It's a sustainable level, and that's the company's internal target. But in this quarter, we had an impact, especially in the inventory and the setback in the revenue. I think the first quarter, if you look at the average of '24, this is the past. When you look at this, we've invested a lot in monoclonal antibodies plus the company's pipeline with biologicals and others. And then the CapEx issue is we're redirecting the increase of productive capacity in our current production plants, and that's a step towards reaching our mid- to long-term project with Pernambuco and then we start the small investments in preparing our industrial complex in Pernambuco. But that's the CapEx level. And then, of course, reinforcing the solidness and capital allocation in the company and the capital structure is very solid. In regards to the previous quarter, we had a leverage of 0.1 and 0.2 and an increase, but still very timid, very low, and that is related to the dynamic of deliveries and results in the first quarter cash generation and the maintenance of the level of investments and the working capital impact. But nothing that will reinforce our message and Blau is very well positioned to be able to guarantee short-term deliveries and redirect the strategic investments in the long term. So that's what I wanted to share. Now I'll pass the floor back to Marcelo for his final comments, and then we'll get into Q&A. Thank you very much.

Thank you, Douglas. As you saw in the previous slides of this presentation, Blau was able to overcome the challenges in the quarter and what's most important, maintenance execution in the long term, reinforcing this plan, which aims to make Blau as a global biotechnology company when we present more details of each of these initiatives, which in the end are all connected. There is no way to expand portfolio and geographies organically without making investments in research and development and expanding our production capacity. Blau has chosen the most sustainable path, which is to develop and own products as well as making the raw materials for some strategic medications. This takes a little longer, it is true. But it gives us a more competitive position in the market and increases the barriers to entry of other competitors. Our growth journey and differentiation journey is just starting. Join us. Now I'll pass the floor to [indiscernible] so we can start the Q&A.

[Operator Instructions] And first question is from Raphael Elage from XP.

We have 2 on our side. The first one is about Hemarus, and we consider the issue with establishing this supply contract. And I want to understand a bit more about the main challenges that the company is considering and if this could be related to a competitive scenario maybe or if it's more related to the duration of the contract that the other party could be searching for considering that you guys even highlighted this in the report. But that would be the first question. And the second question is about the working capital dynamic. Douglas just mentioned some points, but I wanted to explore a little bit more about how this is represented by plasma and how much of this is maybe locked in a little more and reliant on the first point? And how much of this would come from other products, et cetera? If you guys could disclose a bit on this and the strategic rationale as well as what's behind the increase of other products as well.

Marcelo, do you want to start off with the dynamic?

Yes. Okay. So thanks for the question. On Hemarus, the company's idea is to search for the best opportunities for pricing and also contracts with better conditions. And so covering, of course, the other units. So sales were complete until the last quarter of 2024. So we have very little stock and the negotiations will be with big companies. So we know there are about 10 players in the world, and that includes Prothya, [indiscernible] and we have possibilities to sell to them as well. So we're setting the best opportunities to be able to bring this into the business. On working capital and the impact this has, I think it's pretty small, but Douglas could explain this a little better. And we do hope to perform the sale as soon as possible. So this impact we had in the first quarter is not lost because this plasma has a long life. So we can sell for the next quarter or 6 months from now, no problem. What's most important is that it's in stock and it contributes to the positive profitability margin. So for us, it's one of the best negotiations. We also have the opportunity that if we think it's good at some moment, we could sell in the spot market. But that's not what we're searching for at the moment. So our team is focused on finding a partner for this next opportunity.

Yes, that's exactly it, Marcelo. When we look at this operation in the U.S., we clearly don't have scale. Our negotiation power is limited, but we're always searching for a contract that can be very attractive in the time line. It takes a bit of time. But about the working capital, I think the impact for plasmas may be a little less significant in this dynamic of the impact of the revenue. And then when we look at the aesthetics business unit, you're talking about biologicals, which is basically imported ready and it's in our inventory, while it waits for the normalization of the revenue. But the dynamic, which is phasing out the delivery, which is also in the inventory in 31st of March and the company is also thinking about how to deliver this plan in 2025. But this is another one-off dynamic. And I think we should resume this once the revenue gets back to normal, and we get back to a more healthy level that we're searching to keep our working capital cash cycle that was impacted by over 30 days initially.

Next question from Vinicius Figueiredo with Itau.

Starting with Bergamo here. Could you guys talk about the opportunities you guys found in-house in the acquisition that kind of unleashed this increase in the gross margins and if we should observe this benefit helping with the margin expansion a bit more when we look at the next quarters? And about Botulinum toxin, could you guys explore this temporary effect a bit more? It wasn't that clear to us yet. And you guys had to once again perform the registration of the suppliers. And -- it wasn't clear to me to understand why you had to perform this once again, right? Was there a shift that may be required this new documentation? And now that we look at a single supplier, can we imagine maybe profitability that's better for this specific product?

Thanks for the questions. I will answer the Bergamo part. So we found a company with productivity that was very low, a lot of idle capacity and the plant was producing at really high cost. The IPA purchases had values that were above the market average. So we quickly requested ANVISA to have the production of the drugs on the Blau line. And we were able to really go after this possibility. And in this sense, Bergamo was really focused on promoting the drugs and Blau alongside the commercial team we have is more focused on negotiation of the sale of the product. And with the portfolio Blau has, we were able to really expand this besides the opportunity to sell some of these products also in the public market, we had some restrictions in the Bergamo and due to internal policies, they use outsource providers, reducing the margins. So Blau took on the initiative to start performing the sale directly of these products. So you can see that our participation in public bids was almost zero. Now we increased our participation in public bids and the sales as well. So this gave us a lot of profitability. And we still have capacity to increase, and we're launching new products as well. And so we understand that we still have space to search for the same results we have on average for the processes, right? And also, we have space operationally. And even the fact that Bergamo had this carry on [indiscernible] also bring some efficiency when it comes to income tax and profits before income tax -- sorry, profit after income tax on the registrations for the [indiscernible], they already had long-term partnerships for supplier. So the brand is actually from Bergamo. And we had a big challenge because we had to compatibilization to both manufacturers, which are competitors. And this was an initiative with negotiations and the development of this negotiation helped us find the best option for the company to continue to have suppliers that work from Bergamo and that brought in the best opportunities, better coverage in the territory, great opportunities to develop strategies and even to be able to perform the production of this toxin in Brazil. So we found a better partnership. And we also wanted the registration of this product is disconnected to the product brand, but in this negotiation with the supplier, we chose to continue to have both brands in the market manufactured by the same supplier. And that's why we had some regulatory challenges to register this product, because this product used to be registered by Bergamo. Then we created a new registration by Blau with a new brand. And to do this, we needed to have a complete process for the sale of the other registration. So I can't transfer a brand to new product if I don't cancel this product alongside ANVISA. So we needed to keep this registration live to be able to transfer this to new brands. And that's what was done. We had a period where we did not commercialize the product. And this was a transitional period, when we were able to get all of the licenses to be able to commercialize, we didn't have the necessary time to prepare the packaging material and place the product in the market. So we didn't have a lack of sales, but we had the problem where we weren't able to build and deliver. So the orders that were issued were restrained. And now in the second quarter, we performed the sale of these products. So now they're already being traded in the market normally, and they're built and delivered with this restraining in the volume in the first quarter. So we understand this business unit is going to deliver the targets for 2025 easily because servicing the market and continuing to keep up with the strategic plan of the company. The competitive positioning with Botulim got better. Yes, not only got better, but we also had a new rebranding of this product and a relaunch of this product, and we were able to improve the commercial team as well, increasing our focus on this business unit because we had expected also other launches of other products in this business unit from this year onwards. So we're already reinforcing our marketing team, our commercial teams, and the entire strategic plan also that we had for advertising.

The next question is from Estela Strano at JPMorgan.

The first one is about the launches. So, if you could give us an update on how the ramp-up is for the new molecules that were launched from the mid of last year all the way to now? And what are the expectations for launches in the pipeline for 2025? And the second is, how are you looking at the competitive scenario? I think the dynamic was maybe a little more difficult in '23 and '24. And I wanted to understand how you guys are looking at competition now in the beginning of the year?

I'll start off with the first question on the launches. We hope to launch about BRL 700 million in market value this year, which are values that are similar to what we launched in 2024. But here, more than just thinking about the recurring year, we need to think about the next cycle. We reinforced this in the call. We launched about BRL 2 billion in the market in the last 3 years. So that in the next 3 years, we should be also planning to launch at least BRL 3 billion. So that's 50% more. Then, for the monoclonal antibodies, we should double this once again. And the launches overall, of course, you have variations from product to product. But normally, they meet the expectations of the company, which is that they should gradually ramp up on their market share and also their share in the revenue of new products. The scenario of the competitive market continues, not at the same level of stress that we had 1.5 years ago, but the market is competitive and Blau has done excellent work with commercial team and our portfolio with a stronger presence, and this has brought great opportunities to our business, but the competitive scenario continues as it always was, but without the stress of the past. And that struggle we haven't seen, right? Because now with this portfolio and what are the products where they're fighting for prices, and with this portfolio, we consider to have a comfortable scenario in this sense. We also have a question on the chat. I think we already answered, from the [ Aurich ] from the Infinity Investment Club. He talked about the measures the company has to reduce the days of stock and improve working capital. So also having the product in-house and plasma, et cetera. So it's just about phasing out the delivery and some other factors, where we believe that after with the recovery in the revenue, we'll be able to really resume our revenue. But another point we want to highlight just as Blau is a company that has quarterly results in our -- suppliers also have the ambition of meeting their goals. So in the end of the year, we also have a bigger amount of inputs in our factories due to our commitments with these manufacturers to negotiate the best prices and conditions. And we end up receiving more inputs than necessary in the last quarter of the year, which ends up being carried over for the beginning of the year. So you start preparing the year, and it's normal that you'll have to start off with some higher levels of stocks. But after this is stabilized, and drops gradually. That's it, guys. So I don't think we have any more questions on the chat. And so Marcelo, any final remarks?

Well, I just want to thank you all for the opportunity to talk about Blau a bit more. And I want to say that the management in the company is very aligned and confident with the promising future of the company. We've invested more than ever, and we've seen the challenging political and economic environment in the country. But every quarter, we've demonstrated that we've been investing more and more, and these results are going to come. So our segment is a segment where investments are more long-term, and we have many regulatory challenges also to meet, including the clinical trials, but these are entry barriers for the future for our competitors. So we're on the right path, and we're going to bring the results that are promising in the future. And our ambition is to be a global company as well, and we're on the right path. We really believe in this. I just want to transmit this to you guys, and thank you all, and wish you all an excellent day. Thank you so much. Thank you, everyone. [Statements in English on this transcript were spoken by an interpreter present on the live call.]