Good morning everyone, and thank you for waiting. Welcome to the first quarter of 2022 earnings conference call of Blau Farmacêutica. Today, we have with us Marcelo Hahn, CEO, Rogério Ferreira, CFO and IRO, and Bruna Gambôa, Head of IR. I would like to remind you that we will have a Q&A session by the end of the call, and everyone is welcome to ask questions through the chat at the webcast. For the first time, our Q&A section will be held in Portuguese with simultaneous translations into English. Also, the webcast is being recorded and will be available on our IR website. Now, I'd like to turn the floor to our CEO, Marcelo Hahn, and to begin the presentation. Marcelo, please go ahead.
Good morning, everyone. Thank you, Bruna. Welcome to our conference call regarding the results of the first quarter of 2022. On slide two, we present an overview of the company in the quarter. Many of you already know the story of Blau, which started almost 35 years ago, and year after year has been consolidating itself as a leading pharmaceutical industry in the non-retail segment of highly complex medicine, which is a market with stable growth over the years. We supply medicines with a high level of innovation and technology to always be ahead of the competition. Here, I would like to highlight the main achievements of the quarter and say that I'm very proud of Blau's performance in this first year after the IPO.
We were able to demonstrate our resilience and even in a quarter with the lowest historical level of immunoglobulin sales, we reached the same revenue that we delivered last year, and we had a significant recovery in margins compared to the fourth quarter of 2021. About 5% of our first quarter sales came from new products developed by Blau Inventta. The launch of those products are on track and will bring important gains for Blau in the coming quarters. In this quarter, we recorded a strong reduction in immunoglobulin revenue of around 80%. Even so, the biological unit show a growth of 5.5% in relation to the first quarter of 2021. It is important to highlight that the immunoglobulin issue has already been addressed, and the product returned to the normal levels as of April this year.
With activities returning to normal in the healthcare area, the other units posted revenue growth of more than 80%, driven by strong sales of dermocosmetics and retail. The specialties unit recorded a 27.6% reduction in revenue, which was impacted by the contraction in sales of product that has a significant performance in the first quarter of 2021 due to the focus that some competitor had on products related to COVID, generating a one-off opportunity in that quarter. Another factor was the expansion and improvement works at Blau Goiás that reduced product output in the period but will be contributing to our growth as of second quarter 2022 on. New products will also contribute to the unit's performance.
The oncology unit showed a 3.1% growth in revenue with good growth in most of its products, and this growth would be even greater if we did not have the one-off impact of a chemotherapy product that did not perform well in the quarter, reducing our growth sales by 30 percentage points. I also would like to highlight the growth in our revenue outside of Brazil, which, including Hemarus operation, grew by more than 90% in the period. The market environment is challenging. We had to live with the expansion of the crisis caused by the war in Ukraine, logistic difficulties and strong inflationary pressure. Even so, we are reinforcing our flexibility and resilience by launching new products on the market and delivering excellent results in all our fronts.
In this period, we had a one-off impact of our financial results related to the hedge of our cash in foreign securities position. Excluding this effect, our adjusted net margin would reach one of the highest historical level of 28%, more than 2 percentage points versus first quarter of 2021, and more than 15 percentage points versus fourth quarter 2021. We are still well-positioned in the national pharmaceutical ranking, but we have greater ambitions. In this quarter, we have seven new registrations approved and five new registrations requested across Latin America. Blau does not stop investing in research and development of new products and also in projects that will generate greater accessibility to patients and health professionals in addition to bring important savings to the company.
Our manufacturing sites are under construction to expand production capacity and boost our production in the launch of new pipeline drugs. Our idea is to always be ahead of our competitors with initiatives that will further leverage our growth. Moving on to slide three, I will quickly go through the main financial highlights of the quarter, but Rogério will provide additional details later on this call. As I mentioned on the previous slide, we were also able to address the issue of margins in the fourth quarter, and this quarter will deliver margins significantly higher in line with the company's historical level. In relation to the fourth quarter, gross margin increased by 10 percentage points. EBITDA margin grew by 11 percentage points, and net margin increased by 7 percentage points. Despite the high financial expense we had this quarter related to losses in our hedge and cash position in foreign currency.
If we adjust for this effect, our net income would be over BRL 87 million and our adjusted net margin would reach 28%, one of the highest level Blau has achieved since its foundation. Looking at the coming months, we have good opportunities to capture and bring even better results to present to you. On slide four, we show the pipeline of new products to be launched in 2022 and in the coming years with their addressable market. Looking at Brazil only, today we have a pipeline with a total addressable market of BRL 7.8 billion with BRL 5.4 billion in partnership under negotiation and BRL 2.4 billion in project development internally by Blau Inventta.
This year we expect to launch nine new products, one of which was already launched in February, Sugammadex, which was the first generic in Brazil authorized by Anvisa with around BRL 200 million in an addressable market. Moving on to slide five, you can see our main initiatives to expand production capacity. I would like to highlight the physical expansion of the Blau Inventta site, which will provide us with a 65% of growth in numbers of projects under development from 60 - 100 simultaneously projects. The administrative team will move to our new office in São Paulo, and this space here in Cotia will be used to expand the area of the research and development. The construction works will start on the second half of this year. Here at our operational headquarters in Cotia, the P210 started qualification validations.
The two new lines will be added 20% of capacity in specialties. We also started a new expansion initiative in P110, the area where we have our central ingredients warehouse, which will be relocated to install three new production lines, and we continue to make improvements in our production lines, including the Blau São Paulo, with the expansion of two new production lines. All these expansions are focusing on meeting our short-term demands with new products being developed by Blau Inventta. Regarding the industrial complex in Pernambuco, the P1000 building, in March we had the first major milestone of this project. We signed the protocol of intentions that formalized our negotiations with the state of Pernambuco and the municipality of Cabo de Santo Agostinho. Our plan is to place the foundation stone and start construction by the second half of this year.
Moving on to slide six, we will talk about ESG and innovation. Since our foundation, initiatives focused on ESG and innovation have been incorporated into the company's day-to-day activities. In recent months, we have invested a lot in projects that will make Blau stand out from our competitors. Here we are talking about projects such as the digital information package insert, augmented reality, packaging standardization, the unitarization and serialization of the products, and traceability throughout the production chain, which will generate greater accessibility to patients and health professionals, in addition to bringing important savings for the company. Regarding sustainable projects, we highlight the recycling programs for blister and plastic cups and the selective collection implemented in all the company sites, in addition to the partnership to neutralize carbon emitted by the commercial fleet and the use of electric vehicles to carry out deliveries in the São Paulo region.
By the end of the quarter, we had more than 1,450 direct employees, 56% of whom were women. At the end of last year, we also achieved Women on Board certification with two women as independent members on our board of directors. To finish this slide, I also would like to highlight that in the second quarter we will release our new sustainable and ESG report. On page seven, we bring you more information about Hemarus. Our first center is located in Florida at Lauderhill and is already operating and generating revenue. This center opened in June last year and already has an FDA license. It is currently at 35% occupancy, and we intend to reach break even by the end of this year. In the quarter, this center recorded revenue equivalent to BRL 3.3 million.
The second collection center is located in mall in Miami, on the New York side mall, and construction works are on schedule, with an expected launch in the fourth quarter of 2022. I turn the floor over to Rogério Ferreira, our CFO, to comment on our financial performance. Thank you for your attention.
Thank you, Marcelo. Good morning, everyone. Going to slide eight, we present the net revenue breakdown, which reached BRL 313 million in the quarter, with a 3.9% decrease compared to last year. As Marcelo already mentioned, in this quarter, the immunoglobulin sales were lower than the historical level. Excluding this effect, we would have registered a net revenue expansion of more than 13% compared to the first quarter of 2021. Looking at the chart at the bottom of slide number eight, about 25% of revenues came from public sector sales. This expansion in relation to previous quarters was one-off and is related to the increase in sales of alfa epoetin, mostly sold in the public channel, and to the reduction of supply of immunoglobulin in the period, which is sold to the private sector.
As of second quarter, sales to the public sector should return to 15%-20% of net revenue. Moving forward now to slide nine, we present gross profit and EBITDA. In the quarter, the company costs represented 48.5% of sales versus 47.6% in first quarter of 2021, reflecting the increase in API importation costs. It's worth mentioning that in this quarter, costs do not include the favorable impact of FX rates since the consumed inventory was acquired at the average exchange rate of the second half of 2021. As of the second quarter of 2022, the company will have the benefit of the real appreciation versus the dollar since around 65% of company total costs are denominated in foreign currency. Gross profit totaled BRL 161 million, and gross margin reached 52%, returning to historical levels.
Compared to the first quarter of 2021, we recorded a margin retraction of around 90 basis points impacted by the performance of the specialties unit. EBITDA in the quarter was BRL 115 million, with an EBITDA margin of 37% returning to historical levels. As already highlighted, EBITDA for the period was impacted by a slowdown in revenue growth already explained, combined with the growth in expenses, especially related to R&D. Going to slide 10, let's talk about expenses. We remain focused on operational leverage, demonstrating the efficiency of our business model and accelerating investments in research and development to boost future growth. In the quarter, we invested a total of BRL 16 million in research and development, representing 5% of net revenue, considering both operating expenses and intangible capitalization.
We also highlight the increase in general and administrative expenses, which reflects a more robust administrative structure after the IPO, as well as expenses related to the ramp-up of the first plasma collection center in the United States and the inflation in the period. Going to slide 11, we highlight financial results and net income in the quarter. As we mentioned, we had an unfavorable non-cash impact from the appreciation of the real on Blau's financial result, reflected in the exchange variation, because at the end of March, we had $40 million of cash denominated in dollars. Unrealized results with derivatives reflecting the mark-to-market of hedge contracts with total notional value of $16 million. If exchange rate remains at levels seen in early May, the negative Q1 financial result will be partially offset.
Regarding income tax and social contribution, we had a positive impact in the quarter due to the payment of this interest on equity and also the investment in research and development that allow us to explore the benefits of Lei do Bem. We ended Q1 with a net income of BRL 61 million, a decrease of 29% compared to 2021, with a net margin of 20%, which represents a reduction of 6 percentage points in net margin in the quarter. However, it's important to highlight that the net margin in the first quarter is 7 percentage points higher than the one in Q4 of 2021 despite the high financial expense. Now to conclude the comments on results, let's look at the company's balance sheet on slide 12 of the presentation.
In the quarter, we had a one-off deceleration in the level of CapEx, but looking at the last twelve months, we can see a strong growth of more than 30% in relation to the previous year. As of the second quarter, we'll see an acceleration in the level of investments with main focus on expanding our production capacity. During 2022, the idea is to invest around BRL 450 million, of which BRL 250 million will be in the Pernambuco plant, BRL 85 million in building P210, BRL 75 million in Hemarus, BRL 40 million in Blau Inventta expansion, and a smaller portion of maintenance CapEx and other projects related to the acquisition of equipment for the modernization of the sites.
Looking at working capital, we present a one-off expansion in relation to previous quarters, which is related to the anticipation of purchased APIs and ingredients for the production of new medicines, benefiting from the appreciation of the real in the period. We ended the quarter with 53% of working capital in relation to net revenue, which reflects an increase in accounts receivable in relation to previous quarter due to the higher concentration of sales during March according to the seasonality of the beginning of the year. We maintained the same level of days of inventory in relation to Q4 2021 due to the purchase of ingredients needed to manufacture the medicines that will be launched throughout this year according to the company's business plan. It's worth mentioning that we'll continue with the efforts to reduce our inventories to a level below 200 days.
Moving to slide 13, we present the company's strong cash position that allow us to execute CapEx investments as planned. We ended the quarter with a net cash position of around BRL 500 million and a gross debt that comprises of two debentures, totaling BRL 320 million. Regarding debt timeline, we have maturities until 2027 and a very attractive cost of CDI+1.09% . Thank you all. Now we may start our Q&A session.
Good day, everyone. We will now begin the Q&A session. Well, let us begin the first question. First question by Mr. Wagner Salaverry. We realized in the comparison of first quarter 2021 that sales to private clients dropped 9% while receivables increased 17%. In public clients, sales increased 14% comparing first quarter 2022 over first quarter 2021, but receivables increased 89%. How do you explain this difference and this increase in payment terms?
Thank you, Wagner, for the question. Well, to answer your question, we had a concentration, a much higher concentration in the month of March compared to other quarters. That negatively impacted our days of receivables outstanding, and we understand that this should normalize in the coming quarters. It should go down to the historical levels. Also, in the payments of alfa epoetin, some payments were outstanding December. They're still outstanding, but we should be receiving payment in the coming days, so that will normalize. Days of receivables outstanding should go back to historical levels.
We have another question now by Guilherme Cambraia. Good morning. I would like to understand how do you explain the loss of share in oncologicals and if we are going to have the sale of alfa epoetin and immunoglobulin normalize along the year. Was the large alfa epoetin auction that was authorized last year and paid, was it paid in Q1 2022? We have a problem with Marcelo's audio.
Can you hear me? Please hold. Well, thank you for the question. Regarding the market share of oncologicals, actually, the company is growing the sales of some products in the oncologicals unit. We had the decrease in the sales of just one product, a chemotherapy agent that suffered more pressure from the competitors. We understand that in Q1, one of the market players was probably oversupplied with products with a short expiry date, and they were very aggressive in the market to sell their product that was expiring.
Blau preferred to maintain our price levels, and we had a reduction in the sales of this product in this quarter, but we want to offset that in the coming quarters. In the rest of the family of products, we grew sales. The oncologicals grew in total. For oncologicals, we understand that the share of oncologicals will grow in the company in the coming quarters.
We have a question by Wagner Salaverry. What would be the gross margin in Q1 2022 with normalized sales of immunoglobulin? How many percentage points would it drop compared to what was posted?
Thank you for the question, Wagner. The immunoglobulin margin is a little smaller than our market average. It would be hard to say how many percentage points the margin would drop because that would depend on volumes. We imagine that it should be at around 50%, which is our historical level.
Now a question from Leandro with Citi. He says, good morning. We have three questions. Please, could you comment on the phasing of sales of immunoglobulin that you expect for the year quarterly evolution? Two, if you can elaborate on the competitive landscape in specialties and sales trend in this category for the three years, that would be good. And three, if you could elaborate on your working capital strategy and the levels you expect looking forward. Thank you very much.
Thank you for the questions. For the first two, I will answer myself, and then I will let Rogério answer about working capital. Regarding immunoglobulin, the company has a quantity available for sale along 2022. We had a reduction in supply in the first quarter, which will be offset in the second, third, and fourth quarters. In the phasing along the year, we will achieve our target, our business plan, and we will continue to grow the company. This year we have more supply of immunoglobulin than we had last year. Since April, we are putting this product in the market, and this will continue until the end of the year. Regarding the competition landscape in specialties. Well, the company has felt more pressure from competitors in the specialties unit. However, the company has a very robust and diversified portfolio.
In addition, we are launching a number of specialty products this year, which we understand will make this unit grow back to historical levels. All new products being launched are being very well-positioned, and we are able to replenish our margins. I will let Rogério answer the third question.
Thank you, Marcelo. I just wanna make a comment about specialties. If we look at specialties, the growth from 2020 - 2022 had a CAGR of 16% of specialties. Although we had a reduction, we had a first quarter of specialties that was very positive because of COVID. That's something important to take into account. Regarding working capital now. We had a worsening in the main working capital accounts. Receivables that I explained in the first question.
Regarding days of inventory outstanding, we took advantage of a more favorable exchange rate to buy more product at a lower cost. In receivables outstanding, we accelerated some payments to enjoy the favorable exchange rate that we had in Q1. Looking at today's exchange rate, we realized that this was a good decision. That had an impact in the end of the quarter, but that was to ensure an operating margin favorable in the future.
Thank you. Our next question comes from Wagner. The hedge that affected the result, is it referred to exchange operations? Well, it does refer to exchange operations from August to November. Didn't you have hedge operations prior to August 2022? Were these operations contracted to buy ingredients or to acquire machinery and equipment, expanding the CapEx?
Thank you for the question. Well, our hedge was acquired to offset our position that we have in our operation. That includes machinery. There's a part which is machinery and equipment, and there is a part related to our regular operation. What happens in Q1 2022 was that we had a negative result of the exchange hedge, and we haven't enjoyed the positive result of our operation yet. Because since we had a favorable exchange rate in Q1, and the cheapest product is in our inventory, so hasn't contributed to the result. We are going to see a better margin as of the second quarter, and our hedge will be offsetting this positive impact. In Q1, we only saw the negative impact, and the positive impact hasn't been felt yet, the positive impact of the operation.
Now a question by Vitor Pini with Banco Safra. Good morning. I would like to hear from you your revenue growth expectation for 2022. Because when we look at the last 12 months' performance in Q1 2022, we saw a slowdown in the growth to 5% comparing the average of the five-year period, which was 25%. Thank you.
Thank you, Vitor, for the question. If you look at our CAGR in the last five years, we continue at a two-digit level of 23%. As informed, the company had a reduction in the supply of immunoglobulin, and that impacted a lot our revenue in Q1. If it weren't for this event, excluding this event, the company would have boosted growth. With normalization and phasing of quantities in Q1 being passed through to Q2, Q3, and Q4 this year, we believe we will recover.
With the launch of new products that will increase the revenues of the company, we believe that we will deliver our business plan with a two-digit, historical two-digit growth. Between 2021 and 2022, we believe that when we complete 12 months, we will post the same historical result that the company had presented so far.
Next question from Ian from BTG Pactual. Good day, everyone. I'd like to ask a couple of questions. How is the demand for specialties advancing, and what has been the utilization of capacity in the plants of São Paulo and Anápolis? Two, do you believe that the unfavorable working capital dynamic in Q1 is just occasional, a one-time off event? Thank you.
The demand for specialties is growing. We, in the first quarter, faced a greater competition because these products are less exclusive. They face more competition. As mentioned beforehand, we're launching new products in the specialties unit that will face less competition. Some of them are unprecedented generics, and we believe that we will replenish our margins and will continue to grow this line. Regarding our production capacity, we had an adjustment and expansion of the Goiás plant in Anápolis that reduced our supply of medications in Q1 coming from Anápolis. That operation is normalized, and we believe that in the second, third, and fourth quarter, we'll recover our production capacity. The São Paulo plant operates at about 85% of its full capacity, and the Goiás plant will also reach 85% with the three production lines we have there.
Now we will move to a question by Lucas with Itaú BBA. Good morning, everyone. I have two questions. First, regarding working capital, we saw an increase in days of receivables outstanding, but this question has been answered. The second question has to do with the impact on the biologics revenue given the world shock and the supply of immunoglobulin. What is the company's expectation regarding the normalization of this effect?
Thank you for the question. Well, regarding immunoglobulin, we had a very positive negotiation this year, and we expect to end the year with a good quantity of immunoglobulin. Unfortunately, the timing for Q1 was not good because we didn't have the product. We are optimistic that we will reverse to historical levels of immunoglobulin.
Next two questions by Wagner Salaverry. First, regarding R&D, what is the new R&D normal, the current 5% of revenue? Will these be maintained, or can they grow even more? The second regarding investment increases in Blau Inventta, if they will be used to increase launches, and if so, in which segments of action? What is the increased potential? What percentage of increased potential in the addressable markets? Thank you.
Well, the company is going to increase investments in R&D and innovation. For this year, we're expecting up to 10% of our net revenue being invested in R&D and innovation. These expenses are increasing given the start of a number of clinical trials that the company's conducted for the approval of its biotechnological biotech products manufactured at our own plants. The expansion of Blau Inventta will accelerate the number of projects being developed annually. We have about 60 products being developed annually.
We expect to increase that to 100 products, and of course, expenses will increase because we will have more products being developed simultaneously, more staff involved in the process, and expenses related to clinical trials. The new normal will be to expand investments to 10% of our net revenue. Regarding addressable markets, we cannot really price it. Because we are not talking about any drug in particular. We're talking about a number of drugs. We will be informing the market quarter by quarter regarding the addressable markets of the drugs that we are developing and putting in the market. This is very incipient. As it gets closer to normal, we will be disclosing the information.
Thank you. Now a question by Tiago. He asked, "What would be the oncological drug that did not perform well in the quarter, and why?"
Like I said before, this is a chemotherapy agent, used. It's one of the most used chemotherapy agents, and like I said before, like I explained, we had a large supply of a competitor at very low prices because their product was expiring soon. We decided to maintain the price of our products at the current levels, and we decided to wait to sell our products in the coming quarters. We believe that this is a one-time off situation.
Now the question from Joseph Giordano with JP Morgan. "How should we think about the recovery of supply of immunoglobulin along 2022?"
Well, actually, it is already normalized because the product that we are receiving, starting now in Q2, are products that have been manufactured and production is normalized. One of our manufacturers abroad, last year they had to have a downtime at their plant, and they had a gap of close to three months without production. They're back to normal, and we understand that we'll be able to have the phasing and the expected quantity for this year in Q2 to four. The company's focused on maintaining the company's growth, and we believe that we will execute our business plan.
Next question by Caio with Bradesco BBI, also related to immunoglobulin. "The quarter was strongly affected by the lack, by the shortage of immunoglobulin. What measures have you taken to prevent that from happening again?
We saw a strong recovery of margin, which was greatly explained by the mix also impacted by the lack or shortage of immunoglobulin. Should we expect a normalization for the next quarter?" Well, the last question I think has been answered. We should go back to levels of 50%, and Marcelo will answer the first question.
Like I said before, the situation of immunoglobulin was a one-off event. What's happening is that, well, there's a shortage of this drug, not only in Brazil, but around the world. As a company, we have in our business turnover a regulatory inventory. Since this is an extremely important medication, the company used the regulatory inventory to maintain a safe operation during Q1. This was a one-off situation. Like I said, it has been normalized and the company's already receiving the medication from the company's suppliers. As mentioned, we understand that the quantity will be phased in the second, third and fourth quarters, and we will be meeting the requirements of our business plan.
Next question by Andre Mota. Sales of medications launched in 2022 accounted for 5% of the revenue of Q1 2022. Together, they updated the table of the respective medications to be launched this year, BRL 200 million launched in the quarter. In other words, the market share that you already got with this medication was 7.9% in Q1. Is that a fair statement?
It is a fair statement, between 6% and 7% for year one. That's when we would be gaining that market share.
Another question by Joseph Giordano with JP Morgan. "How should we think potential M&A deals to accelerate the company's pipeline?"
Well, the company is open to M&As. We strengthened our M&A team. Now we have a department exclusively dedicated to that. We're participating in a number of possible deals, and we will be communicating the market accordingly. It is part of the business plan of the company to have M&A activity, and this will be happening sometime in the future so that we can continue with our planned growth and our business plan. We'll look at M&A opportunities focused on our business. Everything that is linked to the pharmaceutical market and in the markets where we operate, Brazil, South America, and the United States. As soon as we have news in that regard, we will be informing the market.
Thank you. This is our last question by Marcio Osako with Bradesco BBI. He says, "Good morning. What was the demand by hospitals for medications linked to elective procedures and elective surgeries in Q1 2022, and how do you see the demand in Q2?"
Well, we already see some normalcy in the market in the cost of medications for elective surgeries. We already see hospitals planning to acquire supplies for the whole year. We expect the hospital area to grow this year, and this is already materializing. We have received a lot of demand from the market.
This was the last question. I will now turn the floor to Marcelo for the final statements in this earnings conference call.
Well, folks, thank you very much for the questions. In April, we completed one year since our IPO. I can only thank you for the trust you have in Blau. More than ever, we are focused on our growth drivers. Even facing great political challenges and Brazilian and international uncertainties, I'm confident in Blau's growth in 2022. We always seek perpetuity of the business, generating, creating value for our shareholders, in addition to social, environmental and governance in our company.
Thank you very much for joining our conference call, and have an excellent day. Thank you.