Hypera S.A. (HYPE3) Earnings Call Transcript

Good morning, ladies and gentlemen. Welcome to Hypera Pharma's Earnings Call for the second quarter of 2026. We have with us Mr. Breno Oliveira, CEO; and Mr. Ramon Sanchez, CFO and Investor Relations Officer. This event is being recorded and may be watched on the company's Investor Relations website at ri.hypera.com.br. [Operator Instructions] Before proceeding, we would like to remind you that some of the information contained in this conference call may include forward-looking statements or expectations about future events. This information is subject to known and unknown risks and uncertainties that may cause actual results to differ materially from those expressed or implied. I will now turn it over to Mr. Breno Oliveira, who will begin the company's presentation. Go ahead, sir.

Good morning, everyone. It's a pleasure to welcome you to our earnings conference call for the second quarter of 2026. I'll begin the presentation on Slide 3. This quarter, we combined growth in sell-out, revenue, EBITDA and net income with strong operating cash flow and reduction in net debt. Our net revenue grew 8.5%, driven primarily by 7.6% growth in sell-out. The sell-out growth was primarily driven by progress in the skin care, certain central nervous system and gut health categories, where the company stands out with a broad portfolio of products, including those commonly used during GLP-1-based treatments. New product launches over the past 12 months once again contributed to our performance, adding 2.2 percentage points to sell-out growth this quarter. As a result, we gained market share in our target markets, which grew by 6.2% in the second quarter of 2026. Gross profit grew by 11.5%, 3 percentage points higher than net revenue growth, helping us achieve an EBITDA of BRL 755 million this quarter with a margin of 32.3%. Net income grew by 15%, driven primarily by the reduction in financial expenses following the capital increase carried out in the previous quarter. This quarter, we also made progress in working capital management by reducing internal inventories of raw materials and finished goods, supported mainly by the recent improvement in logistics efficiency indicators that I mentioned during the last conference call. As a result, we reduced our working capital investment to 28% of the quarter's annualized net revenue and achieved operating cash flow of BRL 819 million, a level higher than EBITDA for the same period. The combination of growth in operating income and greater efficiency in working capital management contributed to the reduction of our net debt, which stood at BRL 5.9 billion at the end of the second quarter, equivalent to 2.1x the EBITDA for the last 12 months. In addition to these significant financial advances, we continue to reward shareholders with the declaration of BRL 185 million in interest on capital, and we took important steps to expand our portfolio, which I'll discuss in details on Slide 4. We announced a partnership for the launch in Brazil of a new brand for nonhormonal treatment of menopausal symptoms, which according to estimates may affect up to 80% of the 30 million Brazilian women currently in perimenopause or postmenopause. Through this partnership, we will increase the public's access to one of the most significant innovations in women's health in recent decades, and we will expand our product portfolio in this category with an innovative molecule protected by a patent through 2034. We also received approval from ANVISA for the registration of semaglutide, marking the start of our operations in the significant and promising GLP-1 market, which reached BRL 15 billion in sales over the past 12 months. We will operate in this market through Mantecorp, our umbrella brand for the prescription products segment, which is known for the high quality of its products and is widely recommended by the Brazilian medical community. Semavy has proven equivalence to the reference biologic drug that held a patent in Brazil until March, in addition to dual quality certification in both Brazil and India for its production process. We will continue the strength of the Mantecorp brand, the capabilities of our medical sales team and the national reach of our distribution network, which allows us to reach 100% of Brazil's points of sale with the production capacity and operations of Sun Pharma, which chose Hypera to drive its expansion in the Brazilian market through a solid long-term partnership. We will bring a high-quality, competitively priced product to the Brazilian population, significantly expanding access to semaglutide-based treatment. I'll now turn the floor over to Ramon, who will discuss the quarter's results in greater detail.

Thank you, Breno. Moving on to Slide 5. Our revenue grew 8.5% this quarter and reached BRL 2.34 billion, driven primarily by nearly 5% growth in the volume of products sold. Our gross margin was 61.8%, an increase of 1.7 percentage points compared to the second quarter of 2025 and 1.8 percentage points compared to the first quarter of '26. The expansion of the gross margin is primarily due to price increases that outpaced the rise in input costs. Marketing expenses grew 13.7% in the second quarter of 2026 compared to the second quarter of 2025, coming to a total of BRL 411 million. This growth is primarily the result of expanded point-of-sale initiatives to increase the visibility of our brands as well as the expansion of our medical sales team to support the launches of prescription products. Sales expenses totaled BRL 272 million in the second quarter of 2026, similar to the level recorded in the previous quarter. General and administrative expenses totaled BRL 97 million, in line with the first quarter levels. The increase compared to the second quarter of 2025 is due to lower expenses related to administrative teams and teams in consulting services last year as well as increased investments in technology this quarter. As a result, EBITDA from continuing operations was BRL 755 million with a margin of 32.3%. Net income, meanwhile, grew by 15%, primarily due to lower financial expenses resulting from the BRL 1.5 billion capital increase carried out in the first quarter of '26, which contributed to a reduction in the company's net debt in the last quarter. Now let's move on to the cash flow on the next slide. Our operating cash flow was BRL 819 million this quarter, representing 108.5% of our EBITDA, primarily as a result of initiatives to gradually reduce internal inventories of raw materials and finished goods as noted by Breno. It's important to note that in the first half of the year, operating cash flow reached the same level as EBITDA, reflecting our discipline in working capital management and the company's strong ability to convert operating income into cash. After investments in property, plant and equipment and intangible assets, which include innovation and plant expansions to support our medium-term growth, our free cash flow reached BRL 638 million. Also this quarter, we made payments of approximately BRL 1.3 billion in interest and amortization, including the early redemption of the 15th debenture issue, which allowed us to reduce the cost of debt to a level below the CEI index. Strong free cash flow generation, combined with the capital increase and the resulting reduction in the company's gross debt allowed us to reduce net debt by nearly $400 million to $5.9 billion, equivalent to 2.1x EBITDA for the last 12 months. I will now turn it over to Breno for his closing remarks.

Thank you, Ramon. This quarter's results reinforce the company's ability to balance the delivery of consistent short-term operational and financial results with significant advances in innovation to expand our product portfolio in the medium and long term. Our entry into the market for nonhormonal treatment of menopausal symptoms scheduled for early next year and the launch of our GLP-1 product in the coming months with Semavy demonstrate the success of our strategy to expand our presence in the pharmaceutical market by launching innovative products in relevant markets with attractive growth potential. Thank you. And we will now move on to the questions-and-answer session.

[Operator Instructions] The first question will be asked by Joseph Giordano from JPMorgan.

I'd like to go into 2 points. The first is about working capital. We went through an inventory optimization process and that reduced receivables. And now we're starting to see this taking place on the inventory side. So I'd just like to understand what we should consider for the inventories line in the future? Is it going to continue to go down? Will it flatten out? I'd just like to understand the levers behind this. And my next question is about the new categories, GLP-1s and other hormones. What do you expect in terms of revenue contribution for the next 2 or 3 years from these categories? And how comparable are they to the company's average?

Joe, this is Ramon. I'll answer your first question, and Breno will answer the next one, about inventories. It's exactly like you said, the gain in working capital efficiency due to lower inventories this quarter is happening after that internal revision project that was started last year after the working capital adjustment at the end with reduced terms. So it takes some time for that to happen. We reduced internal inventories, review our policies, start implementing the purchasing review, and we are starting to see the results. It's a structural gain. It will be continuous. We achieved this level faster than we expected. The project was more efficient than we expected on the short term. And we expect some improvement in the future, some slight improvements in the future.

To answer your second question on the new product categories, these 2 products have a lot of potential. The GLP-1 line, as you know, has been growing significantly, and we believe that this will continue to happen in the future as new brands come into this market and as prices reduce. We believe that a part of this market that is not audited, imported from Paraguay or compounded will migrate to the formal market that's regulated by ANVISA and sold in pharmacies. So I think there's some potential here. And the hormonal treatment for menopausal symptoms is a BRL 1 billion market. The non-hormonal market is new in Brazil. It has a lot of potential, and it is a patented product. So the patent will hold until 2034. So we have a long time to work with this before the patent is dropped. So both products, both categories have the potential of being among the top products for Hypera for the next years. Considering margins, I think on average, they will tend to have margins close to what we see in the company's average. So it's not going to dilute anything, but it's also not going to be accretive for the company's margin. It will contribute towards our growth.

The next question will be asked by Antonio Cardoso from Jefferies.

I have one question on my side. A lot has been said about requests and processes at ANVISA for GLP-1s and generics. So who is your competition here? And what do you think is the right to win for Hypera in this segment? How will the market share be split between the players that already have approvals and the new forthcoming approvals? Also, I'd like to understand your CapEx cycle. How much smaller will it be if it will be smaller? Do you expect a relative reduction this quarter? I'm trying to understand if your CapEx will be slightly lower or less offensive in the next quarters.

Antonio, I'll answer your first question, and then Ramon will answer the second one. So ANVISA did disclose the number of registration requests that they are assessing and what they already have approved. Like you said it yourself, we believe that among all of these, a smaller number will be successful from the commercial perspective. So in order to be successful, and we didn't get any requests -- I mean, they didn't get any requests for generics. All the products that are being submitted for approval are branded products. So we believe that the most successful players in this market will be the companies that have a good production cost to keep it profitable even at lower price levels, the ones that will have some sort of brand differentiation. So our brand is very strong with the medical community. We have several products in cardiology and endocrinology, which are the highest prescribing areas for GLP-1s. So we have a lot of traction with these medical specialties. And we have a strong team. We have many sales reps on the field. We have other products in the prescription basket, so we can optimize our medical visitation time. We have products for adverse events of semaglutide like nausea, and constipation. We also have Colflex Whey for Vitamin D, Vitamin B12, which are often prescribed along with GLP-1s. So we can improve our prescription pool and bring in some of it to the product baskets that are sold. So we really believe that these factors will be important and very few companies have the same potential that we do with all of these factors. I think this is what will make us successful in this segment.

Antonio, this is Ramon. About CapEx, we mentioned in the past that we still won't see a reduction this year. We have some important projects, especially the expansion of the institutional market plant. So we expect this level to still be high in 2026. But naturally, after these strategic projects end, we will see a significant reduction in our CapEx after 2027, maybe in 2028.

Just a follow-up about GLP-1s. You mentioned the production cost is one of your advantages. Can you explain how much you can stand out at this? And also how relevant this is for the market in comparison to Novo and Sandoz, which is your other competing player?

Well, Sandoz is actually a distributor. They don't make the molecule. The production is carried out by a different company, which doesn't have the same scale as Sandoz. And Sun Pharma is the biggest pharma industry in India. So they are already selling in India, and they have the production scale. They are going to do a global launch as patents are dropped in other countries. This is a company that is very used to working with generics. So the production scale is quite relevant. They have 40 plants around the world. So we believe that the global scale will be very important for the successful players, of course. We're seeing a reduction in API costs as patents go down and as new players develop APIs, it is expected that the cost goes down significantly. And although their approval has already been received, some selected Hypera as its partner for the Brazilian market, considering the strength of the Mantecorp brand, our strength in performing medical visits and also distribution. In Brazil, distribution is very important. So our products are taken to 100% of the Brazilian pharmacies in major distributors and pharmacy chains. So this makes a big difference as access improves, prices drop.

The next question will be asked by Vinicius Figueiredo from Itau BBA.

The point I'd like to explore with you is, well, you've already answered some other questions related to this. But I'd like to ask about your menopausal symptom treatments. If you can tell us a bit about what the market for it is currently, who you are competing with, the economics of this partnership, it would also be important to understand and the launching time. So that's the first point. And the second one, still related to launches. You mentioned that there is a sellout increase from the projects launched in the last months. So that would help us to understand their contribution to your top line. If you can break down these 2 percentage points that were added in this quarter, what were the main contributing factors? What were the most significant molecules that helped with this outperformance?

So let's start with your first question. Semaglutide is a molecule that has already been sold since 2023 in some countries, in 17 countries. Over time, they got approval in several countries, and they've sold over $430 million during this time. We can't disclose details on the contract, but throughout this time, we will sell our own brand here in Brazil for this molecule. The Brazilian market, as I said, is more than BRL 1 billion for hormonal menopausal symptom treatments. So this is something that can be used in addition to the hormonal treatment or to replace it for women who have contraindications or who don't respond to hormonal treatments. So this is a new market. And we see a lot of potential for it given what we're seeing and considering the advantages of this new type of treatment. Another important point is that we don't see aggressive competition here like we do for other products that have their patents dropped. This is a market that has less of a price struggle for the next few years. And we're very strong in gynecology. This is not a new partnership for Hypera. We have similar ones with other global players that selected Hypera as its partner in Brazil. And we always have our own brands and products. It's not a part of our business to distribute third-party brands. Our business is to use products and medications with high added value products using our own brands, especially Mantecorp. So that was your first question. Your second question was about the contribution from the new launches. We have many launches in our portfolio. So there's a block here that contributed towards this performance. But there are some examples like for Suspen that we mentioned in previous calls. Expectorants represent BRL 500,000. We also gained market share from the reference product in this category. Lisador for muscular pain is another product that has been very successful with the medical community. It's a muscle relaxant that is not anti-inflammatory. This was a demand that doctors had, and it's been performing very well. Some generics like glucoside, semaglutide are doing very well as well. Vitamin B12, our brand has also contributed towards our growth. And now we're launching Cepacol chewables. So this is now going to arrive at the pharmacies in the next month. So we don't depend on a specific product. So this is the beauty of Hypera. We have several brands. We can do line extensions, and we can also start new brands with medical visits.

Great. Breno, if you allow me to have a quick follow-up. Considering this menopausal symptom treatment since it's protected by the patent, it's competing actually with other molecules or other technologies, right?

Correct, if there are other patented molecules that arrive in Brazil. But there aren't any yet.

The next question will be asked by Bob Ford from Bank of America.

How much of your marketing increase was due to the World Cup? And what should we think about your marketing investments for the rest of the year? And how do you plan to expand the addressable market for Semavy, especially for patients who use tirzepatide from Paraguay or compound pharmacies? Also, what is the share of this in your current sales? And how do you plan on positioning your portfolio versus Semavy to promote this component?

I'll try to answer your question and remind me if I forget about any. Let's start with marketing. We mentioned in the previous call that the previous quarter has been -- that we're now focusing on the World Cup. And we expect to sustain these levels. So in media, we will see several launches in the next quarters, and we believe that it will be closer to the levels we saw in the second quarter. About GLP-1s, the first factor in this segment is that the medication that is purchased from Paraguay and from compounding pharmacies are all due to the price. Until recently, the price was a factor that drove consumers to find cheaper alternatives. So with the new brands, the price has dropped even faster than we imagined, but it was not very different from the levels we expected for the medium and long term. So the price is the biggest factor. And there are benefits in using, of course, medications that have been approved by ANVISA and that had quality controls. So it's important to bring information for physicians and patients from now on. So we're attempting to promote this with new physicians. Most of the promotion is focusing on cardiologists and endocrinologists, and we see potential for other medical specialties to prescribe it as well. Gynecologists and other specialities that can prescribe, but that are not so familiar with this class of drugs. There are other medications in our basket, and we're the company that has the most products, as I mentioned in one of the previous questions, for nausea, we have Dramin and Ondif. If you put them together, our revenue is around BRL 300 million for this category. Vitamin D, this is one of the most prescribed medications with GLP-1s, and we are leaders in this category with the Hypera brand. We have Tamarine, which is for constipation. This is also very relevant. So when you add all of it together, it should be about BRL 1 billion in our product basket that can be recommended with Semavy. And with that, we can dilute the cost of our medical visits team. We also have the skin care line. And other representatives will also carry skin care products for rejuvenation, for skin firmness, which is one of the side effects of losing weight quickly. So we are the best positioned company to benefit from this entire basket, not only the main product, but also products that are recommended in the same basket. Did that answer all of them, Bob?

Yes.