Hypera S.A. (HYPE3) Earnings Call Transcript

Good morning, ladies and gentlemen. Welcome to Hypera Pharma's Third Quarter of 2026 Results Conference Call. Today with us, we have Mr. Breno Oliveira, CEO; and Mr. Ramon Sanches, CFO and IRO. Today's live webcast may be accessed through the company's Investor Relations website at www.ri.hypera.com.br/en. We would like to inform you that this event is being recorded. [Operator Instructions] We would also like to inform you that statements during this conference may constitute forward-looking statements. Such statements are subject to known and unknown risks and uncertainties that could cause the company's actual results to differ materially from those set forth in the forward-looking statements. Now I'll turn the floor over to Mr. Breno Oliveira, who will begin the presentation. Mr. Breno, you may begin the conference.

Good morning, everyone. It's great to be here with you for an earnings call. Once again, we delivered sell-out growth along with market share gains in the categories where we operate. Our sell-out grew by 6.6%, while our target market grew by 5.4%. This quarter, our target market grew at a slower pace compared to the first half of this year, mainly due to a 15% decline in sales of flu medication, driven by a 23% decrease in reported flu cases in the third quarter of 2026. On the other hand, we performed well in skincare, gastroenterology, cardiology, and diabetes, driven by investments in strengthening our brands and recent product launches, notably Semavy, our semaglutide-based medication. We began selling Semavy in September. And it contributes to the expansion of our portfolio of products related to chronic disease treatments, which is in line with our medium- and long-term strategies. In its very first month of sales, Semavy achieved sell-out sales of approximately 93,000 units and a market share exceeding 11% in the injectable semaglutide market. We sold Semavy in more than 18,000 pharmacies in Brazil, which contributed to an 11.3% growth in the injectable semaglutide market from August to September in units. In October, growth remains very strong and exceeds our expectations. It already positions Semavy as the company's top-selling product in sell-out. And we're still only in the product's second month of sales. The initial launch of Semavy along with our customers and the recent growth in sell-out have enabled us to achieve a net revenue of BRL 2.4 billion, 9.4% higher than the third quarter of last year, with an EBITDA of BRL 782 million, almost entirely converted into operating cash flow, contributing to a reduction in the company's net debt of approximately BRL 300 million during the quarter. Ramon will now comment in further detail about the quarter's results, starting with the next slide.

Thank you, Breno. Good morning, everyone. Our revenue reached BRL 2.4 billion with a 9.4% growth this quarter. This growth came from the increase in sell-out and the start of Semavy sales to our customers. Gross profits grew 9.7%, reaching BRL 1.5 billion with a gross margin of 61.3%, flat compared to the previous year. Marketing expenses grew 13.1% in the third quarter of 2026 and totaled BRL 415 million. This growth exceeded the increase in sell-out for two reasons: increased media investments to support recent product launches, and the expansion of medical sales teams. Sales expenses totaled BRL 272 million, a level close to that of the second quarter of the year and represented 11% of our net revenue. Compared to the third quarter of 2025, this growth stems mainly from the lower benefit under the Lei do Bem law. BRL 17 million was reported this quarter compared to BRL 38 million in the previous year. Excluding this effect, sales expenses would have increased by 5.5%. General and administrative expenses accounted for 3.8% of net revenue, remaining at the same level as in the third quarter of 2025. As a result, EBITDA from continuing operations was BRL 782 million with a margin of 32%. Net income grew by 16%, driven by a 42% decrease in interest expenses. This reflects a reduction in net debt and lower interest rates compared to the previous year. Moving on to Slide 5. We had one more quarter of strong conversion of EBITDA into operating cash flow, which stood at 97.5%. This reflects the continued discipline we have had in working capital management. We once again reduced investments in working capital. We ended the quarter with 186 days of inventory compared to 194 in the second quarter of the year. As a result, working capital fell to 27% of our annualized net revenue for the quarter compared to 28% in Q2 '26 and 30% in Q3 '25. We invested BRL 139 million in fixed assets, including the expansion of our production capacity, notably the in-house production of brands acquired in the recent years and the new factory for the institutional market. Investments in intangible assets totaled BRL 70 million, focused on R&D projects aimed at strengthening the innovation pipeline. Our cash flow was positive by BRL 57 million, reflecting the inflow of BRL 1.35 billion from our 22nd debenture issuance conducted this quarter at CDI plus 0.72% as well as the partial redemptions of the 16th and 17th issues, which had a cost of approximately CDI plus 1.3%, totaling BRL 1.2 billion. With this issuance, the weighted average cost of our debt decreased to the equivalent of CDI minus 0.5% for the quarter. As a result, our cash flow for the quarter was BRL 470 million and contributed to reducing net debt to BRL 5.6 billion, which is equivalent to 2x the EBITDA for the last 12 months. Now I'll hand the floor back to Breno, for his closing remarks.

Thank you, Ramon. We continue to grow our sales with robust operating cash flow and a reduction in our net debt. In addition, we've made progress in expanding our market reach through the launch of new products in relevant markets. We currently operate in 61% of the Brazilian pharmaceutical market, a 3 percentage point increase compared to last quarter. We have room to further increase our share of the pharmaceutical market with new product launches planned for the coming years, particularly in the area of chronic care medications. The combination of these launches with the strength and resilience of our brand portfolio, the line extensions of our leading brands and our strong cash generation puts us in a prime position to capture the key growth opportunities in the Brazilian pharmaceutical market. Thank you. And we will now move on to the question-and-answer session.

[Operator Instructions] First question comes from Mr. Vinicius from UBS.

I'd just like to ask about your sell-out dynamics for the future. I'm looking at the retail channel. And what do you expect from the flu medication category? I know that the comparative basis last year was very high. So is this a one-off effect for this quarter. I'd just like to understand what your expected sell-out will be and specifically on flu medication. What here is recurring and what is not recurring? Also, if you can tell us about the competitive dynamics in your main markets. Additionally, if you can tell us a little bit more about your costs. I understand that we are expecting more inflationary pressures with reduced working hours in Brazil. How will that affect your manufacturing plant? Also the pressure concerning diesel prices and an exposure to the interest rates in the future?

This is Breno. I'll take your first set of questions about the market and Ramon will answer the second part concerning the costs. So speaking about our sell-out dynamics for the future, starting with flu medication. We understand that this is partially an effect of El Nino. We saw that average temperatures in Brazil were slightly higher than last year. And we also saw a reduction in acute respiratory syndrome cases, as reported by the government. It was below what we saw in the same quarter last year, about 20% below what we saw in the third quarter of 2025. So there is that. There is El Nino, which should continue until the end of the first quarter or the beginning of the second quarter of 2027. So we believe that now in the fourth quarter, this will not have such an effect on our portfolio. There will be some impact, but it will not be as relevant as we saw in the third quarter. We have to understand how far this is going to last, if this is going to impact the second quarter of 2027. But we expect this to recover in the third quarter of '27 because the comparison will be weaker. And next year, during this time, we won't see that effect from El Nino. So I think that's the main impact. So as I said, we will probably see a negative impact from the flu category until the first quarter, but it won't be as significant because it usually doesn't affect us as much during the fourth and first quarters. On the other hand, we have Semavy, which is a launch that is doing better than we expected. And we're also going into this new market. As I mentioned in my speech, in October, it was already our highest sell-out product in Hypera. So if we add up both effects, it will be positive for Hypera in the future. So looking at October as an example, the month isn't over yet, but we are expecting a growth of low teens when it comes to sell-out. And this takes into account all the different impacts that we've discussed. When it comes to the competitive dynamic, we're also not seeing major changes in the market. We see that the entire market is slowing down, especially due to patented products, especially tirzepatide, which grew significantly in the previous years, especially last year. So we don't really see any major shifts in our competitive dynamics when we look at the last few months. I'll let Ramon answer your second set of questions on costs.

When it comes to costs, speaking broadly, you know that there are many factors that affect us, foreign exchange, discounts and so on. But to discuss the points that you raised specifically, we see a reduction in inventories in our channels. So this will probably continue in the future. This includes clients with internal inventories, so they have had higher sales and higher CPV. From foreign exchange, we don't expect much of an impact. The foreign exchange level that we're seeing in the market right now has not been very different from what we saw in the past. Since we had a higher -- a bigger inventory, we weren't benefiting from the lower exchange rate that we saw in the market. I think we mentioned that to you in the past. So our idleness level is very low and specifically on this change in working hours in Brazil. As we mentioned, we are starting to adapt to this new regulation, but it won't affect much of our CPV, only the manufacturing labor costs, which is not a high percentage of the company's cost. So it will not impact us much. This growth in margins that we've been presenting is what we expect for the next quarters.

The next question will be asked by Mr. Joseph Giordano from JPMorgan.

I would like to speak a little bit about working capital. This is a very relevant topic, especially at the end of this quarter with the launch of Semavy. So I'd just like to understand the effects of creating an inventory along your channel in the company. And I'd like to understand how your working capital in this import operation will affect the company considering that this product is now the most important one for the company. Secondly, when it comes to GLP-1s, I'd just like to ask if you've seen price stability in the entire industry with similar products and similar brands. And what you expect when it comes to price for the next 6 to 9 months? And what profitability levels you expect for yourself and for other companies?

I'll answer your question about working capital and Breno will answer your second question. This quarter, we started seeing some working capital effects that we have to mention. Accounts receivable was a bit longer in days, which is quite natural because of Semavy sales in September, not just Semavy, but other launches as well. But of course, Semavy is the most representative one. When the last month concentrates the sales for the quarter, you have a bigger balance of accounts receivable proportionately to the quarter's revenue. So this doesn't mean that we had any changes to our policy. We didn't extend any terms and our inventory levels are the same. This is simply an effect of how sales were more concentrated in September, which was when the product was launched. We see a very positive effect when it comes to inventory levels. Obviously, this product has a higher turnover than the company's average. As we mentioned in the past, we had the first acquisition and first -- and it was initially placed in the market across all of our customers. So we didn't have much left over with us. It was only enough to supply our customers for the following weeks. And we saw that this number of days has reduced. This is a mathematical effect. Again, it's not any change in policy. And this product will probably have lower days in inventory because the turnover is higher. These are the two main effects. But again, it doesn't refer to any policy changes. We expect to see the same level of inventories, days in inventory with Semavy. And it's going to contribute positively to our results in the next quarters. Breno will answer your second question.

To answer your second question on prices for the GLP-1 category. Specifically on semaglutide, which is the most relevant part for us since that's the market we're in. There has already been a significant price reduction with the first brands of generics and similar being sold, including Semavy. So we saw a 60% reduction versus the reference medication price. But the market grew significantly in units before our competitor started, which was in June. And when we started, the market has basically doubled in the number of units. It was actually -- it has actually more than doubled and that was by September. We see that in October, there was a further increase in the size of the market. There are some other competitors, which will probably go into this market in the next few months. The information that we have from the market is that we will not see a price reduction with the newcomers. But that's something to pay attention to. On the short-term, we don't expect any additional price reductions, but we are monitoring this. And we do have some space to reduce our prices as well if we need to. We will remain competitive in this market. But for now, on the short-term, we don't expect any price decreases in this category. And we still don't know what the limit is for it. We still haven't reached the full market potential and number of units sold. It's a gradual process. When we started, we started with medical visits. It takes some time for patients to have their consultations with their physicians. So it's a slow process that will increase the number of prescriptions. And we believe that we still have space for us to grow in market share and also for the market to continue growing.

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

I'd like to talk a bit about the next investment plan that the company has. I think it was very clear. And I'm sure that this is a question that you get a lot from the buy side. But in this new stage, except for the second half of the year where you still are spending some of your CapEx. After that, we are expecting a higher CapEx level in your cash flow and increased payouts to shareholders. We saw some positive signs with buybacks. So in this plan, will you -- would you consider testing a new plant, for example, in the Manaus Free Trade Zone maybe to fit into a fiscal incentive policy after the tax reform? Would that be a part of your investment plan? Also, I'd like to ask a follow-up question about Semavy as well. It's natural to consider that the contribution margins will be very low or 0 in your first months of operations. But I'd like to understand what your expected curve is for this investment phase in marketing and medical visits. When do you believe we will flip the switch? And when will we see expense -- excuse me, sales expenses lower or being diluted considering that we're expecting accelerated growth for Semavy?

When it comes to our investment plan, as we mentioned in the past, we are concluding this investment cycle in important significant projects this year and early next year. We had a significant investment in the plant that will manufacture oncological products for the institutional market. We had an R&D infrastructure. We are internalizing the manufacture of the products that we acquired from Takeda. So next year, we'll take over 100% of this production. And naturally, at the end of these investments, we are not expecting projects of the same nature or size, but this will reduce starting in 2027, as you mentioned. When it comes to capital allocation, Breno is going to tell you about that. The share buyback program that we've been having is not a very relevant value. Looking at the share programs that we have for the next 3 years, we do have that option as we deleverage the company. So we do have the option to do a share buyback program. But increasing payouts and other ways of investing more in the company or distributing capital to our shareholders will be a discussion we will have in the future. For the short-term, since interest rates are expected to remain a bit higher, our focus is still on deleveraging the company and trying to be at 1.5x net debt-to-EBITDA. And from then on, we will consider payouts to shareholders and investing in our business. Considering our Semavy margin, Vinicius, naturally, since we're at the beginning, we will require a higher marketing investment for visibility and media, and that's going to reduce these contribution margins. Often, it is negative at first, which is not the case for Semavy. But over time, these launches will converge to a margin that is closer to the company's average EBITDA margin. But this will depend on how fast it grows. With Semavy, as Breno mentioned, we've been very successful. But this will depend on how the market will continue to evolve and how we're going to grow in this market. The earlier we do that, the higher the market share, the faster we can dilute these expenses and get closer to the expected EBITDA margin. But it's hard to say. We have to see how the market will perform and how we will perform within the market. Regardless, it's a very positive contribution from the product regardless of the EBITDA margin being diluted on the short-term. It's a very positive contribution, especially because we don't have any CapEx involved. So the results are being converted significantly into cash.

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

So how many physicians are prescribing Semavy now? And what is your goal? And how fast is that growing? And what's the importance of the Phase III study results when it comes to storage conditions for these medications for Semavy.

Bob, starting with the Phase III studies and storage conditions. I do think that that's a competitive advantage that we have with other market players, which are at the same price range. It has a positive impact for patients and for physicians as well who are prescribing it. When it comes to travel and so on, it has an advantage in comparison to our competitors. And market studies are also making this obvious to the physicians prescribing. This is a competitive advantage for our products. There were some doubts on the market about biologicals, synthetics, but over time, this concern will be lower. Right now, synthetic sales are higher in units than the biological sales. Tirzepatide is a synthetic medication. So if you add tirzepatide to that account, most of what is being sold are synthetic products or synthetic origin products. But on the short-term, this study has helped us to provide more information for physicians when it comes to the safety and efficacy of our medication. With physicians, we've spoken -- excuse me, we've reached 30,000 physicians prescribing our products. Most of them work in endocrinology or cardiology. So these are the same physicians that were used to prescribing semaglutide before. The opportunity that we have is to bring in more physicians. We have a very strong medical sales team, which reaches several other specialties, general practitioners, gynecologists, psychiatrists. We have a significant representation in these categories and that has the potential to generate more revenue. Although it's a very widely used medication, some physicians still don't feel comfortable prescribing it due to the adverse effects and so on. So this is a part of our effort. We're trying to show the benefits of it. And we see the potential of having more physicians, especially from other specialties prescribing it. So far, they haven't been used to doing it.

And Breno, what about -- how is the rest of the system around Semavy behaving?

Do you mean medication for the adverse effect? That has been going well. That was also a competitive advantage that the company had. We have the highest number of products in our portfolio for constipation. We're market leaders with Tamarine and Naturetti, for nausea with Dramamine, and so on. So I think we can offer a broad portfolio. If you look at Tamarine, for example, it's been growing about 15% a year. And of course, this is not only due to our prescriptions in combination with Semavy. But it's also been treating the adverse effects of patients who are using other brands, GLP-1s as well. But that has been following our estimates.

The next question will be asked by Mr. Samuel Alves from BTG Pactual.

We have two questions from our side. First, I'd like to ask about the institutional market. I'd just like to get an update from you about this topic, how it's been evolving on the private and public sides. And if you could tell us about your long-term goals, you were expecting double digits by 2028. Is that still feasible? That's my first question. The second question is, you mentioned that reduction in working hours in Brazil. I know that's not going to affect you significantly. But can you tell us what percentage of your employees work more than 40 hours a week? I don't know if you have those figures.