DiaSorin S.p.A.

Good afternoon. This is the Coruscant Conference Operator. Welcome and thank you for joining the Diasorin First Half 2022 Results Conference Call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Carlo Rosa, CEO of Diasorin. Please go ahead, sir.

Thank you, operator. Ladies and gentlemen, good morning and welcome to the H1 conference call. I'm going to make the initial remarks on the top line by geography and by technology, and then I'm going to make a few comments on some of the major events that happened in the quarter, and then I'm going to leave to our CFO the commentary on the numbers. So starting from the technology, I will discuss immuno, I will discuss molecular, I will talk about licensed technology, and last but not least, I will talk about COVID. When it comes to immuno, which I remind everybody, it includes our CLIA reagents as well as our residual ELISA business. The franchise in H1 did plus 5%, which is in line with our expectations. If we look at CLIA, so we exclude the ELISA franchise that, as you know, is a cash count for us and is declining significantly, CLIA alone grew 7%. If now I exclude from CLIA the vitamin D franchise, which also, you know, it's a very profitable franchise, but not growing any longer, if not slightly declining. Now, if I look at CLIA standalone, the growth is XD, growing double digit. And this is fundamentally telling you that when it comes to the immuno-SA group, franchise for DioSorin, it continues to perform strongly following the usual strategy that we discussed many times, which is the positioning of DioSorin as a specialist and on the specialty products that we have been launching in the last few years, and we continue to launch moving forward. Now, if you look at the performance by geography, what is remarkable is is that North America today, which, as you know, represents 50% of our overall revenues, is by far the number one market for the group. In North America, the growth of CLIA is around 30% if we exclude the vitamin D. That is remarkable. and it is driven by the hospital strategy. I remind everybody that starting from 2019, the company put together a strategy, a combination of diversification of revenues from the original footprint we had, which was centered around the commercial labs and trying to penetrate the hospital market. COVID hit. And during COVID time, on one side, we got some help at the beginning because there was a lot of interest in serology by the hospital market at the beginning in 2021. Then COVID became more of a problem because of the availability of hospitals to accept new technologies in the USA because they were very busy with COVID. But all said and done, notwithstanding all of this, we are on the verge of delivering our 3S plan, which was calling for the creation of 150 new hospitals in the U.S., which was achieved. And this was achieved mainly driven by a combination of menu. Certainly, our gas and terology panel and the quantifier have been driving this strategy. In this achievement, we still don't see fully the contribution of the Luminex acquisition, and this is because we spent... time at the end of the second half of 2021 and beginning of 2022 in rationalizing our commercial sales force. As we discussed in the past, the Luminex business, which is a molecular business, was primarily centered in the hospital market. And we expect moving forward that our penetration in that market will accelerate thanks to the fact that we're going to be able to cross-sell across the different customer groups in the hospital market. And so at the end of the story, what is very important for us is that in our number one market, which pays, as I've commented many times, for innovation, it is recognizing the specialists that we are. We continue growth, and I believe that we have a long, long runway in front of the company. So North America, all good and exceeding expectations. When it comes to Europe, Europe, as you know, for us, does represent 30% of revenues. If we look at Korea, we have more than 2,000 systems already installed. We have a good penetration in the markets. So Europe for us is more steady single-digit growth, which we continue to see. In the first half, we are actually high single-digit growth for CLIA, again driven by fundamentally the same strategy, menu-driven. We initiated also the launch of the XS. Even if I remind everybody that the XS system was designed primarily for the Chinese in the U.S. market, notwithstanding. So we have now over 100 excess placed, and now we start to see traction in the U.S. market, where we got approval on the excess of the – sorry, getting approval very shortly of QuantiFeron, also on the excess, and also we expect MIMED to be validated by the fall on the – on the same platform. When it comes to Europe, again, solid growth. Europe for us is a geography very well penetrated that continues to contribute to the growth of the company. Let's move now to Asia. When it comes to Asia, we continue to see problems in China or China lagging behind. The major problem with China is to do with the fact that we have an installed base of over 800 systems in China, which are primarily placed in large urban centers. And every time – so Shanghai is a good example. We have a good chunk of business in Shanghai – And every time there's a lockdown, and the lockdown typically, it happens in the urban centers, we really suffer from the lockdown. And this is what we continue to experience. So China continues to, revenues of clean air continue to decline. The primary driver, again, is volume related. So as soon as China is stabilizing when it comes to the COVID policy and lockdowns, We believe that the business will stabilize, but still in quarter two, unfortunately, China is declining. I remind everybody, though, that today China overall represents around 3% of total revenues. So this effect has been completely de-risked from a group perspective. Now let's move to molecular. When we look at the molecular franchise, let's first discuss molecular ex-COVID, otherwise it gets very confusing. And let's start from the Virgin One business, which is the multiplexing business. It is a very resilient business, and we have experienced double-digit growth. which is driven by the fact that there is a stable business when it comes to the blood culture, and there has been a positive effect, clearly, on respiratory because of the COVID situation. So, overall, we have around 700 VIRGIN users. Certainly, some of the accounts are migrating, but by the same token, this is overly compensated by the fact that we continue to see a positive effect on volume. So the franchise itself is growing nicely. When we look at what we call molecular reagents singleplex, which primarily has to do with technology, all the diasorin MDX technology, the growth is substantial. On the reagent side, we are up almost 25%. And this is a combination of two things. First, recovery of testing volume, which certainly during COVID we were affected because we are selling here high profitable but highly specialized products. So now we are back fundamentally to all the elective surgeries and everything else that is using our products on one side. But by the same token, we see that there is a continuous, there's an acceleration, in my opinion, in the adoption of molecular technologies. I think I did comment previously, the fact that one of the benefits of COVID is that there has been a dissemination of molecular platforms, even in smaller institutions that are, We're not using molecular before. And today, this is the incremental volume that we see on our install base. So there is a very nice growth of that business, which is also a very profitable business. Where we are suffering in molecular, which is, I think, what is happening to everybody in the industry, is on the instrument revenue. This is due to the fact that during the COVID time, customers, because of the emergency funding, were buying instruments, and so we had high revenues in 2020 and 2021. On the instrument side, we typically did not carry high margins, but they were posted as revenues. When it comes now to post-COVID in 2022, we go back to reagent rental. And so on one side, we see placement of systems, but we don't get the revenues because we go back to the reagent rental model. So overall, the molecular franchise as COVID is growing very nicely for DSRN. Now, let's look at the third leg, which is the license technology. I remind everybody that this is a combination of two different product lines, and we have flow cytometry, which represents around 20%, 25% of the total business. And then we have the licensed technology business, which has to do with the partnership that Luminex and now Diasorin has with all the primary players in the biopharmaceutical and bioanalytical business. The business overall, I remind you, that is on an annual basis for 2022, around $210 million, and we are training to hit that target because our partners are really growing nicely, I believe, driven by the fact that there is a flow of funding in the biotechnology, biopharmaceutical that is providing It is increasing volume consumption of these reagents. And this is notwithstanding the fact that in this business where 25% of the business has to do with instrument sales to the partners, we are certainly experiencing some issue in terms of shortage of parts. Notwithstanding the fact that there is a shortage, And so we are limited in our ability to supply certain instruments. Because of the mix and the ability to carefully plan the shipment of the different systems, we are able to make that anyway the top line, which is a strong effort in today's reality of the supply chain and especially of electronic components that, as you know, is pretty much a plague for the business. I see now we have one year of Luminex under our belt and we've been re-establishing some of the strategic relationship with the partners. I honestly am very optimistic about the opportunity to expand the business in the future with the partners through collaboration in developing content and or platforms. Now that we understand the business better than clearly before, I believe that it is a very important leg for diasporing. It's extremely profitable, and I think it's very well positioned strategically. Now let's talk about COVID. You have seen that we have decided to increase our guidance to 200 million euros of COVID revenues annually. for 2022. I believe that what is not, although I think that every player in the industry is recognizing the fact that there is still uncertainty about COVID, but there is more certainty to the use of COVID and the use of molecular technology versus the antigen testing. And it is very clear today that molecular testing, which is considered more expensive, it is utilized for certain applications. For example, hospital admission typically is done on a molecular test follow-up. A patient is done on a molecular test and so forth. However, I think what we have noticed is that there is a very resilient business, especially for the business that we have today with our platform, and I think it has been highlighted also by other companies that play in that segment of the small equipment. This equipment and this testing in small, mid-sized hospitals, which is where today our install base is, is resilient. And we continue to see on a monthly basis now we are experiencing a volume that stays constant. What is very important to understand is that COVID today, which used to be a seasonal disease, you've seen by the current trends, is becoming non-seasonal. So it's a respiratory disease, not seasonal. And I honestly believe that there is an opportunity for future growth of this business that is not indicated in our guidelines. which has to do with differential diagnosis. And if we look at what is happening today in Australia, where we have the current respiratory influenza season, we see two things. We see a very strong influenza season, indicating that also in the Western Hemisphere we are going to have the same effect coming the fall. But most important what we see is the co-infection, which is now expected. It's called fluorona and fundamentally indicates the fact that when patients are going to show up in the winter with respiratory infection symptoms, not only is it important to differentiate diagnosis, but also it's important to understand if there is a co-infection because it does guide the treatment differently. So it's going to be very interesting to understand what kind of protocols hospitals will adopt for differential diagnosis. As said, our projection today is not really indicating or is not including this potential, and I believe we're going to be able to quantify this potential better at the end of quarter three. So when it comes to COVID, in summary, resilient business, we have 1,500 systems today that continue to run COVID. We lost some business, but relatively small, in very large accounts where initially they were using the box because they needed multiple suppliers because of volume. But now with more of a high-throughput system, clearly we lost that business, which is did correspond to 15%, 20% of our customer base, but now the remaining customer base is, again, extremely resilient, okay? And my view is that at least for 2023, we are going to have COVID testing and the use of COVID, which is different from what I think the whole industry has projected. Just one year ago, we were looking at how long COVID is going to stay with us. Now, let me move away from revenues, and let me comment more on some of the facts that happened in the quarter. First, and I believe it's very important for us, is that we got finally approval in the U.S. of the NEMED test. It is very relevant because as discussed many times, MIMED is a test that is clearly performed in the hospital segment. The hospital strategy is the key strategy for the U.S., so this essay in the U.S. is key to the future strategy. NEMED is working in the U.S. in the promotion with the medical doctors and is also working on obtaining the reimbursement. And so this approval, which came unexpectedly in a sense because we already didn't know how long the FDA would take, but it took a relatively short time, six months, now is putting us in a very good position to gain approval from incremental revenues from the product. The second comment I would like to make is to do with integration and Luminex. The integration is proceeding as expected, and synergies are in line with the goal that we have outlined during our investor meeting, the five-year plan meeting, which I remind everybody was to achieve $55 million in savings by end of 2023. So running right in 2024, we are in line with the goal. And so I feel very comfortable about the savings that we promised as a result of this acquisition. And let me also remind you that savings does not necessarily represent, does not necessarily mean cost savings. but it means also a better way to do business because one of the problems that we found in Luminex sometimes is that it was very convoluted in a way it was managing the business. So streamlining some of the processes really improved the productivity and therefore allowing us to serve a growing business with a lower cost base. The Third element that I would like to discuss has to do with the fact that inflation, and I know that our CFO, Pier Giorgio, is going to get more into the numbers, but let me just give you a couple of remarks. Inflation so far for diasporan has been manageable. I would say we have calculated that on an annual basis it will represent an increase of the cost base of roughly 15 million euros, which certainly is an increase compared to previous years, but if you look at the cost base of diastole is less than certainly other industries or other competitors. Primary driver for the inflation, for the soaring, is the logistic cost, which does represent almost a third of this one. And then the second element, which is important for us, is with the cost of labor inflation, especially in the U.S. market, where we know there has been shortage of people and it clearly demands higher salaries. Okay? So overall, yes, there is an inflationary effect on our numbers. We already have almost half of the $15 million in our H1, but it's certainly manageable and for the time being is not an area of concern. Last but not least, we finally have management in place in Luminex. Our president joined the company. Now it's been three months with the company. Angelo is with us financially. And he's taking the helm of the company. And I'm very happy about this because I believe that Luminex has a ton of opportunities in the future in terms of technology it carries, in terms of products, in terms of opportunity to improve profitability. And the key was to have senior leadership in place. Now we have it. And welcome, Angelo. And... I'm very comfortable with the fact that we're going to be delivering growth of this business in the next few years. Now, I'm going to leave the rest of the financial comments to Giorgio and then start our Q&A session.

Thank you, Carlo. Good morning and good afternoon, everybody. In the next few minutes, I'm going to walk you through the financial performance of DSR during the first half of 2022. and I will make some remarks on the contribution of the second quarter. Let me please remind you that consistently with what we did over the last course, in order to better understand the performance of the business, I will refer to adjusted P&L items. Therefore, sterilizing the impact of the following luminex still, so to say, related elements. You want to offer acquisition and integration costs, the purchase price allocation, the cost of financing, and lastly, the tax impact of all of these components. The press release is available on our website. We are providing a line-by-line bridge between adjusted and IFRS items. So that, as usual, I would like to start with what I believe are the main highlights of the period. H-122 total revenues at constant exchange rate grew by 25% or €129 million vis-à-vis 2021. The immunodagnostic franchise ex-COVID grew by 5%, driven by a low-dense increase in clear ex-vitamin D, partially offset by the expected slightly negative performance of vitamin D and ELISA. The molecular business ex-COVID growth is mainly driven by the different perimeter of consolidation and by the very good performance of DSR in molecular reagents. The licensed technology franchise variants year over year is all due to Luminex's contribution. Moving to the second quarter, the total revenue growth at constant exchange rate is 22%, and the business drivers behind these variants are very much the same discussed for H1N1. To be noted that Q2-22 growth ex-COVID is broadly in line with the result achieved in Q1-22. Now moving to COVID, sales did better than expected and recorded a decrease in the first half of the year of 21%, and in the second quarter of 35%, both variances at constant exchange rates. This is a result of a material decline of immuno-COVID sales, though in line with our expectations, and a better performance or a lower decline, if you wish, than anticipated of the molecular business, for all the reasons that Carlo just talked about. H1-adjusted EBITDA at €169 million records an increase of €25 million, 10% compared to 2021. with a margin of 39% on revenues compared to 47% of 2021. The expected decrease in marginality is the result of the combination of a diluted gross profit, mainly driven by a different product mix, and a lower operating leverage, mainly driven by Luminex contribution and lower COVID sales. Both these elements are in line with the assumptions we made at the time of Luminex acquisition and are embedded in the outlook shared during the recent capital market day and the updated guidance we have released today. We keep confirming our ability to generate a very healthy free cash flow, almost 140 million euros, Year-to-date, with an increase compared to 2021 of €13 million of 10%. As you might remember, when we released Q1 2022 results back in May, we announced that the Australian Board of Directors resolved to launch a share-by-back program for a total maximum of 1.5 million Treasury shares to support the potential settlement of the outstanding convertible bond and the management equity plan. Within that program, as of the end of June, the assuring bought back about 530,000 shares for an equivalent amount of 62 million euros. On a different note, and before moving to the main items of the P&L, I would like to provide some comments on the impact of the inflationary pressure on the assuring total cost base. If you remember during Q1-22 call with the market, we said this impact would be around 7-8 million euros on top of what already embedded in our 2022 budget projection. Now, everybody understands that this is a moving target and there is a certain degree of approximation. Nevertheless, we reviewed our assessment and, as just confirmed by Carlo, We confirm our estimated about 15 million euro impact in 2022 full year compared to 2021, of which 7, 8 million on top of our budget projection, as we said in Q1 2022. Therefore, 2022 inflation-driven increase compared to last year is less than 2% of the total cost base, or about 1% of the top line. This increase is mainly driven by energy costs, transportation, distribution, utilities, labor, mostly in the U.S., and some components of our reagents and instruments sourced from third parties. We have put in place several initiatives to contain this inflationary pressure, and therefore the overall impact on our margin will be muted, as confirmed by our review guidance. Now, moving to the P&L. H-122 total revenues at €685 million grew by 33% or €170 million compared to last year. Luminex products revenues in the period amounted to €185 million, in line with our initial assumptions. COVID revenues amount to €150 million vis-à-vis €177 million of 2021, therefore recording a decrease of €28 million, or 16%. In the first six months of the year, we have seen some €41 million FX tailwind, mainly driven by the USD appreciation. Considering H2 2021 USD-EUR exchange rate and the current FX trend, I think it is fair to expect that a similar positive tailwind will continue for the remainder of the year. H1 22 adjusted gross profit at €451 million grew by 27% compared to last year. closing the first six months with a ratio of revenues of 66% compared to 69% the same period of 2021 and in line with Q1-22. The contribution of Luminex and the reduction in COVID sales are the main drivers of these variants, which is in line once again with our expectations and modeling, and these are reflected in 2022 outlook. Adjusted operating expenses at €126 million grew by 66% compared to the same period of 2021, with a ratio of revenues of 33% vis-à-vis 26% of H121. This increase, once again in line with our expectations, is mainly driven by the different perimeter of consolidation and the higher COVID sales booked in 2021. that generated, back then, a very material operating leverage. Let me remind you that before Luminex acquisition and COVID, the Australian PORPX ratio was running at around 37-38%. We are expecting synergies to reach the level discussed yesterday as the integration process will move forward. H-122 adjusted other operating expenses are substantially in line with 2021. As a result of all of these elements, H-122 adjusted EBIT at €221 million, or 32% of revenues, has increased compared to last year by 3%. H-122 adjusted interest income expenses at €4 million are higher than last year by 60%, mainly because of commissions paid on the share buyback program and Luminex IFRS 16 impact. whereas the adjusted tax rate at 23% is in line with 2021. Adjusted net result at €169 million or 25% of revenues is higher than previous year by €6 million or 4%, whereas Q2 is below last year by €3 million or 4%. Lastly, H222 adjusted EBITDA at €169 million or 39% of revenues is is higher than last year by 10% or €25 million. The variance at constant exchange rate is positive by 4% with a ratio of revenues of 39%. Q2 adjusted EBITDA at €120 million or 37% of revenues is better than the same period of last year by €5 million or 4%. Let me now move to the free cash flow and the net debt position. In the first six months of 2021, Adiasorin generated just short of €114 million of free cash flow, which means €13 million better than last year, or 10%. I believe it is worth to underline that Q2 has been negatively affected by the build-up of some safety stock and some anticipated payments to Italian vendors that that we did to manage the eyes down of the Italian operating activities to our wholly owned new direct subsidiaries of Yesor in SBA, as communicated with several press releases over the last few months. Both these elements are temporary and will be absorbed in the second part of the year. At the end of June 2022, the net debt of the Australian was negative for €1,003 million, vis-à-vis a negative €986 million at the end of 2021. The difference has been driven by a strong generation of operating cash, as we said, which has been more than offset by the following items. Share buyback for about €65 million. About 63 million euro of negative translation effects mainly due to the USD denominated term loan to finance Luminex acquisition and about 56 million euro of dividends to our shareholders. Lastly, let me move to 2022 full year guidance. As usual, at previous year constant exchange rate because of the higher COVID sales during the first six months of the year mainly driven by all those elements that we just talked about, the outlook for the year has been increased. Specifically, the updated guidance is calling for total revenues to growth by about 2%, with the next COVID business growth confirmed at about 24% and COVID sales at around €200 million, adjusted EBITDA margin at about 38%. Before concluding, Please, as always, remember that the soaring financials are highly exposed to U.S. dollar, and even more so now that sales denominated in USDA represent more than 50% of the total group ones. Therefore, as a rule of thumb, consider that for every one cent movement of the dollar against the euro, the soaring revenues move by about 6 million euro on a yearly basis. Now, let me please turn the line to the operator to open the Q&A session. Thank you.

This is the Coral School Conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. To remove yourself from the question queue, please press star and 2. Please pick up the receiver when asking questions. Anyone who has a question may press star and 1 at this time. The first question is from Emanuele Gallazzi of Equita. Please go ahead.

Yes, good afternoon, everybody. A couple of questions from my side. The first one is on MIMET test. You got the approval in the U.S. Can you give us more color on the next, let's say, commercial steps in the U.S. and your expectation in terms of contribution for the coming quarters? Sure. And still on MIMED, during the last conference call, you mentioned the positive feedback from your European clients, if you can just provide an update on this. And the second one is a clarification on the guidance, and in particular on the profitability side. In the press release, you stated that the profitability has been increased mainly thanks to the COVID-19 business. So I just would like to understand which are the other drivers, if any. Thank you.

Luigi, why don't you take the second one and then I'll comment on it.

Yeah, sure. Ciao, Emanuele. Obviously, the most important driver of increasing profitability, like it was in Q1, is increasing the top line. Then there are additional moving parts, like always, which consist in all those initiatives that we have put in place to offset the inflationary pressure we discussed about. but I would say that most of the increase in profitability is related to the increased COVID revenues.

Hi. Okay, when it comes to MIMED, look, MIMED or the DBS is a new diagnostic algorithm, and therefore there is a component of the process in terms of generating revenues, which is the education. Two things. One is to do with the educational position because, you know, labs today, we have hundreds of hospitals that can do the testing today in the U.S., but they need to get the test to get ordered specifically by the emergency room because typically this test is done on patients and kids who show up in the emergency room with fever and the doctor there has to decide on antibiotic treatment. Therefore, there is a component here, and this is the responsibility of our partner, MIMED, which has raised $90 million to do so, to put together a self-force that goes and educates the physician, and this is in progress. I believe, by the way, that we have agreed upon with MIMED that we will contribute to the education process, and we decided to start a pilot program where we are hiring medical reps ourselves that will have the responsibility to go and hit on the customers that today have a liaison Excel in the U.S., and they have an emergency department, and they will explain to them the use of the test. When it comes to the specific use on the emergency room, this is actually covered on the DRG. So certainly the reimbursement does not play necessarily a role here, but what you need to send to the hospital is the health economics about the adoption of the test versus mistreatment and so forth. By the same token, MIMED is actively working to get a code for reimbursement, and I believe that by year end they've indicated that we are going to have the first code that will also allow specific reimbursement for this test. So it takes time because it's education, but by the same token the reward is very significant because pricing of the assay is more expensive in line with what a high-value molecular panel usually gets. Let me put it that way, rather than the traditional immunoassay. So there is an investment. By the same token, there is a high reward vis-à-vis what you get once the volume is generated. The second element, then you ask in Europe. In Europe, we have today the first two customers using the assay, and I've seen that they are in Italy. What is happening in Italy, we have a target of 100 hospitals that we have already contacted, and we are proceeding into local evaluation. Local evaluation means that hospitals notwithstanding the fact that there are over 20, I believe, publications by MIMED with thousands of patients reported Hospitals, they always want to generate their own data to do their internal validation, so there are validation efforts which are happening in Italy, and the ones that are concluded are really showing that the results that hospitals get are completely in line with what MIMET has been promoted and clearly what has been approved by the FDA. So I'm not expecting NEMED to be a driver in revenues in the second half of 2022, and I don't think that NEMED will be a significant contributor in 2023, simply because of the sheer size of the diasporan business. But to me, what is more relevant between 2022 and 2023 is getting feedback back from the prescribers, So the doctors, the algorithm makes sense because I know that when that happens, then you start to generate significant demand with a very high price, and then you're going to have a significant contribution to the diastole business. Keep in mind that there is another strategic factor here. We continue to expand our customer base in hospitals where today they are using all the specialty gastroenterologists as a quantifier on And so the more we add to that hospital base in terms of hospital products, the more we anchor the business. And this is the bread and butter of Bayer Soaring, and this is what is actually driving the profitability. So long story short, today I believe that we need to look at MIMED in the next 12 months, not necessarily as a contributor of revenues, but in terms of how much demand there we are able to generate an interest. We are generating a combination of our effort and women's effort in the medical community.

Thank you very much.

The next question is from Maya Pataki of Kepler-Chevreux. Please go ahead.

Yes, good afternoon. Thanks for taking my questions. Carla, I would like to get back to your statements about the respiratory season and you know, how COVID is now an endemic and how the differentiation diagnosis is probably going to get a foothold. And I'm trying to put that into context with your guidance, because if, you know, if we look at what you generated on COVID testing in H1 and what you're guiding for in H2, you're clearly expecting volumes to decline. Now, my first question is, Is it because you anticipate that the differential diagnosis will start to take, you know, momentum because we're seeing or we're entering the flu season, so we're probably going to have more than one respiratory pathogen floating around? Or is it that you anticipate pricing pressure? Because so far, to my understanding, you have not been facing any pricing pressure in your COVID molecular testing. And the second question is, you clearly said that things are changing and we're learning by the months. And we probably have to, going forward, try to understand the underlying respiratory pathogens, not just by COVID and then a single flu test, but from both perspectives. So do you think that On a long-term perspective, this offers upside to your medium-term guidance. Did I get that right or did I maybe just misunderstand you?

Thank you. Thank you, Maya. Listen, let me give you some eye-hand remarks. I believe that if you just look at the industry, what everybody is doing, and everybody is very cautious about COVID-19. because we've been burned by COVID a few times already, right? So I believe that you should be looking at our guidance as an indication still amidst some clouds and uncertainty that we have with COVID. And let me just qualify my statement. As we speak, I don't see – start with price pressure. As we speak – we don't see a material price pressure. But this is to do specifically with the positioning, as I discussed many times, of our systems, right? We have lost all the business that was sitting in the large hospitals because today and last week I was in the U.S. and I did visit a couple of accounts. I did visit hospitals. a small one, and then I went to a very large lab that is serving a hospital chain of 20 hospitals that are served by this core lab. And what you see is very interesting. So if you look at the 20 hospitals, the core lab, you find lines of high-throughput systems, and you find the Cobas, you find the Panthers, you find everything. And you also find sitting idle, though, some NDX. This is an account we had at the beginning when there was an emergency, and we have lost because of the excess capacity. And what is very interesting is that you see all these high-throughput systems sitting today working at 20% capacity. So the need to consolidate in the high-volume accounts into this ton of capacity they had has forced us out from those settings. No problem with that. But that did represent only around 20% of the customer base, fortunately, because very rapidly we moved away from the emergency situation where we were serving certainly our customer base and we had very large customers in the U.S. to a more tailor-made and strategic placement. And now we went into mid-small size hospital, which is the second hospital I visited, where we typically, another box, small box is sitting there, and we share the testing volume. That business is very resilient. And that business today is to do fundamentally with guidelines. Guidelines means any COVID patient is followed up and released, which is hospitalized, is followed up and released using molecular drugs. The medical, the healthcare personnel is tested on molecular and not necessarily with antigen because of the issue with known issue of sensitivity. And then you have the admittance. Admittance today is a combination of, if you go to the emergency room, typically it's antigen test because a ton of people that get into the hospital, but then, you know, they are 90% are released. but then admittance to the world, then that is done with molecular. So there is that resilience of COVID today that we still see. And because of the placement of the stall base we have, it sticks, okay? How long will it stick? I think it will stick longer than expected because of the prevalence of COVID and the fact that it's non-seasonal. We are also learning, all of us, that we are in the middle of August or the beginning of August, and we have a peak in COVID cases because this has nothing to do with respiratory disease or respiratory season, okay? And this is what we are projecting with cautious, okay? Then you have another opportunity that clearly is not in our projections yet, and that has to do with differential diagnosis because we're all learning, and we're all learning from what's happening now in Australia, as I did comment. And typically, differential diagnosis in our industry was intended, okay, I need to rule out one or the other, right? I want to really understand if you have COVID or you have flu. Now, when there was a high prevalence of COVID and low prevalence of flu, customers fundamentally were doing COVID first because they had a very good chance to have a COVID positive, so they were seeing no need to test for flu. Now what we are seeing is different because we are seeing now the high prevalence of flu as well. Okay? So I believe that when it comes to diagnostic value, there is going to be more use of differential diagnosis, but intended in two ways. Diagnosis COVID versus flu, same symptoms, but also what you're learning from Australia is the flu or the co-infection, which now is, more and more prevalent because of the prevalence of the COVID infection. So in all honesty, the differential diagnosis opportunity is not embedded in our numbers, as I honestly believe is not embedded in anybody's number because we are all learning. Okay. And I think we're going to be able to comment on this one in quarter three. I think the good news of the, sorry, which is, which was the big question to all of us, how, resilient was the install base, right, because clearly we almost doubled the install base in 18 months. And what I'm seeing is that that install base is resilient, and I see more adoption of other tests. And, in fact, you saw that our molecular, what I call the legacy DSR in MDX business, and I did comment on going 25%, That is the installed base, non-COVID, that is actually growing, which means that there is more adoption of products with other products. So the good news, eventually, is that we now have an installed base that is there to stay behind COVID, and we have a volume of COVID testing. which is there to stay. And you saw many comments related to the fact that there is an endemic situation with COVID. Last but not least, but I think it will come, so far no price pressure. Significant. I think eventually we're going to see it. So you're going to have, I believe, in the next quarters, combination of some price pressure, but I believe now the seasonality is of the differential diagnosis that will kick in. I hope, you know, long story, but I hope it's short for you.

Okay, great. And that's very helpful. And maybe just another question. You have mentioned that you were not able to fulfill the demand on the licensed technology side because there have been some supply constraints on some parts of the products, and basically indicating that the demand is significantly stronger. Can you tell us when you think that you will be able to deliver on any incoming order? So basically, when do you think the supply situation will ease so that you can fully deliver on what is really coming as an order?

Listen, Maya, the truth of the matter is that the supply issue is far from being resolved in our sector. And the fact that other industries like the car industry is actually invested billions in trying to support their supply chain is not necessarily helping us because it's focusing... You know, we are relatively small customers for the suppliers. So I don't see, to be honest with you, a solution that is going to come our way soon. Although... What I've indicated is that we've been able to juggle some of the parts because some of the parts are common components, and we've been able to shift, in some cases, our manufacturing from one line to another one, also utilizing the workforce that we have without increasing workforce. And that has allowed us so far in the mix of products to make the revenue line clearly guaranteeing more continuity and more paths to those products and those instruments that we just launched recently. I think IntelliFlex, for example, is a good example. And leaving behind some of the more legacy products where, unfortunately, we're not being able to meet the supply. But notwithstanding all this, notwithstanding the complexities, I said that we have a $210 million target for 2022, and I believe that, notwithstanding this, we're going to be able to make that number. In terms of when the supply chain is going to free up, I think we need to talk about it on a quarterly basis.

The next question is from Odysseas Maniesotis of Berenberg. Please go ahead.

Hi there. Thanks for taking my question. I follow up on you, actually. I was a bit afraid of the dynamics here. I mean, I understand this is the first of its kind, BFDA approved.

Excuse me. Excuse me. Yeah. It's very difficult to hear you. You're breaking up.

Okay. Can you hear me now?

No, it's not improving at all.

Okay. Let me start by saying the plan is probably not great. I'll be right next to you. Thanks.

Okay. I think operator, we need to go to the next question.

The next question is from Hugo Solvett of BNP Paribas. Please go ahead.

Hi, hello. Thanks for taking my questions. I have a few. On Zerogene, Carlo, you mentioned some questions Customers migrating, just to clarify, they're migrating to competitor's platform or you're moving them to the region too? Can you maybe clarify that? Second, you alluded to some flow of funds in the biotech and pharma industry, which seems a bit counterintuitive based on what we observe at the moment in the market. So just curious to hear your thoughts on more details on the type of clients, maturity of projects that you offer, your licensed technology business that may help you not to be impacted by that. And lastly, on profitability and just to follow up on the question that was asked earlier for the 2022 guidance, it's COVID-driven, as you mentioned, but in the press release, you also mentioned some less dilutive impact from Luminex, which seems to suggest that you're tracking ahead of your synergies target. Can you elaborate on that, please? Thank you.

Say hi, Hugo. I will take the profitability one. I believe comments that Carlo made on synergies, cost synergies, are pretty comprehensive. What makes us very comfortable is that, you know, we have projects with the name of responsible, timing, and those projects are leading us to a number which is in line with the number we gave to the market. during the capital market day back in December. And I believe we said $60 million, increasing by $5 million compared to the timing when we announced the Luminex acquisition, and $55 million by the end of 2023. All of those, again, initiatives, we see them happening. The timing is in line with our expectations here. And all of that is embedded in our guidance. It was already in the beginning, but as you might understand, when we started those 55 or 60 million, depending on where you want to put yourself on the timeline, you know, where, you know, more rough in terms of estimates. Now we have projects, specific timelines, a name, people accountable to deliver the numbers. So we feel very comfortable with those numbers. And those projections are embedded in the profitability. Then, you know, when I say mainly driven by COVID, like always, you have 20 different moving parts. So it's impossible to pinpoint to just one element, changes in profitability from one guidance to the other, because it would mean that all the other parts would not move at all. But what I say mainly is, you know, most of it, right? So that's, I believe, the one which you need to read mainly that you saw in the press release.

If I go back to the other two questions, I think it was, if I understood correctly, you are somewhat surprised on the fact that our licensed technology is doing well in the space of biotechnology, bioresearch, and academic.

Is that correct? Hugo, is that your concern?

So not really a concern, it's just that you mentioned a flow of fund helping the business, which seems a bit counterintuitive based on what we observed. So just wondering what end markets helps you probably resist better to weakening biotech environment we are seeing at the moment.

Look, keep in mind that we have a slew of partners, and so it's not only one company we are serving, but we are serving some of the top-notch companies in the industry with our instruments and components. So you're talking about the thermo, bio, I mean, you name it. All the major companies are carrying our technology. And what we are seeing is that there is a high demand of these platforms fundamentally in all the different sectors that these companies are serving. From a geographical point of view, keep in mind we don't have visibility on the end user placement because we serve the central warehouse and then they place it in the different geographies. But I think my educated guess is that today the U.S. is really driving most of these applications and placements. The other thing which is very interesting is that we are talking about – high-end piece of equipment and so the IntelliFlex which we just launched which is more expensive in terms of price positioning compared to some of the legacy systems that Luminex was supplying before That one is in high demand as well. And that one I know has to do a lot with U.S. academic and U.S. pharmaceuticals. So at the end of the story, our data do indicate that there is more capacity of spending in research in the U.S., and therefore there is more adoption of these technologies. By the same token, if you think about it, What we are seeing is that, or what we believe is that China is suffering, clearly. So some of the partners that were actually exporting some of the products to China are really, they are under pressure for the same reasons we have discussed before, because China closed down. So even more, this is pushing the fact that I believe there is a surge in viability of funds to fund research mostly in U.S. And I really don't know about Europe, again, because we don't have visibility on the end user European business. As far as your question about Verigy-1, my comment was related to the fact that it is a resilient business. Keep in mind Virgin One has been a platform that has been on the market for many years, solid. It's a platform that is very well known by customers and is a platform that for certain products is on average 20% cheaper than what some of the competitors do offer. And that explains, in my opinion, the resilience of the technology. So when I was saying we lose some customers, typically... We lose customers when there is consolidation and volume pressure, okay, and it's always the same story. Virgin One clearly is more manual than some of the, from the BioFire platform, for example, and every time there is pressure on volume because of consolidation, because the platform sits in a core lab and more hospitals are consolidated, there is where clearly manual and price versus more cost It's a more expensive solution, but automated. It's pushing customers toward the automation. But the balance today between increase in volume and usage, increase in the respiratory, and keep in mind that it's a respiratory without COVID here, so it's a traditional respiratory, versus some of the higher volume accounts lost, today is favorable here. to our platform, and so this business is still growing, again, 10%, which is, and it's all U.S. Today, the Virgin Base is all located in the United States.

The next question is from Odysseus Manesiotis of Berenberg. Please go ahead.

Yeah, thanks for taking my questions again, and sorry for the line issue. Can you hear me better now?

Yes, we can.

Thank you. Great. So, yeah, I had a couple on MIMID, actually. I wanted to get a better idea of the competitive dynamics here. I mean, I understand this is the first test of its kind to be FDA cleared, but in terms of getting share over traditional technologies, is it right to think that you'll be mostly competing with PCT testing and it's time to resolve your main advantage here? Sort of what are clinicians hardest to convince on here?

I don't think I necessarily agree with, I don't think that this is a position as an alternative to PCT because PCT has more to do with diagnosis but follow-up of sepsis and treatment. And this is the most recent claim that actually Brands Thermo Fisher was able to get on PCT. This is really today a first-line screening product. And it goes together with a nonspecific marker. C-reactive protein is a good one. White blood cell count is another one, which although we're a general indication of an inflammatory situation, but we're not able really to distinguish between either viral origin or bacterial origin. So to be honest with you, we have an interest in PCT business, but we never position this and NEMED is not positioning this in any way substitutive or in competition of PCP. I believe that today there is a lot of attention about this viral versus bacterial. I believe that there has been a recent announcement by Beckman, if I'm not mistaken, of a collaboration that they are having in the U.S., I believe with the NIH, on or the CDC, I don't remember which one of the two, where they are trying to validate the application of flow cytometry. So imagine trying to distinguish between viral infections versus bacterial infection. This, to my knowledge, is the first marker where you look at protein expression. And I don't see anything, honestly, competing with this today. And by the way, don't forget, When it comes to this, MIMET already spent 10 years on this one. They have thousands of patients already tested. And more than anything, they convinced the FDA that there is great value on this product. So I honestly don't see competition as an issue, to be honest with you. The burden we need to go through is more on the education side. Educating physicians, that is really good to use this test, which is not so difficult, and then educating payers that you spend more, and, you know, we are pricing this, us and MIMIT, at a very high price, but eventually you save money because of antibiotic resistance, unnecessary use of antibiotics, da-da-da-da, and so forth. That's the rhetoric.

Thank you very, very much. That's very clear. And a quick one on the molecular ex-COVID sales. I know you touched on this quickly before. I mean, it did seem slightly higher than consensus expectation, and I wanted to get a better idea of how much your respiratory panels that also test for COVID contributed here. So would you say demand for panels that test for COVID exceeded your expectations earlier in the year? Or was there another key driver here?

Hugo, I'm not sure I understand the question. So if you are saying, if you go back to my comment on multiplexing and saying that certainly today when it comes to symptoms, there is use of COVID frontline and then reflex or COVID together with respiratory payment whenever the reimbursement is there to And payers also, by the way, are recommended to the multiplexing approach. And that is a fact, okay? The other thing that in our COVID business, sorry, COVID, in our molecular ex-COVID business that we saw is flu. Because there has been eventually a flu season, which interestingly enough, the flu season was not in January and February, but really it was more in April and May. And so we saw in the U.S. and in Europe a spike in revenues which are non-COVID but flu-related, which have to do with this late flu season that we have experienced. That was my comment.

All clear. Thank you very much for the answers.

The next question is from Peter Welford of Jefferies. Please go ahead.

Hi, thanks for taking my questions. I've got two quick ones left, please. Firstly, just returning to COVID again, and I appreciate this is a black box and it's kind of difficult to predict, but I just want to come back to your comment of the fact you're seeing a very resilient business now. So if we look at the guidance for the second half of the year, you're basically implying about 50 million euros. given that you now say, you know, a large amount of this business is resilient and I think we can all understand the drivers there. Do you think, therefore, we should be thinking longer term that rather than, I think you guided originally to a 50, 60 million COVID number, you know, 100 million as a base for COVID in the long term or midterm, shall we say, is more reasonable at this point? And I guess if not, looking into your crystal ball, why should we anticipate do you think this very resilient business to perhaps half again, do you think, going into the next few years? Secondly, then, I wonder if you could just give us a quick update on the COVID sales ex-molecular, any rough sort of numbers to what your sales are on the clear for COVID now this quarter. And then just finally, just on Verigene 2, can you give us an update, please, on the path to potential FDA approval of the liaison Plex? Is that all very much in line with the prior commentary you've given? Thank you.

Okay. Let me try to tackle this COVID story again. If we look at the long-term plan, when we said the COVID will become a 50 million euro business, Okay. Long, long term, which means two years from now, I cannot comment because I really don't have the crystal ball. What I'm saying is that the tale that the industry sees, forget me, but look at what has been published by everybody. What everybody sees is that there is a tale which is more significant than anybody else is expecting. for 2023. Okay, so start from 2023. And this has to do with the fact fundamentally of the, has to do with the variants, which was unforeseeable by any of us. And now we are seeing, we are learning that the virus is very rapidly mutating and surviving anything we really try to do to keep the living one at bay, okay? So this means that I believe in 2023 we may have more business than all of us as the members have indicated. And you start to see some of the competitors already giving some indications about the 2023 opportunities. Now, if now we're talking about the second half, I'm saying that there is still uncertainty. And so in the uncertainty that we embedded here in our guideline has to do with the opportunity, as said, of the differential diagnosis and the flu COVID and everything else. So, so far, and by the way, the numbers that we've indicated, if you look at what all the companies already reporting numbers have done, pretty much we'll look at this COVID business, the second half, same way, with a qualified guidance. And this is as much as I think I can say about COVID. Again, I believe that we have not included here the opportunity of differential diagnosis, but I want to see first that what Australia is experiencing, we're going to be experiencing here. because there is what may really increase the usage of COVID behind what is in the guidelines of today. The second comment that you have on the Virgin 2, remember that we were talking about submission in 2023, and we were talking about initial soft launch. And so for the time being, I'm not commenting on the program. I honestly don't know. about the approval and when this will come to the market as a consequence of the regulatory approval. And this is also in light of the fact that today we are seeing the FDA opening up, which is good, but being very selective, meaning that if you file with the FDA a very innovative assay, like me, you get that time, but it goes from assay to assay. So there is an uncertainty there. in the registration process today in the U.S., which is not trivial. We don't know what is going to happen in terms of resources and attention to products starting from next year. But as I said before, the very good news, again, we are learning in this business, is that the Virgin One is really holding up and is actually continuing to grow. in light of the fact that it's a product that's been on the market for many years, and also there's a consequence of the fact that it's a combination of diasorin and luminex. Now we have a commercial force out there, especially in the U.S., fairly significant that is able, clearly, to nurture and retain this business and continue to grow this business.

I believe, Bruno, Peter, I'm sorry, you also had a question on the size of the immunocovid business in Q2. More or less, we're talking about 5 million euro, give or take, in Q2. Thank you. You're welcome.

Yes, if I may add, unfortunately, or fortunately, I don't know how to say about it, how to comment this, but the serology never picked up. And so we have a residual business for serology, which has to do with long-term, which we have to do with admitted patients to hospitals. It has to do with some studies on vaccination of long-term immune response to COVID. But it never made the typical panel that would have made of this business a very significant business. And this has to do fundamentally with one reason, the fact that regulatory agencies started from the FDA refused to accept any concept of associating antibody titles to protection. And this was not to confuse people about vaccination. The net result is that the regulatory agencies themselves in Europe and in the U.S. have been actually promoting against the use of serology. So just get a vaccine and don't bother about your antibody testing. That was the message. And this, I believe, has negatively influenced the opportunity of serology.

The last question is from Andrea Balloni of Mediobanca. Please go ahead.

Yes, good afternoon, everybody. Thanks for taking my question. Actually, just a couple left. The first one is a quick one for Pier Giorgio. I'm sorry, probably I lost a part of your comment. Can you confirm that for every basis point of change in Forex, the impact on EBTDA is in the region of 3 million? And the second question is for Carlo, is much more complicated, I guess, is on the Chinese market. I remember last conference call, you commented that the issue in this market was mainly represented by Chinese policies to protect local players from competition. And I remember you were pretty skeptical about the penetration in this market in current condition. Today, you also added the issue represented by lockdown related to COVID. So in the end of the story, what should we expect for the Australian in terms of trend over the next three years in this region? I know it's not material compared to Europe or NAFTA, but in any case, which strategy will you put in place also in order to reap benefits? from a local production plant that, if I'm not wrong, you should have in the country shortly?

Look, I think he's going to confirm what you just said about the effect pretty much on the exchange rate. But let me just comment on China. Today, whatever I said in the previous quarters is still there. So you have this Chinese pressure today to do more with local suppliers, right? That's there. You do have a pricing effect in place, which is reducing by an average 30% reimbursement and a consequent pricing of some of the high-volume commodity products. So my comment was specifically on lockdown because everybody knows there is a lockdown. But one of the reasons why we're more exposed to lockdowns is because we have revenues concentrated on big cities, right? Because I was actually going through volumes and growth or how the volumes have been penalized by lockdowns. And if you look at the different regions that we are serving today, there are certain regions which are more rural where lockdown didn't happen, and you don't see this volume effect. Clearly, Beijing, Shanghai, and some of the big cities, every time they close the map, we are dead because the vast majority of our business is there. So when I look at the – there are two effects, pricing and local competition, which are there and are systemic about China. And then there is an effect of volume dependency, which is high for us, which has to do with the lockdown. And this is why I'm saying there are two things we will need to address, one of which, and the way to address it, as discussed, is that we are becoming more Chinese with a local manufacturing site, and the program is actually respecting deadlines, and we will start doing all the validations in 2023. and so ready to start commercializing starting from 2024. That's no problem. What will benefit us is the decision of the government, and we're all waiting for the Congress, which is going to happen in October. We want to understand whether they're going to be changing their policy, because if that happens, it's going to be an immediate benefit to our revenues, because we're not going to see these volume drops in the big cities. That was the comment. Enfi, do you want to comment on the exchange rate?

Sure. Hey, Andrea, ciao. Yes, you're right. It's $6 million on the top line for every cent on an yearly basis. I did not comment on EBITDA. EBITDA is slightly lower than $3 million simply because after the Luminex acquisition, the margin, if you wish, dilution compared to the pre-Luminex pre-COVID world is happening in the U.S., which is where basically Luminex cost pay is concentrated. So long story short, if you need to moderate, I would stay more on the 2.5, just north of 2 million euro on the bid level.

Mr. Rosa, there are no more questions registered at this time.

Thank you, Professor. Bye-bye.