DiaSorin S.p.A.

Good afternoon. This is the Chorus Call Conference Operator. Welcome and thank you for joining the Diasorin First Half 2023 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.

Thank you, operator. Good morning, good afternoon, and welcome to the Diasorin H1 conference call. As usual, I'm going to go through some comments about the business, and then I will allow the CFO, Mr. Pedron, to go through the numbers. As usual, I'm going to comment all the numbers at constant exchange rate. So we had a very good quarter. The quarter, we had an acceleration of revenues compared to quarter one. In fact, the quarter closed at plus 5% versus Q1 at plus 3%. This is clearly excluding COVID. And I am going to now... Briefly comments, the three legs, so the way we look at the business, immunodiagnostic, molecular, and the LTG. Let's start from the immunodiagnostic. The immunodiagnostic franchise, ex-COVID, closed in H1 at plus 7%, with a very strong quarter two, with growth over 8%. there has been a very strong performance of our CLIA franchise that net of vitamin D in the first half has grown over 13%. So if we look at the different geographies starting from Europe, Europe quarter two was plus 6%. X vitamin D CLIA was plus 11%. And fundamentally in Europe, what we continue to see is An increase in volume, most likely due to rebounding of testing after COVID. We saw this positive effect in Q1, and we continue to see this effect in Q2 in all the different European geographies. When it comes to North America, very strong results in H1, 13% up. If we exclude vitamin D, it's 19% up. In the quarter two specifically, 15% over last year. And if we exclude vitamin D, it's plus 22%. As you all know, in North America, the program has been mainly focused on the hospital segment. In 2022, we heavily invested in doubling our cell force. We completed the hiring end of last year, so effective Q1, we now have a very complete self-force that is serving the market segment of the hospitals. We have an ambition to close in the next three years over 250 hospitals, doubling our hospital presence in the U.S., and as we have discussed many times, We are very successful as a combination of the two systems we have, the Liaison XL and recently the Liaison XS and the products. Mainly, I would like to mention clearly the Quantiferon together with our Stool franchise. These products together are actually driving interest of customers that typically in this segment have been sending out products. And with the viability of these products and the systems we provide, they can in-source and making clearly this testing profit center for the hospital. So it's working very well. When we look outside of Europe and North America and the rest of the world, I believe that the good news is that China, that has been a real drag in quarter one, did actually stabilize in quarter two. For the first time, we have seen modest growth in CLIA. And this is certainly very positive. I think that we continue to be very cautious about near-term growth. Opportunities in China because of the current very rapidly shifting policy toward China-made product that we continue to become more and more popular in our customer base, although It is certainly true that we have invested significantly in turning our commercial sales force with new leadership and changing our distribution network in China. And I think we start to see the first positive effects. The other element, which I believe is very important, is that now that we are close to opening our manufacturing site, it is very clear to the customers the direction that the assortment is taken in China is to become China-based. And this, I believe, is certainly helping the business. Again, I'm very cautious about the future because, as we did comment a few times, China is an unpredictable country. in the short term. So let's see how it goes, but certainly good news. In all the other geographies where we are direct, Brazil, Mexico, and Australia, we are enjoying strong growth in the immuno assay franchise, clearly related mainly to our traditional infectious disease product line. The other thing that I think is very relevant to discuss is the fact that for the first time, in the post-COVID era, we've been launching new products. And specifically in quarter two, we launched two new products on the Liaison XL and XL, the new Legionella test and the Pro-Adreno Medulin, a very interesting product that has been developed together with Thermo Fisher, with a license coming from Thermo Fisher. And so I think finally, After the COVID, the two very difficult years of COVID has consumed our R&D resources in 2021. Now, starting from 2022, we restarted our development, and now you see us with new products that are hitting the market, taking us back to where we were prior to the COVID pandemic time. So this is, I think, great. The other thing I would like to mention is that specifically related to the U.S., we really start to see the effect of the critical mass that we were able to build as a consequence of the Luminex acquisition. As I think we have discussed strategically, the Asurion wants to improve the footprint in the U.S., and sees itself as a U.S. company when it comes to the future. And it's very clear that the Luminex acquisition gave us the brand, the visibility, the footprint, and the resources which are now very useful in launching all the new products that they will bring into the market. intangible or tangible value from the acquisition critical mass clearly is paying out. Last but not least, when it comes to MIMET, as we have discussed, I think, in the last conference call, we decided to increase our spending in marketing and providing commercial coverage for the launch of the product. We have hired The dedicated clinical reps that are needed to go and solicit demand with the clinicians. The dedicated Miebes Health Force now is staffed, has been trained and started from quarter three. We started to hit the market together with other tools like the digital campaign in order to create demand for this very interesting product. Now, if we move to molecular diagnostic, ex-COVID, the franchise in the first half is relatively flat. It's a combination of low growth in respiratory. We have a very good performance in the syndromic panel with varangine 1, which is partially offset by the flu-only test that we carry on the MDX. I remind you that This is an effect of the last flu season that was extremely strong in quarter one and therefore relatively weak. Sorry, relatively strong in quarter four and so relatively weak in quarter one. In the non-respiratory, we have a decline of roughly 5%, but this is primarily due to the fact that, as we have discussed, we lost a contract with a very large lab. For CF, and now in the second quarter, we start to feel almost a full loss of the revenues related to this product. X, cystic fibrosis, the growth is low single digit. So considering the fact that our molecular business today, when it comes to the syndromic, still relies on technologies which are very solid, but certainly... They are showing sign of time, to put it that way. And this business is extremely resilient. And certainly, we are waiting for the Plex now to invert from a stable business and go back to growth. When it comes to the Plex, we have completed the clinical studies for the respiratory panel. And we expect filing in Q4 and approval by next year respiratory season. When it comes to the liaisonless, same thing. Clinical studies started in Australia because now, as you know, it's the flu season. We'll continue in the U.S. And we expect filing. in the U.S. of the ABC, so the flu and COVID product at the end of the coming respiratory season. Now, last but not least is our licensed technology business. And I think we all need to remind ourselves the fact that quarter one was very weak. And we did comment last time that Q1 was weak because we had a significant backorder still of instruments due to the supply chain issues that we still encounter until the end of last year. Well, Q2 is completely different. As you have seen, we have double-digit growth at 10%. This is primarily due to the fact that we were able to close our gap, and now we have availability of spare parts. We were able to make systems, and we shipped all the instruments that were in back order. I believe that, as you have seen from other competitors, when it comes to the life science business, We see initial signs of slowdown. Therefore, I just want to caution that the double-digit growth in quarter two should not be intended to be what we believe this business can continue to perform in Q3 and Q4. And we really need to understand, I remind everybody, this is a B2B business. So we actually sell a relatively small portion of these revenues come from direct sales to customers, most of the revenues in this business come from B2B with some of the largest life science companies in the U.S. We are waiting to see the way that they're going to be forecasting Q3, Q4, then to provide an expectation to what we believe is going to be year-end and beginning of next year. So just be cautious. Don't take the plus 10% of Q2 or Q2 as a true A couple of comments. Very good news. We actually received from the FDA the closing of the warning letter. This was a significant effort by the company and a couple of years of solid work by our quality assurance team and regulatory brought us to, again, brought the FDA to close the warning letter. So we are going back to the regular business. We made significant investments in the quality system of Luminex to resemble the DSR in quality system. And therefore, we are confident that moving forward, we are going to be able to work in an FDA environment also at Luminex according to the most recent standards. Last but not least, when it comes to the synergy and integration plan, glad to report that we are on time and we expect by 2023 a running rate between 50 and 55 million euros in cost synergies as provided in our long-term plan. At this point, I'm going to turn the Microsoft to Mr. Pedron, and then I'll take questions after. Please go ahead.

Thank you, Carlo. Good morning. Good afternoon, everybody. In the next few minutes, I'm going to walk you through the financial performance of the SORIN during the first half of 2023. And I will make some remarks on the contribution of the second quarter. Let me please remind you all that consistently with what we did over the last earning course, to better understand the performance of the business, I will refer to adjusted P&L items, therefore sterilizing the impact of the Luminex deal-related elements. As we did over the last few quarters, I would like to start with what I believe are the main highlights of the period. H123 total revenues at constant exchange rate decreased by 16%, whereas the reduction at constant perimeter of consolidation, which means without the contribution of the flow cytometry business that we carved out in February 2023, has been 14%. This result, which is in line with the full year guidance, is a combination of the expected fall in COVID sales, the carve-out of the flow business, partially offset by a growth in the ex-COVID business of around 4%. And to be more precise, ex-COVID revenues at constant exchange rate and perimeter of consolidation without the contribution of the molecular respiratory business grew by 4.2%. It's a contribution of very good performance of the immunofranchise, plus 7% in Q2, which saw an acceleration compared to what we achieved in Q1, moving from the 6% of the first quarter to 8% of the second. A recovery of the LTG business, which closed Q2 23 with an increase of 10%, therefore ending the half year with a growth of 2% compared to 2022. And lastly, a slightly negative performance of the molecular franchise net of the respiratory business, driven by the budgeted loss of the cystic fibrosis business that Carlo just mentioned. Lastly, the molecular business, respiratory business, recorded in the first six months of the year a performance substantial in line with 2022. plus 2%, to be precise, as a combination of an increase in the very genuine respiratory panel, which offset a decrease in the flu and fluvid only molecular testing for the reasons that Carlo just commented. H123 adjusted EBITDA at €190 million, or 33% of revenues, is substantially in line with the full year guidance. The decrease compared to last year 79 million euros, 29%, is mostly driven to the drop in COVID sales and therefore to the corresponding worsening of operating leverage. Lastly, we generated 104 million euros free cash flow in the first six months of 2023, down 34 million euros compared to last year. This variance, once again, is mainly driven by the falling COVID sales, whereas the non-recurring phasing events, which I talked about during Q1-23 earning calls, have mostly been offset by the expected strong performance of Q2-23, which closed with a free cash flow generation of €76 million. Before moving to the P&L, let me provide you an update on the so-called payback system for medical devices in Italy. As you might remember from the previous calls, this measure, originally introduced in 2015 by the Italian government and never implemented since then, has been eventually reactivated in September 2022 with the goal of rationalizing public medical devices spending This scheme requires companies to pay back any sum exceeding the budget allocated by the central government to the Italian regions. Specifically, the law obliges vendors to return to the regions about 50% of the turnover exceeding the medical devices cap, fixed for the period 2015-2018. Please note that even if the September 2022 law decree covers only four years, as said 2015 to 2018, the payback could be potentially extended in the future to the subsequent years. What has happened? So practically all the operators, including the Assorin, have filed legal appeals to the competent courts to challenge the decree covering the years 2015-2018. In particular, the Administrative Regional Court in Rome has been charged with more than 1,800 recourses to suspend and annul the payback regulations. The payment due date originally set for January 2023, after being postponed a few times, was set for the end of July, and based on the most recent news, might be postponed even further till the end of October. Moving from this very complex situation, rich of legal controversies, the government recently issued a law introducing the faculty for each company to settle disputes relating to the period 2015-2018 by paying 48% of the total amounts requested by the region and by renouncing any pending legal litigation. We are assessing the possibility to adhere to this settlement, but no final decision has been taken yet. Please note that before September 2022 reactivation of the payback mechanism, DSRN had already built in its balance sheet a provision based on information available back then. and it's a relative risk assessment. And therefore, the potential settlement that we just discussed about would be covered with the provision booked in the past and would not have any impact to the P&L of this year. Now, pending more clarity on the legal front, for the years following 2019 and the amount already booked for in our balance sheet in the past, we have not changed our provision for the period 2019-2022. And we have not accrued anything for 2023. We will keep on monitoring the evolution of this very complex and daily changing situation and update you during the next quarter course. Moving now to the P&L, H123 total revenues at €576 million, as we said, decreased by 16% or €109 million compared to last year. This variance completely due to lower COVID sales, which in the first half are down by €115 million or 77% compared to last year, and the disposal of the flow cytometry business. I think it is worth noticing that the second quarter recorded some 6 million euro FX headwind, mainly driven by the US dollar depreciation compared to the euro. Considering the current exchange rates and what we had in H2 2022, I believe it is fair to expect this negative FX impact to continue in the second part of the year. First half adjusted gross profit at 379 million euro decreased by 16% compared to last year, with a ratio of revenues of 66%, in line with the same period of 2022. The carve-out of the flow cytometry business alongside all the initiatives aimed at improving operations processes and containing costs, some of which part of our broader cost synergy plan, allowed us to preserve margins despite the reduction in COVID revenues and the tail of the inflationary pressure we talked about in 2022. I believe this to be a remarkable indicator of the relentless efforts we put in place to safeguard profitability, which has been confirmed by Q2-23, which closed with a gross margin ratio over revenues of 65%. H1-23 adjusted operating expenses at €230 million grew by 2% compared to last year, with a ratio of revenues of 40% vis-à-vis 33% of 2022. The worsening of the operating leverage ratio is entirely due to the reduction in COVID sales. Moving to Q2-23, adjusted OPEX decreased compared to last year by 1% or €1 million, with a ratio of revenues of 40%, vis-a-vis 36% of last year. This OPEX reduction is the result of all the initiatives we implemented to control cost, the impact of the cost synergy plan that also Carlo just mentioned, and the disposal, obviously, of the flow cytometry business. Adjusted outdoor operating expenses at negative €4 million are substantially in line in absolute value with 2022. As a result of what we just described, H123 adjusted EBIT at €144 million, or 25% of revenues, has decreased compared to 2022 by 35%. Adjusted interest income at positive €2 million is better than last year by €6 million, mainly because of improved yield on our cash investment. whereas the adjusted tax rate at 23% is in line with 2022. Year-to-date adjusted net result at €113 million, or 20% of revenues, is lower than previous year by 33%. Let me now move to the net debt position. At the end of June, the net debt was negative for €861 million, vis-à-vis negative €907 million at the end of 2022. This improvement has been mostly driven by the operating cash generated in the first six months of the year, partially offset by the payment of just short of €60 million dividend to our shareholders in May 2023, and 23 million euro of treasury shares by BEC. Lastly, we confirm 2023 guidance as usual expressed at previous year exchange rate. Let me finally please remind you that we have built in our assumption an average respiratory season. And the 2023 guidance, as I just said, does not include any possible impact from the payback mechanism in Italy, since the whole situation is in flux. And the most recent news, which I personally deem positive and pointing in the right direction, has made it even more difficult to make any reliable prediction on what is going to happen next. Now let me please turn the line to the operator to open the Q&A session. Thank you.

This is the Coruscall conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove yourself from the question queue, please press star and two. We kindly ask you to pick up the handset when asking questions. Anyone who has a question may press star and one at this time. The first question is from Subtanji Gupta from HSBC. Please go ahead.

Hi, thanks for taking my question. So are you seeing any impact from biotech funding cuts? Can you please shed some light on that? Second, is it possible to give a margin according to the business? Like how does molecular diagnostic margins compared to immunodiagnostics and license technologies? And third, on MeMed maybe, are you seeing any resistance from physician in adopting the test? And what is the workflow for that? Thank you.

PG, will you take the margin question first?

I will, sure. So we don't disclose the exact number, you know, the different margins between the three business franchises that we run, so immunodagnostic, molecular diagnostic, and LTG. But ballpark number, you should consider that immunodagnostic and LTG have a higher margin compared to molecular diagnostics. And this is kind of a standard in the industry. So you can, let me say again, broadly consider a difference between those two franchises, Immuno and LTG, very similar margins compared to molecular, which are slightly lower. But we don't disclose the exact margins by product line.

Okay, we'll take the MIMED and the biotech. I think that it should be clear to you that we don't sell to the end-user customer. We sell, again, to the very large biotech company that then serves that market. I think that if you listen to what Thermo has been saying yesterday, reporting yesterday, I believe it is going to give you part of the story. I've seen there is a slowdown in some of the segments. We don't see it yet, but we may see it in the following two quarters, and this is why we're cautious about projecting double-digit growth of our LTG franchise. Another effect that we have seen is destocking. This is certainly true. because some of the partners, which traditionally have been relying on six to nine months of inventory, are reducing inventory, and this has to do with clearly an increased cost of capital and need to manage the working capital. Right. All said and done, you know, I believe the LTG will continue to be a solid business. I believe that sooner than later, all the funding that has been made available in the U.S. and in Europe through the new initiatives will support growth, especially in the academic environment. Again, I'm just cautious about Q3 and possible Q4. When it comes to MIMET, I think it's a little early, meaning that so far we have seen that there is – Significant enthusiasm by the clinicians because the data that MIMET has been supplying and has been used for the registration of the product also with the FDA, these data are extremely convincing. And the value of the assaying, ruling out the bacterial infections, I think is so far all the clinical studies done also by local hospitals have demonstrated that the The value is there. I believe the next step, especially in the U.S., is to find a budget, because today, as you know, this test is not reimbursed by the payers, and it will be part of the DRG funds that each hospital gets for the emergency room visits. So I believe the jury is out, but what I've seen, and again, is an initial effort, is that physicians clearly see the value. Now the administration has two things that have to happen. The administration will have to accept investment, and there are a ton of reasons to do so because there is a significant savings. in the fact that it's antibiotic treatment and also hospitalization of patients. And clearly, now MiMed and Diasorin are working heavily with payers in order to conclude a clinical study that is ongoing to provide evidence then for the payer to provide a dedicated reimbursement for the assay. That event, I think, if met, would unlock the full potential of this product.

Thank you. The next question is from Maya Pataki from Kepler Shiver. Please go ahead.

Hi. Thanks for taking my question. Carlo, just to start maybe with your last comments around NEMET. As you said, you believe that getting the reimbursement would unlock significant potential. Do you have any feeling for a potential timeline? Are we looking at six months or is it 12 months from now when you expect to have the reimbursement that could start to drive the growth there? That's my first question. My second question is if we look at a full year guidance on the margin side, you guide for an adjusted EBDA margin of around 34%. and we were around 33% in the first half of the year. Is it the synergies that start to come through more and more that are going to drive the margin profile in the second half of the year, or is there anything from a revenue mix that is going to start to drive margins up? And then lastly, on the Italian payback system, and I'm fully aware of the fact that there are a lot of unknowns there, but... Vigi, as you commented that there is this proposal that you could pay 48% of the current request, financial request. And therefore you would have to sign that you step back from all claims. But would that also mean that you would in the future not be able to appeal against it? Or would that basically mean like every time something is introduced, it's a fair new game and you could do whatever happens? Thank you.

Let me make a non-technical comment on the payback, and let's see if that would be enough. This payback story is the typical Italian soap opera, because the government went back, if I may. And being Italian, you know, I cannot be accused of not being chauvinistic, but it's very confusing. And I think it's an attempt to get the resources well needed by the healthcare system, but it's the wrong way to do it. These 48% seemed very palatable because it was until a few hours ago, because it was a way to seal a deal, pay 48%, and forget about it, right? But it would be without recourse. so you will not be able to then go back and claim the money, and claw your money back. I think what really changed the situation has been the ruling of this TAR of Lazio, which pretty much said without saying that there are doubts about the fact that this is even possible under the Constitution. And I believe that if prior to a few hours ago, I think the world was split into some of the large companies that were inclined to pay, and clearly all the small companies that would suffer from strong financial impact, not available, really, to pay or to agree to the 48%. This ruling, I think, moved pretty much everybody toward the waiting seat, okay? And this is what most likely we are going to do ourselves. But as I said, it's an Italian soap opera. We have seen this many times. I believe that in the future, if well conceived, this is something that can be set in place. And we will have to understand how to deal with it. To go back and claw back from the past, I think, is unfair, but very complicated. So I'm relatively positive about this payback, but stay tuned because we need to understand how they're going to organize it moving forward. Second thing on MIMED, on the reimbursement. Look, Maya, you know and I know that in the U.S., to the contrary of the European model, the system is profit-driven. Okay. And I'm not saying it's only profit-driven, but certainly coverage of reimbursement does help in a situation where most of the hospitals, as you know, are going back to the pre-COVID situation, which means they are losing money. So we with MIMED agreed to spend a significant amount of money in a clinical study intended to provide all the evidence to the payers. And the study started and is going to take, I believe, without being too optimistic or pessimistic, around 12 months to be completed. Then you have the filing. So I would say that no less than 18 months before you get a ruling from... from some of the main payers, okay? So for the next foreseeable future, we will need to live with the clinical value and the fact that the hospital receives a DRG reimbursement and they see value in bringing the test in. Clearly, what I've seen, Maya, and it's counterintuitive in a way, When you go to the very large institutions where you do have a very strong clinical group, the adoption rate is not as fast as you would think because in these very large clinical institutions, they want to generate their own data, right? So, yes, the administration is weaker, but by the same token, all these clinicians are They want to do their own studies and take time. They also have plenty of technology for standard of care. Okay, so it's not that they are lacking tools. They have all the tools that are more expensive and they would see this clearly as a way to simplify their life. If you go in the periphery, if you go in smaller institutions where they do not have the technology, And they're also sophisticated. The adoption rate actually is way faster. Okay. So today you are forced to go to some of the institutions to create scientific interest, but the real market is actually in the periphery. And, again, driven by the fact that they need some cheap tools to serve these patients. So... I hope that, you know, it's been specific enough, but no less than 18 months to get the money, to get the reimbursement.

Okay, great. Thanks a lot.

So I will – hey, Maya, this is PG speaking. I will take the one on margin, I guess, unless, Carlo, you want to cover it. No, no, please, go ahead. So we closed the half with 33%, adjusted a bit the margin. and Q2 with a 32% adjusted EBITDA margin. In the quarter, though, in the first part of the year, to be more precise, we had some extraordinary legal costs related to the whole legal issue we've had with the Italian market authority that we discussed in the past. We believe we're done there. In the light of the most recent news, basically done. and that is going to be, let me say, a tailwind in the second part of the year. And then, obviously, we have a few other elements that we need to consider. Starting from the assumption that nobody has a crystal ball, obviously, but at the same time, you know, the immunoassays franchise is going pretty, pretty well, and we are seeing, as we commented, a very nice growth in the U.S., where we are enjoying higher margins. In a sense, though there are some uncertainty in China, as Carlo commented, but, you know, we might see some hopefully good news there as well. There are some assumptions on the flu season. We said that, you know, in our guidance, we have a regular flu season assumption that But that is going to be another factor which we are building into our projection for H2. And eventually, last but not least, there are also some, as Carlo commented, some assumptions we're making on the licensed technology business. where we are seeing some indication which are telling us that potentially H2 is not going to grow or likely, I would say, at the same speed that we saw in Q2. So many moving elements, but when we consider them all, I believe that shooting for 34% EBITDA margin for the year is still what we have in our line of sight.

Great. Thanks a lot. That's super helpful. PG, just a quick question. Could you provide us with the Q2 growth on a like-for-like basis, ex-COVID, if you were to adjust it for the contract that you lost in cystic fibrosis?

You know, I'm not sure we can disclose the contract that we lost and the amount for cystic fibrosis. I don't think I can do that. Don't worry.

Don't worry.

That's fine. Thanks a lot. The next question is from Noor Aiza from Morgan Stanley. Please go ahead.

Good afternoon, Carlo and PJ. Thanks for taking my question. My first one is on China. There's been some very mixed feedback from your competitors this week around the trajectory of growth, and some are saying it's worsened in the quarter. Can you talk a bit more about what you're seeing and why you're seeing some moderate growth already in Q2? Is it because you're exposed to kind of specific pockets of growth? Or do you think you're gaining market share? And how do you also compare versus your expectation about pricing and potential pricing declines in China from the VVP developments that will be helpful? The second question is on NUNED. And this is partly in response to the really nice clinical data you showed at the AACC this week. I believe you mentioned before about targeting 100 hospitals in the first wave of the program. Just curious to see how far along you are and how many hospitals you've targeted versus this 100 targets. And would there be scope to increase that once you start seeing more positive readouts from the hospitals in the coming months? And then the third one, I guess, is a more broader question about your midterm guidance and whether you have any new thoughts about when you would like to revisit that or perhaps revisit that with the investors in the capital markets in the coming six months. Thank you.

Okay, I will take the China and then me, Matt, and then I'll leave PJ with the guidance. Look, as said, China is extremely volatile. So it looks like that as far as we are concerned, and in the immunoassay segment, we saw volumes in the provinces where we operate to bounce back. And that clearly did help in the quarter two. It looks like from our own projections that we may have moderate, very moderate or no growth in Q3 and Q4, but without really seeing the level of losses that we have seen before. And this is, again, because of the COVID volume, pre-COVID volume coming back. Everything else that everybody is discussing is still there. So you have pricing going down 30% in the provincial tenders, more Chinese preference toward Chinese products, and da-da-da-da-da. This is why I'm saying, you know, good quarter two. Q3 and Q4, they're not going to be a drag when it comes to next year. I think we need to close the year, and then we're going to see what happens. In parallel, though, I am comfortable because I think we turned the corner, and when it comes to the manufacturing side and perception of the Assyrian become more Chinese, and that, as you know, doesn't really happen because we are starting to make first validation lots in our manufacturing site in Shanghai. So that's very good. When it comes to MIMED, I think as you have, I believe you have discussed yesterday at the ACC, and you have seen, well, you've been at the event and you've seen that the clinical data are very impressive that we're presenting yesterday. Our, clearly our, the people that we hired are going to go and target customers, hospitals in different regions where we have an existing system because we do want to, we want to accelerate revenues and we don't want, we want to actually have placements of new system dedicated, you know, volumes of this test are relatively low. We are talking about between two to seven tests per day. So from a volume perspective, it's nothing. Clearly, with the pricing effect, then it becomes a significant business. But as I think you may have discussed yesterday, we go toward installed base primarily on the East Coast and some very selected areas in California. PG.

Yeah, the question on the midterm guidance. I believe that as we previously discussed, we will be hosting an event where we will be updating the financial guidance, the midterm financial guidance, said that All the strategic projects and trajectories that we discussed about at the end of 2021 are all valid. But considering the latest events, the filing of the PLEX, the filing of the NES, the take-up rate of MIMED, what's going to happen in China, the payback, you know, all of those elements are for which is kind of more challenging making a projection. I believe that by year-end, some of those data points, some of those elements will be clearer, and that will allow us to review, refresh the financial midterm guidance. Once again, I said that all the strategic projects and trajectories are exactly the one that we discussed about at the end of 2021 during our capital market day.

Thank you very much. The next question is from Hugo Sovet from BNP Paribas. Please go ahead.

Hi, hello. Thanks for taking the questions. I have a couple of follow-ups. First on latent TB testing, we have had some discussions about large european diagnostic players potentially entering the the tb testing market sometimes next year can you confirm that and what's your volume price mix expectation within the long term guide second on molecular diagnostics i think you were about to complete some of the respiratory studies uh around now to file in Q3 or Q4 2023. Can you confirm the timeline here and any updates on the gastrointestinal panel? Thank you.

I will not certainly comment about what other players are going to be doing with LTB. It's a large market We expect people to look at this market. BioMérieux, as you know, already did it, and they had to withdraw the product. So it's not a simple product to make. Also, Cajun developed the CD4, CD8, the two tubes, which is certainly differentiating. Cajun has been in this market for decades. 15 years with gazillion publications supporting the product that doesn't say that somebody will show up and try to make a run at this market but I have no information whatsoever except for a ton of gossips and I'm really sick and tired of gossips about who is coming to the market so said that wait and see, and when the very famous large player is going to show up, let's see what they have. When it comes to molecular diagnostics, you may have missed what I said before. Yes, we completed the PLEX respiratory clinical, and yes, we're going to submit in Q4. GI, I'm not available as we speak to give any date on GI or blood. Understandably, We believe that blood is going to be actually the panel that will follow suit, realizing that with the very genuine in the U.S., we have almost 30% market share in this segment. So it's a segment we certainly know well. Was there another question?

No. Anything else?

The next question is from Louise Bowel from Stifel. Please go ahead.

Thank you for taking my question. I have a couple of follow-up, if I may. Two, on the financial first, I was looking at your adjusted EBITDA margin. You mentioned 32% in Q2. Could you run us through kind of a bridge? What do you think are the triggers to go up to 35 over Q3 and Q4 in order to achieve the 34% objective over the full year? The second one on finance is about your payback issue. I was wondering, you mentioned that the provision were in line with what you could have to pay for the 2015-2018 period. Could you give us a number there and maybe an estimation for 2023? I'll stop there and maybe come back to my other question later.

Hey, Louise, this is PG speaking. So I'm not going to provide you a specific breach from Q2, which closed at 32% EBITDA margin, as you said, to get to the 34% guidance. I believe a few minutes ago I tried to explain... I think it was to Maya, why I believe 34% for the full year is still in our line of sight. And that's why we're confirming our guidance. So I just refer to you, you know, to what I just said to Maya, because that's the reason why we see 34%. In terms of payback, we have a provision in our books which we deem in line with the maximum, with the risk we might have coming from the payback. But please bear in mind that the law is just covering the period 2015-2018, right? And that is the period for which we are kind of assessing the possibility to settle. That settlement, if we decided to do so, it's going to be just short of 10 million euros, which once again has been fully provided for in our balance sheet. The law is completely silent for periods after that 2015 to 2018 time frame. The thing is that even if we decided to settle, and it's a big if, as Carlo was saying, even if we decided to settle, we would still have the possibility, that would not prevent us, the possibility to fight back, to challenge legally any potential additional claim from the government for the period after 2018. So... the decision we will take once again for the period 15-18 is not going to impact in any shape or form what we might want to do for the period after 2018. Said that, the situation is really in a flux. It's changing literally every day, and unfortunately, I do agree with Carlo, this is a an Italian soap opera or saga, but let's wait and see what's going to happen.

Okay, thank you for those elements. My other questions were about the strategic program, so you mentioned NIMED earlier in this call. Do you maybe have some more information than us on what they are doing to reach private insurance reimbursement, the unbundling of the DOG you talk about, You said maybe in a year. Do you have some data points we may miss on this one?

Yes, I do, but unfortunately, this is confidential information to the company, and therefore I won't be able to disclose. The only thing I can tell you is that in order to get the reimbursement of the payer's There has been a clinical study which has been negotiated with payers that is in process and when completed is going to be filed to the payers to support in their decision or reimbursement. Okay. But any more of that I can disclose.

Okay. Thank you. And then maybe just to finish, to confirmation of what you said earlier, you mentioned an update of your financial guidance during a potential capital market day or something by the end of the year. Could you remind us what you have now as an information that was not integrated into your formal guidance? And finally, about the PLEX, you mentioned that you finished the clinical test on the respiratory line and that you wanted to submit it in Q4. Could you just explain to us why not Q3?

So I'm laughing because I just had two days of reviews with the regulatory people, and I'm trying to represent their interest. We need to understand that a clinical study for this kind of panel is like 19 clinical studies together, because the FDA is seeing each individual assay as an assay. So it's like filing 19 fighting case. And that takes a lot of time to compile all these 19 fighting case and file it with the FDA. The testing was completed at the end of the respiratory season, and now the team is working in compiling all together. This is why I'm saying I feel comfortable with the fact that Q4 is the real timeline for the submission.

Yeah, regarding the midterm guidance, once again, we have a midterm guidance out there. I believe during Q4 call, if I remember, we commented on that guidance, many moving elements, which are the ones that we just mentioned, the MIMED and China and the payback, and the respiratory season, and you name it. So that is the official guidance we have out there. but we have to build in some flexibility. As again, I said a few quarters ago, considering all the most recent news, that's why we said we will revisit the financial guidance, so the numbers, not the programs and the projects, by year-end.

Excluding respiratory season, it's only... Bad news, right? MiMed, China, and payback.

Say it again, please.

I said, like, excluding respiratory season, it's only on the negative side, right? MiMed, delayed, China, weakened and expected, and payback, that was obviously not included.

No, no. No, we didn't say on the negative side. What we said is that we get better visibility on certain strategic programs, and market conditions, which you will need a crystal ball to really understand a few quarters ago what would happen to China. And this is why we said we want to sit with investors and share with them how we view, with better clarity now, the next two to three years. But I don't understand what you're saying on the negative side.

Just because my understanding was that you had delayed on NIMED reimbursement, that China was weaker than expected, and obviously the payback policy, you were not aware when you made the former guidance. So my understanding was that on those three topics, you unfortunately only had negative incremental news since last guidance. But you're saying it's not the case.

What I'm saying is that life is always a mix of things that go better than what you expect and things that are worse than what you expect. And this is the time, I think, since there were many balls in the air, I believe that year-end is the time to make a summary of the positive and negative and give a view to the market.

Okay, but that's positive. That's good news. Thank you very much for all your answers.

Thank you.

The next question is from Odysseus Maneziotis from Berenberg. Please go ahead.

Hi there, thanks for taking my questions. I got one on the CLIA ex-COVID growth this quarter and particularly the acceleration in Q2 over Q1. I understand QST and STO have been doing good, but could you give us some color on whether this is more of an issue of post-COVID testing for recovery or more of new wins with hospitals here held by your sales force? And a second one, please. Could you give us an update on pricing on your molecular and immunology divisions? I remember you were looking into this earlier this year. Would you have an expectation of the magnitude of the price increases that you could take during these two? Thank you.

Okay, I'll make a comment on your first question. I see, honestly, two effects. I see that in the U.S. it's all new business because we are in an expansion mode in the U.S., getting more customers through the hospital program. We deploy the right resources. We have platforms. We have systems. We have products. So U.S. is customer expansion and getting business done. a combination of gaining business from competition and or insourcing versus send-outs, which is working very well. When it comes to Europe, I think that there is an effect today, a very important effect of volume, which volume is going back in all the different regions where it should be. And especially for some of the specialty products we have in infectious disease, I think we did comment over COVID that for prenatal testing, we were severely hit during COVID. And now we see all that volume actually going back. So short answer, U.S., all new growth. And when it comes to Europe, there is an effect of volume, which, if I need to estimate, is probably around 40%. of the growth that you see. But don't necessarily quote me on that, because I'm giving you my rule of thumb estimation.

Yeah, regarding the pricing of this year's LOI, I believe what you're referring to is the program we just started at the beginning of the year. We hired an advisor there to help us out to review the possibility for the group to our pricing strategy, if I can say it in that way, because, you know, we came from an environment without inflation whereby in the past we very seldom, in very few occasions, in very few geographies, had an active policy of increasing prices year over year to customers. Then, you know, inflation came. And we started that program aimed at being more, let me say, smart, in a sense, considering the new market condition and the way in which we were managing our pricing strategy and trying to eventually go back to customers and increase pricing on a recurring basis. The exercise that we did is almost over. Now our commercial organization is going into execution mode. We will start seeing something in the second part of the year, and the bigger impact will come over the following years. These initiatives does not cover only pricing. But we are also considering the possibility to ask customers, as many peers are doing, to contribute, for example, to shipping costs, distribution, and you name it. So this is one of the several initiatives I was referring to when I said that, you know, we are putting in place programs to keep on safeguard our margins. But so far in H1, you really, you know, almost nothing. I would say nothing.

All very clear. And I also have a follow-up. Thanks for your answers so far. So, I mean, I understand you might not be able to disclose that, but perhaps to try. So, on the clinical study with MIMET that you mentioned has been negotiated with payers, could you broadly talk about the endpoints here? Are there your typical cost and specificity endpoints?

No, I cannot. But just to be clear, you said it's been negotiated. The clinical, so the protocol has been negotiated. The clinical study is ongoing. And, again, confidential to the companies can disclose, especially in an environment with this test that is becoming more competitive, whereas, you know, there is another player today that got the license. So it can be more specific. Sorry.

Understood. That's fine. Thank you very much.

The next question is a follow-up from Maya Pataki from Kepler Shriver. Please go ahead.

Hi, me again. I'm sorry, just a quick follow-up question. Carla, you have been talking about this insourcing of stool testing driving solid growth in the immunoassay business, and of course there still is room for this to go. But like medium-term, long-term, what is the growth rate for the stool testing market? Are we looking at the similar like mid-single digit growth or is it a market that stands out with higher growth rates?

Extremely higher than ever. Extremely higher. Oh, yeah. You're talking about around on average 25% growth today. And keep in mind that we do have a full panel of products. It took years to set it in place. And fundamentally, you have two areas of interest. The first one is H, you know, we have an H pylori test. And so that one growth. And the other one is the calprotecting elastase set, which is becoming extremely interesting because of irritable bowel disease. If you go to the U.S. and you just switch on your TV and you watch commercials, I mean, you see how much Crohn's disease and all these new set of drugs, biologicals, that have been developed. And now they hit the market in the U.S. And what is very interesting, and I would like to tell you that it was all well planned and thought, but it was not. All these biologicals actually require TB testing. for eligibility, and the typical marker that is used for Crohn is calprotectin and elastase. Right, so it's a very interesting position that the company put together in this very much growing segment.

And can you, sorry that's obviously extending the follow-up question, but just could you provide some

indication of how big the stool testing share is of your immunoassay franchise no maya i cannot because i realized that we providing all these numbers grow the appetite of competitors that are lurking around so i can but okay fine but but there are two things that i think um you should understand first it took years to develop because you have is a complex matrix, and overall the total panel is six products. The second thing is that when it comes to specifically CalProtecting, we have research. We have been researching to add more markers to CalProtecting to actually increase the clinical specificity. and I think we have some very, very interesting essays coming over. So it's a franchise where Diasoring has been investing over the last 10 years, and now we are really reaping the benefit of the full menu and the product to come.

Understood. Thanks a lot. Mr. Rosa, gentlemen, there are no more questions registered at this time.

Thank you, operator. Bye-bye.