DiaSorin S.p.A.

Good afternoon, this is the Chorus Call Conference Operator. Welcome and thank you for joining the Diasorin First Quarter 2024 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 Jessorin. Please go ahead, sir.

Thank you, operator. Good afternoon and welcome to the Q1 results. As usual, I'm going to make a few comments, qualitative comments on the business, and then Mr. Pedrono, our CFO, is going to take you through the numbers. As usual, I'm going to make my comments at a constant exchange rate. So let's start saying that I believe we are leaving COVID behind. I feel that this has been the first quarter when we are from a business perspective. So not only from a revenue perspective, we really enter into the post-COVID world and the good, bad and ugly about it. But COVID is not a factor any longer. As far as the assortment is concerned, quarter one was a great quarter. If I exclude the COVID revenues and same scope of consolidation, meaning that if you remember last year we sold after Q1 our CF business, the business grew 7%. So it's in line with the high range of the 24 guidance. So what happened? Why is the business so good? I think what is very reassuring that the business is good in all the three legs that, as you know, we cover. Our immuno franchise continues to grow very strong, 9% quarter to quarter. We're going to make some qualifications. quantitative comments by geography, but fundamentally, as you well know, the reason why Muno is so strong is because we do have a menu that is a specialty menu that works very well in all the geographies and is keeping us away from the path of the very large competitors. And by the same token, we do in a specific geography like the U.S., we do have, I believe, a very solid winning strategy when it comes to developing our business in the hospital segment. That continues to be the driver of the growth in the U.S., together with some success in the large commercial labs, but primarily our growth in the U.S. is coming from the strategy. And I'm going to add more color later. Molecular is back to growth. It's plus 2%. This is due to the fact that certainly there was a good flu season in Q1, but by the same token, when it comes to different quadrants that we use to depict the business, we are doing fine in all the technologies that we offer, and certainly we are ready for the launch of the liaisonplex that, as everybody knows, will happen by June 1st. Finally, LTG, which is 4% up, which is almost incredible when it comes to, if you listen to comments coming from our customers that do playing life science, that are still experiencing soft quarters. As we, I think, discussed a few times, our LTG business is a combination of diagnostic and life science. So, yes, we do experience some softness in life science, but certainly more than compensated by the growth of the partners business in the diagnostic. So, all in all, LTG back to growth. And then COVID-19. As I said, you know, we have expectations of hitting 30 million by year-end. We are at 9 million in Q1, so we believe that we should get to the 30 million by end of the year. But, again, from a business perspective, COVID is becoming irrelevant these days. Now, let's go back by technology first, and I would say – Or better, let's discuss about geographies. I think it's more telling. Now, let's talk about North America and, again, ex-COVID. We had an excellent performance of our immunodiagnostic business. There has been growth of 15%. And this is, again, driven by the success of the hospital strategy. When it comes to molecular, plus 4%. And again, this is notwithstanding the fact that we are still in Q1 affected by the loss of cystic fibrosis business. This is, by the way, the last quarter where we had been last year. So starting from Q2 is going to be a clean comparison. Without the CF business, growth is high single digit when it comes to molecular. So it's good growth. And primarily, this growth is coming from what we call the targeted segment, which means less than, so monoplex or less than triplex. And this is a traditional molecular business that came from the Azorin is based on traditional products in certain niches of molecular testing. I even mine HSV, for example, for transplantation or some other application. And it's also a chunk of it is ASR-related. And, again, ASR, notwithstanding, you know, the recent discussion about regulations, our business of ASR, which is serving the LDT customers in the U.S., we believe it's going to be shielded, whatever the decision is going to be, because of two effects. The first one is that The new regulation on the discussion is grandfathering in every application that is on the market today. And by the same token, what the FDA is trying to impose to the industry is the fact that if there is validation by some of these technologies and this validation is submitted to some agencies that do actually regulate LDT testing, that's okay. And the vast majority of the DSO in U.S. customers are large commercial labs or very large hospitals. They do actually follow this regulation. So just to preempt a question that I know has been coming our way, we don't expect that whatever happens to the LDT, we don't expect that to affect necessarily our business. So when it comes to the U.S., as said, immuno, very strong, and molecular testing, strong and ready for the launch of the Plex. When it comes to Europe, again, our European business is primarily an immunoassay business. As you know, traditionally, we have not developed our molecular business significantly, and we don't intend to launch the Plex in Europe. It's a U.S. play for Phase I for the Azorin. So if we look at the European business, the growth of 6%, is actually primarily driven by our immunodiagnostic franchise, which is growing eight overall, driven by continuous volume improvement and add-on strategy to a very vast install base of Excel that we do have in the European market. Now, if you look at ex-Europe, ex-North America, that together do represent 85% of our business, and we look at the rest of the world, the business is slightly declining 3%, but it's actually a combination of two things. Very good performance in China. The very good performance in China means that in Q1, China did plus 13%. And although I want to caution everybody, that doesn't mean that all of a sudden China is back in business. It means that there is an effect of favorable comparison to last year where still Q1 was relatively soft due to COVID. And also there is another effect on pricing, and this is because notwithstanding the fact that we have been awarded listing in the VBP so we now have access to thousands of hospitals that did follow the VBP tender. That tender which we anticipated to start in Q1 has been postponed to end of Q2 and so there is an effect of price cutting or price decrease that we were expecting that is delayed. Notwithstanding all of this, you know, China over the last, during COVID times has always been a detractor to growth for the sovereign. And when I made my comment at the beginning of this call and I said, COVID is back, it is finished. I think that also in China, now we're back to a regular business. That doesn't mean that again, it's not gonna be challenging, but at least the market in terms of volume growth will provide a positive trend to our immunoassay business. Then, before we get to the numbers, oh, sorry, let me just finish up. When it comes to the rest of the world, the negative, or actually a constant perimeter, it will be actually flat. then we are not growing because we do experience delaying revenues in the Middle East because of the current situation. And I think it came up already a couple of years ago. We do have significant business, relatively significant business, in countries that today they're not formally under embargo, but clearly... shipping products is becoming more complicated. And therefore, this is the effect that you see there. All the other geographies where we are direct, Australia, Mexico, and Brazil are actually growing high single digit or low double digit. So not a real worry as far as we are concerned. Last comment. As said, gearing up. for the launch of the Liaison Plex. All the manufacturing activities have been completed. Inventory, now we have in inventory all the products that we need to launch. All the training activities have been completed and our US Air Force is now eagerly out working with a very interesting customer base that is waiting for a reasonable solution for multiplexing. You know that the strategy of the Assoaring, I remind everybody, is relatively simple. Flex does allow customers to achieve cost savings, significant cost savings vis-a-vis the use of other technologies, point number one. And point number two, which is also relevant, it does allow customers to being able to counter some of the issues they are experiencing more and more with reimbursement because of the fact that more and more insurance companies are denying use of full panels. and actually asking customers to adhere more to the guidelines, which restrict the use of the targets that are actually reimbursed, depending on a certain patient population. So we are positive about the technology, positive about the launch, and I think we're going to be then talking about it in Q3 and Q4. Now, PG, please go ahead and take questions. then to the numbers.

Thanks. Thank you, Carlo. Good morning, good afternoon, everybody, and thank you all for joining DSR in Q124 earnings call. In the next few minutes, I will make some remarks on the financial performance of DSR in the first quarter, and then I will turn the line to the operator for the usual Q&A session. Q124 total revenues at 289 million euros are substantially in line with last year, despite the expected decrease in COVID sales and the different perimeter of consolidation coming, as you might remember, as Carlo just reminded us, from the carve-out of the flow cytometry business in Q1 2023. The business, ex-COVID, is growing in the quarter at constant exchange rate by 5%, which becomes 7% excluding the flow business. therefore in line with the higher range of the full year guidance. COVID sales in the quarter accounted for €9 million vis-à-vis 21 in 2023, thus a recording at the case of €30 million, confirming our 2024 outlook, which is calling for nearly €30 million. The FX impact in the quarter is not material. First quarter adjusted gross profit at €191 million, or 66% of revenues, is substantially the same of last year. The carve-out of the flow cytometry business and all the initiatives aimed at improving operation processes and containing costs alongside a more structured approach to pricing allowed us to preserve margins. despite the inflationary pressure experienced in the last 18 months, now muted, and the manufacturing costs we are incurring into to set up our new plant in Shanghai, which has not started the production yet, according to our plan. I believe this to be a remarkable indicator of the success of our efforts to safeguard profitability. Q1 24 adjusted operating expenses at €114 million decreased by 1% compared to 2023, with a ratio of revenues of 40% in line with last year. The fact that operating expenses have not increased despite the investment we have already discussed about a few times to support the MIMED acceleration program in the U.S., And the physiological yearly labor cost increase is a clear demonstration of our discipline in managing the cost base and the result of the synergies delivered after Luminex acquisition. Adjusted operating expenses negative for 3 million euro are substantially equal to 2023. As a result of what we just described, adjusted EBIT at €74 million, or 26% of revenues, is largely in line with last year. Adjusted interest income at €2 million is slightly better than last year, mainly because of improved yield on our cash investment, whereas the adjusted tax rate at 23% is the same of 2023. Net result at €59 million or 20% of revenues is once again very similar to last year. Lastly, adjusted EBITDA at €97 million or 34% of revenues is in line with 2023 and represents a very strong start of the year, considering that 2024 guidance is calling for a profitability between 32% and 33%. Let me now move to the net financial position. We closed March 24 with a net debt of €749 million vis-à-vis €776 million at the end of 2023. This improvement has been mostly driven by the free cash flow generated in the fourth quarter, €42 million vis-à-vis €28 million in 2023, therefore recording an increase of 50% of €14 million. The variance with last year is mostly due to the fact that in 2023, we had some negative phasing issues that have not repeated in 2024. Lastly, we confirm 2024 guidance, which is calling the previous year exchange rate for an increase in revenues ex-COVID of 5% to 7%. with COVID sales at about €30 million and an adjusted EBITDA margin of 32% to 33%. Please remember that, as discussed during the 2023 RN call, the guidance does not include any possible negative impact from the payback in Italy, consistently with the position we took last year, at the light of the latest legal developments. Regarding this matter, let me please remind you that Diasorin, as many other, I would say almost all the other diagnostic companies in Italy, decided to continue its legal dispute, which might take three years before reaching its conclusion. We will keep on monitoring the evolution of this complex and changing situation and update investors as soon as something happens. With that said, let me please turn the line to the operator to open the Q&A session. Thanks.

Thank you. This is the Chorus Call 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 to use the handset. when asking questions. Anyone who has a question may press star and one at this time. The first question is from Marianne Boulot with Bank of America. Please go ahead.

Thank you very much. Thank you for taking my question. Maybe the first one, please provide some color on what drove the 34% EBITDA margin in this specific quarter. And obviously, if you compare it to the guidance range, 32% to 33%, that's a bit above. So maybe could you comment on the phasing you're expecting for the rest of the year? Thank you.

Hey, Marianne. This is PG speaking. Yes. So we were expecting in our budget to have, let me say, a little bit better Q1 if I Think about the phasing of our budget. So Q1 was slightly better than the following quarters, but actuals are a little bit better than our expectations. You know, there are many moving parts. It's not that easy to forecast variances of less than one percentage point, but nevertheless, I think Q1 came stronger than our expectations. considering a budget in which Q1 is anyway a little bit higher than the other quarters of the year. And this is mainly because of the phasing of our operating expenses. If you go back and look at the phasing of our OPEX by quarter in the previous year, so you would see that usually there is an increase towards Q3 and Q4, which is in our projection. That's how we built our projection. Nevertheless, once again, Q1 came in a little bit stronger than what we originally projected.

Okay, thank you. And maybe if I can squeeze a second question, maybe more for Carlo. Could you provide a little bit of an update on the liaison flex and kind of what you're expecting into this year?

As you know, I can't. Again, the only comment I can make is that I think we did our homework. I believe that we have a strong positioning, which I think should be understood very well, especially for people that have been following the Azorin for many years. You know, we have always positioned the company as a specialty company and pointing on the technical performance of our product. That was the immunoassay. In a way, also, we continued, we followed that positioning with our MDX product. products, right, where we go specialty, and this is where they're growing very nicely. That franchise, by the way, including ASR, is growing very nicely. In this case of Plex, it's way simpler because it's a financial consideration by the customer. They can verify very simply, simply looking at the prevalence of the disease in their population of patients. And again, second element is usability. It's a modern system than some of the platforms that are out there, simply for aging reasons. Some of those were launched 10 years ago. These are simply 10 years later. And I think it's a no-brainer, if I may define it, it's a no-brainer positioning. Okay. So I think we'll talk about it in Q3 and Q4 after launch, and I'll give more color about what's happening in the U.S. And again, please, let's make clear everybody understand is a U.S. launch because we do not intend to dilute our effort outside the U.S., and we believe that Europe is going to be our second priority. But this is a 2025 story. The whole company is focused on a successful US launch that, as everybody knows, does represent 70% of the syndroming market.

The next question is from Andrea Balloni with Mediobanca. Please go ahead.

Yes, good afternoon. Thanks for taking my question. My first one is a follow-up on Plex. If you can give us an update in terms of feedback you are receiving from your clients. And my second question is another follow-up, again, on margin. I understood your point that Q1 was expected to be anyway stronger compared to the rest of the year, but I also understood that It was even stronger compared to your expectations. So I was wondering if we can assume profitability close to the top range of your guidance, which is in the region of 33%. And my very last question is on the immunodivision that has reported a quite impressive trend in Q1. if I could elaborate a little bit on this growth and the main driver in terms of test, in case you have experienced any other strong performance for some specific product. Thank you.

Andrea, I will take the last question, right, on Immuno and the Plex, and then I think PG is going to elaborate on the rest. Look, Immuno, I define Immuno as a carrier in the fleet system. because it's big, it's solid, it's based on complete menu, it's working off an install base of thousands of systems, very much appreciated by our customers. And it continues to be the result of a strategy that was devised 15 years ago and has always been very successful, as I think we discussed many times. For a very simple reason, we've been extremely careful to stay away from the path of the gorilla and very focused into specialty areas, which do provide interesting opportunities if, again, you are global, you have an installed base, and you have a credibility with your customers. More specifically, I believe that, if I may name some, QuantiFeron has been a very successful partnership with our friends at QIAGEN. They've done a phenomenal job in building a franchise on quality, and the fact that they transitioned to a recognized quality platform clearly is providing to customers easy access to products a product that is still growing in terms of demand worldwide. So it's making a very good test very much simpler. Second is a stool franchise that is growing even more than our QuantiFERON. They go quite often together because it's part of this set of specialties that customer want to see perform together in a platform, and that's great. And so also there, the competition that we have is pretty much our ability to continue to supply good quality and work with customers to provide clinical data to support the adoption of this assay. Last that I want to comment, you know, we never discuss about it, but at the end of the story, similar size of business is our infectious disease franchise and the hepatitis. And, you know, if you look at our hepatitis menu together with our HCV menu, because of the fact that, you know, for example, hepatitis C does today – Because of the viability of treatment, the use of it is increasing dramatically around the world, and the testing clearly is important for the diagnosis. We do enjoy a very nice growth as well in this, what you would call, Me Too product line. Me Too meaning that all the gorillas have it. But as we have indicated several times, we are not only a specialty company. We drive placements through the specialty, and then we get customers also to use some of our high-quality infectious disease products. So, long story short, I believe that... Together with the hospital strategy in the U.S., we've been talking about it. We've been executing on it. We have been investing on it now for many years. And the fact that we now bring to the market innovation like MIMET, for example, which I keep saying has a very tangible and very much intangible value for the assortment because it's a door opener for the SA and others to come on the same box. And to come, we have the Lyme Detect, which is very exciting for me because of the fact that it does solve a clinical problem for customers. And more than that, I believe we were able in the U.S. to find special relationship with some of the major operators that are going to help us actually to diffuse and educate the customer. So all in all, I'm very, very comfortable with the position of the franchise. When it comes to Plex, Andrea, I believe I said enough, right? Now, jury's out is a simple message. Sometimes I'm saying, as it happens, in many cases with technologies, you get to a point where you need to democratize technology, meaning that, and that typically happens through either an effect of price, and we've been there with vitamin D, by the way, many years ago, but it happens all the time. And the second way to do it, if it's not price, is just make it for the customer, reduce the cost in use, which is what we are trying to do. I believe that the business which has been developed in an incredible way by BioMérieux, they did a phenomenal work educating people and explaining syndromic, getting reimbursement, now it's big enough that it requires sort of innovation, both I would say from smaller panel, yes, although We all know that the vast majority of the business is respiratory, or by innovation in the way that the test is performing. And I think we're bringing to the table a new concept in terms of the way to use it, okay, flexibility to customers. That's it.

Hey, Andrea, this is P.G. speaking. Going back to the margin question, you know, You really need to allow us some flexibility here. It's just the first quarter. What I can say, I guess, is that I feel very comfortable with our guidance, which, let me remind you, is calling for 32% to 33%. I think it's early days to say if it will be more close to 33%, but certainly it has been a good start of the year. and a little bit better of what we expected, which is encouraging. And then we see we are three quarters in front of us, but once again, happy with how we started 2024.

Thank you, Pietro. And just to follow up on the margin, to understand your point, just wondering if you see – anything that could go wrong in the next three quarters that could affect your profitability?

No, the big question mark, I already discussed about the payback thing, right? But there, you know, it's going to be long. It's going to take three years. So I don't think it's going to be an issue over the next three quarters. And then, you know, it's very difficult to say. I mean, I... From the visibility I have now, I would say difficult to imagine some material headwind. But, again, you know, more than that, I don't have a crystal ball, right? So I cannot tell you everything that we think might happen has been incorporated in our guidance. Let me put it differently.

Okay, very clear. Thanks a lot.

The next question is from Giorgio Tavolini with Intermonte. Please go ahead.

Hi, good afternoon, and thanks for taking my questions. The first one is on the Aries conversion. I was wondering how is progressing if you have already withdrawn most of the platform, so basically you migrated most of the 70% of the client that you were targeting, and to the liaison MDX. The second one is on the Quantiferon. We saw some headlines very recently regarding a launch of a new fully automated product for the diagnosis of tuberculosis testing by a U.S. player. So I was wondering if you had any comment on that. this competition, if you saw any competition from this product, and if you are still targeting the registration in China for the quantifier in 2024, so when we should expect some update on that. Thank you.

Giorgio, I will take the quantifier one. I think what you are referring to when it comes to the the new launch, the new automated assay, is the Oxford, which is an attempt to, let me see, automate an assay that fundamentally is a very, very nice research tool, but it's very difficult for it to become a real product to the market. In fact, If you look at where the assay is used today, to my knowledge, the only significant volume done with that assay is at Quest. And Quest is actually using for half of their business, I believe, the traditional quantiferon assay, and half of the business is with this technology. But they offer it as using an LDT that they develop. So using a product that fundamentally they bought is a facility, a lab where they perform this assay because it's extremely complicated. So it is very difficult to be decentralized. So not a worry, to be honest with you. When it comes to QuantiFeron in China, yes, we're doing clinical studies. These days, the registration in China takes forever, but yes, we are doing clinicals with Kaizen to get the registration of the liaison product in the Chinese market. The Chinese market is vast in terms of clinical issues, meaning that TB is an issue in China. It's a relatively small market when it comes to testing because still they do, either they don't test or they do a lot of skin tests, and or they do x-rays. Okay, so it's certainly an opportunity. It's a market to be developed, but nothing comparable to what we see as an opportunity, clearly, in the U.S. and in more established markets. And... Ah, the Ares conversion, yeah. The Ares conversion is said ongoing. We made the last manufacturing lot in April, distributed to customers, and proceeding to the conversion. I think that we're going to achieve easily the target that we indicated. From a revenue perspective, it's a relatively small business. I think that it is needed for us. The real added value is that we reduce complexity in manufacturing and service and so forth because we expect that the uptake of the Plex will clearly need those resources. And this way we actually did it. And it is our intention to kill it as fast as possible. Exactly for this reason.

Thank you, Carlo.

The next question is from Kavya Desbander with UBS.

Please go ahead. Hi, guys. This is Kavya from UBS. Thank you for taking my questions. I've got two, please. The first is on the immunoassay business. So I was wondering if you could provide any color on the number of U.S. hospitals that you've added to the customer base, just how much progress you've made on the target outlined at the investor day of, I think it was 600 by 2027, and you were around 300 at the end of last year. So that would be great. And then my second question was around reimbursement pressure and multiplexing. It's been picking up a lot of press as well. And you said that you're also seeing increased cost sensitivity driving more interest in the PLEX. Is this budget pressure affecting mainly smaller labs in the U.S., or is it more broad-based?

Thank you. Hi, Kavya. No, actually the concern is nothing to do with small or big, because it has to do with the payers. And therefore, pressure is on, and it makes sense to rationalize testing, because honestly, if you look at clinical data, it doesn't make sense to use a multiplexing with 17, 18, 20 targets as a screening process. Screening meaning everybody showing up with a symptom, you run 20 tests. It doesn't make sense. And you start to see rejections because there was a very specific reimbursement scheme that would allow you to perform up to the full panel to a certain population, and I think my sense is that hospitals and commercial labs have been actually using it outside these boundaries until recently. Nobody was paying too much attention, but then starting from the Palmetto moving forward, there has been increasing attention because it's a lot of money in terms of reimbursement. And so, yes, I think this is the right time to bring a product like Plex to the market because you're providing an answer to a concern, okay? On the immunoassay on the hospital strategy, look, I think we've said it a few times. We have mapped the U.S. opportunity in terms of how many hospitals out there would fit with the diastolic prod offering, right? And we said around 2,200 hospitals, give or take, would actually be the market, available market in the U.S. for the kind of system we offer, the kind of menu we have, and so forth. And today we have roughly 350, right, roughly, that we are offering, that we're serving. And we have... fundamentally an objective, a target to have at 100 per year, right? And we do have and this is what we have been experiencing when we started this program and we continue to see requests and we have a backlog actually. We have a backlog of two months of installation in the U.S. because as I said, we are, you know, we are You know, you've been sent to work with the assorting recently, but we are known to be cautious when it comes to OPEX. And so we have what we would believe is the right infrastructure to serve the business at a reasonable cost to the business. Right. So long story short, we have a runway. We have, I think, a very positive runway. um response from customers now for a few years we have the menu and we are adding to the menu to me with this very relevant caveat that we're not leaving you know we're not riding the wave we are getting ready to for the next wave with um with essays that do go to the same account so now you're going to feed the base and and this is the lime detect This is what we discussed about the CalProtecting 3.0, plus a series of products that we don't talk about, which is interesting, which goes back to the Diasorium 2.0, so the Phase 2 of Diasorium Life, which every year we continue to launch two, three products that we call fillers. And these fillers, they go on the stall base, so they don't revolutionize diagnostic, but they go back to the basic principle of making diagnostic simple for these customers, which do contribute certainly to the growth and to the appreciation of our product offering.

Sure. Thank you very much. That's very helpful. Thank you.

The next question is from Jane Gulles with Barclays. Please go ahead.

Hi, thank you. This is Gaurav Jain from Barclays. So I have two questions. One is on your organic growth rate. So we have seen from a lot of your competitors that pricing in hyperinflationary countries like Argentina, Egypt, Turkey, flatters the organic growth rate. So would you be able to quantify for us, you know, how much would be the benefit to your organic growth rate from this dynamic? And second, my question is, you know, again, on the margin questions that were asked. So correct me if I'm wrong, but I think your immunodiagnostic business is lower margin because you have the royalty payment to Kyogen. So despite the fact that your lower margin business is growing at a higher rate, your margins are still expanding, which would mean that your underlying margins are expanding even more than what we see on the first page of your results. So is that the right way to think that your underlying margin expansion is happening despite an adverse mid-shift?

Gallup, listen, I'm a little bit embarrassed because immunoassay is actually not diluted. It's actually defranchised that traditionally is pushing the highest margins. And so the fact that in the mix immunoassay growth grows, it actually pushed the margins in the right direction. Then we have discussed about the fact that within the immunoassay, the fact that we pay royalties to collagen is dilutive to what the margin should be, but the growth doesn't come only from collagen, from TB, and therefore overall, Certainly, Cajun would be delusive if it would represent 100% of the growth, but it does not represent, clearly, 100% of the growth. Okay. I'm a little bit lost in the first question because Argentina, can you just repeat it just one second, what the question was about?

So, see, what has happened with some of your peers, let's say you have, you know, just for numbers purposes, let's say you have a business of 100 in Argentina. and the currency is depreciated by let's say 50% for everyone. And then what a lot of companies have done is that they increase prices by a hundred percent. Okay. So that, but on the organic growth rate, you're essentially showing a hundred percent of annual growth rate in Argentina, but practically it's zero. So can you just remind us, how do you account for these hyperinflationary currency?

Listen, fortunately, Most of the business by choice is 85% of our business is U.S., beautiful U.S., and Europe. Fortunately for us, Turkey and Argentina, all these lovely countries are not a market. We are actually working in markets like Mexico and Brazil and India where you don't have this problem. Long story short, by geography, by the mix we have, we don't experience this effect of having to increase pricing or opportunity, depending on how you see it, increasing pricing in markets where you have a very high inflation, which I thought was your question, right?

Yes, that's exactly what I was trying to say.

Okay. Thank you.

Thank you so much.

The next question is from Subdhanji Gupta with HSBC. Please go ahead.

Hi. Thanks for taking my question. My first question is on your guidance of 5% to 7% extravenous growth, especially related to the life sciences business or the LDG business. So if we think about the larger life science peers, most of them are talking about the edge to weighted recovery. So what are your assumptions about license recovery and what are the assumptions that's built into the guidance? Second, on the margin phasing, so you mentioned that you haven't seen VBP impact, which was anticipated in Q1 and you expected from end of Q2. So should we think about Q3 and Thank you for having, like, a headwind from this VBP impact on margins. Thank you.

Hi, Gokta. Listen, let me start first from VBP. It's very marginal. Let me put it this way. I think we were talking about 3 million. Yes. Annualized. Yes. And now what we're seeing, which was embedded in the number in our forecast, and now we see that the $3 million are not going to be there simply because VBP has been pushed to the second half of the year. But we're talking about very small numbers in terms of effect. By the same token, I believe that the fact that we are in the VBP list, So now we have been granted access to thousands of hospitals that are in that list, and now they can buy from us. It's providing an opportunity. My comment was more related to the fact that plus 13% in China in Q1, which is a great result, should not be taken by anybody like saying, hey, you know, China is back to double-digit growth. because we continue to see that China is – we need to watch out. China is an opportunity long-term. Short-term, there are a lot of question marks on that business, which, again, for us overall is less than 3% of our turnover. So, again, not marginals. When it comes to the guidance, LTG, what do you think is going to happen? Look, we said that it is going to be, you know, now fundamentally the 4% that you saw is a combination of decline in life sciences, everybody is reporting, because don't forget, we fundamentally, we sell to the companies that then eventually sell to the life science customers. And so what they report is fundamentally reflected on our numbers. And so our life science business is declining. But by the same token, you know, as everybody, not only the , but several companies are reporting good numbers on the immuno assay site, our diagnostic franchises does benefit from this success. If in the second half, we will see a recovery from life science. Certainly, we could have a positive impact on our LTG business, right? That is a fair determination, but at this stage, I think we should really be waiting and seeing what happens in the summer.

Thank you. And if I could just squeeze in one quick question. So regarding the immunodiagnostic business, can you give a sense of what part of it is quantiferon?

Gupta, I'm afraid I would love to give it to you, but I would give to every competitor that is listening to this call, so I'm not. I cannot disclose that number.

Okay, fair enough. Thank you.

Thank you.

The next question is from Odiseas Manizotis with Berenberg. Please go ahead.

Hi. Thanks for taking my questions. Firstly, Carlo, I understand most of your licensed tech customers may include larger labs that have gotten their LDTs cleared already and not quite impacted by the ruling. but wouldn't the FDA ruling on LBTs affect new business by making it more difficult for customers working new LBTs using your XMAP platform?

Again, we are not talking about our ASR. We're talking about our ASR business, right, ASR? Okay, the ASR business actually goes on the MDX platform. It's not an LTG business per se. And as I was saying, if so, it's a business that the assorting had prior to the Luminex acquisition, nothing to do with Luminex. And as I said, I don't see this, honestly, an effect on this one because the customers... that we serve do already go for licensing and certification for their LDTA applications. You know, the ASAR business, being a molecular business, initially, 10 years ago, it was fundamentally very much widespread in the U.S. with large and mid-hospitals. What happened, because of the because of the fact that there has been an increasing pressure on technicians and experienced technicians and PhDs that are actually needed to develop these essays, fundamentally today the business is concentrated with a few very large customers. And, yeah, talking about Quest Lab, CorpSonic, Kaiser Permanente, the... the major teaching institutions in the U.S., which do have resources today to actually do validation and submit for licensing. So this is why I'm saying we are going to have an impact. That is going to have an impact. Their regulation is going to have an impact specifically on our business.

Understood. So from what you're saying, for your Royalty business on the licensed tech side, that's not marketed as an LDT?

No, they're not. Actually, you know, what we – and now I understand your concern, your question. The diagnostic side of our business, of the LPG business, okay, is actually made of companies, diagnostic companies, very reputable companies. I cannot name them, but you can, if you look at the product category, you know who they are, that actually have 510K products. So you're talking about a legit diagnostic IVD product that are registered and sold in Europe, the U.S., and China, all across different geographies, and are registered, so... That is not touched at all by any LDT because it's not an LDT business.

Understood. Thank you very much. And one last follow-up, if I may. So on quantiferon pricing, given the lower competition here, would it be fair to assume that this is your most profitable immune assay and to help with modeling with potential competition. Would a 20% price cut here be very material to margins? Is there any metrics you could help us with?

Again, as I said before, I can't. But I can make a statement. It's certainly not the most profitable assay that we carry. You know, in this business, the margins come from things that you make, that you spend money in R&D, you develop, you register, you manufacture yourself. And we have our immunoassay portfolio is, what, 600 million, give or take? 600, 700. 600, 700. And the vast majority of it is Diasorin-made. Quantiferon is a product that adds value to the platform. Certainly, because of the increasing use of it, it does carry a satisfying gross margin, but is not to the level of everything else we make and does not represent, if you compare it to our overall business, such a significant business that price increase would be significant for the assortment. Price decrease, sorry, not increase, decrease.

All very clear. Thanks for taking my questions.

The next question is from Maya Pataki with Kepler Sugar. Please go ahead.

Hi. Good afternoon. Thanks for taking my questions. I have three, please. Thank you very much for clarifying on China, the $3 million. Could you remind us what kind of pricing impact you were embedding in these $3 million? That would be my first question. My second question, Carlo, could you elaborate a bit on how the sales process is going to work for the Plex because you have the panel price, but then you also have the credits. So is it going to be that basically all the products will be the basic panel prices, like whatever it is, whether it's 60% or 70% of the entire panel, and then There will be just a continuous credit system filled up at the client side, which they then can use just to understand a bit the billing process, how that works. That would be very helpful. And then my second question also to you, Carla, please. Prior to COVID, the outpatient part of the syndromic market was around 20%. It was hotly debated back then when the first problematic cut came. Where do you think or how big do you think the outpatient part of the syndromic market is today in the U.S.? Thank you very much.

Okay. Let me start from the last. The last for the best. From our current business, it's 50-50, give or take, right? So we do have a syndromic business, as you know, and today we see 50 outpatient and 50 inpatient. Second question, which I love, the Plex credit is a very simple concept. So you buy a basic panel, which is made of seven, eight results, right, which are the most common prevalent viruses, bacteria that you experience in your population. And you pay a price. Then you run your assay, and if you want to, on a certain account, on a certain patient, you really want to, you know, you run the basic panel, and it's negative, right? It's negative. Now you suspect that, well, it's not one of the prevalent ones. It's one of the most rare ones. Then you have a credit that you buy, and just for reference, okay, and it's not the actual price. It's just a simple number. It's a dollar. So you buy one credit. It's $1, okay? You buy, the hospital buys 500 credits, and it's a QR code, right? And now they want, on that specific patient, they want to open up results. So they download from the credit they bought a dollar, and then they open a result. And they want to do another one, another dollar, another result, and so forth. It's a very simple one. It's managed through the software of the system, and it's very intuitive and very simple. because you buy fundamentally two things, right, as a customer. You either buy the kit, and that comes with the basic panel, and then you buy a credit, right? It's like your telephone. If you think about it, when you were buying the cards to be used on the phone, it's the same story.

Can I just have a quick follow-up here, Carlo? The credits, I guess, they can be purchased immediately online, 24 hours, right? That's super easy. So in case it's not possible that your customers will run out of credits and they didn't notice, in such a case they could just go online and immediately download credits, like with a computer game or something.

No, actually it's different. Since you expect that you may have an emergency and you don't have credit, we do allow them. to have a certain number of – not negative credit, but – Minus coin. They can actually overuse, right? Okay. And then next morning they can buy and fill it, right? So it's not that if you are at zero, you're locked out, right?

Okay, got it. And just – Just two clarification questions, please. You referred to your split outpatient, inpatient 50-50 for the existing Luminex business. Do you think this is a representative of the market, or do you think it is more, you know, it was very Luminex specific? And the second question, the seven to eight pathogens that you were giving us as a basic, I guess that was just a reference. It's not seven, eight pathogens that you will have in a basic package.

So listen, now don't forget, I'm a CEO of a $1.2 billion company. I don't remember the details about the market, so outpatient, inpatient, I can't refer to what it is. And certainly, I'm going to get myself educated and come back to you with a better number. But today, keep in mind that our business in the U.S., the Virgin One business is – fundamentally mid-sized hospitals and commercial labs. So I would expect that what we see is fairly representative of what the market is today. But, Maya, please, on this one, don't quote me. No, no, I won't. It's okay.

I was just wondering.

I think you had a question. Ah, yeah, it's 50%. This is what... Sorry, 5-0 or 1-5? I didn't... No, I wish. It's 5-0. Okay, good. It is true for everybody. Fundamentally, this VBP has been issued for this. But you're talking about eight... So the VVP was taking care of around 17 products, right?

23 provinces.

Hepatitis and some of the thyroid, some of the, let's say, Me Too products, high volume. And it was pretty much everybody, I think, participating and being awarded had a price cut in the range between 50% and 60%. Okay, super.

Great. Thanks a lot.

The next question is from Isham Noor with Morgan Stanley. Please go ahead.

Hi, good afternoon, Carlo and Pier Giorgio. Thanks for putting me in. Just three quick questions. The first one is where are adoption levels today for MeMed? And do you think it's growing at a level where it could be a significant contributor to growth in 2024 or 2025? Second one is also on MeMed. There was an announcement from MeMed this week that they chose Beckman Coulter to distribute the MeMed test on their MeMed Key platform, which is FDA cleared. Do you think this might compete for your volumes among the hospital customers you currently have, or will it be a complementary care approach? And then the third one, just a clarification question on China. Did I hear correctly? It was 13% growth in Q1, and you are expecting positive growth for China in 2024, because this would be somewhat more optimistic than what your peers are expecting from China this year. Thank you.

You know, I'm not an optimistic guy, so defer for me to be optimistic. China, I'm saying that 13% was a great result in Q1, but I don't think, you know, I said nobody should get overexcited because I share concern. And actually, I was one of the first to say, hey, watch out on China. I share the concern that the market is a difficult market. So Q1 was a surprise. It was, though, a favorable comparable because last year Q1 was still very light in terms of volume because of the tail end of COVID. I'm saying moving forward, I expect that 13% to be diluted because now you're comparing to normalized situation and also you're back to where everybody is, you know, price cuts and so forth. So at the end of the – I believe that we may end up closing the year flat or modest growth, but certainly there is no reason why we should continue to grow double-digit. Mehmet, okay, let me start with – With Beckman, I think, listen, first, I always stated that good news, there are more people playing in this field because the major hurdle today in developing the business is educating people. So the more you educate, the better it is. The announcement about the strategic relation and MIMED and the key distribution, we do have the key distribution ourselves. since the beginning, right? And why is it? Because, and this is what Beckman will not be able to offer. When it comes to these tests, you always have a hub and spoke strategy because you go to these hospitals, you know these hospital networks in the U.S. quite often. They have a core lab, central core lab, and then you have the actually smaller clinics where they shut down all the labs and they left emergency. So when you go to this hospital network, you need to be able to provide in the center a higher throughput machine and in the periphery, for emergency, a smaller platform. And we adopted since the beginning the key as clearly the element that allow us to provide a full solution for patients the customer, uh, that Beckman today doesn't even will have when they're going to be launching on their high throughput platform, the, the product. Okay. Mehmet, um, overall, as said, um, we will, uh, I think make a comment on Mehmet, uh, at the end of, uh, of, uh, of the year because, uh, we are going to have enough experience, uh, with, uh, the, uh, uptake in terms of transforming the adoption into guidelines. I think I made a comment saying that the problem with MIMED has nothing to do with the clinical validity. Now it's been validated to the moon. There are publications on New England Medicine Lancet. MIMED itself did a great, great, great job with doing that. The problem, again, is for a busy doctor to go and say and take it and put it in the guidelines so that such that when the patient comes in, the patient is actually tested. It's part of the algorithm of the hospital. And what does it mean? And why is it so difficult, everybody is saying? It's very simple because either you say, you know, everybody walks in with a certain symptom and get tested, which it doesn't happen. Or the doctor should say, okay, if you walk in and you are a pediatric, you always get tested. Or you are immunosuppressed and you always get tested. With an assay that has a certain cost, they don't test everybody that walks in the room, okay? And this is what I call education. maybe to better qualify it, the education is not a clinical education, I feel these days, because, and some of you called hospitals and called doctors and said, hey, what do you think about MIMED? And everybody said, yeah, we know it is a great product. So that door is open these days. It's more put it in practice, make it part of a guidance, and then start testing. And again, as I said, we're going to comment on it by year end. But I think I reiterated this concept several times. For the soaring specifically, that is not a one-trick pony, but we make our living in Immuno with 120 different products we offer. MIMET is a phenomenal door opener because it's an innovative assay and customers and hospitals really want to hear us talk about it. And when you open that door, you open the door with also the traditional products, right, that we can offer. And this is why I'm saying there is an immediate value that is intangible, meaning that open the door and start selling stool while the doctor is working on actually getting the guideline ready so that on that box that we are placing now, add also amendment. Hope it's clear.

That's very clear. Thank you.

Thank you, Ash.

The next question is from Hugo Solved with BNP Paribas Exxon. Please go ahead.

Hi, guys. Thanks for taking my questions. I'm left with two. First, on the U.S. launch for the Plex, just a clarification, is it something that could move the dial in 2024 relative to your guidance and what is actually baked into your guidance in terms of install base or sales? If you can clarify a bit here, thank you. Second, just a follow-up on NIMEDS. Are you able at this stage to maybe give us a bit more detail on how you guys will split market access with Beckman? I'm not sure I quite understood your earlier comments, Carlo. And maybe if you can give us a bit of a better understanding on what's the overlap between your install base and that of the other partners. Thank you.

No, Hugo, sorry. I don't understand the Actually, the second question on Beckman, on MIMED. Let me, then PG is going to take the one on Plexus. I'm saying today that what was announced yesterday by Beckman, if this is your question, what really did they announce? They announced that they took distribution of the MIMED key. MIMED key, sorry, I gave it for granted, but it's a small, very small system. It's a monotest system. that MIMED has in the U.S. They don't distribute, they try to distribute it themselves and then they fail because they're a commercial organization. And it's one test at a time and is very good for the emergency departments for very small labs. As soon as, because it's one test at a time, as soon as, you know, the volume goes up then it is honestly worthless. In a hospital system where the hospital system is organized with one core lab serving 10 hospitals and then 10 emergency small labs in the periphery of the hospital, in the smaller clinics and so forth, it is very relevant to provide a combined offer where you offer the MIMET key, for the, you know, small clinic emergency rooms, and in the core lab hospitals, you put your high-throughput analyzer. So Diasorin, since the beginning, had the ability to take the key and take, key is the name of the MIMED assay, and take the Diasorin assay and offer to the hospital hub and spoke. Right? I placed both. Core lab, the Excel, the key in the small lab. What Beckman announced yesterday, they gave the key. So they're going to go out and work with the key, which to me is great because they're going to be working and educating, but they're missing the hub component. I don't know when it's going to come because they never, ever, I think, they never gave any indication of expectation in terms of approval in the U.S. And I hope this answers your question.

Yeah, it does. Thank you.

Okay, and then regarding PLEX, PG?

Yeah, the PLEX guidance. Certainly in our guidance, we made some assumptions in terms of the PLEX contribution. So it is baked into our guidance. That's the short answer.

Okay, thank you. Thank you.

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

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