Vitrolife AB (publ)

Hello and welcome to Interim Report Q2 2023. My name is Ben and I will be the coordinator for today's event. Please note this call is being recorded and for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star 1 on your telephone keypad to register your question. If you require assistance at any point, please press star 0 and you will be connected to an operator. I will now hand you over to your host, Mr. John Egertson, CEO, to begin today's conference. Thank you.

Yeah, thank you. Yeah, good morning and welcome to the conference call for the Interim Report Second Quarter 2023 for Vitrolab Group. Today, July 14, and the time now is 10 o'clock. My name is, as I said before, John Sigurdsson, and I am the interim CEO here. I am here together with our CFO, Patrick Toth, and we will talk you through the investor presentation and their after open offer questions. You will find the presentation on our new website, vitrolabgroup.com. Let's go to page number two. The APEC has been exceptionally good for this quarter as well as for the whole 2023. For the Vitrolab Group, we increased our sales with 9% to SAC 905 million, excluding discontinued business. Our sales growth was 10% in SAC and 4% in local currencies. The growth in the market regions as well as our business areas differed a bit during this quarter. With the exception of the COVID recovery in China, we see that the number of IVF cycles is returning to a more normalized level, although there is still big differences between and within regions. We also see that several countries have introduced or are about to introduce reimbursement programs, and this will increase the underlying growth in the future, both medium and long-term. During the quarter, we had a moderate growth in EMEA, a decrease in Americas, and a solid growth in APAC. Our business area level technologies and genetic services declined slightly, while our growth in consumables was particularly strong during the quarter. We believe that the high cycle goal has put a dumping effect on technology investment as many of our customers delay their investment to keep an interrupted workflow in the post-COVID period. Now let's move into performance. Net of non-recurring warranty provisions, the gross margin run rate was 56.5%. The margin was driven and impacted by growth and the product and the market mix. EBITDA adjusted for the non-recurring cost increased to SEC 299 million or 33% EBITDA margin. Vitrolife continued to generate a very healthy operating cash flow and we increased the operating cash flow to 211 million SEC for the quarter and for the the year for 372 million SEC for the first half year. Now, Patrick, over to you.

Thank you, Jon. And let's move on then to page number three. And as Jon said, I mean, the growth in the market regions differed a bit throughout the quarter. And also to repeat that, the markets and IVF in terms of IVF cycles are returning to some kind of more normalized level, with the exception of China, that also has a big impact on APAC, although there are still differences between the regions, as we see, and also within the regions. Looking then on our sales performance per market region in local currencies, the growth was then summarized to 4%, and that is excluding the discontinued business, for the quarter. So I will start with Americas where we decreased our sales with 6% for this quarter. We continue then to grow our consumables business and declined in technologies. Technologies in Americas is from a small base and has normal quarterly fluctuations. Genetic services was impacted both on customer and product mix. America, then, market-wise, we continue to grow in South America, although, again, from a lower base. And during the quarter, we also then was impacted by new customer gains that we had in U.S. that was offsetted by a large clinic chain that decided to insource the basic PDTA testing. And throughout the year, we have seen several changes in the genetic testing market in the U.S., where some players within genetics now focus on other genetic testing areas. This gives opportunities for us, which we have taken, and we grew in specific areas like carrier screening testing as one example, and we will continue to strengthen our capabilities in U.S. The growth in EMEA was 3%, and that again shifts a bit within the region as well, and the growth regional-wise is driven then from north and central Europe as well as Middle East. Strong and robust growth of our consumables products across the line. Genetics services continue to grow strongly in Middle East. This quarter offset a bit by a decline in the northern part of Europe. Technologies made some major gains, some major accounts in the northern and central Europe during the quarter, but also offset them by large installations that was done during the last year. Growth in APAC, 19%, and we grew within all business areas. Growth was strong in several markets, particularly Japan, Southeast Asia, and also China. And we have seen that the activities in China has continued to increase during this quarter, but is still impacted by COVID. So moving on to the next slide, page number four, where we look a bit more into business-era consumables. So all in all, growth of 24% in Swedish crowns and 17% in organic growth in local currencies. with a solid growth in all product areas, media, disposable devices, and also the genomic kits that we sell through the business area, consumables. Our focus is on scalability and the investments that we have done previously to increase the production capacity of disposable devices. HANA has enabled growth in all market regions, We have, of course, very high quality standards. And during this quarter, we have scaled and ramped up our production on media, particularly to meet the increased demand, particularly that comes from APAC and China more specifically. So moving on to slide number five on business area technologies. And as we know, there are continuously some volatility over the quarter for our installations, depending on the clinic's ability. to take on the installations of our systems. The growth within technologies is continuously driven by standardization within the consolidation of the clinic chains, focused on improving the workflow, in addition then to use the embryo scope as an embryo selection tool. We have strong pipeline and strong interest from customers to use our embryo scope, supported then by our AI capabilities of IDASCORP. That becomes continuously more standard of care in several markets in APAC and EMEA. For the quarter, we declined the sales of 2% in SIEC, 7% in local currencies. America dropped 38%, but is impacted by some installations to customers in South America primarily last year. And in U.S., we continuously see opportunity for the embryoscope as we are focusing on workflow and efficiency gain for clinics using biopsy that can gain additional workflow improvements on using our equipment. In EMEA, we did some major installations to customers this year, but also last year, and hence we see a decrease on that side. And APAC continues to grow, and we see it continue to grow in primarily Japan. And as we have seen in other markets, when it comes to recovery from COVID, we see that the consumables products normally comes first, and thereafter investment into technologies. And that is what we now expect in China going forward as well, where the recovery has started on the consumables products first. Investments into technologies is another budget and will probably come later on during this year and into next year. Moving on to page number six on genetic services, starting then where we then declined 1% in Swedish crown and 4% in local currencies for the quarter. And that is, of course, then excluding the discontinued business on that side. Starting then with the largest market for genetic testing, which is Americas, where we, during this quarter, declined with 10%. We increased by 10% during the first quarter. We continue to grow solidly then in South America, but the basis is lower than compared to North America. A couple of things have impacted during this quarter. Firstly, if we're then starting with the customers, we have done some changes there as well. We have a strong position continuously amongst large clinic chains. One of them has decided to insource their basic testing, and we have also been able to gain new customers that offset the majority of that lost sales, which is really good. And as I said initially, we have also now started to strengthen our products and services portfolio and will now also then start to sell the newly launched Smart PDTA Plus. That will continue to be competitive when it comes to the embryo testing on that side. Secondly, there has been some changes then within the genetic testing market. Some players working within genetics have decided to focus on other things. which is an opportunity that we have taken and grown into areas like carrier screening testing as one example. We have also then seen a bit of a change when it comes to the product mix, where we are gaining again on the embryo testing, not only in PDTA, but also on PDTM, but we have declined in our demetrium testing ERA on that side. So that is one of the big drivers for the decline that we've had in America throughout the quarter. Moving on to EMA, where we had a moderate growth, continuously then a strong position on EMA in the Middle East, but it has been a bit offset by moderate growth in the northern part of Europe. In APAC, we continue to grow. We grew with 9%, and that is driven then by growth in key markets like Japan, Taiwan, with endometrium testing and embryo testing, PDTA and ERA. Moving on to page number seven, where we then summarize the financial highlights. And let me repeat then, we have then a growth of 9% in Swedish crown for the quarter, and that is then equivalent to 10% in Swedish crown for if we then exclude the discontinued business. And the growth in local currencies organically is then 4% if we then exclude the discontinued business. Gross margin for the quarter was impacted by a non-recurring cost that excluding that one gives us then a run rate of 56.5%. Margin was impacted positively then by the growth that we have, particularly consumables, but negatively impacted by the market and product mix that we have, particularly then in America, but with a lower recurring cost base that we have for genetic services that is also continuing to be a positive driver for the cost profits. EBITDA level, we increased that one, and 299 is then the like-for-like, then giving us an EBITDA margin of 33%. Moving to the next slide on operating expenses, that increased with 7% to 317 million Swedish kronor for the quarter, and that was driven then by investments into sales and marketing activities, such as ESHRE, the big conference here that was done in the end of the quarter, and also relating to personnel costs on that side. Since the majority of our operations and staff are located outside of Sweden, of course, we have a negative impact on currencies, which is approximately half of the increase on that side. Exploratory research focus, R&D cost is then slightly lower compared to last year, and that is primarily dependent on that we have done the agreement on the foundation that was signed in the beginning of the third quarter last year. So that is an impact that you see on the positive side throughout this quarter. Yes, so moving on to the next slide, which is then again a summary on the key financials. To highlight a few things here, sales, 905, and then we have the adjusted gross margin, which is 58.1, and that's where we adjust them for the amortization of acquisition-related intangible assets. EBITDA margin, 33%, and we continue then to strengthen the operating cash flow on that side. So that increased by 17%. for the quarter, giving us then a strong cash flow both for the quarter and then obviously for the first six months of this year. And this gives us then a lower net debt to EBITDA on a rolling 12-month basis that now is 1.3 times compared to last year, 2.4. Then I'll leave it back to you, Jon, for some final comments.

Yeah, thank you, Patrick. The takeaway for this quarter is that the fertility market is returning to pre-COVID conditions with some post-COVID challenges for both us and our customers. Cycle growths are returning to normal, reflecting our solid growth in our consumable businesses. and our ability to deliver it on our new global sales and marketing setup, which we have previously communicated, and makes us able to extend our market reach both geographically and with extended product reach. This gives us excellent possibility to benefit from healthy underlying cycle growth and structural changes in the market. where we will benefit from our extended product portfolio on our broad product slash services range. And that was very apparent of Esri, as Patrick mentioned. The main trade show for the industry that was held in the last quarter, in Copenhagen two weeks ago, where we introduced a host of new products and services, cementing our position in the forefront of the development of the IVF industry. This includes new and better DNA testing, upgrade of our media product range and devices that will not only promote clinical outcome, but also help with workflow in the clinics. All our technological platforms are well suited for the new AI development and is integrated part of our development going forward. Although we are well positioned to benefit from a healthy underlying market growth, expanded product and portfolio, and long and well at this position in the market. Thank you for now, and now we open up for questions.

Ladies and gentlemen, as a reminder, if you'd like to ask a question or make a contribution on today's call, please press star 1 now on your telephone keypad. To redraw your question, please press star 2. The first question comes from the line of Jacob Lemko. Calling from Seb. Please go ahead.

Hi and good morning. I have a few questions and I'll take them one by one. If we start with genetic services, I would like to hear your assessment of the the balance of lost and gained customers here, and also when we look into the second half of the year.

Yeah, I can start here. The genetic services, I mean, those are mixed up. Of course, as you see, we have a growth in APAC. We have a considerable decline in U.S. The reason for the decline there is kind of... let's call it a very critical article that was published on our error testing, claiming that the error testing was not beneficial for the patient of IV and our patients. Partly this is true as we have never promoted error testing for the general patient group. We have, but it's very, very valuable for the recurrent patient coming in and couples having problems with conceiving. Now, those have, we have about 15% of couples, recurring couples, And we have a very solid proof that this is very beneficial for them. But it has to be said that some of our customers have been very aggressive describing it to the general public. And that is the backlash we're facing now. We believe that in the future... this will stabilize and it will be used in the re-parent couples, which is about 15%. Only 2% of those are being held by error testing. So there's a lot to gain there. And in our view, this is the main reason why this development is happening in U.S. Do you have anything to add, Patrick?

No, I think you covered it well. And going back to the mix of PDTA, and as we see, I mean, there are some clinic chains that have decided to insource their basic PDTA on that side, and genetic services has, in the U.S. particularly, been focusing on big IVF clinic chains. But, of course, there are more clinic chains and more clinics that we are also working with now as well. So, I mean, we've been managing to offset the the loss, call it, from some clinic chain to new customers on that side as well. So that we have an opportunity to do, which we have captured during the second quarter as well.

Okay, just a short follow-up on the ERA test. Do you have any sense of when this sort of pressure on that test will reverse, or have you seen any changes recently?

No, I mean, this article came out in the beginning of the year, and it created a lot of kind of disturbance in the market, and it was harshly written, concluding with a far-reached conclusion And some of the claims there are right. I mean, we have never recommended error testing to be used in the general public or general patient groups. But this is one of those things that have to blow over and stabilize. There are some customers that are kind of sceptical. hesitant to use it now, but there are others that have never wavered, and we believe that this will just stabilize. It'll take some time, but it'll stabilize, and we believe that there's still potential in the aerotastic

Maybe to add to that, we are the pioneers within this area, but we are not alone. We have one of our big competitors also offering similar products on this one. That also, of course, gives us a bit of comfort on that side that there are additional opportunities. We, of course, have the biggest market share within this field today. and we'll continue to work together with our customers to get this really successful continuously going forward as well.

And it's very important to understand that this is not something that somebody else is taking market share from us. This is some customers that are wary of describing error testing because of these discussions within the industry.

The next question comes from the line of Ulrich Kratner calling from Carnegie. Please go ahead.

Great. Thank you very much. I have a ton of questions. We can start off with error testing and your statement there that 2 out of 15% of patients being more problematic are currently using error tests. But just how big is the current penetration in the U.S. out of the overall population?

I believe it's 3% plus minus. So there is a 15% of recurring couples and the penetration is, we believe it's 3% plus minus.

Okay, so if you were to switch the patients that have been overly subscribed to the ones that actually need us, you would still have considerable growth opportunity.

That's correct. Absolutely so. Yes. And we talked about the RIF patients, and RIF stands for Recurring Implantation Failure. Yes. And that is deemed to be something like 15% of the patients.

And perhaps going back to Jacob's questions here earlier on the call, when you're expecting to see this trend abating, I know the article was out earlier this year. Are you doing anything on your own in terms of clinical studies? You also talk about new products being launched. I know Embrace being on the market, PGTA Plus or PGT Plus also being on the market. So when should we balance this and see that genetic services are back on track and actually growing?

I mean, of course, we are doing a lot of things on this side, on the Indonesian test specifically. I mean, again, we are upgrading SSA. Emma and Alice, who are also testing then when it comes to the timing of the implantation on that side, supporting then the... the transfer of the embryo. That is one thing. We are also speeding up a bit on additional clinical studies on this one. Of course, we have a lot of experience. This is one article. There are several other articles that talk in favor of ERA. So, of course, that will continue. But we will, of course, work on additional clinical studies to support our conviction that this is really value-adding on that side. So that's what we do on the endometrium side. When it comes to other testing that we are improving here as well is what you might have heard here. It's the Smart PDTA Plus, as we call it, which is then an upgrade on the existing PDTA test on that side that contains additional features that will be launched during the end of this quarter, beginning of the next quarter. throughout the year as well. That will continuously then strengthen our position within PDTA. And for us, of course, it's important to be competitive on that area. So that we are taking a lot of actions on as well.

Great. And as well as on genetic testing, looking at the rest of the geographies and your comments, It sounds like the price pressure you have experienced throughout the last few years is abating. And the trend from Q1 looks to be consistent here in Q2. Is that what you're currently seeing as well? I know that you're talking about taking market share in embryo mapping, which is bread and butter type of genetic tests. So you're grabbing market share, I'm guessing, in those areas as well.

Yeah. We continue, I mean, to, well, expand that business, so absolutely so. And also, I mean, when you think about the next generation of PDTA, of course, that will, since that increases more features as well, there will be additional activities on the pricing for that time as well. So those kind of things will also be positive for us going forward as well.

Okay. Question on consumables. One being on China, but we can perhaps start off with Europe and US. They are growing fast. Looking at your organic growth here in Q2, is it that you're taking market share or are you experiencing that Europe and US are accelerating in terms of its underlying cycle growth?

We believe that there is an underlying cycle growth. At this stage, we are not prepared to tell you. I mean, we don't know whether we are taking markets or not. And when that happens, it's probably a mixture of both. But it is a very favorable situation. And we believe that there is, as Patrick mentioned, there is a time lapse. the time lag in the investment decision on time loss specifically that, I mean, because of the cycle growth, the capital investment have been delayed in some customers. We see that in both the US and Europe. and maybe specifically in China where we have two different budgets and they are refraining for making investment decisions while there is such a demand on the workflow and the IVF clinics.

Okay, good. And on China, Can you give us some more granularity on the current development and trend in China?

I mean, again, it's recovering. I mean, we saw the call it start of the big recovery then at the end of the first quarter on that side. Then it was just a month on that side. But of course, it continues. But COVID is still not over. Right. So, I mean, it's. Underlying growth is there, but there comes the additional COVID waves in China, as we all know, on that side that has an impact or has had an impact as well.

But going forward, I mean... And it has to be said as well that, I mean... all suppliers are scrambling to meet the demand from China. And we could probably have sold more if we had been able to deliver. And what we are getting from others, that's the case as well for them. So this is a post-COVID headache. It's still lingering.

It's almost likely to linger for beyond 2023 as well, I'm guessing.

It's probably true.

A question on the margin side. Are you happy with the development? I'm seeing, sure, some minor improvements on the adjusted VTA margin, but I recall you had GPDX in the portfolio back in the second half of 2022, which had a negative impact. You were quite confident in gaining margins in genetic services. And also when I look at the Q2 isolated, consumable was the outperforming part here, and it's a margin driver of your business. So are you happy with the margin development currently? And what should we expect going forward? And what should drive margins higher than we're seeing currently?

Well, it's probably not appropriate to say whether we are happy or unhappy about the margins. And, of course, I mean, the margins are going sideways. And, of course, we shouldn't be happy about it. But on the other hand, I mean, we have a tremendous price pressure out there. So we believe that we've been able to keep the gross profit margin and the margin. That's something... But we believe very strongly that there are synergies still in the business. There are some scalability, and that's the most important thing. And I think that I believe that there is an underlying scalability in the business, and the like-for-like margins should improve going forward. And I would, of course, no CFO and CEO should be happy for constant margins. They should improve and there should be a scalability. I know that is not a very concise answer, but that's how far we can go.

Fair enough. Last question on my end. Cooper and cook merger. Um, they look to be terminating that. Um, and I know that you don't want to talk specifics, uh, about that specific event. Um, but we're, do you see opportunities here? I'm like looking at your balance sheet, looking at your cashflow, are you seeing opportunities to buy products from cook? Um, from sort of that situation, and would it bring any product in specific that you would be more interested in?

Well, I mean, I think it's the best tool not to speculate on it. I mean, you can read the balance sheet as well as we can, and we have the – financial ability to do it, but I don't think we are prepared to speculate anything on it at the moment. But there is no question that we will benefit from this and just from the industrial dynamics. We are one of the major players. We are a very stable player. We have been able to deliver products where a lot of others have not. And I think long-term, all this will benefit the bigger ones, and we are in that enviable position. Other than that, I don't think it's appropriate to speculate on it and inappropriate to comment on what the competition is doing.

Okay, thanks. That's fair enough. Thanks, June and Patrick, and I'll get back into the queue.

you thank you the next question comes from the line of patrick ling calling from dnb please go ahead yes good morning i i also have a few questions maybe we can start in in the us with the genetic service business i mean we talk a lot about the era now but could you just give us a sense for how much the net impact was of losing a large client and gaining a few new. I got the sense that it was still a few percentage points negative on growth.

Yeah, but not much. It was basically, I mean, the gains that we have with new customers has more or less offset the drop that we've had throughout the quarter on that side. So it's more or less flat on that side, slightly negative, but not material.

And it's worth to note, Patrick, that, I mean, how I look at it is that the big chains are taking the commodity testing in-house because those are very, very, those are easy. It's easy to do. It doesn't require much service around it. it's the lowest profit margin from us, but there are two things there. First of all, there's a huge vote of confidence in generic testing that they are doing it. That's the first one. I mean, they're not going out of testing at all. They're even investing in it. And that means that our further development in our the carrier screening, smart PTGA, and all the new product, new services are then, and we have a very good chance of getting those, which are more profitable and not so easy for our customers to take in-house. So mid-term, I don't think it's necessarily a bad development.

Okay, so if you think about the large chain that you lost now, did you lose everything or did it just insort certain parts of the operation? Can you already see that you're keeping the high-tech, high-margin products?

Yeah, that's very typical. Yeah, they don't take the more specific testing. I mean, what they're doing is they're taking the... let's call it, I don't know whether you can use the commodity testing or more simple ones. Yes, that's the case.

Okay. And when you're gaining new clients, are they typically less profitable in the beginning? So even if there might not be such a huge impact on growth, might there be a larger impact on profitability from losing a big established customer, but at the same time gaining some new customers?

Unfortunately, I don't think that is a good point, but I don't think that's the case. No, I don't think so. We gain them at the same price. It's a good point, but I don't think so.

Great. Then I also had a question. You talked about China and technology and and indicated that there's been a big growth in IVF cycles and technology investments have held back a little bit and it's expected to start growing in the second half of this year and the beginning of next year. But my question when it comes to that is, I mean, we're moving into the year of the dragon, which has historically been a year where cycle activity in China actually picks up, which I mean, it's a little bit contradictory, I mean, because you should expect the underlying cycle growth in China to actually accelerate during the latter part of this year and into the beginning of next year. So maybe you can comment a little bit on expectations there.

I mean, year of the dragon, yes. Of course, as I say, I mean, that's happening next year. So that might also potentially continue to boost the growth in IVF cycles in China. Absolutely so. We see, of course, the consumables product coming out first. And, of course, there is a big demand of replacing and make new installments of time-lapse equipment on that side. The point here is that those kind of installations takes a bit longer time. First of all, it's different budgets that it needs to go through on that side, but it also needs to have time then to make those installations as well. So normally in the recovery phase, those comes a bit later on here as well. But of course, capacity needs to increase in China to meet the increased demand here, as you say.

But there's one thing that's very important to come across, and that is I mean, AIPAC is very successful, and the growth in AIPAC is not only China. It is actually a very positive trend that there are countries in AIPAC that are coming in very, very strongly. So the very healthy growth in AIPAC is not only China. It's across the line.

Okay, great. Got it. Okay, thank you very much, guys. You're welcome. Thank you.

The next question comes from the line of Johan Unerus calling from Red Eye. Please go ahead.

Yes, thanks for taking our questions. I only have a few. Of course, there are many moving parts, especially in genetic services in the U.S., so this is a bit of a follow-up. What should we expect recently short-term during this situation? Will you be able or expecting to protect margins or stabilize margins already towards the end of this year, or is this something we should expect more to see next year?

Well, John, it's really difficult to tell. And when we say it's difficult to tell, it's probably that we don't know. And it is – the issue is very simple. The issue is that there is an article that casts doubt on the effectiveness of the air eye injury with patients. We believe that the conclusion is not right. We are countering that. We need to counter it customer by customer, and we believe we have indeed evidence on the contrary. How fast that will rectify the truth answer is we don't know.

But that's the comment I made. not all about the array as well. That is one important thing as well. But, I mean, all the other actions that we have done, I mean, we launched, you know, as we call it then, the Operational Excellence Program, which is focusing on getting down the cost when it comes to the PDTA testing, cost of sample, and those kind of activities. That continues to make progress on that side as well. So, there are two sides of it as well. I mean, as we know, I mean, the the fixed cost portion of genetic services compared to consumables, as an example, is slightly higher on that side, as it is today. So the margin will be, call it, more dependent on the volume compared to the other business areas. So we are working on both ends, of course, on the cost and the efficiency on that side, and a lot of other activities when it comes to the sales side, as we mentioned.

Yeah, and two additional on that side, The studies you are undertaking to support or validate the core part of the raw testing, when can that be expected to hit the market?

Okay, are you referring to the test or the study we are doing now?

Yes, the core 15% support.

Okay, yes, go ahead.

Do we know? No, I mean, first of all, to get the whole market potential penetration up from those, say, to 3% where we could possibly be today up to 15%, that would take some time, of course, for the market to get back to those levels or to get to those levels as well. When it comes to our studies on that side, we are working on that side and probably we'll have something ready by the next year.

But, John, I mean, it's not like we don't have anything. I mean, we have a lot of material already supporting our claim that for RIF patients, ARA is very beneficial. But we are, of course, you know, there is an ongoing study now, but focusing only on RIF patients. And I'm not familiar with it. It's not until next year we will have a resource there. I don't know exactly when.

Okay. And the support from Smart PGTA Plus is launched sort of towards the end of this quarter, I suppose. And what can we expect in the initial take-up? It's a bit of a perhaps a at least part of the market is probably on the tougher side to launch in.

I mean, the main focus for the launch of Smart PDTA will be initially US on that side, so that we will launch and start selling here, say, full effect during the fourth quarter for this year as well.

Okay. Yeah, I think that was most on Mike. I mean, overall, of course, the ambition is to improve the capital efficiency, but that will come as a result of stabilization and efficiencies and support to volume, I suppose.

That's correct. Yes, yes.

And maybe also finally in this situation, of course, the support from the consumer dollars and APAC is important. It is obviously very solid, and the good period continues, and what's the outlook on that side? Because that's, of course, very important in this situation.

Yes, correct.

Absolutely. The outlook is anything to be said on consumables and APAC.

Well, barring another COVID, you know, another COVID wave, I mean, there's nothing in the cards that should change the trajectory now. But it's, your guess is as good as ours, of course. Yeah. I mean, it's a It should be a post-trend going forward. Okay, thank you.

You're welcome.

The next question call is coming from Susanna Kekborner calling from Handelsbanken. Please go ahead.

Hello, Susanna Kekborner here. I'm also going to come back to genetic services. So first of all, you mentioned losing a clinic chain in the US due to insourcing. Do you expect this trend to continue into the second half of 2023? And if so, is this just the beginning or have you seen this affect your sales specifically in the US, but also in Europe and APAC already? And then also... In terms of these trends and their insourcing of genetic testing, you mentioned PGTA, but is this trend really just PGTA or is it for all genetic testing? So that would be question one. Then on two, in terms of the ERA, again, we mentioned the impact on the U.S., but there, as far as I understand, the sales have been declining for a while because of this publication you mentioned. But now at ESHRA in June, we actually saw the European market Society for Reproductive Health announced that they also released guidelines that were somewhat critical of ERA. And in Europe, particularly Spain, you see high use of ERA. So are we to expect that this decline in ERA sales is also going to be seen in the European market? And then finally, in 2018, you made this exclusive global deal with Illumina for PGTA kits excluding China. And we noticed that this is up for review in 2023. Now, Illumina is the most common sequencing platform, but iGenomics uses Thermo Fisher Scientific. So perhaps you could tell us how we should think about this within your portfolio.

Okay, will you start with the first one on the PDTA?

Okay, so the impact of PDTA is, I mean, what we've seen is that whether this will continue is that there is a trend that the chains, the consolidation of the business means that there are bigger chains and there is a trend of those bigger chains to take PDTA in-house for in-house testing. It's a numbers game, of course, and they insource what they can do cheaper than outsource it. Now, we've not seen other than PGTA because of the cost associated with more specialized testing, and we have not seen seen those chains take other testing in than PDTA. Now, whether that will continue, it's fair to assume, I guess, that consolidation means more insourcing of PDTA. However, I mean, we've been able to gain customers as fast as we are losing them. So, The net-net in the U.S. is pretty much similar than last year in PDTA. So I hope that answers my question. So it's really a question of whether the consolidation will continue or not.

On the second note, Susanna, on the ERA, I mean, as I said, yes, the ERA, The biggest impact has been in the U.S., but, of course, we do some sales of ERA in Europe as well. And we haven't seen such an impact in Europe. That might happen, of course, going forward. But, of course, then you refer to the guidelines here that comes out of Asia, which is, of course, also one thing of the debate backwards and forwards that is going on now within the professions as well here. So we are discussing and debating that one backwards and forwards with our customers on that side as well. And there are a lot of opinions on this one, as always, when guidance comes out from Escher on that side.

On the third bullet here, and it is actually worth mentioning, as you know, Susanna, probably better than us, is that there is quite a difference of opinion between europe and u.s where it's come to be genetic testing overall and there are even a big part of europe doesn't use it at all exactly and uh and that is um that is debate that is going on and uh and and part of that debate is of course that I mean, it's no question that ERA has been oversubscribed in U.S. I'm not going to plunder our customers, but typically U.S. healthcare is profit-driven, and it's probably described more aggressively than it should. And by the way, I mean, our guidelines have never, ever been recommended error to be in the overall population of patients. It is with patients. And that's what we've always said.

I'm going back to your last question about the kits that we then sell. And we continue to do that. We have extended the agreement on that side. And we continue to do that one. And during ESHA we also did an upgraded version of the carrier map on that side. So we will continue to do that one. But, again, it's based on the Illumina platform, whilst we then, with the Inetix services, are also currently using a bit of both on Illumina but also on Thermo Fisher on that side. So that is a question to come back to as time goes on here going forward as well on the platform and the various platforms.

Thank you. Can I just quickly follow up on two things here? So the first question, when you talk about consolidation and insourcing impacting largely PGTA, would that also embrace?

No, that is not on the scope, no.

And then for the final question, If you have kits that are suitable for thermoscientific, well, with a sequencing platform for Illumina and thermoscientific, do you have any issue marketing them both simultaneously?

No, I mean, today the platforms that we have within Genomic Classical, those are related to Illumina on that side. So that's what we currently have today.

Okay, thank you.

And the last question is from Jacob Lemke, calling from Seb. Please go ahead.

Hi, I was cut off before, but I have two more questions if I may. First on Japan, I know it's more than a year since the new reimbursement was implemented, so I'm just wondering if you're continuing to see uh high growth now also when this sort of one year is in the number the question of the answer is yes okay very clear and then just lastly on uh high level on on consumables it's very strong across the board in my opinion so i'm just wondering if Is this just a reflection of where the market is, or is it anything in particular?

Well... I mean, it's both, right? I mean, it's... Market is recovering here, as we have said, on that side, and obviously in... particular parts of Asia, China, then it's also that we are benefiting on competition situation in the media product as well. So that certainly helps our position, particularly in media in China and Asia, Southeast Asia particularly.

And it is probably, as always, there is a mixture of some things and as Paul Patrick mentioned it, a healthy growth in the market and our ability to support our customers and a disturbance with the supply. She should not comment on it.

Okay, great. Thank you very much.

Thank you, Jakob. You're welcome.

There are no further questions, so I will hand you back to your host to conclude today's conference.

Okay, so thank you for your participation and a very lively question and answer session here. Thanks for that. And I want to thank you for a very short but good cooperation as the interim CEO. We are all looking forward to welcome Bronwyn in her role as a CEO as of August 1st. And I will step back to my role as a channel. Thank you very much for a short and good cooperation. Thank you.

Thank you for joining today's call. You might not disconnect. Host, please stay connected.