DiaSorin SpA

MIL:DIA

Earnings Call Transcript 2021-Q1

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the DiaSorin First Quarter 2021 Results Conference Call. [Operator Instructions]

At this time, I would like to turn the conference over to Mr. Carlo Rosa, CEO of DiaSorin. Please go ahead, sir.

[Carlo Rosa, executive]

Yes. Thank you, operator. Good afternoon. Welcome to the quarter 1 DiaSorin conference call. As usual, I'm going to make some general comments about the business, and then I will turn the microphone to Mr. Pedron, the CFO of the company, that is going to provide you -- going to take you through the numbers. Let me first start to say that, as usual, I'm going to comment numbers at constant exchange rate because, as you know, dollar variation has been significant and the ForEx effect is fairly significant in quarter 1. And I will talk about the COVID business and ex-COVID business to give you a view about how we see the market developing.

Let me start for once from the ex-COVID business. I believe that the company performed extremely well in quarter 1, as you've seen, plus 6% versus quarter 1 last year. We introduced a couple of adjustments to allow us to understand the real trend. The first one, we took out the effect of some one-offs regarding the Vitamin D contract with Quest that, as you know, was there last year, is not any longer in our revenue this year and then the Siemens effect. Meaning that last year, manufacturing the Siemens ELISA was stopped as per contract, and therefore whatever was converted to CLIA was converted and the remaining ELISA revenues have been dissipating throughout the last few quarters and now almost nil because the pandemic problem is not there.

So if you take out these 2 effects and you look at how the business performs, the growth is 6%, which is an indication that, in several geographies, notwithstanding pandemic, the lab business and the hospital business is returning to relatively normal. Of course, as far as specialties are concerned, as you know, we -- our revenues are skewed toward specialties. We suffered last year because nonelective surgeries were actually not performed. And now with the clinical patients going back to get tested and to be monitored, then we see, again, the use of specialties going up to where they were.

So extremely comfortable with the way that this business is doing specifically from a geographical point of view, as we have discussed a few times. U.S. is actually the lion's share of the growth, and this is because of the fact that the hospital strategy is paying out. The TB product line, T-cell, together with QIAGEN is working very well, as we also have seen from QIAGEN comment on the work of its business. And to -- that goes together with a series of specialties, primarily gastrointestinal, that we have launched in the U.S., and they follow suit together with TB on the same customer base.

Europe, same thing. Notwithstanding pandemic is clearly stronger here at the time, notwithstanding that in all the main countries the base businesses are returning to normality. And again, we are gaining from the fact that some of the TB business that was developed, together with QIAGEN, now with all the installed base and customer gain, is providing traction to our traditional ex-COVID business. Now let's talk about the elephant in the room. Let's talk about COVID. And as you know, as far as COVID is concerned, we look at COVID in 3 different technologies. And I'm going to comment the 3 technologies from molecular technology, and COVID antigen, high throughput testing.

Now let's talk about molecular. And when we look at molecular, we need to actually comment U.S. and Europe separately. As far as the U.S. is concerned, public data shows that the molecular testing has been significantly decreased volume-wise, from peak time, which was actually Q4, let's say, around December, January this year. Public data show that daily testing peak is 1.6 million around December. And now we are closer to 1 million.

And the projection is that by the summer, it's going to plateau at 750,000 PCR tests per day. We see in the U.S., the frame of our business to follow pretty much the path, all driven by the fact that there is a less request for the time being of testing volume. We don't see any effects of our pricing also because if you know, the reimbursement scheme under the emergency situation is still in place, allowing customers, good reimbursement for their -- for all the testing, which is performed.

Now if we look at molecular Europe, we see a completely different trend. We see a little bit of softening, but really not so remarkable. And this is -- has to do with 2 effects. First one, certainly, it has to do with the fact that pandemic is still in place. Strong demand in the major geographies where we play. I remind you that during COVID time when there was a shortage of systems and reagents we elected to give a priority in Europe to certain countries, namely Italy, Spain and partially in France. And therefore, we built an installed base, primarily in hospitals, in these 3 countries.

Because of the fact that, again, testing volume in these countries continue to be strong, because of the positioning of our platforms, which have been typically used in emergency room or hospital admission of additional patients, the -- we don't see today any decline. To the contrary, we see an expansion of the installed base because there is more need of smaller system and conversely less need of high throughput system in this hospital because decentralization of testing now is becoming a relevant part of the COVID testing adoption.

So the combination of Europe holding and the U.S. declining according to market volume, we have now developed a certain view vis-à-vis the year end guidance that I am going to describe later. But you understand from a time being molecular-wise this is what we see. Let's comment on serology. Serology for us is what we always said, the part of the business that we believe is going to take longer as a necessity to monitor vaccine response, not necessarily in the general population, but in certain very specific populations, lots of publications have been now -- are now demonstrating that in immunocompromised patients, in dialysis patients.

So in certain populations, their response to vaccine is different from the normal population. And therefore, we see adoption of testing of serology testing and monitoring that is for us significant. We have, as you know, an extensive installed base of LIAISON XL. And we see this volume growing on a monthly basis high single digits. We also have serology used in secondary countries like in Brazil and India, where there is still a growing number of cases and lack of solutions -- molecular solutions. Therefore, we see in this countries also the adoption of serology still growing.

And we continue to be positive about the fact that serology adoption will continue. And especially in those countries like the U.S. where we believe eventually monitoring is going to be added as part of the physical checks -- annual physical checks provided by insurance companies, so very positive about that product and very positive about the opportunity of the product. Last but not least, the high throughput antigen testing. High throughput antigen testing has been developed by DiaSorin in light of the fact that we believe a high volume of an expensive molecular testing was going to become an economic issue in several situations. And we saw that a sensitive high throughput antigen test could provide a solution.

For the time being we have not seen that shift. We have seen antigen testing clearly being decentralized, as shown by many of our competitors who play in that field. By the same token is public knowledge that we are participating as a primary supplier of LabCorp to the national tender in the U.S. for returning to school. You know the tender has been postponed already a couple of times, the opening of the tender. We are enrolled in the tender as well as LabCorp, so depending LabCorp is going to be awarded we are going to get or not -- we are not going to get certain volumes.

But clearly, we are all waiting -- I think everybody is waiting to understand what the Biden administration is going to do vis-à-vis implementing testing for school reopening. In the U.S. now we are towards the end of the school season. So we are talking about adopting this kind of testing starting from August when school reopen in the U.S. So now if we look at our guidance for the second half, it's very clear that what we've built in is uncertainty vis-à-vis COVID.

We are confident about our base business. But when it comes to COVID, we designed 2 fundamental scenarios. One scenario, which is -- which correspond to the higher -- high level of the guidance is that we're going to be repeating H2, so the COVID revenues in second half similar to what we were experiencing in H1. And that entails 2 things. That entails that we're going to have some participation, some revenues coming from the school contract with LabCorp, and a combination of robust respiratory season, okay, which means that COVID and flu and differential technologies will be needed in 2021 winter time when clearly symptomatic patients are going to show up. Still there are going to be debates about efficacy of vaccine, long-term efficacy of vaccine. And so adoption of molecular testing will be there. That's the best-case scenario.

Then we have a base case scenario and the difference between 2 is roughly EUR 80 million, EUR 90 million, where we are not going to get pretty much contribution -- significant contribution from the school reopening program. And together with that, the season -- the respiratory season is going to be lighter than was expected because vaccine will prove to be extremely efficient. And therefore need of COVID testing adoption is not going to be as strong as somebody can foresee. I believe you will appreciate the fact that this uncertainty is clearly shown by all diagnostic companies. And so I think we're going to get better visibility when we enter into the second half.

One more comment -- or 2 more comments before I turn the microphone to Piergiorgio. First one has to do with an announcement we made over the fact that we have initiated a collaboration with Lumos. Lumos is, I remind everybody, an American company that provides what I would call second generation laminar flow technology. And we are in the process of launching 2 COVID products, COVID serology and COVID antigen testing, in some target European countries, mainly focused on the Italian market. And we are testing the pharmacy setting because we believe that, as you know, we have a strategy of decentralized testing with LIAISON [ NES ] for molecular and now the LIAISON IQ for antibody or antigen testing.

And therefore, we have deployed this system through a set of large distributors in Italy. Italy has 19,000 pharmacies, and we are -- we want to understand how the system is perceived, what's the story behind COVID testing. We're clearly using the COVID time opportunity to deploy an install base. So for the time being, we have not built financial expectations because we want to see what the contribution will be. But this a program that to me is very important for the company because it's the first step into a segment that we said it before we want to play strategic role in the near future.

Last comment I want to make is -- and I would like everybody to remember is the fact that we have a series of initiative with new products coming [Technical Difficulty] with different level of diagnostic vis-à-vis the viral versus bacterial infection which is largely the dominating space of clinical need. And last but not least is the China plant. And the China plant to me -- which is on time. And I would like to remind everybody that strategically companies today have to develop a China-for-China strategy because the message sent by the Chinese government over the COVID pandemic is that they clearly want to be independent from European or American technology when it comes to diagnostic. And there is strong indication that if you're going to be a player, you need to be a player perceived as a Chinese true contributor and not necessarily an exporter to China. So keep a note on that.

Clearly, this is not going to affect short-term numbers, but mid-term numbers. I believe any company that want to bet on the fact that growth will continue to come from China and to find a smart strategy to now move their setting into China. And I remind you that the way I define smart for a company like DiaSorin, the fact that we are operating in China through a joint venture with the Chinese government that guarantees us visibility of what's strategic for China these days and moving forward.

So said that, I'm going to leave the mic to P.G. and then I'm going to take it back for Q&A. Piergiorgio?

[Piergiorgio Pedron, executive]

Thank you, Carlo. Good morning, and good afternoon, everybody. In the next few minutes, I'm going to walk you through the financial performance of DiaSorin during the first quarter of 2021. As usual, I would like to start with what I believe are the main highlights of the period. We closed the quarter with an increase in revenues at constant exchange rate of around 60%. Q1 confirms the steady recovery in the ex-COVID business as just discussed, in spite of the previously viewed loss of the Vitamin D business in Quest and the termination of the distribution of the Siemens ELISA products.

COVID-19 sales accounted for EUR 102 million in the quarter, slightly better than the last quarter of 2020 at constant exchange rate vis-à-vis Q4 -- vis-à-vis EUR 4 million in Q1 '20. Q1 gross margin at 69.4% of revenues is a touch better than Q1 '20, which closed at 69.1% and marked an improvement compared to the last quarter of 2020, which closed at 67.6%. Q1 adjusted EBITDA at EUR 130 million recorded an increase of EUR 65 million or 101% compared to Q1 '20 with a margin of 48. 6% on revenues compared to 36.9% of 2020.

The growth at constant exchange rate is 110% with a margin of 49%. Q1 '21 reported EBITDA is EUR 118 million, and the difference vis-à-vis the adjusted EBITDA is due to EUR 12 million one-off cost related to the Luminex acquisition. Lastly, we keep confirming our ability to generate a very healthy free cash flow, EUR 80 million in the quarter, with an increase compared to Q1 '20 of EUR 40 million or 100%. The net financial position is positive for EUR 394 million, with no debt and EUR 430 million of cash. The difference between the 2 being driven by the right of use introduced by IFRS 16.

Let me now go, please, through the main items -- through the main lines of the P&L. Q1 '21 revenues at EUR 267 million grew by 53% or EUR 92 million compared to last year. The growth at constant exchange rate, as we said, is 60%. The weakening of the U.S. dollar against the euro is the main reason behind these FX headwinds. The increase in revenues is the result as we saw of the steadiest recovery of the ex-COVID business and of the COVID contribution.

Q1 21 gross profit at EUR 185 million grew by 54% compared to last year, closing the third quarter with a ratio of revenues of 69.4% compared to 69.1% of the same period of 2020. The margin increase compared to Q1 '20 is the result of a higher operating leverage driven by higher volumes, partially offset by different product mix, mainly more COVID molecular sales, which enjoyed slightly lower margin. I believe it is also worthwhile to underline the gross margin increase compared to Q4 '20, which recorded a similar level of revenues, EUR 271 million versus EUR 267 million of Q1 '21, and a lower marginality, 67.6% versus 69.4% of Q1 '21.

This variance is mainly driven by a favorable CLIA product mix and lower instrument sales and more importantly by some efficiencies coming from cost reduction initiatives implemented in the molecular manufacturing processes towards the end of last year, which are now bearing fruit. Total operating expenses at EUR 68 million or 25.4% of revenues have increased by 3.3% compared to last year. During the quarter, all of our subsidiaries have experienced a general slowdown in some activities, mainly travel, driven by the lockdown measures implemented by the government of most of the geographies in which we do business.

Q1 '21 other operating expenses at EUR 14 million increased by EUR 9 million or 150% compared to last year. This variance is entirely driven by the one-off expenses related to Luminex acquisition, which accounted for about EUR 12 million in the quarter. As a result of what just described, Q1 '21 EBITDA at EUR 103 million or 38.7% of revenues has increased compared to 2020 by 109% or EUR 54 million. The tax rate at 23.8% is slightly higher than what we recorded in 2020, 23%. This increase is mainly driven by the fact that some one-off costs driven by Luminex acquisitions are not tax deductible.

Q1 '21 as a result at EUR 78 million or 29.3% of revenues is higher than previous year by EUR 40 million or 107%. Lastly, quarter 1 '21 adjusted EBITDA at EUR 130 million or 48.6% of revenues is higher than 2020 by 101%. The variance in constant exchange rate is positive by 110% with a ratio of revenues of almost 50%. This result is mainly coming as we saw from the good gross margin and the operating leverage delivered by the increase in revenues amplified by a muted increase in operating expenses, which in the quarter accounted for about 25% of total sales vis-à-vis 38% of Q1 '20.

As we have discussed, the only difference between adjusted EBITDA and reported EBITDA is that we mentioned one-off costs related to the Luminex acquisition. Lastly, let me just cover 2021 full year guidance already been explained by Carlo. So as usual, at previous year constant exchange rates, total revenues to increase between 15% and 25%, out of which the business ex-COVID represents an increase of around 15%. And the adjusted EBITDA margin between 44% and 47%. In this definition of adjusted EBITDA, we mean without considering the Luminex acquisition-related one-off expenses that we will book from here until the end of the year, on top of the one we booked in Q1.

Please, like always, consider that DiaSorin financials are highly exposed to the U.S. dollar and even more so now that the United States represents about 40% of the total group sales. And therefore, as a usual rule of thumb, consider that for every $0.01 movement of the dollar against the euro, DiaSorin revenues move by about EUR 3.54 million on a yearly basis.

Now let me please turn the line to the operator to open the Q&A session. Thank you.

[Operator]

[Operator Instructions] The first question is from Maja Pataki with Kepler.

[Maja Pataki, analyst]

I have 2 right now, and then I'll go back into the queue. Could you please provide us with a rough split of the COVID-19 revenues? How much was roughly molecular and serology, just as you did in Q4? That's my first question. With regards to the Lumos partnership and rollout of the LIAISON IQ in Italy, I understand it's early days, and therefore, nothing is included in your guidance. But could you provide us maybe just a rough indication on how pricing is positioned and how we should -- how we could think about the financial impact?

[Carlo Rosa, executive]

I will -- I'm going to take the second question, and then I'll let P.G. take the first one. Look, here, the business model is in the pharmacy business is completely different because you go through distribution, right? And then -- so you don't have pretty much a lot of cost under, let me say, the transfer price of the distribution. So between the transfer price of your distributor and your pretax, there isn't much. So what I'm learning is that you are going to be value -- I mean, good product should really leave you a margin that fits between 25% and 35%, okay?

The difference is that all that then goes pretty much down to your bottom. And -- so we have, again, learning the space. But my sensation is that if you have a product that is generating that kind of margin, is leaving the rest fundamentally to the wholesaler and to the pharmacists that actually is taking the lion's share of the margins when it comes to these diagnostic products, but [Technical Difficulty] we're also taking the lion's share of the cost because they must now hire -- especially in Italy they have to have a biologist or a physician coming to perform tests. So my expectation is that we are going to have that kind of margin, but the contribution then to your bottom is going to be not bad. P.G.?

[Piergiorgio Pedron, executive]

Yes. I believe you asked about the breakdown of COVID sales in Q4.

[Maja Pataki, analyst]

No, actually Q1, just like you did it in Q4.

[Piergiorgio Pedron, executive]

Q1 okay. Not a big difference there. I mean we never give a precise breakdown, but I believe we showed -- we discussed a few times that the contribution of the immunodiagnostic COVID products, so the GM and the antigen, was between EUR 5 million to EUR 7 million per month. So I believe you can use that as a ballpark number to get the Q1 sales of the immuno bucket, let me say, and all the rest is molecular.

[Maja Pataki, analyst]

Okay. Great. Maybe just quickly a follow-up. Carlo, thank you very much for the scenario analysis or the base case and best-case scenario that you've given us with the guidance. And I do understand the difference. But just to double check. So you're not in your best-case scenario, high level scenario. You are not assuming to see an acceleration in serology testing. So you basically think it's whatever is coming from serology or antigen test is basically what we're seeing in Q1 throughout the year. And not that there is a higher adaptation of the antibody tests with regards to the vaccine immunity?

[Carlo Rosa, executive]

I'm -- okay, separate for 1 second. So serology you mean antibodies testing?

[Maja Pataki, analyst]

Sorry, yes antibodies, sorry. Yes.

[Carlo Rosa, executive]

Yes, because then we have the antigen testing. So I believe that we continue to see this business trail up, but I think that what is going to move -- and any -- it's not a big business for the time being as you have seen by what P.G. is saying. Certainly, it is dwarfed by the molecular opportunity. But I believe that you're going to -- you will see a change in this when 2 things happen. First, more data are going to be generated with a different vaccine vis-à-vis the long lasting. I mean, how relevant it is to monitor the antibody response because if long term studies, and I'm saying about now 12, 18 months are going to show that there is a response -- the response pretty much stays up, then the need for monitoring is going to be less.

But the second thing -- the second element you need to consider is that the initial clinical data I said are demonstrating that, that may be true for general population, but then you have lots of subpopulation related to clinical -- certain clinical disease that where -- certainly the vaccine response has not been as strong and not related clearly to a clinical situation. But when you talk about the old-age group, where you know that the immuno response is not as strong as in younger people and -- but those are the ones that are susceptible to the infection, and we need to understand how long that response will last.

The second element you need to consider, as it happened, I already -- I think I did comment on this one. If it happens with Vitamin D in the U.S. specifically, which is going to move the needle because it provides immediately 40 million, 50 million tests per year, is the fact that the SARS-CoV-2 serology is introduced into the yearly check provided by the insurance companies. I believe all this is going to be more of 2022 effect, right, because by year-end, you're going to have more studies to understand immuno response of vaccine. And then decisions about monitoring are going to be taken next year. As far as we are concerned, like P.G. is saying, is a business that is fluctuating between EUR 5 million, EUR 7 million per month that we expect to continue to trail up between now and the end of the year.

[Maja Pataki, analyst]

And P.G., just a last question on the guidance. On the EBITDA margin guidance that you're providing, the range of 44% to 47%, is it as straightforward as to think that if you hit 15%, we're going to be at 44%, and if you hit 25%, you're going to be at 47%? Or are there several layers of cost savings that could put you anywhere in the range lose of the fact where revenues come in?

[Piergiorgio Pedron, executive]

I mean, there are many moving parts. There are project cost-saving initiatives, which, as I said -- for which we're already seeing the results. Some others are going to be kicked off very soon. But there are many moving parts. Think about for OpEx, for example, right? So we need to make some assumptions in terms of Stratec, I mean that because most people will start to go back and go and see customers and so on and so forth. So as ballpark, short answer is yes, but with some flexibility.

[Carlo Rosa, executive]

If I may make a comment, which I think is a general comment about this, which to me fascinating is the fact that think about our overall industry that was able -- we did 12 months' time to express a testing capacity of 4 billion test, right? I think that there are -- that the estimate today is that worldwide today there is a manufacturing capacity of roughly 4 billion tests. All that capacity came with investment and hiring people, right? And I think what is going to be interesting vis-à-vis margins is that you're going to have now all the cost that if you've not been building that cost as a variable cost, then it's going to eventually hit your P&L.

And as far as DiaSorin is concerned, I believe we have been extremely careful and disciplined about making sure that, that cost is a variable cost, and we are taking out that cost when we see manufacturing volume going down. But just to reflect on the fact that I see -- and it is incredible. You see companies say that they've been investing hundreds of millions into infrastructure. And I really want to understand what is going to happen to all that cost when the volume, and we are hoping is going to happen is going to pretty much go back to almost zero, just a reflection.

[Operator]

The next question is from Peter Welford with Jefferies.

[Peter Welford, analyst]

Can I just ask, firstly, just sticking with the outlook, just to understand the base outlook for the base business of 15%. Is that on the same basis as the 6% number that you provided this quarter? So in other words, it's excluding the Siemens ELISA, the flu business, obviously, volatility and the Quest contract? Or is that 15% on an absolute reported basis for 2020 numbers?

Secondly, then, if I could just ask just with regards to antigen testing, in particular. I know you commented about the economic alternative in LabCorp in the U.S., which I think is fascinating. But I wonder if you could comment at all on the emerging markets. Are you seeing -- in places, for example, like Brazil and India, are you seeing any adoption of antigen testing there as an alternative to the sort of more costly and infrastructure intensive PCR testing? Or is that really not materialized to a significant extent either so far this year?

And then thirdly, if I could just ask just on the Lumos product again. Just curious again, is Italy a test market, which is obviously the market you know well? But I guess just thinking beyond Italy, can you just give us some thought into which other countries in, I guess, in Europe could be attractive? But equally, which ones perhaps have other unique challenges that we need to consider just to consider longer term?

[Carlo Rosa, executive]

Okay. I'll take the question about the antigen and then the question about Lumos. As far as antigen is concerned, look, the only market that today has been engaging on high throughput antigen testing is Russia, where we do have an extensive installed base. And there has been adoption as in the other "primary market " where we serve direct of antigen testing. When it comes to India and Brazil, I believe that these markets have been flooded by cheap Chinese made products, rapid antigen tests, and there's been a very interesting -- I don't know if you didn't follow it.

But 1 of the last flights that actually flew into Italy from India carrying 200 and some passengers, 90 -- and they were all with -- they all had results done with an antigen test in India that said they were negative. I think 90 of them eventually when they were retested over here they were positive. That tells you a lot about the quality of some of the stuff that unfortunately goes around the world when it comes to this antigen testing. But in the secondary market, you are facing with the reality of markets where they don't have the FDA on 1 side, or they don't have the European authorities. So the quality of some of this product is not there, but the price is certainly cheap. So positioning high throughput quality products like the LIAISON XL has been complicated.

To the contrary, what we have seen, though, is that in some countries -- again, India is a good example, we are having a good success with serology antigen again because those tests have been adopted on a high throughput scale to monitor patients because they now are becoming more monitoring tools in some of the clearly Class A larger institution. But it's still antigen testing is, unfortunately, today all cheap stuff in these geographies.

The second question is which other markets? Look, we said in '19 already that we follow decentralization. We started the LIAISON [ NES ] molecular development together with TTP, and then the COVID test. And the major issue pre-COVID about the decentralization and testing in setting outside the lab was the fact that in many countries it was not legal to do such testings. So pharmacists did not have a license to perform this test. And Italy was not an exception. But with COVID, they made an exception. In the U.S. also was complicated, but I don't know if you followed recently a week ago a bill has been filed to allow CMS reimbursement for diagnostic testing in pharmacies, okay? So we believe that where we're starting from Italy because we don't understand that market and because of proximity Italy is a good place where we can learn at the pace, learn how to market, learn the distribution.

But I keep saying that strategically the U.S. is the place to be because in the U.S. is the only country in the world where they are starting to understand that the pharmacy business, which, as you know, is private -- pretty much private business between Walgreen and CVS, they have understood that, that business with Amazon competing on home delivery is doomed. And they are thinking about transforming their business model from a generic supplier of drugs and food as any pharmacy is today in the U.S. into a health service qualified provider. And in that model, then diagnostic will play a role, especially now, if government is offering to reimbursement. So long story short, Italy, good way to understand. Strategic is certainly the U.S. market.

[Piergiorgio Pedron, executive]

And Peter, I guess, I'll take the question on the 15% guidance. It's all in. So it's considering the whole ex-COVID business of 2020 and what we project we are going to reach in 2021. Please remember that Q2, Q3, Q4 of 2020 and the ex-COVID business of those quarters 2020 was affected by a decrease in volume caused by COVID. Just on the top of my head, I believe that Q2, for example, the ex-COVID business was down, give or take, 35%, not only for us, for the whole industry. And I believe this is going to give you more ground to understand why we think 15% is a sensible guidance for the ex-COVID business in 2021.

[Operator]

The next question is from Scott Bardo with Berenberg.

[Scott Bardo, analyst]

Thank you for providing some guidance framework for the full year, which I think is helpful. So first question on the group level guidance of 15% to 25%. I just want to understand this a little bit better. I think I understood your comments that at the upper end of the range you're assuming that COVID remains broadly stable. So with that in mind, I think you're suggesting that both serology and antigen compensate for the anticipated decline in molecular. I want to understand a little bit then, please, with respect to this LabCorp tender. Can you give us some sense of potential magnitude for the size of this opportunity? Whether you include all of this opportunity within the upper end of your guidance framework or just partially? That would be helpful.

Secondly, and underneath this, your routine business or your normal business growth that you're highlighting to be around 15%. I just wonder if you can help us better understand the first -- the beginning -- the start to this year. A 6% adjusted growth seems relatively low in the context of the sort of recovery growth that we've been seeing in the context of the rest of the industry. So I wonder if you could talk to any specific special items that would mean even that adjusted growth where it is right now. And lastly, then on this 15% growth guidance for the routine business. Help us understand whether this is all simply recovery from the declines last year or whether you're now starting to embed any material contribution from new product launches like LIAISON XS and others?

[Carlo Rosa, executive]

Scott. I will try to take the first question. I'm not sure I understood the second question to be honest with you. But we can put to the first question and the upper range of the forecast here. I think that, as said, what we are saying is that we now have visibility on H1 and the upper range means that we're going to have H2 in line with H1. I think it's undeniable that you're going to have -- you're not going to go back to 1 -- okay, unless this has to happen, right, but you're not going to go back to 1.6 million tests per day in H2, okay? So we are going to have -- we forecast that the molecular is not going to be as strong as in H1, but we believe that you're going to have still a growing demand. So over the -- what they're projecting of 750,000 tests per day, which is what today's consensus says about the current volume driven by a respiratory, certainly not going back to the 1.6 million.

The delta there would be actually filled by a tender that, as you know, has been a public information is a tender asking for 25 million tests per month. U.S. is divided in four quadrants. And last quarter, clearly, is looking for a chunk of this business. They are going to be providing solutions, a combination of molecular and antigen. And so in the upper end of the curve of the guidance, we see that we are not going to have a same contribution of molecular same as H1. But what is going to bring you to the same level of overall COVID revenues is the fact that antigen will fill in.

Hopefully, I cannot tell you what we expect because then it would be actually -- I will be talking about lots of numbers, which I cannot do, okay. But that is the way I interpret, or we try to figure out the after range. Second question, you are saying 6% is low. Well, let me tell you that it is very -- I'm reading, I think, the same things you are reading about what other competitors, other companies are reporting. And I think it's very difficult to compare notes between companies. Because it -- in my opinion, if you look at last year in Q1, you had 2 effect. You had a relatively stable U.S. business because U.S. was not in the same situation as Europe.

You had Europe growing, especially in certain geographies, because of a stock effect. Customers, especially private labs, who were buying lots of goods expecting disaster in delivery and moving forward because, remember, we were closing borders. There were no flights and so forth in Europe, which was not experienced in the U.S. And then it was China. And China was actually tanking pretty much starting already from February and March. So depending on the weight of revenues of the different companies in these 3 environments, you would actually notice -- you would see that you have a different effect on what is called paid business, okay? This is why I'm not going to try to compare what we do versus other do because I don't understand how they define base or they compare it on vis-à-vis their base business.

But let me just give you a grain of -- let of just give you a number, which is, to be very interesting. If I now look at '19, okay, 2019 Q1, and you look at 2000 and you look at now 2021 Q1, now we are talking about an improvement on the base business around 6% to 8%, okay? In spite of Quest, in spite of Lumos. So don't do the carve out. So the 6% 2021 versus 2020 is different from the 6% to 8% improvement I'm talking about versus 2019 with all-in. And I -- if I look now at that numbers, now I'm saying that my base business is actually doing not bad.

[Scott Bardo, analyst]

That's clear. And in your -- that makes sense. And given your 15% growth guidance for the base business, is that just purely recovery, Mr. Rosa? Or are you expecting contributions from new launches already in that number?

[Carlo Rosa, executive]

No. I believe that -- look, we will look at new launches. You are talking about the line season, which were the effect, we are launching the product in Europe, and we are still -- there's a lot of uncertainties about adoption, guidance and so forth, and we don't see the effect year. And now we're in the new launches, we are talking about NIM at year-end, but the contribution in 2021 is going to be very low. The 15% is built on the fact that, as I told you, the U.S. is doing fantastic for us. And on the LIAISON business, with the gastroenterology and the play with QIAGEN. And the fact that now LabCorp has started to use our own LIAISON XL solution for their TB, for which us and QIAGEN are extremely fond of. So the growth is -- the growth that is coming is actually coming from the current business and current programs that are actually taking place especially in the U.S. and lots of emphasis on the hospital strategy that is paying out as I did say before.

[Scott Bardo, analyst]

Understood. And very last quick 1 for me, just to be entirely clear. Is your new guidance framework now superseding your previous guidance for 40% or so growth in H1? Or are you still confident that you can achieve the sort of 40% H1 expectation within the context of your new guidance?

[Piergiorgio Pedron, executive]

Scott, this is Piergiorgio speaking. Superseding, this is the new guidance, even though back of an envelope calculation, I guess, H1 will land very close to what we said in the previous guidance.

[Operator]

Gentlemen, Mr. Rosa, there are no more questions registered at this time. I turn the conference back to you for the final comments.

[Carlo Rosa, executive]

Okay. Thank you, operator. Take care. Bye-bye.

[Operator]

Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.