DiaSorin SpA

MIL:DIA

Earnings Call Transcript 2022-Q1

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the DiaSorin First Quarter 2022 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]

Thank you, operator, and ladies and gentlemen, Good morning, good afternoon. [ As announced this week ], I will make some few comments, as usual at constant exchange rate and then the CFO, Mr. Pedron, is going to take you through the numbers.

Okay. So first, as you know, we have been slightly changing our reporting system after the acquisition of Luminex. So now we have the business, which is divided in 3 buckets. We have the immuno side and in immuno side we have all the technologies that start from CLIA, the ELISA technologies. And we have the molecular bucket, and then we have the license technology bucket. So let me start to talk about immuno.

Immuno, we look at the ex the COVID part of the business, so CLIA ex COVID, and then we look at the COVID part. So let me clear first the COVID.

COVID, if you remember on immuno, it was the antibody test after vaccination to monitor the antibody type. And then we had a high-throughput antigen test to be used in hospital settings when they wanted to have a cheaper technology cheaper than molecular to test personnel. Well, this side of the business is declining sharply. And this is fundamentally because there has been no adoption of the serology store less than what it should be done. And it is certainly linked to 2 things: 1 the perception that COVID is pretty much going away; the second is the fact that governments have been fighting the adoption of serology as a way to controlling your response against the vaccine because the problem that was to convince the population to get vaccinated rather than the sophistication of the follow-up.

So we still have a business that is a good business for us, but it's 50% below what it was one year ago, mainly driven by the serology component. Now if we look to new CLIA ex-COVID and when we look at CLIA now on the serving business, we have CLIA ex vitamin D component, which is growing strongly, 13% in the quarter. And we have vitamin D that which is declining a little bit minus 5%, but is much more stable than certainly than before.

On the CLIA ex-D performance, if we look at the geographies, we have the U.S. growing 13%, we have Europe growing 9%, and we have China, which is flattish, just growing 3%, and I'm going to comment on China later in the presentation.

Now if we now switch to molecular, we have the COVID bucket and we have the ex-COVID bucket. I understand that when it comes to molecular numbers, are clearly affected by the change in the perimeter that happened after the Luminex acquisition. So I will try to digest the numbers for you.

When it comes now to the COVID component, okay, which is molecular COVID, we see a 15% decline on average compared to the peak of last year. And this has certainly to do with the fact that with the Omicron -- with Omicron, we had a very high January and then a sharp decline, so the peak of testing as you have seen reported by different operators in this field. This peak now is much sharper than what it was in 2021.

When it comes to the ex-COVID, we have overall a single-digit growth and with an ex-COVID is a combination of the old -- of the MDX technology coming from the DiaSorin. And clearly, you have all the multiplex in different technologies coming from Luminex. Overall, this bucket is a single-digit growth. Certainly, there is a negative growth in the respiratory and as a consequence clearly of COVID.

And then we have growth in non-respiratory. So primarily, we're talking the gastro panel for the VERIGENE I, the blood culture panel for the VERIGENE I, and then the MDX assays which, if you remember, were primarily on the non-respiratory side was for transplantation, and we have a very nice ASR business that has been used by labs to develop their own IVD. So overall, this bucket of ex-COVID is a single-digit growth component.

Now if we move to what we call license technologies, okay, license technologies is -- has to do with the business that Luminex developed when the company was started, is -- overall is around annually is a $200 million franchise. And this business, if you remember -- and this is the business where we have partnerships with some of the main players in the life science business that are actually using our instrumentation and our technology to build their own products, primarily in the space of life science research strategic research.

But also specifically, there is one player, very important player, which dominate the transplantation market and that player is using our [ penalty ]. Overall, this bucket, which in terms of profitability is accretive but vis-a-vis our business, this packet is growing 14%, okay. And that is a consequence of the fact that a good liquidity of money is being poured into life science research as a combination of pharma investment, but especially as the combination of grants coming from the governments, both in U.S. and in Europe. This is after pandemic, they started to foster the sector really increasing the number of public spending at least in the sector. So we are benefiting from the trend.

Last but not least, the flow cytometry. Flow cytometry, which is a relatively small business for us, is lower than $50 million annually, is flat. And is a combination of -- that business actually is split in 2. We have some very high complex flow cytometer plus imaging system, and that piece of the business is actually growing. And then we have a more mature set of technologies, a small piece of equipment that are sold to smaller labs. And that one is more flat. In the very specific case in quarter one, we had problems with delivering some of the system because of the supply chain and availability of certain electronic components, which is interesting because so far it's the only area in the company where we have experienced supply issues with this component.

One remark when it comes to the LTG growth, if you remember that last year, we launched the Intelliflex, which is the new platform that was developed by Luminex for this sector and the adoption of this platform by partners is far greater than expected. So we had a solid Q1, and we have a strong funnel for quarter 2 and quarter 3, so which makes us optimistic upon the performance of this business moving forward.

Now if I make some -- if I may make some comments when it comes to different geographies. And I want to start with the U.S. As you know, today the U.S. is the primary market for the company. It does represent 50% of our overall revenues. And if I look at the strategy in the U.S., we started as DiaSorin in 2019, really investing in a capillary sales force or a bigger sales force to try to increase our presence in the hospital market. And we now are -- we drew COVID and certainly COVID did somehow help in the hospital penetration at the time when serology -- there was a hypo-serology in Q2 next year -- last year.

But by the same token also it slowed down the installation of some of the systems simply because hospitals are very busy and so in certain cases they could not literally see our technicians in the light. But overall, as a combination of [indiscernible], we made our plan. The idea was to create additional 150 hospitals in the -- new hospital in the U.S., which we are perfectly in line to achieve by year-end.

It's very clear when it comes to our product portfolio today, is a combination of what is available with the LIAISON QuantiFERON and now the very exciting and needed opportunity, which is clearly a hospital test. It's very clear that what we are reflecting is on further investment in our ability to reach this segment of the market, which for us is extremely promising as a combination of certainly better pricing and better much interest in test like, again, the limit and the upcoming on the LIAISON QuantiFERON test for line with high clinical value, right?

So my -- today, what is really paying out is the side of the company continues certainly to develop its commercial presence, but we are expanding very rapidly into the hospital segment. And the growth you see in the U.S. is driven by a combination of success in commercial but also against the expansion in this segment. This is very important because the next generation platforms that are coming on the molecular side, which is the LIAISON NES and LIAISON Plex have been designed for that segment, okay? So it all fits perfectly. So you have a final product for that segment and you have expansion of the customer base and expansion of infrastructure to serve that segment.

When it comes to Europe, which today is 33% of revenues, we have a solid high single-digit growth that we have discussed a few times. For us, Europe clearly is a mature market. We continue to fuel that market with continuous product that we continue to bring to that market; QuantiFERON was the last one. And MeMed [ add-on ] has been launched in Europe. Clearly, it is not contributing yet to revenues because we are in a phase where we have clinical evaluations, which are happening in the major hospitals.

The initial response from the hospital and the clinicians is very positive. And we are actually running some regional clinical studies because, as you know, every country in Europe, fortunately or unfortunately, needs their own opinion leader to bless the algorithm and the product. So there is a continuous effort in 2022 in Europe that is going to be mainly focused in generating this clinical data and promote in the adoption of this product in the hospital segment.

Now last but not least is China. China is complicated. China's today progression represents around 5% of revenues. And so I would say that very gladly we have diluted the Chinese risk. China, short term, we see it as a burden and not as an opportunity as a consequence of declining prices as an effect of these very large tenders -- provincial tenders that now are in place and are driving price down on average 30%.

The second effect clearly is the fact that there is a priority -- official or unofficial priority, call it as you like, to the local manufacturer versus imported products. So we believe that as said already in the previous quarter, we continue with the strategy we have. We continue with the setup of the manufacturing side where clearly we have been hampered by the COVID -- with the shutdown of COVID in the last month or so. We are in Shanghai and in Shanghai, as you know, everything has been locked down. So we cannot move forward with what we were foreseeing for either for the manufacturing side.

But we believe that this situation is temporary and we will set up -- we'll continue the setup of the manufacturing side. The overall investment in China is over EUR 30 million that we have forecasted to get there. And because we believe that a 1.4 billion people market has to be served. And so the short term view is negative. I believe that mid long-term view has to be positive, especially for a company like DiaSorin, which is thriving off some of the specialty products.

Last but not least, I would like to make a comment on the announcement about the fact that we finally found precedent for the Luminex business. So Angelo Rago that is an American executive from Chicago, 30-plus year experience in med tech space where he has been working in imaging first and then ophthalmology later, and has a very specific experience on the issue of the decentralization in the point of care selling. And that was key because Angelo -- Luminex, moving forward, will continue to serve the hospital market, but that's a traditional in our sense because we have been there with our products for a long time.

But by the same token, we need to tackle the decentralization mode and get out from these [ mess ] to the POL and to the pharmacies. And so Angelo is -- Angelo's experience is very much welcome to help us out to set up the strategy for the launch of the new [indiscernible].

Okay. So, Piergi, Please go ahead with numbers, and then we're going to move to the Q&A session.

[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 2022. Consistently with work done last quarter and in order to better understand the performance of the business, I will refer to adjusted P&L items. Therefore, sterilizing the impact of the following Luminex deal-related elements: so the one-off acquisition and integration costs, the effect of the purchase price allocation that we have covered last quarter, the cost of financing and lastly, the fiscal impact of all of these components.

The financial release available on our website, we are providing a line-by-line bridge between adjusted and IFRS items. So that as usual. I'd like to start with what I believe are the main highlights of the quarter. So Q1 '22 total revenues at constant exchange rate grew by 28%. The immunodiagnostic franchise ex COVID grew by 7%, driven by a 13% increase in the CLIA ex vitamin D franchise, which as Carlo has said, has been partially offset by the expected slightly negative performance of vitamin D rise and instruments business according to the new reporting structure.

So the molecular business ex COVID growth is mainly driven by the inclusion of the Luminex in the perimeter of consolidation on top of all of those elements that Carlo cover, whereas the license technology franchise variance year-over-year is obviously all due to the different perimeter of consolidation. But Carlo covered the performance of the business. So I believe we should be fine there.

COVID-19 sales did better in the quarter than originally expected when we set 2022 guidance, mainly because of the impact of the Omicron variant and those sales decrease at constant exchange rate compared to 2021 by 10% or EUR 10 million. Q1 adjusted EBITDA records an increase at constant exchange rate of 10% compared to last year. The margin was 42% of the revenues. The margin has been positively affected by the COVID sales of the quarter and by a positive one-off of about EUR 2 million that we booked in the other operating expenses.

Lastly, we keep confirming our ability to generate a very healthy free cash flow, EUR 116 million in the quarter with an increase compared to Q1 '21 of EUR 36 million or 46%. The net financial position is negative for EUR 860 million with a ratio over 2021 adjusted EBITDA of 1.5%.

Let me now please go through the main items of the P&L. Total revenues at EUR 358 million grew by 34% at the current exchange rate or EUR 91 million compared to last year. Luminex products revenues in the quarter amounted to EUR 97 million. COVID revenues amounted to EUR 97 million as well vis-a-vis EUR 102 million of Q1 '21. The quarter has seen some EUR 60 million FX tailwind, mainly driven by the USD appreciation. Considering 2021 USD/Euro exchange rate in the current trend, I think it is fair to expect that this positive tailwind will continue for the remainder of 2022.

Q1 '22 adjusted gross profit at EUR 237 million grew by 28% compared to last year, closing the first quarter with a ratio of revenues of 66% vis-a-vis 69% of the same period of last year and in line with the Q4 '21. The difference with Q1 '21 is mainly driven by the inclusion of Luminex in the scope of consolidation. This variance is in line with our expectations and modeling and is reflected in 2022 outlook. Adjusted operating expenses at EUR 109 million grew by 61% compared to the same period of 2021 with a ratio over revenues of 31% vis-a-vis 25% of last year.

This increase is in line with our expectations is once again mainly driven by the different perimeter of consolidation. We are expecting synergies to reach the level discussed during the Investor Day back in December as the integration process will move forward.

Adjusted other operating expenses are better than last year by EUR 1 million. As said, this difference is due to a favorable one-off of about a couple of million euro that improved during the quarter. As a result of what I just described, the adjusted EBIT at EUR 126 million or 35% of revenues has increased compared to 2021 by 10% or EUR 11 million. Adjusted interest income and expenses of EUR 2 million is substantially in line with last year. Adjusted tax rate at 23% is in line with the 2021 as well.

The net result at EUR 96 million or 27% of revenues is higher than previous year by EUR 9 million or 11%. Lastly, adjusted EBITDA at EUR 150 million or 42% of revenues is higher than 2021 by 16% or EUR 20 million. The variance at constant exchange rate is positive by 10%, with a ratio on revenues of 42% difference with Q1 '21, which closed at 49% is slightly better than our expectation and almost entirely driven by the change in perimeter of consolidation.

Lastly, let me move to 2022 full-year guidance as usual, in previous year constant exchange rate. Because of the peak of COVID sales during the quarter, mainly driven by the Omicron variant that the virus, the outlook of the year has been increased. Specifically, the updated guidance is calling for total revenues substantially in line with 2021 between minus 2% and plus 1% to be precise. And revenues ex-COVID to grow by about 24% in COVID sales between EUR 150 million and EUR 180 million. Adjusted EBITDA margin between 35% and 37%.

So before concluding, please remember that our financials are highly exposed to U.S. dollar, as we said, and even more so now that North America represents about 50% of the total group sales. Therefore, [indiscernible] consider that for every $0.01 movement of the dollar against the euro, our revenues moved by about EUR 6, EUR 7 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 of Kepler.

[Maja Pataki, analyst]

I have a couple of questions. It's mostly probably clarification to understand the results and what comments have been. First of all, congrats on the results; I mean great results. I'm trying to understand the increase in EBITDA margin guidance. I mean, yes, you are increasing COVID revenues a bit the upper end, probably the FX is helping as well. But it would be great if you could help us bridge a bit this sudden move from 35% to 37% given that only 6 weeks have passed off since into full year results? That would be my first question.

My second question is, can you help us understand organic growth? Because I mean it will be interesting to see what is organic growth or what was organic growth in the quarter fully ex-Luminex and what was organic growth ex-COVID to understand what the business was.

And Carlo, just a quick question. I'm not sure I heard it right. Did you talk about the mesh instrument that it will target the hospital base? Did I get that -- I'm sorry if I misunderstood that, but it would be great to have some clarification. And then just maybe a point to make, it will be really, really helpful for us if we would have some comparable to either get the quarterly sales figures broken down by the new reporting structure or to get in addition, the old structure because it makes a bit difficult to follow what is really happening.

[Carlo Rosa, executive]

Listen, I'll take the -- first, on the last recommendation. I understand it's complicated but by the same token, the business has changed, right? So the portfolio today is completely different from what we have. So we're going to try to make an effort to make it simpler. And in my opinion, it's going to become more understandable for you when after July, now you're going to be comparing at constant perimeter, okay?

When it comes to mesh, in the mesh -- fundamental for net, there are 2 markets -- 2 segments of the market. One is within the hospital. And this is simply because within the hospital, there is a need for decentralization anyway because on one side, there is a core lab concentration of testing and then within the hospital, especially in hospital chains, now you have the necessity to take this into platforms and decentralized in emergency rooms and certain settings to actually make more efficient the flow.

And then there is -- and that is not a problem because that's the hospital market is where we operate, is where we're investing, we have infrastructure, and that goes along very well with the Plex and it goes very well with MeMed because it's all eventually one setting. And in the U.S., what is very interesting is that the buyer eventually the [ IE10 ]. Now we're owning more and more hospital chain, they actually contract with us the full package, the full portfolio, right?

So you also get the benefit of one contract for molecular any new and everything is inside. And clearly, when it comes to this contractual relationship, which are traditionally very difficult with this very -- with these buyers, unless you have something that is unique with the fact that we've been to the market specialties like the QuantiFERON, like the MeMed allow us to get into the door and then from there get the portfolio approved, including also the net product, okay? So varied. No problem there.

When the problem started, problem meaning that what was new for DiaSorin clearly now is to take the net out of that selling, more into the POL and pharmacy. And in fact, if I can make a comment, I believe that, as we have discussed many times, there is a U.S. situation and there is non-U.S. or European situation, let me put it that way. I rule out China completely because as we speak China is unaffordable anyway for molecular because prices are very, very low. And by the same token, they are going towards their own solutions.

When it comes to the U.S., the POL market these days is concentrating, but by the same token is also being consolidated within the hospital chain because the IHM see the POL as a way to really get control of the patients. And so again, you're going to find yourself contracted with the IHM and selling through the IHM to the POL. So that in a sense is simplifying it. Certainly, the capillary certainly will be the distributor, I believe, to serve that market. But that is relatively simple.

Then you have the pharmacy market. Okay, the pharmacy market, in my very opinion when the jury is out, on what is going to be in that market after COVID. Because we know what it is for COVID, which is plenty of money. You've seen recently, I was following the Walgreens report, and they clearly said they did benefit significantly from COVID testing. But now -- they now are going to adopt diagnostic as part of the services provided. From what I've seen so far, I believe that it comes to CVS and the clinic model that decision strategically has been made. And when it comes to Walgreen, I believe that the jury is still out, okay, but we need to see.

When it comes to the European setting for pharmacies. The problem there is banks because for most of the European -- most of the relevant European geographies, the government, so the social system does not cover for the test, so it's out-of-pocket. And what we're -- still need to understand certainly the out-of-pocket, so the EUR 20 that we think citizen in Europe is available to spend on diagnostic procedures is good enough to use lateral flow. And that is certain. And with the lateral flow cost structure, I believe you can make money there.

Jury is still out whether individual stations will be available now to pay more than EUR 20 because there is no way you can make money, in my opinion, selling point of care in pharmacies for EUR 20 when it comes to molecular. So there is where I believe we need to understand better. The good news is that as a result of COVID, in many countries where in Europe today, you could not test -- pharmacies could not do any testing, COVID was made as an exception.

Now they're changing the law and testing is allowed. Italy is a very good example, where literally the government is approving a new decree that allows testing in the pharmacies for respiratory illnesses. So now the market is open, which is very interesting. We need to understand the pricing situation because reimbursement is not there.

Now Piergi can you take care of the EBITDA and organic?

[Piergiorgio Pedron, executive]

Absolutely. Hey Maja, good to talk to you. So when we try to dissect what's happened to the EBITDA margin for Q1, I believe we need to consider 2 main factors. The first one is that in Q1, as said, we had a very good COVID revenues, EUR 90 million or so. And the one-off effect of the EUR 2 million was mentioning about in my remarks. That is what is explaining basically the 42% EBITDA margin. If you just use the Q1 numbers, and you try to, let me say, normalize the COVID sales saying, okay, you know what, next for the next 9 months, the new guidance, top range is calling for a EUR 30 million revenues per quarter. So if you do the math and reverse engineering Q1 with a EUR 30 million of COVID revenues, you would get to an EBITDA margin of 35% without considering the one-offs, which is exactly where our guidance was.

So why now we raised the EBITDA margin guidance, I mean we had a range now at least from 35% to 37%. Well, the answer is all in the additional COVID revenues that we think we might see in the remainder of the year compared to our original guidance that, as you know, was said before the Omicron variant and before the Capital Market Day. So long story short, the main driver behind the increase -- potential increase in EBITDA margin is the guidance for the full of 2022 is higher COVID sales.

Indeed, we kept the guidance for the ex-COVID sales at 24%. And once again, if you did -- if you try to reverse engineer the year to go from now until the end of the year, you would see that in order to meet the 37% EBITDA margin guidance, we are expecting for the 9 months we have in front of us, a 35-ish EBITDA margin.

I would move to the organic growth now. So I understand it's kind of more complex now because we bought Luminex. But what we are trying to do is to report sales according to what we did in the Capital Market Day. When we said, if you want the new way to look at the business. So 3 main buckets, as Carlos said, immunodiagnostics, which is absolutely comparable because it's the -- if you wish, the legacy, the selling business. And there, we said 7% growth, which, if you look at the guidance we gave you on the Capital Market Day because we brought it down by technology, is exactly in line with that guidance, which is calling for 7% growth in 2022, driven by CLIA ex vitamin D, all the things that Carlo explained.

So I believe that not a lot of complexity there to understand the new diagnostic growth, which is by definition at constant perimeter. Then if we look at the other 2 buckets of our sales, molecular diagnostic and licensed technology. So for licensed technology, it's all a delta perimeter of consolidation. But I think Carlo made a couple of comments compared to, let me call, the revenues that Luminex generated prior to the acquisition.

Carlo said that in the licensed technology, you have 2 components in the so-called license technology group. And this is where we have all complexity that we're trying to simplify. But as said in that bucket, you have what Luminex used to call the licensed technology group. And there, you have a very nice growth of 14%. And then you have -- which is the vast majority of that bucket.

Then you have the [indiscernible] business, which is mainly instruments and there Carlos said flattish. Then you move to the complex part, which is the molecular because now molecular is a combination of the existing business plus the Luminex business, which is made up of a multiplex business and the ARIES platform. And again, a lot of moving parts there and I'm making all of these comments without considering COVID. But what you see there, as Carlos said, is that single-digit growth whereby you have all those panels which are not a respiratory, which are growing nicely and you have a little bit of a negative number for the respiratory panels.

Again, I understand it's complex, a lot of different elements, but we think that the right way to look at the business now is to split it out in those 3 main buckets, and we will help you out as long as we will not get [ Q3 ] to understand the main drivers behind those variances.

[Maja Pataki, analyst]

Okay. Since you can't give me an organic growth number excluding COVID for the business, can you help me understand the EUR 97 million in COVID revenues that you're booking in the quarter? Which part was Luminex? Which part was biosorin? And within DiaSorin, how much was in immunoassay?

The second part that I'm still a bit puzzled about is, look, I know you had strong COVID revenues but that should not have really been a super surprise in March. So I mean what -- it's a bit difficult to understand the strong beat that it's really only down to COVID, right? I mean we had an Omnicom wave. We had a peak in January. You talked about it. And you had numbers fairly late in the quarter. So I'm still a bit puzzled to understand can it really only be COVID. And what were -- was your assumption really for Q1 when you were setting the guidance?

[Carlo Rosa, executive]

Let me take the COVID part. I am puzzled myself because we made a very clear comment when we gave the EUR 150 million guidance. The concept is we really have no idea what is going to be H2. And by the way, it's not only us saying that, it's everybody saying that, right? So today what I'm saying is that compared to my own assumption, I believe that Q1, but more importantly February and March. Because January everybody was a hero, but then you saw a very sharp decline, especially in the U.S., for February and March.

Okay. So what we are saying is that the business is holding up better than what we expected. And this is why we feel that there is an opportunity to over achieve that number, okay? Is it going to be what we said, is it going to be more than that? I don't know. I keep saying I think we all need to wake up in June and look at the H2 scenario at this point, look at what's the adoption of COVID testing. Because, look, what is very interesting today and I have to say my own surprise, is that antigen testing is holding up.

But fundamentally, because there is ton offset testing that is going on and people don't want to do molecular fundamentally for a very simple reason because molecular is more sensitive. And that means that the quarantine period is going to be much more elongated to the point that even the government will say just do antigen testing, right? This in -- especially in countries in the European country, where still where you're quarantine that you cannot leave your house, you cannot go to work.

Second thing is that -- so the question is who is going to do molecular? And today, what we see is that our hospitals continue, for example, to test -- use molecular testing, which is really predictive of infectivity of the patient for emissions or health care monitoring and so forth. Would this continue? I don't know. If this continues, I think that that is going to be the core business off season COVID business because remember now we're talking about off-season procedure, nothing to do with peaks or non-peaks. And now we're going to be facing the respiratory season.

When it comes to the respiratory season, the big, big question is differential diagnosis. You're going to sneeze and you're going to -- you want to know whether you have flu or COVID and you're going to be sent now to do -- by your doc to do a differentiating test. And there I believe that molecular is going to be the choice or you're vaccinated, eventually got Omicron already because there has been a ton of people that got Omicron, so you have natural vaccination. And then you really are not going to do testing with the exception of the fragile population pockets of patients. Nobody knows.

So I think the industry is saying, I believe we will understand much better in H2 what that number is going to be. Now when it comes to the fact that the extra growth may come from the better performance of the current business, I honestly don't think so, but Piergi please.

[Piergiorgio Pedron, executive]

No, absolutely. I mean, as said, the guidance has not changed for the business ex-COVID, which is plus 24%. You are right, when we commented year-end results, we were at the beginning of March. So we had the visibility over the 2 months. Now with the visibility of the 4 months, which is the double of 2, it's really simple. So we feel more comfortable now to say that we might end up with EUR 180 million revenues of COVID in 2022 compared to the visibility we had back at the beginning of March.

Going to the breakdown of COVID sales, yes, I can get you out there. So in Q1 '21, immuno diagnostic of COVID sales were around EUR 24 million, EUR 25 million. Q1 '22 is EUR 12 million, so half of what we saw in Q1 '21. The Luminex contribution to Q1 '22 COVID revenues and we saw molecular, it's around EUR 14 million, EUR 15 million. And the remainder to get to the EUR 92 million or EUR 93 million, I can't remember on the top of my head, is all molecular DiaSorin, which is recording a decrease of 15% same perimeter molecular DiaSorin compared to Q1 '21. I believe that's called in your questions.

[Operator]

The next question is from Hugo Solvet of BNP Paribas Exane.

[Hugo Solvet, analyst]

Couple on my side. First, on the CLIA ex vitamin D business, strong growth across the board. Can you give us a bit more granularity on what is exactly driving that gastrotuberculosis or is the rollout ongoing? That that would be very helpful.

And second question on pricing. How many price increase would you expect to have this year? What's the net impact of that and how your clients are taking them? Any even qualitative comments would be -- will prove very helpful. And last one on my end is on the guidance. So we understand that the guidance is being driven by extra COVID sales in Q1. However, over the past 6 weeks since you gave the 2022 guidance, we have had a significantly worsening macro environment. What makes you, I would say, so confident that DiaSorin will not see any impact from worsening macro in the remainder of the year and that you will be able to deliver on that guide?

[Carlo Rosa, executive]

Okay. So let me take some of the questions. Pricing increase is a very simple situation. There is no price increase. Unfortunately, in our business, very hardly you can pass through your customers your inflation. And this is because a good chunk of the business is driven by tenders with fixed pricing by contracts, multiyear contracts with fixed pricing. So very few exception, we cannot pass on to customers' additional costs.

So we find or finance the increase of cost with more efficiencies, and this is what we have been done consistently over the years. Keep also in mind that what is working in our favor is that the product lines that are actually growing, so the mix is favorable because the CLIA is certainly much more profitable than the decline in ELISA and instrument revenues. So that favors the mix within CLIA selling quantity on selling student specialties clearly is affecting positively the overall CLIA margin. So -- and that is where the issue of DiaSorin has always been able to safeguard margin notwithstanding price pressure.

When it comes to the CLIA ex vitamin D growth, look, it's -- to me, it's very simple. It has to do with a combination of legacy products that -- or let me way, not legacy product but new products, which I'd call relatively smaller market opportunity of higher price, like Hepatitis-C, for example, that we launched last year. And clearly, high price, high margin, competition, very small competition that is clearly affecting contributing to the growth, plus the very large bucket. One is the -- again the [indiscernible] legacy products, where adoption of some of these products like Calprotectin, for example, continues to incur 20%, 25% in growth. And we're reinvesting a lot in clinical studies to foster this growth.

And also keep in mind that in the U.S., pretty much for a pro like Calprotectin, with the product offering we have. And we are running short and we don't really feel competition from smaller cap, smaller players and/or the big players try to do. Try envisioning, trying to transition some of these assay into the inner family, which failed because of quality and because of the handling of profession.

So that I hope -- and then clearly you have the fear on the franchise given this is a product that we share with our good friend from QIAGEN. You have seen that they reported good growth in that line and you can clearly extrapolate. If they are growing on that product line, we are growing very nicely as well because a lot of the growth come from the fact that we are working together to spend the customer will be in the adoption of these assays. And also we are moving from standard to in-house that's being hospitals especially in the U.S. and that clearly thrives for us. Okay. So these are the 2 factors. On the last question, Pier.

[Piergiorgio Pedron, executive]

Yes. On the macroeconomics, I believe we did consider the changes in the macroeconomic environment we are seeing. To be more specific, if you think about the inflation pressures that we're all seeing and we are talking about, we already have made some assumptions when we did our budget. And we recently reviewed our numbers, and we factored in EUR 7 million, EUR 8 million more on the cost side in our assumption, which we believe will be covering safeguarding the margins with all those initiatives that Carlo is asked about.

So with the visibility we have now because the situation is changing every minute, but with the visibility we have now, I believe we feel comfortable with the guidance we just gave to the Street.

[Hugo Solvet, analyst]

Okay. And just to clarify the EUR 7 million to EUR 8 million more, is that a change from the initial 2022 guidance to the upgraded guidance?

[Carlo Rosa, executive]

It's included in the 37% to -- 35% to 37% EBITDA margin that we just shared. So it's in there. It's included.

[Operator]

The next question is from Peter Welford of Jefferies.

[Peter Welford, analyst]

Most of it is asked. Just really a few quick points of clarity, if you don't mind. Just firstly, on COVID. Could you possibly just -- you gave us a lot of color, but could you possibly just give us also some visibility by geography, if possible? Just trying to understand from the point of view of when we think about the trends going obviously forward but also as well as going back in the winter season. Is it [indiscernible] how much of those COVID sales in the U.S., presumably the bulk of Luminex? And also how much of it is potentially then from Europe?

And also then just on serology for COVID. I'm interested to hear you said that that's down about 50% year-on-year. I guess, back at the sort of Capital Markets event, you're a lot more confident itself that that is probably a more durable business at about sort of 10 to 15 or something or even EUR 15 million a quarter. I guess could you just talk briefly about what's changed to make government I see of another academics less interested in that? I mean, is that the business basically just stated to take it to 0 at this point?

And then just the other one, a quick one, just on MeMed. I think that was filed in the U.S. I guess any commentary at all. I know FDA is very busy and obviously trying to close out a backlog. Is there any update at all on the potential timing of a possible approval by the FDA of MeMed the U.S. please?

[Carlo Rosa, executive]

Okay. Listen, on MeMed, on the FDA approval, I don't feel comfortable making any assumption, to be honest with you, because as you said, today it's impossible to understand their schedule. The very good news, though, on that side is quite often these days when the FDA is busy, they don't assign a reviewer. So you're kind of put in a queue.

Today, we already had a reviewer assigned 3 months ago, almost right away after the submission, and there is a continuous dialogue with the reviewer. So it's a very active process, which, in my opinion, in these days is a very good news.

Now when it comes to serology, I can give you my 2 sense to be honest with you of what is happening. The first thing, I believe that the governments have spent an awful amount of time telling people don't test, just vaccinate because testing would add confusion. Especially in the U.S., CDC and the FDA -- the FDA never ever allowed anybody, by the way, including ourselves to report in the package insert, all the data about follow-up studies. I mean, studies about follow-up after vaccination, which we have in the European product, but not allowed in the U.S. product.

And this is there and what they say is we're going to be allowing you to report this data, you meaning as everybody else. Only the day that they're going to show me what is the protected cutoff, not which is a very smart way to say forget about it. When it comes now, I believe, to Omicron and Omicron -- I'm triple vaccinated and I got Omnicom in a [ heartbeat ]. And so I believe that notwithstanding data that are really proving that if you are vaccinated or not vaccinated especially for the fragile population, you get less severity of the infection. But I believe that now people -- if you talk to the regular people, they see that, okay, you get a vaccine, but you're going to get Omicron but it's not a big deal, okay?

So it's like it's washed out like okay it's another flu and couple of days and back in business. So people don't want to hear about follow-up testing and all that jazz. And it remains, today, measuring antibody by an academically by on a certain population because people really want to understand what is the -- I mean, how long these antibodies will last.

And last but not least, if you remember, which is very interesting, until a few months ago, everybody was talking about the fourth shot with a new vaccine with Omicron variant. I don't know about you, but I've not heard anything new on that side. As is even on the vaccine industry, there is not an effort any longer to go after this new variant. So long story short, this is what we are seeing. We see a core business that continues is mostly with academic clinical studies, large hospitals that are following a certain patient set. But this business is clearly not growing.

Now when it comes COVID trend by geography, which I believe, Peter, was your last question, I believe that we see today what we already saw before in the last wave. U.S. declining much faster than Europe. This also has to do, in our case, with positioning of systems because in Europe, as we have discussed in a few conference calls, all our MDX systems are placed within hospitals for hospital admissions and confirmatory of positives that -- from the high throughput systems. And so that volume is much more -- the testing volume is more resilient. And there in Europe, we see a 30%, 35% decline so far. Whereas in the U.S. is -- I mean, we are following the market is 70% down, okay? And this is it.

[Operator]

The next question is from Giorgio Tavolini of Intermonte.

[Giorgio Tavolini, analyst]

I was wondering if you could provide us more color on your multiplexing business that you acquired from Luminex. And on the cost synergies with Luminex, if you started with some cost synergies in the quarter and the progression for this year.

[Carlo Rosa, executive]

If I may, I think we gave a lot of color on multiplexing the business. So I believe in a nutshell, as said, we have today -- so we bought a multiplexing company, and there is a business today that is based on older technologies that is resilient. But certainly it cannot be grown until the new technology LIAISON Plex will mark it, okay? And I have to -- and again, there is appreciation from these technologies, but certainly, they are today, they're not allowing much the new customer adoption.

Today, fundamentally, from multiplexing is the respiratory part of the business is becoming relatively small. It spiked because of COVID, but then it's going back to really small numbers, whereas what's resilient is more the gastro and the blood culture testing, which is -- because I think it's been the bread and butter of the VERIGENE I businesses since the beginning.

Now, this was the question. What was the second question about synergies?

[Giorgio Tavolini, analyst]

Cost synergies.

[Piergiorgio Pedron, executive]

Please. If you want Carlo you can take it. Yes. So Giorgio, I believe we said you on the Capital Market Day that the overall cost synergies we were committing to were $60 million by 2025. I would say we are very pleased with how the program is moving along. We have initiatives. We have projects, we have owners, we have due date, we have time lines. We have an IMO program, which is, I would say, very well managed.

So you know what -- again, I can say is that everything is moving along according to the plan, and you start seeing, again, as planned as model the impact on our financials.

[Operator]

[Operator Instructions] The next question is from Maja Pataki of Kepler.

[Maja Pataki, analyst]

Yes. Sorry, I was. Just 2 questions from my side. First of all, can you maybe talk a bit about the instrument placements that you've seen in the quarter and most have missed that in the press release. Maybe just talk about the legacy business, how that has been progressing and then the molecular franchise business.

And then just quickly to come back to the numbers that you have given. If I didn't math, I see that on my calculations, ex COVID organic growth was around 2% to 3%. And I cannot consolidate that with your very strong and positive notes about all the business lines. So is it ELISA that it has been declining more or is it China specifically that has been more of a drag on the organic side? It would be really helpful if you can help me understand what's been going on.

[Piergiorgio Pedron, executive]

So I'll take the organic growth. Again, I don't know exactly how the model you're looking at is built. But what I can tell you to add more color is that on the previous Capital Market Day, before Luminex's acquisition, I believe we said the growth mid- to high single digit. This was before COVID different work. If I look at how we closed the numbers, constant exchange rate, just sorting only. Without Luminex, I would say that we are there. So we are in the range of 5% to 6% growth. Immuno and its overall deserving business without COVID.

More than that, I believe it's difficult to say we've already sliced and diced the numbers in 2 different ways. So I believe that I can share with you.

[Carlo Rosa, executive]

Okay. Maja, I think your question is on the installed base, I believe, right?

[Maja Pataki, analyst]

Yes. The trend in the Q1. Okay. The trend in the Q1 is that typically in the Q1, we have a lower number of installations that happens in the other quarters. Last year, comparison to last year is unfair for the LIAISON XL because in Q1 last year, we installed almost 30 systems in a very large U.S. lab for the QuantiFERON business, okay? So that was a one-off peak that was made in Q1 as an outlier.

[Piergiorgio Pedron, executive]

When it comes to the LIAISON access we are actually starting the placements in the U.S. And I think the overall budget for this year is around 100 systems that we have. And when you look at the LIAISON MDX is around 5 systems, which is in line with what we are projecting. And clearly, we have complete different numbers when during the COVID time. But the COVID time in this very specific case is over. And so now as far as COVID concerned.

I'm sorry that the MDS is concerned, the game here is to defend the base first because you have a lot of crowded labs with a ton of capacity and now they're going to make the making decisions about which platforms that they're going to keep and the ones that they're not going to use any longer.

And all your installed base clearly now they have the time because they didn't have a time before to get more use so differentiated product offering away from just COVID. So all in all, I mean, trends for quarter 1 are in line with our budget expectations.

[Operator]

The next question is from Hugo Solvet of BNP Paribas Exane.

[Hugo Solvet, analyst]

I think for the -- just wanted to come back on the situation issues and probably sourcing electronic components, which you mentioned earlier in the call. Just wondering within your new 2022 guidance, how long do you think those special issues will last?

[Piergiorgio Pedron, executive]

First, I was talking about a very specific case for one system that we offer inflow cytometry, and that is to be with a bot with as cable that we're getting from Vietnam and supply varies.

[Carlo Rosa, executive]

Let me say no, not certainly solid. Overall, I have to say, notwithstanding all the issues you hear from different businesses. Our business, specifically as an attach would not really suffer that much from availability of components and also [indiscernible] our suppliers did not report any so far any issue with the supply chain. There is a cost issue, which is different and has to do with inflation, which Piergi, I think, has already discussed about.

The other issue with supply chain that we discussed is the complication of shipping products to China. And that is clearly an issue, especially people like us that have their warehouse system in Shanghai and everything is locked down. But again, I think we are -- to me it's black and white either in the next 2 to 3 weeks, they're going to open up or I think we're going to have bigger problems than not only as bigger problem than what we're seeing today because Shanghai is and also now the Beijing are all closed.

And so especially for people in pharma industry that everybody that has to ship within the cold chain now has stopped, but I'm an optimistic guy and I believe that this cannot continue for too long.

[Operator]

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

[Carlo Rosa, executive]

Thank you, operator. Thank you.

[Operator]

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