DiaSorin SpA

MIL:DIA

Earnings Call Analysis

DiaSorin H1 2024 Financial Performance and Outlook

During H1 2024, DiaSorin reported total revenues of EUR 589 million, a 2% increase from the previous year. Excluding COVID-related sales, the growth was 6%, or 7% when excluding the Flow Cytometry business, aligning with the high end of their annual guidance. The company's gross profit improved by 3% to EUR 390 million, while adjusted EBIT rose by 6% to EUR 153 million. DiaSorin increased its 2024 guidance, projecting revenue growth between 6% and 7%, with an adjusted EBITDA margin around 33%. The company remains confident in its strategic investments and operational efficiencies to drive future profitability.

Strong Performance Across Key Segments

DiaSorin has demonstrated resilience and growth in the first half of 2024. Total revenues for H1 2024 were up by 2% to EUR 589 million despite a planned reduction in COVID-related sales. Without the impact of COVID sales, which declined by EUR 21 million, the company's core business grew by 6%, or 7% if excluding the Flow Cytometry business. This is in line with the upper end of the full-year guidance. Notably, Q2 saw an impressive growth of over 7%, driven by robust performances in the immunodiagnostic and molecular diagnostic franchises, which offset softness in the life sciences segment due to lower instrument sales【4:1†source】.

Expanding Market Presence and Strategic Initiatives

In immunodiagnostics, DiaSorin's CLIA business grew by 13% in the quarter, primarily due to strong results in the U.S. and Europe. The company's hospital strategy in the U.S. has been particularly effective, with DiaSorin now serving over 300 hospitals, half of the 2024 target of 100 new hospitals. This expansion is not only growing their customer base but also strengthening their market position considerably. Additionally, China, despite facing headwinds, remains a strategic focus with plans for transforming its product catalog to more specialized offerings .

Continued Focus on Innovation

Innovation remains at the core of DiaSorin's growth strategy. The company is excited about the recent launch of their LIAISON PLEX and LIAISON NES platforms, which are expected to contribute significantly to the molecular diagnostic segment. The PLEX platform, which allows for flexible panel configurations, is particularly promising for its cost-saving potential and adaptability in various clinical settings. Early feedback from customers in the U.S. has been highly positive, and the company is working on expanding the menu of available tests for this platform .

Financial Discipline and Profitability

From a financial standpoint, DiaSorin has maintained strong profitability. H1 gross profit increased by 3% to EUR 390 million, achieving a gross margin of 66%, slightly better than the previous year's 65%. The company has managed to contain operating expenses despite inflationary pressures and investments in growth initiatives such as the MeMed program in the U.S. H1 adjusted EBIT rose by 6% to EUR 153 million, with a notable 14% increase in Q2 alone. DiaSorin has also maintained a stable net financial position, with net debt remaining consistent at EUR 781 million. The company benefits from a strong free cash flow, which has supported dividends and share buybacks .

Guidance and Future Outlook

Given the strong performance in the first half of the year, DiaSorin has updated its 2024 guidance, now expecting revenues ex-COVID to grow between 6% and 7%, with COVID sales predicted to generate around EUR 30 million. The EBITDA margin is forecasted to be around 33%, reflecting the company's efficient cost management and strategic investments in high-margin businesses. Continued growth is anticipated in both the immunodiagnostic and molecular diagnostic segments, supported by innovative product launches and expanded market penetration .

Earnings Call Transcript 2024-Q2

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the DiaSorin Second Quarter 2024 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 good morning, good afternoon to everybody, and welcome to the Quarter 2, 2024 results. I'm going to make some introductory comments first at constant exchange rate, and then I'm going to leave Mr. Pedron, the CFO of the company, to go through the numbers in more detail.

So let's start from the top line was a strong quarter. The company ex-COVID grew 7%, and there is an acceleration in quarter 2 compared to quarter 1. When it comes to the COVID business, EUR 5 million in the quarter, so far in line with our full year guidance of EUR 30 million. In fact it's a very strong quarter, and it's a combination of immunoassay that is growing 11% and with CLIA, which is the major component of this business, growing 13% in the quarter. And this is due to the fact that U.S. and Europe, as we will see later, continue to provide strong results. China is not still impacted by VBP, even if in the second quarter, we had no growth.

Molecular, plus 5%. It would have been -- as we did comment before, we lost the contract last year that has been impacting first half. Without the effect of this contract, our molecular franchise would have grown 8%, and there is no impact of PLEX yet, but I'm going to comment on PLEX later. LTG in the quarter, minus 7% deceleration, although I think we need to be more analytical about this result. We see growth in consumable, we see growth in royalties, and we see -- we continue to see a strong decline in instrumentation as a result of the fact that in the life science sector, our partners are not placing systems. So the performance of this business, I remind everybody, is fundamentally reflecting what the major biotech and medtech companies that distributing our products are doing globally.

Now let's dive into the different segments. So let's start from immunodiagnostic. As said, immunodiagnostic ex-COVID plus 11%. There is a very strong positive trend on CLIA, so on the LIAISON also in this quarter, which is the result of the performance of 2 main geographies, Europe and the U.S. When it comes to the U.S. As we have seen in the last few quarters, the Hospital Strategy is working well. We are keep expanding our presence in the U.S. hospitals, and this is very relevant also for our molecular business, and I will comment on this later.

We are well on track to deliver our 2027 plan with 600 hospitals. So far, we are over 300 with -- in H1, we closed 50 new accounts. I remind everybody that the target for 2024 was 100 hospitals, and we are on track to deliver also the growth this year. Clearly, this has been possible as I did comment before on the increased commercial footprint. Thanks to the Luminex acquisition and to the -- our menu, which is a combination of specialty products that will fit this segment of the market.

When it comes to Europe, very strong performance, it's around plus 12% in the quarter. In spite of some headwinds with some legacy products like Vitamin D. When it comes to Europe, the performance is supported by the fact that we continue to see growth in testing volumes in all the main European geographies, and we see no headwind in front of us when it comes to this volume contribution.

If we now move to China. If you remember, quarter 1, we had a positive result, but I warned the market that, that was because of an easy comparable to Q1, 2023 when there was still low testing volume because of COVID. In quarter 2, we in China experienced a high single-digit decrease that makes the H1 almost flat. We don't see the VBP effect yet, but we continue to see headwinds when it comes to the strong competition due to local suppliers and the fact that there is today, I would call it [indiscernible] coming from the government to buy more and more Chinese-made products. I remind everybody that China does represent today less than 3% of the overall business.

So there is not a significant impact on the company results. However we continue to stay in China and working to the transformation of the business from a me too product catalog, which is what we sale today to -- of specialists business, which is what -- it's going to be coming with the registration of the QuantiFERON product and there's 2 products that today are not distributed in China yet.

When it comes to other geographies, we are delivering very good results in all the geographies where we are working direct. Australia, notwithstanding with a very high penetration, is growing almost 16% in the quarter and high single digit growth in more established markets, Mexico and Brazil, where we have a solid business, the only area where we have suffered in the Middle East and specifically in Iran because we had a some business and because of the local -- the current situation, we have not been able to ship products in H1 of 2024.

So overall immunodiagnostic is doing great. When it comes to new products. I want to discuss MeMed and Lyme. Lyme is in line with the plan. Remember, we have submitted to the FDA our initial clinical results. And we have received from the agency, comments. And we are collecting data for a final resubmission in September. So we believe we are on track to get our product proved by 2025 as per plan.

We are also finishing up discussions with a large lab in the U.S. that is going to help us to educate the market because as we understand that we need to make sure that we would have market it -- from current testing to the adoption of the T cell component. MeMed, the JUPITER study is [ conferred ] to be completed in quarter 1 of next year. And in quarter 3, quarter 4, there is going to be an initial set of data that are going to be made public. By MeMed, it continues to be a door opener for us for discussions with hospitals in the U.S. And we continue the education campaign to [ ramp up ] the demand of this test. So overall, our immunodiagnostic franchise is doing fantastic, in all different geographies. And we are very comfortable with the sustainability and growth of this business mid-long term.

Now let's move to molecular diagnostics. As said, ex-COVID, plus 5% in the quarter without the effect of the lost business last year is 8% growth. And again, there is no contribution whatsoever of PLEX that we just launched 2 months ago. The legacy, DiaSorin molecular business, what we call the targeted business. So multiplexing is growing double digit. The VERIGENE business is holding pretty well, and we -- I'm going to comment on the customer base of VERIGENE very shortly. We have some set of the ARIES as per plan, and we are transitioning the ARIES business to our MDX platform, and it is moving forward as expected.

We continue to see growth in the respiratory, also high single-digit growth in quarter 2. This has nothing to do with the respiratory season that, as you know, will start in -- late in Q3, Q4. But there's more to do with the fact that, we do have a presence in this business, and we have other infections happening outside the system that are making this business strong. And overall, we have a very good performance, both in Europe and in North America.

Now let me make a couple of comments on PLEX and NES. When it comes to LIAISON PLEX, where we have a very good start with a strong interest for the flex concept. I remind everybody that as we discussed previously, the adoption of flex testing in the -- in our regular customer in the U.S. would grant saving in the range of 30%, 35% compared to what they are spending today. And certainly, in the current environment in the U.S., this is very well appreciated. We have a customer base in the U.S. of over 800 customers that we have access to -- these are existing DiaSorin customers, 300 are VERIGENE users and then over 300 are hospitals that we serve with our immuno business and they're now buying from DiaSorin molecular and they represent a relevant base to market the new platform. Today is an important day. We are here in Chicago in our manufacturing site, and we are hosting an event for investor and analysts to review the strategy and explain the technology, and we are extremely positive about the launch of this platform.

LIAISON NES, we have conducted and almost wrapped up a preclinical study in Australia with the new assay, the flu, RSV and COVID. So the 4-PLEX I would like to say that we have developed on the platform. We have -- we are very happy with the results. We have tested this platform in a CLIA-waived environment, and we are ready to start clinicals in October as we have discussed. So when it comes to molecular, very excited and very excited because we have a strong business. And we have 2 very nice platforms, very innovative that are hitting the market now and within the next couple of quarters.

Now let's move to LTG. LTG -- I remind everybody, our LTG franchise is a combination of diagnostic partners and life science partners. Diagnostic partners are doing very well, reflecting the fact that the diagnostic market worldwide is experiencing strong growth. In the life science technology, we have partners that they are experiencing, as we all know, from public information, single to double-digit decline. Net-net result is that we see an increase in consumable. We see an increase in royalties, which are the relevant part of this business. And clearly, we see a strong decline in instrument placements. And because the market fundamentally is frozen due to the fact that there is CapEx restriction in the R&D -- university environment.

So we continue to monitor the market. We -- I believe, some of the partners are highlighting the fact that they expect this -- the life science component to bounce back in the second half. And -- but as far as margins are concerned, clearly, the fact that consumable and royalties have continued to increase is actually posing for this O&M. So it's positive for the company.

Now I'm going to pass the mic to Mr. Pedron, who is going to go through the numbers, and then we will have the Q&A session. P.G.?

[Piergiorgio Pedron, executive]

Yes, Carlo. Good morning, good afternoon, everybody. Thank you for joining the DiaSorin H1 '24 earnings call and for the interest you are showing in our company. In the next few minutes, I'm going to walk you through the financial performance of the DiaSorin during the first half. And I will then turn the line to the operator for the usual Q&A session.

H1 '24 total revenues at EUR 589 million are above last year by 2% or EUR 30 million despite the expected decrease in COVID sales had down by EUR 21 million, and the different perimeter of consolidation coming from the carve-out of the Flow Cytometry business in Q1 '23. The business ex-COVID is growing in H1 at constant exchange rate by 6%. 7% excluding the Flow business, therefore, in line with the higher range of the full year guidance. H1 COVID sales in the quarter accounted for EUR 40 million vis-a-vis EUR 35 million in 2023, confirming our 2024 outlook, which is calling for nearly EUR 30 million. The FX impact in the quarter is not material at all.

Q2 revenues ex-COVID at constant exchange rate grew vis-a-vis 2023 by north of 7% or EUR 20 million, that's recording an acceleration towards Q1, which grew 5%. This variance, as we just heard, has been driven by a better performance of both immune and the molecular franchises partially offset by the LTG business because of the generalized softness of the life science market and in particular to instrument sales.

H1 gross profit at EUR 390 million or 66% of revenues is better than last year by EUR 11 million or 3%. Q2 gross margin ratio at 66% of revenues as well is slightly better than last year, which closed at 65%. All the initiatives aimed at improving operational processes and containing costs alongside a more structured approach to pricing, which we discussed in the past, allowed us to preserve margins despite the inflationary pressure experienced in the last 18 months now muted, and the manufacturing costs we are incurring into to set up our new plant in Shanghai, which has not started production yet. I believe this to be a remarkable indicator of the success of the relentless efforts that we put in place to safeguard our profitability.

H1 '24 adjusted operating expense is at EUR 229 million, basically in line with 2023 with a ratio of the revenues of 39% vis-a-vis 40% of last year. The fact that operating expenses have not increased despite the investment to support the MeMed acceleration program in the U.S. And the physiological yearly labor cost rise is a clear demonstration of our discipline in managing the cost base and the result of the synergies delivered after Luminex acquisition. And marks a clear path to increasing profitability in line with the plan presented during the last Capital Market Day.

Adjusted H1 other operating expenses are higher than last year by EUR 4 million. This increase is driven by many moving parts. Amongst which, I'd like to mention a new tax introduced in 2024 by the Italian government on medical devices companies, equal to 0.75% of sales made to laboratories covered under the Italian National Health System. The early impact of this new levy should be around EUR 1 million. Please be aware that this is different. And on top of the Italian payback mechanism, we have discussed many times in the past, and that I will cover in a few minutes because there are some news there.

As a result of what just described, H1 '24 adjusted EBIT at EUR 153 million or 26% of revenues is higher than last year by EUR 9 million or 6%, whereas the increase in Q2 is 14% or EUR 10 million. Half year adjusted interest income at EUR 2 million is in line with last year. And the same is true for the adjusted tax rate, which closed the first 6 months of the year at 23%.

Moving now to the year-to-date adjusted net result. We see EUR 120 million or 20% of revenues, which is better than '23 by EUR 7 million or 6%, whereas the increase in Q2 is 12%. Lastly, H1 '24 adjusted EBITDA is just short of EUR 200 million or 34% of revenues is better than '23 by EUR 8 million or 4%, whereas the increase in the second quarter accelerated to 10% with a profitability of 34% vis-a-vis 32% of Q2 '23.

Let me now move to the net financial position. We closed June '24 with a net debt of EUR 781 million, basically in line with the end of 2023. The free cash flow generated in H1 has been offset by the payment of dividends to our shareholders some share buyback to support the equity compensation plan for the certain employees plus some minor moving parts.

Before discussing 2024 guidance and opening the Q&A session, let me update you on the so-called Italian payback. Which, as I think you will all remember, is a request for companies to payback part of the regional budget or spending on medical devices covered by the Italian National Health Service. A few days ago and precisely on July 22, under the Italian Constitutional Court ruled in favor of the legitimacy of the law that introduced this mechanism back in 2015. At the same time, though, stating the possibility for each company to settle the amounts due for the period 2015, 2018, by paying 48% of the original ask.

Nevertheless, the payment is currently suspended and only upon a new request made by the regions that must recalculate what originally due at the light of the ruling, imposing the reduction to 48%, the amount should become payable.

On top of this, to make things even more complicated, the trial will continue before the Administrative Regional Court in Rome that will charge on the other objections. Decided the constitutionality issue raised by the claimants last year. To confuse this saga even further, some operators are considering bringing this case before the European Court of Justice for the violation of EU rules.

Now let's move to what this means for us for DiaSorin. As you might remember, we have built over the last few years in our balance sheet, the provision against this risk. Therefore, the latest legal developments are not going to have any impact to our P&L. Whereas in the settlement scenario, we would have a net cash out of about EUR 7 million. We are assessing with our legal team and with the association of the Italian diagnostic companies how to move forward, meaning if to sell or keep on litigating. Since many things are not clear and determining yet. And as usual, we will provide you with an update as things progress.

Let me now finish my remarks, moving to the outlook. Considering the strong start of the year, we are increasing the 2024 guidance aligning with the higher range of what previously reported. Both for revenues and profitability. To be more specific, the new outlook is calling at the previous year exchange rate for revenues ex-COVID to grow between 6% and 7%. With COVID sales at about EUR 30 million that is not going to change and an adjusted EBITDA margin at about 33%.

With that said, 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 Kavya Deshpande with UBS.

[Kavya Deshpande, analyst]

Carlo, P.G. I got few, please. So the first is just on the U.S. hospital strategy. So I know in the past, you flagged there was only very little overlap between your hospital customers and Luminex's, when you acquired it. I was just curious if the new accounts that you've been adding, have those mainly been from the Luminex pool that you're now bringing over to the immunoassay franchise or the brand-new accounts here as well that you're gaining traction with? And then my second question was around LIAISON, you called out MDX as 1 of the drivers of outperformance here. Was that maybe the respiratory portfolio in MDX or -- more balance between that and the specialty tests as well?

[Carlo Rosa, executive]

Kavya. No, when it comes to the first question about the U.S. hospitals. I'm going to say that the vast majority of accounts are new accounts. And this is because the size of the hospitals served by Luminex was more mid-small. And therefore, when it comes to the -- our current strategy on the [indiscernible], we are going to meet mid-high-volume accounts, which actually you see the effect on the revenues. The U.S. CLIA business is actually growing almost 20%. So the long story short, today, we are really focusing on new accounts, completing new accounts. And as I did comment before, we see MeMed for the time being not as strong contributor to revenues, but there's a very relevant asset to initiate discussions with these hospitals.

Second, on the, MDX, what we call the targeted is a combination of 2 businesses. As you remember, there is an ASR business, which continue to thrive as the combination of the fact that we keep launching new products in that segment. And in the last few years, there are really few players left in the space. And we actually inherited this business when we bought a Focus from Quest because it was the outfit that Quest was using to develop the full LDT business. So it's a very, very nice business and is growing double-digit for us. The rest of the catalog on the MDX, we have been focusing most of this business in the specialty.

And actually, it's paying off, clearly, because we don't have completion in that space. And we are really -- we are extremely excited for the candida auris because it's been a de novo -- it's a de novo, 510(k) it's been a long clinical study. We are the only one in the U.S. market to get this product approved is raising concern. And so long story short, we really believe that turning the MDX into efficiency program strategically was a good decision and continue to support the growth of this business.

[Operator]

The next question is from Marianne Bulot with Bank of America.

[Marianne Bulot, analyst]

I have 2 as well. So the first one is we've seen obviously a very strong performance in North America, driven by the hospital strategy. And so I was wondering if you could give maybe a little bit more color in terms of profitability impact from this strategy, especially. And the second question is more on your guidance and the phasing into this year. Obviously, you had a strong H1 at 34%, which is above the upgraded range of 33%. So if you could give a little bit of color on the phasing for the rest of the year? And if there is anything that could be a slowdown into H2?

[Piergiorgio Pedron, executive]

Marianne, this is P.G. speaking. Thanks for your questions. I will start with the guidance one. If you go back and look at the performance of our business over the last few years, what you would see is that typically in H2 OpEx -- so H2 over H1 of every single year, OpEx are kind of increasing for the 2 reasons that we see happening year-over-year. The first one is that we have -- our salary will increase, kicking off in July, right? And as you might remember, 60%, 65% of our OpEx is in reality, labor cost, right? We expect this impact to be, give or take, EUR 5 million additional cost in H2 compared to H1.

On top of that, if you look at the phasing of some discretionary spending, we had -- some of those are [indiscernible] projects, which are gaining some speed of traction in H2. And my estimation is that from that, we will have an additional EUR 5 million give or take of additional OpEx as I was telling you. And it's interesting, if you go back and look at 2023 and you do the same exercise once you would take out the fact that in H1 2023, we had the Flow Cytometry business, you would see a similar increase. So long story short. So the -- few issue -- what we see in H2, is slightly more than 32% EBITDA margin with a similar gross margin and 1 point, let me say, give or take, of profitability invested in OpEx, so if you can use -- if this work.

So we feel pretty comfortable with the 33% as usually, we like to deliver on what we commit. And this is, I believe, the story about guidance and phasing of the guidance for 2024.

In terms of profitability of the hospital business, usually, we don't like and we don't disclose profitability by customer segment, right? As you know, the immuno business is one of the businesses which for us carry one of the highest margins, so to say, definitely higher than the molecular one. So you have obviously some kind of positive impact coming from that. But also if you look at the margins of H1, we had a positive impact from the fact we had lower as, Carlo was commenting, lower instrument sales in the LTG business and the lower export sales, which usually come [indiscernible]. So once again, many moving parts, but the general statement is that immuno business carry very good margins and hospital pricing in the U.S. allow us to, let me say, the margin [ reach scale ].

[Operator]

The next question is from Odysseas Manesiotis with Berenberg.

[Odysseas Manesiotis, analyst]

Sorry, the line is breaking a bit. It's not great here. But one on MeMed, please. Regarding the inclusion of MeMed in some U.S. hospital guidelines. Could you please talk about how exactly MeMed was included in the guidelines. Is there a first-line test for pediatric patients with respiratory infection? So I just want to get, you know, how this was included there?

And Secondly, could you give us that might be -- I might have not heard that because the line is not great. But could you give us a bit more color on the strength of immuno cells in the particular tests that did well in the second quarter?

And may I squeeze in one last one. So on the margins, you have previously said Carlo, that you're going after the molecular market for growth of [ LIAISON ]. So also taking into account VBP and LTG becoming more of a double in China in '25. Is it fair to assume that the '27 margin target should be very back end as in not seeing margin expansion next year? That's it.

[Carlo Rosa, executive]

Odysseas. So the first question on MeMed was on guideline, not guidance, right? Guideline meaning clinical guidance?

[Odysseas Manesiotis, analyst]

No, it was included in clinical guidelines of hospitals as in for the one you have exceeded doing that already. How is it in the first-line test or for pediatric patients or...

[Carlo Rosa, executive]

Yes, yes, yes. I think we did comment this before, and I don't think that we have any specific update on that. And again, in a short summary, the customers that we have up and running between us and MeMed as I said, are all customers that have taken the time to implement the testing of MeMed of the algorithm, B versus V, in a certain patient population that, as we discussed in the past, it really depends from hospital to hospital. Some do decide to start with children, others do open it up to different age groups. And what we see is a variability in the way that different hospitals are actually approaching the problem.

But I believe that two things are very relevant. The JUPITER study is important because it will remove potential issue of reimbursement. Although today, the assays are reimbursed by the insurance policies -- insurance companies using generic codes. We don't believe that this is sustainable long term, but today we don't see necessarily denials in that area. And including the fact that, as we discussed a few times, MeMed is cover under DRG, right? So it's part of the lump sum that hospitals do get for outpatients. So we're going to give as we have discussed more color on MeMed by year end because we will have 1 year experience in the U.S. and Italy.

And I think it's going to be a very interesting discussion. What's noteworthy is that also by the end of the year, MeMed is going to release a subset of data to the JUPITER study, and so the market will have an indication of how things are actually doing clinically with that study.

The strength of the immunoassay, which I think was your second question, it goes back again to our specialty strategy. And it's stool, it's the QuantiFERON that certainly are the #1, #2 product these days in terms of door openers. But also the rest of the menu of infectious disease we are experiencing as a result. We do have an infectious disease in most of the European countries. We have market share of 30%, 40%. And experience -- we're experiencing increase in testing volume. So now we see the whole portfolio of products really kicking in. And as we discussed a few times, China is -- at this point, is a minor damage and its damage control. So it does not really influence our CLIA, okay?

[Odysseas Manesiotis, analyst]

There was one on margins.

[Carlo Rosa, executive]

One on margins that I think that P.G. is going to take.

[Piergiorgio Pedron, executive]

Yes. Odysseas. I believe what we said during the Capital Market Day is that our increase in EBITDA margin is mainly an operating leverage play, right? And I believe you can see it very clearly in Q2, whereby revenues increased by 5% and OpEx didn't increase at all. This meaning that we already have a setup when I think about our OpEx which will allow to sustain the growth coming from all the new platforms which are going to hit the market. We asked ourselves after Luminex acquisition, what are we going to do? Do we want to keep on investing in the commercial organization and waiting for the new products to come. Do we want to pause? And eventually, we said it was more wise to keep on investing on our commercial footprint, especially in the U.S. waiting for the products to come.

Now the products are coming, the PLEX hit market, as Carlo said, [ the NES ] is doing just great. And so as soon as we will have those products in the market, you will see that, let me say, operating leverage play hitting our P&L. So I would say that is a -- obviously, there are many moving parts, the usual story, right? And my disclaimer allow me some flexibility, but this is the story, which is also true, if you wish. If you look at the guidance for the year, right, we started with the guidance, which was 32% to 33%. And after the result of the first half, we felt comfortable enough to raise the guidance. I believe this is what I can comment and share about margins and margin development.

[Operator]

The next question is from Shubhangi Gupta with HSBC.

[Shubhangi Gupta, analyst]

So I have one on PLEX, please. So can you update the growth momentum in PLEX? What is the feedback from customers? And how does it compare to the other instruments and syndromic testing that already exist?

[Carlo Rosa, executive]

Okay. So the audio was not great. So I think you're asking for PLEX and how does it compare with other existing systems? Is it correct?

[Shubhangi Gupta, analyst]

Yes, yes.

[Carlo Rosa, executive]

Okay. As we -- I think I've discussed a few times in the past, and we're going to be covering today. Again, as I said, we are here in Chicago. We're very excited. We have a lot of analysts participating and a lot of U.S. investors. So when it comes to PLEX, the fundamental difference between us and competition has to do with ease of use in comparison with bioMérieux with BioFire because -- and understandably so, the BioFire has been a very successful platform. But the technology is a little old, and so there is a lot of ample time that more modern systems don't have.

But fundamentally, the distinctive offering of DiaSorin is with the Flex. So the ability to Flex the panel depend optimizing, let me say, the panel with the population, the season tested by a lab. And I'm giving you a very simple example. During the respiratory season, if you look at the prevalence of the viruses were first, the majority of the infections are virus related and not material related. And the second, if you look at the prevalence, you take the top 7 viruses, which may vary depending on the population tested. So there is a certain prevalence on kids that you don't see in adults. But with just 7 out of potential 19 targets, you cover 90% of the infections, okay?

And this is giving you the power of flexing. And if you apply these algorithms that every hospital will be set free to the site because we offer a basic 7 targets panel that can be -- and those targets are pretty much decided by each individual customer. If you just do the math and you look at the prevalence and you look at what customers are paying today for the full panel of '19 versus PLEX. You are talking about saving a significant amount of money, 30%, 35%, 40% to what you're paying today.

And the second data point, which I think is very interesting is that if you look at the respiratory market, just the respiratory market in the U.S., that does represent 17% of the total syndromic business. And you look at what an average hospital system is actually spending in respiratory syndromic you're talking about $350,000 to $400,000. So you understand that savings are significant. You're not talking about $10,000. You are talking about $100,000, $150,000 which certainly is attracting the interest of many stakeholders in the hospital system.

If you now go behind a respiratory and you go to blood, for example, because there is another concept, which I think is very important for everybody to understand. Flexing is not only relevant for respiratory, flexing is relevant for all different applications. If you look at blood, which is going to be the second panel that we are going to launch we just got the East approved, and we are on track to file by September, the other 2 blood panel for approval in the U.S. Right there, you can actually use the panels according to the current guidelines without forcing customers to use a full panel gram-neg or gram-positive patient, which is what they are forced to do today.

So -- and if you go now to GI, which is the last bucket, that is even more relevant because when it comes to GI infection, you have seasons, you have geographical differences. You have people that are actually traveling in exotic locations are coming back, and therefore, you're not forced to do all and everything that is on -- might have hurt, but you can tailor made these panels, depending on geographies. So it's a very powerful positioning for the company. And we just launched it 2 months ago. We have a respiratory as we speak. We have a lot of traction coming from customers because of what we discussed. So there is a financial incentive certainly to look into this technology. We have closed the first account. So we have a real-time users of the technology. And we have a good funnel.

And the last element, which I think I did provide during my opening remarks, we have -- in the U.S. where we launched the system, by the way, everybody understand that we just did a U.S. launch for the time being. We have an installed base of roughly 800 customers that are DiaSorin customer, either immuno or VERIGENE or molecular -- doing molecular not doing multiplexing that we can address and present this new technology. Vast majority of this would be certainly hospitals, which are either managed by the very large labs or independent hospitals. And as you know, when it comes to hospitals managed by very large -- by the very large labs, we do have a relationship in this in this -- with the large labs that is allowing us to discuss overarching contracts.

Last but not least, the opportunity in this space for DiaSorin clearly is in the conversion, right, as I said, we have a sizable VERIGENE business that certainly, we will have to convert. But every time there is a conversion, there is a price increase because of the position of the VERIGENE one. So all in all, clearly, the due result, the system is on the market, and I think we're going to provide more colors coming in the next few quarters.

[Shubhangi Gupta, analyst]

Just a quick follow-up. Do you have a number on the install base for VERIGENE?

[Carlo Rosa, executive]

Yes, we do. But as you can appreciate, we don't disclose. What we have said is that roughly in the U.S., we have 300 customers using the VERIGENE I panels. Blood respiratory and GI. The majority of these customers are nonrespiratory and simply because the respiratory business, which is -- makes the lion share of the market requires the handling of volumes. And clearly, the VERIGENE I that is more a [indiscernible] technology did not fit that market. But -- and therefore, our VERIGENE customer base is primarily GI and blood.

[Operator]

The next question is from Aisyah Noor with Morgan Stanley.

[Aisyah Noor, analyst]

My first one is on the immuno growth. I mean you've had a few quarters of very strong growth already. And I think you mentioned in the press release, it's 22% growth in the North America immuno business, which is pretty strong. How sustainable do you think this is as you look out into the second half of the year and even in 2025? And if you could disclose what the pricing levels are in this business, in the immuno business relative to historical levels, that would be super helpful.

And then the second question is on the LIAISON PLEX. What do you think is the -- well, actually, you mentioned at the beginning of the launch, you were hoping to replace or upgrade as much as possible your installed base of VERIGENE I. How far along are you in that replacement phase now? And where are you hoping to be by the full season in Q4?

[Carlo Rosa, executive]

I don't remember saying that we want to replace the existing installed base. I said that we're going to be balancing new customers with the existing installed base. And clearly, I'm not going to provide any data in what we are doing today when it comes to the mix between the VERIGENE I accounts and what we do with PLEX.

On the immunoassay, to be honest with you, I don't understand the question because you're asking if I think this is sustainable long term. I think that we provided the answer in the past few times because we said that we have 2,200 customers that have been mapped and they constitute a base that we can work on, primarily U.S. hospitals. And today, we are really at the beginning of the runway. So I believe that this strategy is clearly sound. Now we have been pushing in this segment for almost 3 years, and we continue to see the strong success.

Pricing, as you can imagine, I'm not going to comment on pricing. It is though very well known that because of the size of the accounts, the hospital market is a richer market than the traditional commercial segment.

[Operator]

The next question is from Hugo Solvet with BNP Paribas.

[Hugo Solvet, analyst]

I have a few, please. First on the LIAISON PLEX. You guys had the approval of blood panel last month. Just want to clarify the commercial rollout for blood panels. Will you be gradually rolling out this one or wait for the 2 next ones to be approved before to maximize the commercial opportunity.

Just to follow up on that. Maybe with 6 months into the year 7 now, actually, you can help us understand what's baked into the guidance in terms of LIAISON PLEX sales as you likely have some strong wins now that you started to engage with your customers. And lastly, Piergiorgio, you mentioned some operating leverage with new platform, just a quick clarification. Do you -- would you expect that as soon as you launch the new platforms? Or will you need to reach scale for operating leverage to be triggered?

[Carlo Rosa, executive]

I will take the first question. Clearly, we need the full panel. So [indiscernible] was the first product that we went through. It did have a strategic value for us because we have negotiated with the FDA, how to present the data. And actually, this panel went through, as you noticed, very smoothly. So now we have a framework for gram-pos, gram-neg. But certainly, we are not -- as we speak, we are focusing on respiratory and we are not working on blood because we need the completion on the panel. Then I'll leave the other 2 questions to P.G.

[Piergiorgio Pedron, executive]

Yes. I will start with the operating leverage. I believe what I was trying to convey is that basically, in our projection, the top line is going to grow faster, much faster than operating expenses. And you already saw it in Q2, and this is what it's going to drive and increase our EBITDA margins. And when I talked about the launch of new platforms, what I meant is that since we will expand our offerings, thanks to the fact that PLEX just reached the market, we're going to expand the menu. We're going to obviously launch the product and [ NES ] is going to come, Lyme, MeMed all of those programs that we discussed about during our Capital Market Day are going to be a very nice contributor to our already existing solid top line growth as a combination of those new products platform here in the market, building on the existing revenue growth and on a management -- tight management of our cost. That is what is going to deliver the increase in margins.

In terms of -- if I got your second question, right, I believe you asked guidance on PLEX sales. We are not going to give any guidance on PLEX sales. I mean, obviously, this is a sensitive topic from a competition perspective. You will see our PLEX sales reported in our total molecular sales, we will give some color. We will try to explain to you guys how the things are going, but don't expect from us a very specific number.

[Operator]

The next question is from Maja Stephanie Pataki with Kepler Cheuvreux.

[Maja Pataki, analyst]

I would have 3, please, Carlo. You have been commenting on strong European volume growth now for a couple of quarters. Can you maybe provide a bit more insight what you think is driving the increased volume growth in Europe? And how long is that sustainable from a market perspective? My second question relates to your commentary around the 7 pathogens covering 90% of all reasons for the infection. Is it any 7 pathogens that are covering 90%? And are you basically defining the first 7 pathogens that need to be tested? Or how do I think about that? And then lastly, just to confirm, the PLEX ability is not only going to be on resp and gastro, but it's also going to be on blood culture and later on the meningitis and encephalitis?

[Carlo Rosa, executive]

Maja. Look, when it comes to the European growth, it's very difficult for me to dissect this number. Because it's -- first, we play fundamentally in infectious disease, right? We are not in oncology, thyroid, that they are more mainstream. So I really don't know, first, if this is an overall volume increase or not. I assume looking at, for example, I saw Roche reporting and they play in that segment and they had an outstanding result in the immuno franchise. So I assume that you also see a volume increase overall in this more me-too panels.

When it comes to infectious disease is across the line and across the board. So you see prenatal you see hepatitis, you see all these assays going up. And when we talk to customers, and this across geographies, by the way, so it's not just one, it's pretty much everywhere, including countries where like Germany, where typically, it's -- testing is very well controlled from a reimbursement point of view. And customers are saying that as a result of the COVID, there is a resurgence or more attention to overall infectious disease testing, okay? This is as much as I can tell you.

Is this sustainable? I don't know. I think that we are talking about -- just to put it in perspective, we are talking about a volume growth of probably 3%, 4% versus what traditionally was more into the 1% because you always see volume increase, but not to this level. By the same token, I believe that P.G., made a good point. We do have now a process in place to control pricing much better than before. And we were able -- we now see also the effect of this price increase that we negotiated across different geographies with customers because everybody recognizing that there is an inflationary effect on the market.

Now if I move to PLEX. Yes, PLEX is going to be across the different panels. And I'm going to make a comment about it later. But when it comes to the 7 targets, I'm not deciding the 7 targets. The customer is deciding the 7 targets. And what we are presenting today here in Chicago is the fact that the sell-in targets, which are primarily viral targets really depends on the mix of population that -- and the season, okay, for example, in the RSV season, it make sense to include in the non-RSV season, or RSV is particularly a widespread between kids and elderly is -- and so we knew if we test someone that is more of my age, I don't consider myself an old guy yet, it will not make sense to run RSV, for example, if I show up with symptoms at least as the primary screening.

So -- but again, just to make it clear, we are not deciding, which are the targets. We will just say pick 7 and the hospitals clearly have the ability to do what they want.

One last comment on flexibility. I believe flexibility is very relevant for the existing panels, but it's super relevant also for the future panels because if you think, for example, the tick-borne is an area where we are present, where we are very strong. We are present with Lyme. Today, where we have dominated the market, we're investing with candidate in these area. And certainly, there is a need of molecular component not to Lyme specifically, but to all the other tick-borne where we are present with our ASR. And in this case, again, tick-borne, you have ticks diffusion in different geographies. So it would not make sense to have a fixed panel for that, but customers should be able to adopt depending on season, depending on geography and depending where actually the patient is coming from, okay?

So to me, flexibility in this environment, I believe that not offering flexibility is a nonsense, is a medical nonsense. And I think financially also is a great incentive for customers. This is the feedback I'm getting so far from the launch of PLEX.

[Operator]

The next question is from Ana Bain with Barclays.

[Annapurna Bain, analyst]

Congrats, guys. Yes, I'm on the line on behalf of Gaurav Jain here. Just a quick one from me on PLEX. You mentioned sort of, I think, over 300 U.S. immuno customers as a potential sort of cross-sell target market for PLEX. I just wanted to clarify, do you feel like these customers are existing molecular customers who are with a competitor? Or is this blue ocean strategy addressing new targets the molecular market that can be tapped into as a result of your lower price point. And related to that, just a question on your sales and marketing, I'm keen to understand the extent to which there's cross-selling within immuno to molecular. And I guess sort of based on that as well, I guess, a couple of months into the launch of PLEX, do you remain comfortable that your sort of existing level of sales force is sufficient for the rollout of PLEX in line with your guidance?

[Carlo Rosa, executive]

When it comes to the 300 existing hospitals and it's over 300 by the way. These are hospitals that they do -- all of them clearly do the molecule testing. Because they are in mid-large institutions, hospital systems. And so we see -- and today, remember, when we go and with our immunoassay platform, fundamentally, the menu is an infectious disease menu because you have QuantiFERON, you have stool testing, which is also infectious business. And then we have the traditional panels for all the prenatal infections. So -- we are an infectious disease company, and this is why molecular fits very well with our customer existing customer base in the U.S., and in Europe.

Unfortunately, in Europe, we feel that the market for multiplexing is not so developed for many different reasons, and we want to focus today just on the U.S. market. Sales and marketing today, if I look at the funnel moving forward for PLEX, initial funnel we just started. But there is already cross-selling happening. So 10% of the funnel today are hospitals doing immuno and not doing molecular, okay? So I see this is why I was referring during the call to a potential installed base of 800 hospitals and commercial labs in the U.S. that we can reach with our PLEX either because they are VERIGENE accounts or they are infectious disease, people, labs, they do know us and we can access with PLEX.

[Operator]

The next question is from Giorgio Tavolini with Intermonte SIM.

[Giorgio Tavolini, analyst]

Regarding your revenue guidance. Is it correct to assume that the improvement is actually linked to the growth of molecular diagnostics since after the 4% growth in H1 and 5% in the second quarter. So I was wondering if the original target of a flattish molecular revenue growth should be now understood that's flat to low single digit, I don't know. And the second question is on the QuantiFERON platform. We have seen the new U.S. guidance recommending the use of the latent TB test in pediatric population. So I was wondering if you're seeing any acceleration in the adoption of this test. And if you see any new developments from competition on the latent TB test?

[Carlo Rosa, executive]

Look, I -- the new guideline just hit the street when it comes to TB. And therefore, certainly, there is an increased awareness of TB testing in the U.S. I think QIAGEN has been doing a fantastic job educating this market and we continue to see an uptick in volumes for this product line, okay? And I'm leaving to then P.G., to answer to your first question.

[Piergiorgio Pedron, executive]

Giorgio. On the guidance, you're right. I mean I think you are looking at the Capital Market Day data. Where we said in 2024 we would have expected a flattish molecular growth. In reality, what is happening is that both for the molecular franchise and the immuno franchise, we are seeing better numbers than what we originally budgeted for. And for molecular, again, Carlo said very clearly that we are enjoying a very nice growth on the -- not only on the legacy DiaSorin business, if you wish.

The specialty business with ASRs and other products such as the HSV, [indiscernible] all of those high specialty products, high price. But also the legacy, if you wish, Luminex business, so the VERIGENE and what we call nonautomated assays, is doing slightly better than what we originally expected. And that has been able to more than offset the softness that we are seeing on the LTG business, right, because of we are not expecting the life science business to be eating the LTG business, I mean, eventually capable of offsetting the increase we saw in the diagnostic part of the business. So long story short, is the answer is molecular, both legacy and legacy Luminex and legacy DiaSorin and the immuno business, which grow to such an extent to more than offset the softness we are seeing on the LTG business.

[Operator]

Gentlemen, there are no more questions registered at this time.

[Carlo Rosa, executive]

Thank you, operator.

[Operator]

The conference is now over. You may disconnect your telephones.