Good afternoon. This is the Chorus Call operator. Welcome, and thank you for joining the DiaSorin first half 2022 results conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Carlo Rosa, CEO of DiaSorin. Please go ahead, sir.
Thank you, operator. Ladies and gentlemen, good morning, and welcome to the H1 conference call. I'm gonna make the initial remarks on the top line by geography and by technology. I'm gonna make a few comments on some of the major events that happened in the quarter, and then I'm gonna leave to our CFO for the commentary on the numbers. Starting from the technology, I will discuss immuno. I will discuss molecular. I will talk about licensed technology, and then last but not least, I will talk about COVID. When it comes to immuno, which I remind everybody, it includes our CLIA reagents as well our residual ELISA business. The franchise in the H1 did +5%, which is in line with our expectations.
If we look at CLIA, we exclude the ELISA franchise that, as you know, is cash cow for us and it's declining. CLIA alone grew 7%. If now I exclude from CLIA the Vitamin D franchise, which also, you know, it's a very profitable franchise, but not growing any longer, if not slightly declining. Now, if I look at CLIA standalone, the growth is ex-D, growing double-digit. This is fundamentally telling you that, when it comes to the immunoassay franchise for DiaSorin, it continues to perform strongly, following the usual strategy that we discussed many times, which is the positioning of DiaSorin as a specialist among the specialty products that we have been launching in the last few years, and we continue to launch moving forward.
Now, if you look at the performance by geography, what is remarkable is that the North American today, which as you know represents the 50% of our overall revenues, is by far the number one market for the group. In North America, the growth of CLIA is around 30%, if we exclude the Vitamin D. That is remarkable and it is driven by the hospital strategy. I remind everybody that starting from 2019, the company put together a strategy, a combination of diversification of revenues from the original footprint we had, which was centered around the commercial labs and trying to penetrate the hospital market.
COVID hit, and during COVID time, on one side, we got some help at the beginning because there was a lot of interest in serology by the hospital market at the beginning in 2021. COVID became more of a problem because of the variability of hospitals to accept new technologies and new assays because they were very busy with COVID. All said and done, understanding all of this, we are on the verge of delivering our three-year plan, which was calling for the creation of 150 new hospitals in the U.S., which was achieved. This was achieved mainly driven by a combination of menu, certainly our gastroenterology panel and the QuantiFERON have been driving this strategy.
In this achievement, we still don't see it fully, the contribution of the Luminex acquisition. This is because we spent time at the end of the second half of 2021 and beginning of 2022 in rationalizing our commercial sales force. As we discussed in the past, the Luminex business, molecular business was primarily centered in the hospital market. We expect moving forward that our penetration in that market will accelerate thanks to the fact that we're gonna be able to cross-sell across the different customer groups in the hospital market.
At the end of the story, what is very important for us is that in our number one market, which pays, as I commented many times, for innovation, it is recognizing the specialist that we are. We continue growth, and I believe that we have a long runway in front of the company. North America all good and exceeding expectations. When it comes to Europe, as you know, for us does represent 30% of revenues. If we look at CLIA, we have more than 2,000 systems already installed. We have a good penetration in the market. Europe for us is more steady single digit growth, which we continue to see.
In the first half, we are actually high single-digit growth for CLIA, again, driven by fundamentally the same strategy, menu driven. We've initiated also the launch of the XS, even if I remind everybody that the XS system was designed primarily for the Chinese and the U.S. market notwithstanding. We have now over 100 XS placed, and now we start to see traction in the U.S. market where we are getting approval very shortly of QuantiFERON also on the XS, and also we expect MeMed to be validated by the fall on the same platform, on XS. When it comes to Europe, again, solid growth.
Europe for us is a geography very well penetrated that continues to contribute to the growth of the company. Now, let's move to Asia. When it comes to Asia, we continue to see problems in China or China lagging behind. The major problem with China has to do with the fact that we have an installed base of over 800 systems in China of LIAISON XL, which are primarily placed in large urban centers. Every time. So Shanghai is a good example. We have a good chunk of business in Shanghai. Every time there's a lockdown, and the lockdown typically it happens in the urban centers, we really suffer from the lockdown. This is what we continue to experience.
China revenues for CLIA continue to decline. The primary driver, again, is volume related. As soon as China is stabilizing, when it comes to the COVID policy and lockdown, we believe that the business will stabilize. Still in quarter two, unfortunately, China is declining. I remind everybody, though, that today China overall represents around 3% of total revenues. This effect has been completely de-risked from a group perspective. Now let's move to molecular. When we look at the molecular franchise, let's first discuss molecular ex-COVID, otherwise it gets very confusing. Let's start from the VERIGENE one business, which is the multiplexing business. It is a very resilient business.
We have experienced double-digit growth in VERIGENE, which is driven by the fact that there is stable business when it comes to the blood culture, and there has been a positive effect clearly on respiratory because of the COVID situation. Overall, we have around 700 daily users. Certainly, some of the accounts are migrating, but by the same token, this is overly compensated by the fact that we continue to see a positive effect on volume. The franchise itself is growing nicely. When we look at what we call molecular reagents, single plex, which primarily has to do with the technology, the older DiaSorin MDX technology, the growth is substantial.
On the reagent side, we are up almost 25%. This is a combination of two things. First, recovery of testing volume, which certainly during COVID we were affected because we are selling here highly profitable but highly specialized products. Now we are back fundamentally to all the elective surgeries and everything else that is using our products on one side. By the same token, we see that there is an acceleration, in my opinion, in the adoption of molecular technologies. I think I did comment previously the fact that one of the benefits of COVID is that there has been a dissemination of molecular platforms even in smaller institutions that were not using molecular before.
Today, this is incremental volume that we see on our installed base. There is very nice growth of that business, which is also a very profitable business. Where we are suffering in molecular, which is, I think what is happening to everybody in the industry, is on the instrument revenue. This is due to the fact that during the COVID time, customers, because of the emergency funding, were buying instruments. We had higher revenues in 2020 and 2021. On the instrument side, we typically did not carry high margins, but they were positive revenues. When it comes now to post-COVID in 2022, we go back to reagent rental.
On one side we see placement of systems, but we don't get the revenues because we go back to the reagent rental model. Overall, the molecular franchise ex-COVID is growing very nicely for DiaSorin. Now, let's look at the third leg, which is the licensed technology. I remind everybody that this is combination of two different product lines. We have flow cytometry, which represents around 25% of the total business. Then we have the licensed technology business, which has to do with partnerships that Luminex and now DiaSorin has with all these primary players in the biopharmaceutical and bioanalytical business. The business overall, I remind you that is on an annual basis for 2022, around EUR 210 million.
We are straining to hit that target because our partners are really growing nicely. I believe, driven by the fact that there is a flow of funding in the biopharmaceutical that is increasing volume consumption of these reagents. This notwithstanding the fact that this business where 25% of the business has to do with instrument sales to the partners. We are certainly experiencing some issue in terms of shortage of parts. Notwithstanding the fact that there is a shortage, we are limited in our ability to supply certain instruments.
Because of the mix and the ability to carefully plan the shipping of the different systems, we are able to make the top line, which is a strong effort in today's reality of the supply chain and especially of electronic component that, as you know, is pretty much a plague for the business. I see now we have one year of Luminex under our belt, and we have been reestablishing some of the strategic relationship with the partners. I honestly I'm very optimistic about the opportunity to expand the business in the future with the partners through collaboration in developing content and/or platforms. Now that we understand the business better than clearly before, I believe it is a very important leg for DiaSorin.
It's extremely profitable, and I think it's very well-positioned strategically. Now let's talk about COVID. You have seen that we have decided to increase our guidance to EUR 200 million of COVID revenues for 2022. I believe that although I think that every player in the industry is recognizing the fact that there is still uncertainty about COVID, but there is more certainty to the use of COVID and the use of molecular technology versus the antigen testing. It is very clear today that the molecular testing, which is considered more expensive, it is utilized for certain applications. For example, hospital admission typically is done on a molecular test follow-up.
A patient is done on a molecular test and so forth. However, I think what we have noticed is that there is a very resilient business, especially for the business that we have today with our platform. I think it has been highlighted also by other companies that play in that segment of the small equipment. This equipment and this testing in small mid-sized hospitals, which is where today our installed base is resilient. We continue to see on a monthly basis now; we are experiencing a volume that stays constant. What is very important to understand is that COVID today, which used to be a seasonal disease, you've seen by the current trends, is becoming unseasonal.
It's a respiratory disease, not seasonal. I honestly believe that there is an opportunity for future growth of this business that is not indicated in our guidance, which has to do with differential diagnosis. If you look at what is happening today in Australia, where we have the current respiratory and influenza season, we see two things. We see a very strong influenza season indicating that also in the Western hemisphere, we are gonna have the same effect coming the fall. Most important what we see is what is the co-infection which is now expected.
It's called flurona, and fundamentally indicates the fact that when patients are gonna show up in the winter with respiratory infection symptoms, not only is it important to differentiate diagnosis, but also it's important to understand if there is a co-infection because it does guide the treatment differently. It's gonna be very interesting to understand what kind of protocols hospitals will adopt for differential diagnosis. As said, our projection today is not really indicating or is not including this potential, and I believe we're gonna be able to co-quantify this potential better at the end of quarter three. When it comes to COVID, in summary, resilient business, we have 1,500 systems today that continue to run COVID.
We lost some business, but relatively small in very large accounts, where initially they were using the box because they needed multiple suppliers because of volume. Now with more availability of high throughput system, clearly we lost that business, which did correspond to 15%-20% of our customer base. Now as the remaining customer base is again extremely resilient. My view is that at least for 2023, we are gonna have COVID testing and the use of COVID, which is different from what I think the whole industry has projected. Just one year ago, we were looking at how long COVID is gonna stay with us.
Now, let me move away from revenues, and let me comment more some of the facts that happened in the quarter. First, and I believe it's very important for us, is that we got finally approval in the U.S. of the MeMed test. It is very relevant because as discussed many times, MeMed is a test that it clearly perform in the hospital segment. The hospital strategy is the key strategy for the U.S., so this assay in the U.S. is key to the future strategy. Our partner, MeMed, is working in the U.S. in the promotion with the medical doctors and is also working on obtaining the reimbursement.
This approval, which came unexpectedly in a sense because we really didn't know how long the FDA will take, but it took a relatively short time, six months, now is putting us in a very good position to gain from incremental revenues from the product. The second comment I would like to make has to do with integration in Luminex. The integration is proceeding as expected, and synergies are in line with the goal that we have outlined during our investor meeting or the five-year plan meeting, which I remind everybody it was to achieve $55 million in savings by end of 2023. Running rate in 2024, we are in line with the goal.
I feel very comfortable about the savings that we have promised as a result of this acquisition. Let me also remind you that saving is does not necessarily represent or doesn't necessarily mean cost savings, but it means also a better way to do business. Because one of the problems that we found in Luminex sometimes is that it was very convoluted in the way it was managing the business. Streamlining some of the processes really improved the productivity and therefore are really allowing us to serve a growing business with a lower cost base. The third element that I would like to discuss has to do with the fact that is the inflation.
I know that o ur CFO, Piergiorgio, is going to get more into the numbers, but let me just give you a couple of remarks. Inflation so far for DiaSorin has been manageable, I would say. We have calculated that on an annual basis, it will represent an increase of the cost base of roughly $50 million, which certainly is an increase compared to previous years. If you look at cost base of DiaSorin is less than certainly other industries or other competitors. The primary driver for the inflation for DiaSorin is the logistic costs, which represent almost a third of this one.
The second element, which is important for us is with the cost of labor inflation, especially in the U.S. market, where we know there has been shortage of people, and it clearly demands higher salaries. Okay? Overall, yes, there is an inflationary effect on our numbers. We already have almost half of the EUR 15 million in our H1. But it's certainly manageable, and for the time being, is not an area of concern. Last but not least, we finally have a management in place in Luminex. Our President joined the company, and now it's been three months with the company. Angelo is with us, and he's taking the helm of the company.
I'm very happy about this because I believe that Luminex has a ton of opportunities in the future in terms of technology it carries, in terms of products, in terms of opportunity to improve profitability. Key was to have a senior leadership in place. Now we have it and welcome Angelo. I'm very comfortable with the fact that we are gonna be delivering growth of this business in the next few years. Now, I'm gonna leave the rest of the financial comments to Piergiorgio, and then we'll start our Q&A session.
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 half of 2022, and I will make some remarks on the contribution of the second quarter. Let me please remind you that, consistently with what we did over the last quarters, 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, so to say, related elements. The one-off acquisition and the integration costs, the purchase price allocation, the cost of financing, and lastly, the tax impact of all of these components. The press release available on our website. We're providing a line-by-line bridge between adjusted and IFRS items.
That said, as usual, I would like to start with what I believe are the main highlights of the period. H1 2022 total revenues at constant exchange rate grew by 25% or EUR 129 million vis-à-vis 2021. The immunodiagnostic franchise ex-COVID grew by 5%, driven by low teens increase in CLIA's Vitamin D, partially offset by the expected slightly negative performance of Vitamin D and ELISA. The molecular business ex-COVID growth is mainly driven by the different perimeter of consolidation and by the very good performance of DiaSorin molecular reagents. The licensed technology franchise variance year-over-year is all due to Luminex contribution. Moving to the second quarter, the total revenue growth at constant exchange rate is 22%, and the business drivers behind this variance are very much the same discussed for H1.
To be noted that Q2 2022 growth ex-COVID is broadly in line with the results achieved in Q1 2022. Now, moving to COVID, sales did better than expected and recorded a decrease in the first half of the year of 21%, and in the second quarter of 35%, both variances at constant exchange rate. This is a result of a material decline of immuno COVID sales, though in line with our expectations, and a better performance or a lower decline, if you wish, than anticipated of the molecular business for all the reasons that Carlo just talked about. H1 Adjusted EBITDA at EUR 259 million recorded an increase of EUR 25 million, 10% compared to 2021, with a margin of 39% on revenues compared to 47% of 2021.
The expected decrease in marginality is the result of the combination of a diluted gross profit, mainly driven by different product mix, and a lower operating leverage, mainly driven by Luminex contribution and lower COVID sales. Both these elements are in line with the assumptions we made at the time of Luminex acquisition and are embedded in the outlook shared during the recent Capital Markets Day and the updated guidance we have released today. We keep confirming our ability to generate a very healthy free cash flow, almost EUR 140 million year to date, with an increase compared to 2021 of EUR 13 million or 10%.
As you might remember, when we released Q1 2022 results back in May, we announced that DiaSorin board of directors resolved to launch a share buyback program for a total maximum of 1.5 million treasury shares to support the potential settlement of the outstanding convertible bond and the management equity plan. Within that program, as of the end of June, DiaSorin bought back about 530,000 shares for an equivalent amount of EUR 62 million. On a different note, before moving to the main items of the P&L, I would like to provide some comment on the impact of the inflationary pressure on DiaSorin total cost base. If I well remember, during Q1 2022 call with the market, we said this impact to be around EUR 7 million, EUR 8 million on top of what already embedded in our 2022 budget projection.
Now, everybody understands that this is a moving target and there is a certain degree of approximation. Nevertheless, we reviewed our assessment, and as just confirmed by Carlo. We confirm our estimate at about EUR 15 million impact in 2022 full year compared to 2021, of which EUR 7 million, EUR 8 million on top of our budget projection, as we said in Q1 2022. Therefore, 2022 inflation-driven increase compared to last year is less than 2% of the total cost base or about 1% of the top line. This increase is mainly driven by energy costs, transportation, distribution, utilities, labor, mostly in the U.S., and some components of our reagents and instruments sourced from third parties. We have put in place several initiatives to contain this inflationary pressure and therefore the overall impact on our margin will be muted, as confirmed by our reviewed guidance.
Now moving to the P&L. H1 2022 total revenues at EUR 685 million grew by 33% or EUR 170 million compared to last year. Luminex products revenues in the period amounted to EUR 185 million, in line with our initial assumptions. COVID revenues amount to EUR 150 million vis-a-vis EUR 177 million of 2021, therefore recording a decrease of EUR 28 million or 16%. In the first six months of the year, we have seen some EUR 41 million FX tailwind, mainly driven by the USD appreciation. Considering H2 2021 USD-E uro exchange rate and the current FX trend, I think it is fair to expect that a similar positive tailwind will continue for the remainder of the year.
H1 2022 adjusted gross profit at EUR 451 million grew by 27% compared to last year, closing the first six months with a ratio of 66% of our revenues compared to 69% the same period of 2021 and in line with Q1 2022. The contribution of Luminex and the reduction in COVID sales are the main drivers of this variance, which is in line once again with our expectations and modeling, and these are reflected in 2022 outlook. Adjusted operating expenses at EUR 226 million grew by 66% compared to the same period of 2021, with a ratio of our revenues of 33% vis-a-vis 26% of H1 2021.
This increase, once again in line with our expectations, is mainly driven by the different perimeter of consolidation and the higher COVID sales booked in 2021. That generated back then a very material operating leverage. Let me remind you that before Luminex acquisition and COVID, DiaSorin OpEx ratio was running at around 38%, 37%-38%. We are expecting synergies to reach the level discussed on Investor Day as the integration process will move forward. H1 2022 adjusted other operating expenses are substantially in line with 2021. As a result of all of these elements, H1 2022 adjusted EBIT at EUR 221 million or 32% of revenues has increased compared to last year by 3%.
H1 2022 adjusted interest income expenses at EUR 4 million are higher than last year by 60%, mainly because of commissions paid on the share buyback program and Luminex IFRS 16 impact. Whereas the adjusted tax rate at 23% is in line with 2021. Adjusted net result at EUR 169 million, 25% of revenues, is higher than previous year by EUR 6 million or 4%, whereas Q2 is below last year by EUR 3 million or 4%. Lastly, H2 2022 Adjusted EBITDA at EUR 269 million, 39% of revenues, is higher than last year by 10% or EUR 25 million. The variance at constant exchange rate is positive by 4% with a ratio of our revenues of 39%.
Q2 Adjusted EBITDA at EUR 120 million or 37% of revenues is better than the same period of last year by EUR 5 million or 4%. Let me now move to the free cash flow and the net debt position. In the first six months of 2021, DiaSorin generated just short of EUR 140 million free cash flow, which means EUR 13 million better than last year or 10%. I believe it is worth to underline that Q2 has been negatively affected by the buildup of some safety stock and some anticipated payments to Italian vendors that we did to manage the wind down of the Italian operating activities to a wholly owned new direct subsidiary of DiaSorin S.p.A., as communicated with several press releases over the last few months.
Both these elements are temporary and will be absorbed in the second part of the year. At the end of June 2022, the net debt of DiaSorin was negative for EUR 1,003 million, with a negative, vis-a-vis a EUR -986 million at the end of 2021. The difference has been driven by a strong generation of operating cash, as we said, which has been more than offset by the following items.
Share buyback f or about EUR 65 million. About EUR 63 million of negative translation effect, mainly due to the USD-denominated term loan to finance Luminex acquisition, and about EUR 56 million dividend to our shareholders. Lastly, let me move to 2022 full year guidance. As usual, at previous year constant exchange rate. Because of the higher COVID sales during the first six months of the year, mainly driven by all those elements that we just talked about, the outlook for the year has been increased. Specifically, the updated guidance is calling for total revenues to grow by about 2%, with the non-COVID business growth confirmed at about 24% and COVID sales at around EUR 200 million. Adjusted EBITDA margin at about 38%.
Before concluding, please, as always, remember that DiaSorin finances are highly exposed to U.S. dollar, and even more so now that sales denominated in USD represent more than 50% of the total group ones. Therefore, as a rule of thumb, consider that for every $0.01 movement of the dollar against the euro, DiaSorin revenues move by about EUR 6 million on a yearly basis. Now let me please turn the line to the operator to open the Q&A session. Thank you.
This is the Chorus Call conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Emanuele Gallazzi of Equita. Please go ahead.
Yes, good afternoon, everybody. A couple of questions from my side. The first one is on MeMed test. You got the approval in the U.S. Can you give us more color on the next, let's say, commercial steps in the U.S. and your expectation in terms of contribution for the coming quarters? Still on MeMed, during the last conference call, you mentioned the positive feedback from your European clients, if you can just provide an update on this. The second one is a clarification on the guidance, and in particular on the profitability side. In the press release, you stated that the profitability has been increased mainly thanks to the COVID-19 business. I just would like to understand which are the other drivers, if any. Thank you.
PG, why don't you take second one, and then I'll comment on MeMed.
Yeah, sure. Hi, Emanuele. Obviously the most important driver of increasing profitability like it was in Q1 is increasing the top line. There are additional moving parts, like always, which consists in all those initiatives that we have put in place to offset the inflationary pressure we discussed about. I would say that most of the increase in profitability is related to the increased COVID revenues.
Okay.
Okay. When it comes to MeMed, look, MeMed BV is a new diagnostic algorithm and therefore there is a component in terms of generating revenues, which is the education. Two things. One is to do with the education of physicians, because you know labs today we have hundreds of hospitals that can do the testing today in the U.S., but the test has to be ordered specifically by the emergency room, because typically this test is done on patients and kids who show up in the emergency room with a fever and the doctor there has to decide on an antibiotic treatment.
Therefore, there is a component here, and this is the responsibility of our partner, MeMed, which has raised $90 million to do so, to put together a sales force that goes and educates the physician, and this is in progress. I believe, by the way, that we have agreed upon with MeMed that we will contribute to the education process, and we decided to start a pilot program where we are hiring medical reps ourselves that will have the responsibility to go and hit on the customers that they have a LIAISON XL in the U.S. and they have an emergency department and they will, and you know, to explain to them the use of the test.
When it comes to this, to the specific use on the emergency room, this is actually covered on the DRG. Certainly the reimbursement does not play necessarily at all here, but what we need to sell to the hospital is the health economics about the adoption of the test versus mistreatment and so forth. By the same token, MeMed is actively working to get a code for reimbursement, and I believe that by year-end, they've indicated that we are gonna have the first code that will also allow specific reimbursement for this test.
It takes time because it's education, but by the same token, the reward is very significant because pricing of the assay is more in line with what a high-value molecular panel usually get. Let me put it that way, rather than the traditional immunoassay. There is an investment by the customer, and there is a high reward vis-à-vis what you get once the volume is generated. The second element where you ask in Europe. In Europe, we have today the first two customers using the assay, and I think that they are in Italy. What is happening, in Italy, we have target of 100 hospitals that we have already contacted, and we are proceeding into local evaluation.
Local evaluation means that hospitals not defining the fact that there are over 20, I believe, publications by MeMed with thousands of patients. Hospitals, they always want to generate their own data to do their internal validation. There are validation efforts which are happening in Italy. The ones that are concluded are really showing that the results that hospitals get are completely in line with what MeMed has been promoted and clearly what has been approved by the FDA. I'm not expecting MeMed to be a driver in revenues in the second half of 2022. I don't think that MeMed will be a significant contributor in 2023, simply because the sheer size of the DiaSorin business.
To me, what is more relevant between 2022 and 2023 is to get feedback back from the prescribers, so the doctors that the algorithm makes sense. Because I know that when that happens, then you start to generate significant demand with a very high price, and then you're gonna have a significant contribution to the DiaSorin business. Keep in mind that there is another strategic factor here, and we continue to expand our customer base in hospitals, where today they are using all the specialty gastroenterology assays and QuantiFERON. The more we add to that hospital base in terms of hospital products, the more we anchor the business. This is the bread and butter of DiaSorin, and this is what, I say, is driving the profitability.
Long story short, today, I believe that we need to look at MeMed in the next 12 months, not necessarily as a contributor of revenues, but in terms of how much demand we are able to generate interest. We are generating as a combination of our effort and MeMed effort in the medical community.
Thank you very much.
The next question is from Maja Pataki of Kepler Cheuvreux. Please go ahead.
Yes, good afternoon. Thanks for taking my questions. Carlo, I would like to get back to your statement about respiratory season and, yeah, how COVID is now an endemic and how the differential diagnosis is probably gonna get a foothold. I'm trying to put that into context with your guidance because if, you know, if we look at what you generated on COVID testing in H1 and what you're guiding for in H2, you're clearly expecting volumes to decline. Now, my first question is it because you anticipate that the differential diagnosis will start to take, you know, momentum because we're seeing or we're entering the flu season, so we're probably gonna have more than one respiratory pathogen floating around?
Is it that you anticipate pricing pressure because so far, to my understanding, you have not been facing any pricing pressure in your COVID molecular testing. The second question is, you clearly said that, you know, things are changing and we're learning by the months. We probably have to, going forward, try to understand the underlying respiratory pathogens, not just by COVID and then a single flu test, but from both perspectives. Do you think that on a long-term perspective, this offers upside to your medium-term guidance? Did I get that right or did I maybe just misunderstand you? Thank you.
Thank you, Maja. Listen, let me give you some high-level remarks, okay? I believe that if you just look at the industry, what everybody is doing, and everybody is very cautious about COVID because we've been burned by COVID two times already, right? I believe that you should be looking at our guidance as an indication, still amidst some clouds and uncertainty that we have with COVID. Let me just qualify my statement. As we speak, we don't see a material price pressure. This has to do specifically with the positioning, as I discussed many times, of our systems, right?
We have lost all the business that was sitting in the large hospitals because today and last week I was in the U.S. and I did visit a couple of accounts. I did visit hospitals, small one, and then I went to a very large lab that is serving a hospital chain of 20 hospitals that are served by this core lab. What you see is very interesting. If you look at the 20 hospitals, the core lab, you find lines of high throughput systems. You find the cobas, you find the Panthers, you find everything. But you also find sitting idle some MDX. These are the accounts we had at the beginning when there was an emergency, and we have lost because they have excess capacity.
What is very interesting is that you see all these high throughput systems sitting today at working at 20% capacity, okay? They needed to consolidate in high volume accounts into this ton of capacity they had has forced us out from those settings. No problem with that. That did represent only around 20% of the customer base, fortunately. Because very rapidly, we moved away from the emergency situation where we were serving certainly our customer base, and we had very large customers, and the rest were more tailor-made and strategic placement. Now we went into mid small-sized hospital, which is the second hospital I visited, where and typically, another box, small box is sitting there, and we share the testing volume. That business is very resilient.
That business today is to do fundamentally with guidelines. Guidelines means any COVID patient is followed up and released, which is hospitalized, is followed up and released using molecular. The medical, the healthcare personnel is tested on molecular and not necessarily with antigen because of the known issue of sensitivity. Then you have the admittance. Admittance today is a combination of, if you go to the emergency room, typically it's antigen test because ton of people that get into the hospital, but then, you know, they are 90% are released. Admittance to the wards, then that is done with molecular. There is that resilience of COVID today that we still see. Because of the placement of the install base we have, it sticks. Okay? How long will it stick?
I think will stick longer than expected because of the prevalence of COVID and the fact that it's non-seasonal. We are also learning, all of us, that we are in the middle of August and or the beginning of August, and we have a peak in COVID cases, because this has nothing to do with a respiratory disease or respiratory season. Okay? This is what we are projecting with caution. Okay? You have another opportunity where that clearly is not in our projections yet. That has to do with differential diagnosis. Because we're all learning from what's happening now in Australia as it did come in. Typically, differential diagnosis in our industry was intended. Okay, I need to rule out one or the other, right?
I want to really understand if you have COVID or you have flu. Now, when there was a high prevalence of COVID and low prevalence of flu, customers fundamentally were doing COVID first because they had a very good chance to have a COVID positive, so they would see no need to test for flu. Now what we are seeing is different because we are seeing now the high prevalence of flu as well, okay? I believe that when it comes to diagnostic value, there is gonna be more use of differential diagnosis, but intended in two ways. Diagnostics COVID versus flu, same symptoms, but also what you're learning from Australia is the flu or now the co-infection, which now is more and more prevalent because of the prevalence of the COVID infection.
In all honesty, the differential diagnosis opportunity is not embedded in our numbers, as I honestly believe is not embedded in anybody's number because we're all learning, okay? I think we're gonna be able to comment on this one in quarter three. I think the good news of DiaSorin , which was the big question to all of us, how resilient was the install base, right? Because clearly we almost doubled the install base in 18 months. What I'm seeing is that that install base is resilient, and I see more adoption of other tests.
In fact, you saw that our molecular, what I call the legacy of the DiaSorin MDX business, and I did comment including 25%, that is the installed base, non-COVID, that is actually growing, which means that there is more adoption of products with other products with that thing. The good news eventually is that we now have an installed base that is there to stay beyond COVID, and we have a volume of COVID testing, which is there to stay, and you saw many comments related to the fact that there is an endemic situation with COVID. Last but not least, I think as of now, no significant price pressure. I think eventually we're gonna see it.
You're gonna have, I believe, in the next quarters, combination of some price pressure, but I believe now the seasonality of the differential diagnosis that will kick in. I hope, you know, long story, but I hope a short for you.
Okay. Great. That's very helpful. Maybe just another question. You've mentioned that you were not able to
Fulfill the demand on the licensed technology side because there have been some supply constraints on some parts of the products, and basically indicating that the demand is significantly stronger. Can you tell us when you think that you will be able to deliver, you know, on any incoming order? Basically, when do you think the supply situation will ease, so that you can fully deliver on what is really coming as an order?
Listen, Maja, the truth of the matter is that the supply issue is far from being resolved. In our sector, the fact that other industries like the car industry has actually invested billions in trying to support their supply chain is not necessarily helping us because it's focusing. You know, we are relatively small customers for the suppliers. I don't see, to be honest with you, a solution that is gonna come our way soon.
Although what I indicated is that, we've been able to juggle some of the parts because some of the parts are common components, and we've been able to shift, in some cases, our manufacturing from one line to another one, also utilizing the workforce that we have without increasing workforce. That has allowed us so far in the mix of products to make the revenue line clearly guaranteeing more continuity and more parts to those products and those instruments that we just launched recently. The INTELLIFLEX, for example, is a good example. Leaving behind some of the more legacy products where unfortunately we're not being able to meet the supply.
Notwithstanding all this, notwithstanding the complexity, I said that we have a EUR 210 million, sorry, target for 2022, and I believe that, notwithstanding this, we're gonna be able to make that number. In terms of when the supply chain is gonna free up, I think we need to talk about it on a quarterly basis.
The next question is from Odysseas Manesiotis of Berenberg. Please go ahead.
Hi there. Thanks for taking my question. A follow-up on
Actually, I wouldn't give us idea of like what is the dynamic here. I mean, I understand this is the first of its kind, FDA approved.
Excuse me.
Yes.
It's very difficult to hear you. You're breaking up.
Okay.
No, it's not improving at all.
Okay. Let me start by saying the lines are not great during the next few months. Thanks.
Okay. I think, operator, we need to go to the next question.
The next question is from Hugo Solvet of BNP Paribas. Please go ahead.
Hi. Hello. Thanks for taking my questions. I have a few. On VERIGENE, Carlo, you mentioned some customers migrating. Just to clarify, they're migrating to competitor's platform, or you're moving them to VERIGENE II. Can you maybe clarify that? Second, you alluded to some flow of funds in the biotech and pharma industry, which seems a bit counterintuitive based on what we observe at the moment in the market. Just curious to hear your thoughts on more details on the type of clients, maturity of projects that you have for your licensing technology business that may help you not to be impacted by that.
Last, on profitability and just to follow up on the question that was asked earlier for the 2022 guidance, it's COVID driven, as you mentioned, but in the press release, you also mentioned some less dilutive impact from Luminex, which seems to suggest that you're tracking ahead of your synergies target. Can you elaborate on that, please? Thank you.
Your comment on the-
Yeah. Hey, Hugo. I will take the profitability one. I believe comments that Carlo made on synergies, cost synergies are pretty comprehensive. What makes us very comfortable is that, you know, we have projects with an aim of responsible timing, and those projects are leading us to a number which is in line with the number we gave to the market during the Capital Markets Day back in December. I believe we said $60 million, increasing by $5 million compared to the timing when we announced the Luminex acquisition, and EUR 55 million by the end of 2023. All of those, again, initiatives, we see them happening, the timing is in line with our expectations, and all of that is embedded in our guidance.
It was already in the beginning, but as you might understand, when we started those EUR 55 million or EUR 60 million, depending on where you want to put yourself on the timeline, were, you know, more rough in terms of estimates. Now we have projects, specific timelines and name, people accountable to deliver the numbers. We feel very comfortable with those numbers. Those projections are embedded.
In terms of profitability. You know, when I say mainly driven by COVID, like always, you have 20 different moving parts. It's impossible to pinpoint to just one element, the changes in profitability from one guidance to the other, because it would mean that all the other parts would not move at all. When I say mainly is, you know, most of it, right? That's, I believe, the way in which you need to read the mainly that you saw in the press release.
If I go back to the other two questions, I think it was on the. If I understood correctly, you are somehow surprised on the fact that our licensed technology is doing well in the space of biotechnology, bio research, and academia.
Is that correct? Hugo, is that your concern?
Not really a concern. It's just that you mentioned a flow of fund helping the business , which seems a bit counterintuitive based on what we observe. Just wondering what end markets your immunodiagnostics helps you probably resist better to a weakening biotech environment we are seeing at the moment.
Keep in mind that we have a slew of partners, and so, it's not only one company we're serving, but we're serving some of the top-notch companies in the industry with our instruments and components. You're talking about the Thermo, Bio-Rad. I mean, you name it, all the major companies are carrying our technology. What we are seeing is that there is a high demand of these platforms, fundamentally in all the different sectors that these companies are serving. From a geographical point of view, keep in mind, we don't have visibility on the end user placements because we serve the central warehouse, and then, you know, they place it in the different geographies.
I think my educated guess is that today the U.S. is really driving most of these applications and placements. The other thing which is very interesting is that we are talking about high-end piece of equipment. The INTELLIFLEX which we just launched which is more expensive in terms of price positioning compared to some of the legacy systems that Luminex was supplying before, that one is in high demand as well. That one I know has to do a lot with U.S. academic and U.S. pharmaceutical. At the end of the story, our data do indicate that there is more capacity of spending in research in the U.S., and therefore, there is more adoption of these technologies.
By the same token, if you think about it, what we are seeing is that, or what we believe is that China is suffering, clearly. Some of the partners that were actually exporting some of the products to China are really under pressure for the same reasons we have discussed before, because China closed down. Even more, this is pushing the fact that I believe there is a surge in availability of funds to fund research mostly in U.S. I really don't know about Europe again, because we don't have visibility on the end user, European business. As far as your question about VERIGENE I, my comment was related to the fact that is a resilient business.
Keep in mind, VERIGENE I has been a platform that has been on the market for many years solid. Is a platform that is very well known by customers and is a platform that, for certain products, is on average 20% cheaper than what some of the competitors do offer. That explains, in my opinion, the resilience of the technology. When I was saying we lose some customers, typically we lose customers when there is consolidation and volume pressure, okay? It's always the same story. VERIGENE I clearly is more manual than the BioFire platform, for example.
Every time there is pressure on volume because of consolidation, because the platform sits in a core lab and more hospitals are consolidated, that is where clearly manual and price versus more cost to more expensive solution, but automated, is pushing customers toward the automation. The balance today between increase in volume and usage, increase in the respiratory, and keep in mind is a respiratory without COVID here, so it's a traditional respiratory, versus some of the higher volume account loss today is favorable to our platform. This business is still growing again 10%, which is, and it's all U.S. Today, the VERIGENE base is all located in the United States.
The next question is from Odysseas Manesiotis of Berenberg. Please go ahead.
Yeah, thanks for taking my questions again. Sorry for the line issue. Can you hear me better now?
Yes, we can. Thank you.
Great. Yeah, had a couple on MeMed actually. I want to get a better idea of the competitive dynamics here. I mean, I understand this is the first test of its kind to be FDA cleared, but in terms of gaining share over traditional technologies, is it right to think that you'll be mostly competing with PCT testing and its time to result your main advantage here? Sort of what are clinicians hardest to convince on here?
I don't think I necessarily agree. This is positioned as an alternative to PCT because PCT has more to do with diagnosis but follow-up of sepsis and treatment. This is the most recent claim that actually B.R.A.H.M.S. Thermo Fisher was able to get on PCT. This is really today first line screening product. It goes together with a non-specific marker. C-reactive protein is a good one. White blood cell count is another one, which although were general indication of an inflammatory situation, but we're not able really to distinguish between either viral origin or bacterial origin.
To be honest with you, we have an interest in PCT business, but we never position this and MeMed is not positioning this as in any way substitutive or in competition of PCT. I believe that today there is lot of attention about this viral versus bacterial. I believe that there's been a recent announcement by Beckman, if I'm not mistaken, about collaboration that they're having in the U.S., I believe the NIH or the CDC. I don't remember which one of the two, where they're trying to validate the application of flow cytometry. Imagine trying to distinguish between a viral infections versus bacterial infection. This, to my knowledge, is the first marker where you look at protein expression.
I don't see anything honestly competing with this today. By the way, don't forget, when it comes to this, MeMed already spent 10 years on this one. They have thousands of patients already tested. More than anything, they convinced the FDA that there is great value on this product. I honestly don't see competition as an issue, to be honest with you. The burden we need to go through is more on the education side.
Educating physicians that it's really good to use this test, which is not so difficult, and then educating payers that you spend more and no we are pricing this, as in MeMed, at a very high price, but eventually you save money because of antibiotic resistance, unnecessary use of antibiotics, da, da, and so forth. That's the rhetoric.
Thank you very, very much. That's very clear. A quick one on the molecular ex-COVID sales. I know you touched on this quickly before. I mean, it did seem slightly higher than consensus expectation, and I wanted to get a better idea of how much your respiratory panels that also test for COVID contributed here. Would you say demand for panels that test for COVID exceeded your expectations earlier in the year? Was there another key driver here?
Hugo, I'm not sure I understand the question. If you are saying, if you go back to my comment on multiplexing, I'm saying that certainly today when it comes to symptoms there is use of COVID frontline and then reflex or COVID together with respiratory panel whenever the reimbursement is there. Payers also, by the way, are committed to the multiplexing approach. That is a fact. Okay. The other thing that in our COVID business, sorry, COVID. In our molecular ex-COVID business that we saw is flu, because there has been eventually a flu season, which interestingly enough, the flu season was not in January and February, but really was more in April, May.
We saw in U.S. and in Europe a spike in revenues which are non-COVID, but flu-related, which have to do with this late flu season that we have experienced. That was my comment.
All clear. Thank you very much for the answers.
The next question is from Peter Welford of Jefferies. Please go ahead.
Hi. Thanks for taking my questions. I've just got two quick ones left, please. Firstly, just sort of returning to COVID again, and I appreciate this is a black box and it's kind of difficult to predict, but just wanna come back to your comment to the fact you're seeing a very resilient business now.
If we look at the guidance for the second half of the year, you're basically implying about EUR 50 million. Given that you now say, you know, a large amount of this business is resilient, and I think we can all understand the drivers there, do you think therefore we should be thinking longer term that rather than, I think you guided originally to a 50 million, 60 million COVID number, you know, 100 million as a base for COVID in the long term or mid-term, should we say, is more reasonable at this point? And again, I guess, if not, looking into your crystal ball, why should we anticipate, do you think this very resilient business to perhaps half again, do you think, going into the next few years?
Secondly, I wonder if you can give us, just give us a quick update on the COVID sales ex-molecular, any rough sort of numbers to what your sales are on the CLIA for COVID now this quarter. Just finally, just on VERIGENE II, can you give us an update, please, on the path to potential FDA approval of the LIAISON PLEX. Is that all very much in line with the price commentary you've given? Thank you.
Okay. Let me try to tackle this COVID story again. If we look at the long-term plan, when we said the COVID will become a EUR 50 million business, okay? Long term, which means two years from now, I cannot comment because I really don't have the crystal ball. What I'm saying is that the tail that the industry sees, forget me, but look at what has been published by everybody. What everybody sees is that there is a tail which is more significant than anybody else is expecting for 2023. Okay, so start from 2023. This has to do fundamentally with the variants, which was unforeseeable by any of us.
Now we are seeing, we are learning that the virus is very rapidly mutating and surviving anything we really try to do to keep the human one at bay, okay? This means that I believe in 2023, we may have more business than all of us as an industry have indicated. You start to see some of the competitors already giving some indications about the 2023 opportunity. Now, if we're talking about the second half, I'm saying that there is still uncertainty. In the uncertainty that we embedded here in our guidance has to do with the opportunity I said of the differential diagnosis and the flu COVID and everything else. So far.
By the way, the numbers that we've indicated, if you look at what all other companies already reporting numbers have done, pretty much we'll look at this COVID business the second half same way with a qualified guidance. This is as much as I think I can say about COVID. Again, I believe that we've not included here the opportunity of differential diagnosis, but I want to see first that what Australia is experiencing, we're going to be experiencing here, because there is what may really increase the usage of COVID behind what is in the guidelines of today. The second comment that you have on the VERIGENE II, remember that we were talking about a submission in 2023, and we're talking about initial soft launch.
For the time being, I'm not commenting on the program. I honestly don't know about the approval and when this will come to the market as a consequence of the regulatory approval. This also in light of the fact that today we are seeing the FDA opening up, which is good, but being very selective. Meaning that, if you file with the FDA a very innovative assay, like MeMed, you get the time. But it goes from assay to assay. Okay, so there is an uncertainty in the registration process today in the U.S., which is not trivial. We don't know what is gonna happen in terms of resources and attention to products starting from next year.
As I said before, the very good news is that the VERIGENE I is really holding up and it actually continues to grow in light of the fact that it is a product that's been on the market for many years. Also there's a consequence of the fact that it is a combination of DiaSorin and Luminex. Now we have a commercial force out there, especially in the U.S., fairly significant, that is clearly able to nurture and retain this business and continue to grow this business.
I believe, Peter, I'm sorry. You also had a question on the size of the immuno COVID business in Q2. More or less, we're talking about EUR 5 million give or take in Q2. Just to complete.
That's great. Thank you.
You're welcome.
Yes, if I may add, unfortunately or fortunately, I don't know how to say about it. I also comment that, but the serology never picked up. We have a residual business for serology, which has to do with long-term admitted patients to hospitals. It has to do with some studies on vaccination or long-term immune response to COVID, but it never made the typical panel that would have made of this business a very significant business. This has to do fundamentally one reason, the fact that regulatory agencies, starting from the FDA, refused to accept any concept of associating antibody titers to protection. This was not to confuse people about vaccination.
The net result is that the regulatory agencies themselves, in Europe and in the U.S., have been actually promoting against the use of serology. Just get a vaccine and don't bother about your antibody testing. That was the message. This, I believe, has negatively influenced the opportunity of serology.
The last question is from Andrea Balloni of Mediobanca. Please go ahead.
Yes, good afternoon, everybody. Thanks for taking my question. Actually, just a couple left. The first one is a quick one for Piergiorgio. I'm sorry, earlier I lost a part of your comment. Can you confirm that for every basis point of change in FOREX, the impact on EBITDA is in the region of EUR 3 million? The second question is for Carlo. It's much more complicated, I guess, is on the Chinese market. I remember last conference call you commented that the issue in this market was mainly represented by Chinese policies to protect local player from competition. I remember you were pretty skeptical about the penetration in this market in current condition. Today, you also added the issue represented by lockdown related to COVID.
In the end of the story, what should we expect for DiaSorin in terms of trend over the next three years in this region? I know it's not material compared to Europe or NAFTA, but in any case, which strategy will you put in place also in order to reap benefits from a local production plant that if I'm not wrong, you should have in the country shortly?
Look, I think it's gonna then confirm what you just said about the effect, pretty much, on the exchange rate. Let me just comment on China. Today, whatever I said in the previous quarters is still there. You have this Chinese pressure to do more with local suppliers, right? That's there. You do have a pricing effect in place, which is reducing by on average 30% reimbursement and as a consequence, pricing of some of the high volume commodity products. My comment was specifically on lockdown because everybody know there is a lockdown. One of the reason why we're more exposed to lockdowns is because we have revenues concentrated on big cities, right?
Because I was actually going through volumes and growth or how the volumes have been penalized by lockdowns. If you look at the different regions that we are serving today, there are certain regions which are more rural, where lockdown didn't happen, and you don't see this volume effect. Clearly, Beijing, Shanghai, and some of the big cities, every time they close them up, we are dead because the vast majority of our business is there. When I look at, there are two effects, pricing and local competition, which are there and are systemic about China. Then there is an effect of volume dependency, which is high for us, which has to do with the lockdown.
This is why I'm saying there are two things we will need to address, one of which, and the way to address it, as discussed, is that we are becoming more Chinese with a local manufacturing site. The program is actually respecting deadlines, and we will start doing all the validations in 2023. Already, to start commercializing starting from 2024. There's no problem. What will benefit us is the decision of the government, and we're all waiting for the Congress, which is gonna sit in October. We want to understand whether they're gonna be changing their policy. Because if that happens, it's gonna be an immediate benefit to our revenues, because we're not gonna see these volume drops in the big cities. That was the comment.
PG, you wanna comment on exchange rate?
Sure, Andrea. Yes, you're right. It's 6 million the top line for every percent on a yearly basis. I did not comment on EBITDA. On EBITDA, slightly lower than 3 million simply because after the Luminex acquisition, you know, the margin, if you wish, dilution compared to the pre-Luminex, pre-COVID world is happening in the U.S., which is where basically Luminex cost base is concentrated. Long story short, if you need to model it, I would stay more on the 2.5, just north of EUR 2 million on the EBITDA level.
Mr. Rosa, there are no more questions registered at this time.
Thank you. Appreciate it. Bye-bye.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.