Earnings Call: Q2 2020

Jul 30, 2020

Good afternoon. This is the Correvco conference operator. Welcome and thank you for joining the Diafarin First Half 2020 Results Conference Call. As a reminder, all participants are in listen only mode. After the presentation, there will be an opportunity to ask questions. At this time, I would like to turn the conference over to Mr. Carlo Rosa, CEO of Diasporin. Please go ahead, sir. Yes. Thank you, operator. Good afternoon to everybody. Welcome to the Diasporin quarter 2 call. As usual, I'm going to make some general remarks about the business and then Mr. Pedro, our CFO, is going to take you through the numbers. I think that as you have heard from other competitors in the field of diagnostic, When you look at the business these days, you need to you really need to look at the business to raise the current business and the underlying trends and the COVID-nineteen effect. So let's talk first about the underlying business. The underlying business ex COVID, the result of the business is primarily driven by volume associated to the fact that especially in Q2, which was the peak of pandemic in many European countries and in the U. S, the volume per se the business volume declined sharply simply because patients were not available to go to hospitals to avoid to get infected. And clearly, there is a trend overall for DiaSorin in the quarter, the non clear business declined roughly 30%, again, primarily driven by declining volume. If you look at the different regions, what is noticeable that along the quarter, in quarter 2, we see stabilization or an improvement in Europe. In several European countries, we see that at the end of the quarter, the volume is roughly down only around 10%, indicating that the situation is better. Whereas in other countries like China, we continue to see volume that is certainly improving, but not to the level and the extent that we have seen in Europe and somehow in North America. Certainly, North America is a question mark because we all realize they're not at the peak yet and actually, they are still increasing in terms of prevalence of the disease. So we don't know whether there is a pattern stabilization that we see will continue or how that or how it's going to behave. From now if we look at the COVID business, I think that we need to distinguish between COVID molecular and COVID immunoassay. COVID molecular revenues continue be very strong. It's driven by strong demand in all geographies related to the fact that guidelines today do recommend to swab patients, inpatients, for sure, outpatients to swab employees in certain geographies to guarantee that the manufacturing the manufacturing departments of the companies stay without getting employee infected. So there is a surge in demand of molecular driven a lot by North America. You know that there is a plan by the government to sharply increase the swab capacity in preparation of the coming fall. Today, reports, I think in the U. S, the total number of swap is around €15,000,000 to €20,000,000 per month. And there is an objective by the government to get to €100,000,000 So lots of pressure to the labs and to the industry to continue to supply more agents. As far as DiaSorin is concerned, we, as I think everybody else, has had an opportunity to deploy more systems. We now have over 1,000 MDX placed worldwide with a sharp increase compared to last quarter. I remind you that the positioning of our system is not point of care because it's a small system that can process 8 samples at a time. So what we see is that there is an increasing demand in small, midsized hospitals that cannot wait until the big labs the turnaround time of the big labs where they send out. They cannot afford technologies, high throughput and the point of care systems today available are too small. And therefore, the MDX perfectly fit with this mid sized hospital. And this is certainly true in the U. S. And if you remember what was the company's strategy pre COVID driven by QuantiFERON and penetrating the hospital market strategically, this again is supporting a lot because now we can go to these hospitals and we can provide a solution with COVID molecular and we can also provide serology and our LIAISON XL and you saw that placements for LIAISON XL surge in quarter 2. So as far as molecular is concerned, it's a matter of manufacturing capacity and the company I know all of the last call, I think I gave an indication in terms of what would be the objective of the company for capacity. And today, we are able to manufacture around 700,000 tests per month molecular, and we have a plan to bring that number to 1,000,000 by year end in anticipation, again, of big demand with the next flu season started from October. So now let's move to serology. Serology is a very interesting story because at the beginning of the pandemic, as soon as products were made available to customers, there was a surge in demand. And if you look at what different companies declared in terms of capacity, manufacturing capacity, it was humongous. The number of tests that the company the diagnostic industry was prepared to provide to customers. After an initial consumption of the serology test and referring to the IgG test. The situation for us is a result of lack of guidelines. There has been a tremendous amount of discussions at the scientific level visavis was the value in detecting antibodies. The initial hope and dream was the fact that antibody detection will provide an indication of immunity that clearly was not the case, simply because our clinical threshold for immunity has not been defined and will be defined the day that the vaccine industry is going to declare it once they launch the vaccine. Then there was a usage of this test for epidemiological studies. It is still there, but I think the initial intent of government to conduct large epidemiological studies eventually faded away because of different priorities today for governments. I'm referring to the Italian government, for example, which launched a campaign of 150,000 citizens to be tested. And from what we understand, from public information, they were only able to collect around 80,000. And other governments as well declare massive screening program that eventually did not materialize yet. So today, serology, it's the use of serology is more clinical and is related to those countries where there is an ongoing epidemic or there is a lack of swabs because somehow IGG and IGM are used to complement the fact that there is a chronic lack of swaps. So we see still opportunity for serologists in Brazil, in India, where we see adoption of IgG and IGM. But in the more mature countries, we see that the volumes eventually decline to numbers which are far below what we are the expectation of the industries initially as clearly you picked up following comments from other diagnostic companies, including some large labs in the U. S. So today, what's the future of serology? Well, we believe that the future of serology rests with vaccination and vaccination campaigns. And as it happens with certain vaccines after post vaccination, there can be a need of determining whether the patient has properly responded to the vaccine. It's the case, for example, of some vaccines like the hepatitis B. If that happens and it's an if because it depends what the regulatory bodies eventually will mandate and or what the guideline will say post vaccination, we see a potential tremendous potential for serology that probably is going to be a combination of classical test, venous test and a combination of probably some rapid testing that in that case could fit the market because they don't need an excessive sensitivity, which usually is the problem with this test, but can probably be sufficient to determine whether a certain threshold of antibodies have been generated or not after vaccination. So I think that difficult to predict what will happen with serology. We need to wait for guidance for the vaccine. From a geographical point of view, very clear clearly what I said is reflected in the performance of the company. North America has been growing dramatically for the company. In the quarter, 72% in the first half, 42%, again, driven by tremendous adoption of swabs and initially of serology, which was actually used by some of the labs in massive volumes. Initially, again, that interest is fading away a little bit. Then with Europe, Europe behaved well for the same reason. In Europe, we have distributed we made available to European countries, including Italy certainly, our home market, our molecular product, and then our serology product. And that has allowed Europe to grow notwithstanding the fact that we have experienced in different countries decline of volume, as said, of the base business because of the COVID pandemic. We have black eye in China, as I think everybody else, and this is because so far in China, there is no foreign company through with a COVID product. And so you don't enjoy as a company code in China, whereas you suffer from the decline in volume. So China declined sharply for us in Q1. It continues in Q2, although we see slow improvement in volume, but still negative. And then let's talk about Latin America. Latin America, we all know the situation in Brazil, which for us is the main geography. In Brazil, in Q2, we did suffer by the fact that well, first, we did not launch our molecular assay in Brazil. And so we don't have the support of molecular. And recently, we got our serology product approved. And therefore, we expect metastatic from Q3. We will see adoption of our serological test in Brazil and that will actually revert the result of the region of South America from being sharply negative to being positive quarter 3 and in quarter 4. As far as futures, I want a couple of comments. The first comment, I believe that we do have an intensive research program for COVID. And as stated before, we see that there is a need for a saliva based test more sensitive than what's currently available to complement the chronic lack of swab. And we have a program in that direction with a partner with a U. S. Partner in order to try to come to the market with products by the coming fall season and flu season. And also, we believe that there is a need from a serological point of view of a qualitative test that is actually set up for, again, post vaccination. And therefore, we are actually working in developing a new serological test for IgG determination, quantitative that standardized that we plan to make available again by the time the vaccine is launched. So from a product perspective, all our effort on COVID, the COVID program is an IgG assay quantitative for vaccination and saliva and nasal swab product to try to reach to the best sensitivity to try to complement swab for the coming season. At this point, just again, one remark. COVID has been an opportunity for the company not only to establish a brand with the products we have developed, but it has been a great opportunity in North America to establish a new store base. I said before, if you remember, we had strategically, we had a plan to penetrate the hospital market with in mind a certain number of hospitals to be actually rich and closed by end of this year. Well, comes Q2, we already almost doubled the target of hospital number that we targeted for the full year. So that I see as a tremendous legacy opportunity for DiaSorin because we are penetrating with our products with COVID, molecular and immuno as segment that's strategic for the company. And certainly, we will see then adoption on our systems of the QuantiFERON and all the specialty products that we carry on those systems. So I see a very positive effect of COVID strategically in terms of positioning, branding and installed base. Now I'll leave the podium to Mr. Pedro, who's going to take the numbers and then we're going to start a Q and A session. Thank you, Carlo. Good afternoon, everybody. In the next few minutes, I'm going to walk you through the financial performance of DSOLE during the first half of twenty twenty, and I will make some remarks on the contribution of the Q2 as well. As usual, I would like to start with what I believe are the main highlights of the period. We closed half 1 with an increase in revenues at constant exchange rate of 8.7 percent or €31,000,000 as a result of the soft first quarter, mainly due to COVID driven reduction testing volume in China, as we discussed, and a very good second quarter, up by 15.4 percent or EUR 28,000,000 Q2 gross margin confirmed the good result achieved in Q1 2020 with a ratio of revenues of 69.1%. H1 'twenty gross margin ratio at 69.1 percent as well is slightly lower than H1 'nineteen, which grows 69.5%. I will discuss later about the main drivers behind this variance. H120 EBITDA at €154,000,000 records an increase at constant exchange rate compared to the previous year of 10.1%. H1 EBITDA margin, again at comparable FX rate, is 40.2% visavis39.8 percent of 2019. Q2 2020 EBITDA at €89,000,000 or 42.9 percent margin registers a very good performance with an increase of 24 percent or EUR 17,000,000 compared to Q2 2019. Lastly, to confirm our ability to generate a very healthy free cash flow, €74,000,000 in the 1st 6 months of the year, which brought the net financial position to positive €119,000,000 Let me please remind you that in June, we paid EUR 52,000,000 dividend to our shareholders. Let me now go through the main items of the P and L. H1 revenues at EUR382,000,000 drew by 9.1% or EUR 32,000,000 compared to last year. The growth at constant exchange rate is 8.7%. The strengthening of the U. S. Dollar against the euro is the main reason behind these FX tailwind, which has been partially offset by the devaluation of the Brazilian reais. Considering where the U. S. Dollar is trending now compared to 2019, I believe it is fair to say that we might experience in the second half of the year some FX headwind that will likely offset or even more than offset the upside of the first part of the year. H1 gross margin at EUR 264,000,000 drew by 8.5% compared to last year, closing the 1st 6 months of 2020 with a ratio of revenues of 69.1%. A touch below H1 'nineteen, which closed at 69.5%. The slightly decrease in the year to date gross margin tier sales and higher molecular sales, which enjoy slightly lesser margins, partially offset by better fixed cost absorption as a consequence of higher manufacturing volumes. Higher distribution and freight costs mainly were driven by the fact that many commercial flights, which under normal conditions would have been used to move our goods have been grounded because of COVID. And so we had to use cargoes, which are usually more expensive. H1 total operating expenses at €131,000,000 or 34.3 percent of revenues have increased by 2.4 percent or €3,000,000 compared to last year. OpEx ratio of revenues is 34.3 percent visavis36.6 percent of 2019. Here, we have 2 effects of opposite sign. On one side, we have had a slowdown of activities and the consequent reduction in costs caused by the widespread lockdown measures that interested all the geographies in which we operate. On the other, we have had an increase in costs, mainly driven by the investments we made in the U. S. Commercial team aimed at sustaining our hospital strategy, as we talked over in the past few quarters and Carlo just mentioned. H120 other operating expenses at €9,000,000 increased compared to 2019 by €4,000,000 As discussed during Q1 2020 call, most of this variance is driven by a non forecasted loss we suffered in our South African subsidiary during the shutdown process, through which we have activated our insurance policy, our group insurance policy. As a result of what just described, H1 'nineteen EBIT at EUR 124,000,000 or 32.3 percent of revenues has increased compared to 2019 by 12.2 percent or EUR 13,000,000 Q2 closed at EUR 74,000,000 or 35.7 percent of revenues, with an increase of 30 percent or EUR 17,000,000 compared to last year. The tax rate at 22.5% is substantially consistent with H1 2019. The net result at €95,000,000 or 24.8 percent of revenues is higher than previous year by €11,000,000 or almost 13%. Lastly, H1 EBITDA at €154,000,000 is better than 2019 by €14,000,000 or 10.3%. The variance at constant exchange rate is positive by 10.1%. First half EBITDA ratio on revenues is 40.2 percent at current exchange rate, 30 9.8% of last year. Q2 has recorded a very good result closing at €89,000,000 or almost 43% of revenues. Both H1 and Q2 improvements compared to last year are mainly driven by the higher sales and gross margin coupled with a very nice operating leverage coming from the reasons that I just talked about. Let me now please move to the net financial position in the free cash flow. We closed the period with a positive net financial position of €190,000,000 after payments in June of €52,000,000 dividends to our shareholders. In the first half of the year, the group generated €74,000,000 of free cash flow vis a vis €70,000,000 of 2019. The semester has been negatively affected by an increase in working capital, driven by higher sales and so accounts receivable, higher inventory to sustain COVID test volume and higher CapEx, driven by the acquisition in Q1 of the TTP license, partially offset by lower tax cash out, mainly coming from a positive payment phasing. Lastly, guidance. So considering the uncertainty and unpredictability of the impact of the coronavirus pandemic in the second half of the year and the risk of further widespread strict lockdown measures, Diasporin similarly to what done in Q1 is not in a position to give an economic guidance for the remainder of the year. Nevertheless, at the light of the good performance achieved in H1 and taking into account of the diagnostic industry in managing the consequences of the COVID pandemic, the management is not expecting a negative impact on the results of the second half of the year. Now let me please turn the line to the operator to open the Q and A session. Thank you. Excuse me. This is the CorVel conference operator. We will now begin the question and answer session. The first question is from Andrea Bologna of Mediobanca. Please go ahead. Thanks. Good morning. Good afternoon. Thank you for taking my question. My first question is about serology test production capacity utilization. In your last conference call, you guided production capacity expected to increase from €5,000,000 to €10,000,000 per month. We understood that so far the utilization is much lower compared to the top of range. If you can give us an idea about the capacity utilization in July, just to understand where to set our estimates. My second question is about the molecular test. During the last conference call, if I'm not wrong, you guided for around €10,000,000 to €12,000,000 sales per month without stating the amount of test produced. Now you said that you are producing 650 units per month. And if I have understood correctly, you would like to achieve a level of €1,000,000 per month by the end of the year. If you can give us an idea about the target in terms of sales by the end of the year per month. And my third question is again about serology test. We saw in Italy a draft law in order to allow students reentering the school. And one other point included in this law is a utilization of a serology test for both students and also for teacher and so on. Do you expect this could trigger high utilization of serology test at least in Italy? Or this could represent an example also for other countries in order to increase utilization of serology testing in the school. Okay. Listen, I will not give volumes in July for serology. My indication is clear. Serology, our manufacturing capacity is indeed 10,000,000 a month. That capacity today is clearly not used. You can go and check. If you want to have an understanding of volumes, I think you go to LabCorp and Quest Reports and you understand what the current expectation of volume is, which is far below versus what everybody thought. I remind you that there have been statements by certain competitors where the capacity was up to $100,000,000 per month to EUR 40,000,000 per month to EUR 30,000,000 per month. So the industry really set up its capacity for a demand that eventually did not materialize after an initial surge. I'm saying that the big question, Mark, is vaccination and the big opportunity is with vaccination today for serology and we need to see what that will be. As far as COOL, in the U. S, I don't know about Italian law, to be honest, with you enough clarity these days about what Italy is doing. And I think you can share the pain with me about that. But all said and done, I look at the U. S, for example, and as part of the U. S. Is concerned, there has been as a guideline to say that testing will not be required, okay? So today, there is lots of confusion, I think, in the market among experts about serology. And this lack of interest and this confusion is actually pushing for less adoption and lack of interest. And this is the difference between serology and swab because today for swabs, there is a very clear guideline, which start from the WHO and then has been transposed into the different countries. And this is why there is a clear usage and clear increased volume for swabs and lots of uncertainty on serology. For molecular, I gave initially an indication of revenues. But then in the last call, I also spoke about manufacturing capacity, which I think is, in this case, is a good correlation between revenue and with the revenue simply because there is more today demand and capacity for everybody. And so what you can manufacture actually correspond in this case and for the foreseeable future to your revenues. And we've indicated that today, we do have a capacity overall around 700,000 test per month with a plan to increase it to 1,000,000 test per month by year end. And I think from that, you can and understanding what is the price on the market, you can make a gross estimation of what diaspora and revenue per month can be moving forward between now December. Thank you. The next question is from Katherine Tanison of Bank of America. Please go ahead. Hi, thank you for taking my questions. I have 2. Just following up on the previous question. In Q2, you had about €89,000,000 of a benefit from COVID. Could you lastly help us understand how much of that came from molecular versus serology? I think that you will give the July run rate, but if you could give us any idea on volume to that in Q2 and how we should think about the monthly demand for serology going forward? Thank you. Catherine, I cannot because I believe that even if some competitors were very analytical about the revenues and some other competitor decided that to keep the numbers to themselves. I think that this is what we decided to do. And again, indication as follow-up. I don't think that what's happening in Q2 is a good proxy for serology to what is going to happen in the future. And therefore, I see no value in really declining serology revenues because it has been a peak that is not going to be repeated until there is something that we make serology as a technology needed, okay? And again, as I said, the only way it's going to be the post activation type of the termination. Molecular, you can do your math. Clearly, you can do your math with the information I gave you because you understand what is the current price for our molecular on the market. And so do the math and understand the potential for molecular, which is certainly vast, I have to say. And it is like that in the U. S. Because the government has announced this grandiose plan objective to be able to get to 100,000,000 swap per month, okay? So it is very relevant for me that as investors and as analysts that you guys understand that serology in Q2 has been a nice opportunity, but eventually cannot be repeated, whereas the solid business today stays with molecular product. The next question Carlo, just to follow-up on your statements with regards to serology tests. And in general, a bit more about the outlook for COVID-nineteen. I mean, as we're passing time, as we're learning about COVID-nineteen, you've mentioned that there could be an opportunity for serology tests in combination with vaccination. Do you believe that based on the data that we have today, COVID-nineteen will remain at the end of the portfolio for a medium to long term rather than what we anticipated all in the beginning that there would be one vaccination and we might have immunity for forever. So do you think that COVID-nineteen the opportunity from COVID-nineteen is obviously always changing, but do you believe that now there is a potential longer term opportunity? Maja, look, to be honest with you, if today I make a public statement on this, I would be better off just playing the lotto because the probability for me to give you the right answer is fundamentally the same. But let me just give you a common sense comment. Let's talk about the vaccination. First, you understand that there are there has been a very nice publication recently on Lancet, which has, in fact, described the initial data on one vaccine. And I see that today, there is a fundamental discussion and nobody knows yet whether the vaccine was first efficacy. 2nd, what is the effect of the vaccine? So you're going to be vaccinated or simply this is going to tame the infection and avoid that the severity of the infection once you get it without vaccination. So to make a long story short, this is what I believe. I believe that there will be a need somehow to test whether the patient has reacted to the vaccine. I see the complexity though, because if you use a traditional serological essay, it means that you need to have millions of people lining up to take blood and to get blood drawn and tested. And that is a complication. I see in that sense that there is an opportunity if the technology can deliver for a lateral flow test, something that makes the testing post vaccination simpler, okay? So the question is, what is it going to be the opportunity for serology? And is it going to be more on the lateral flow versus the traditional immunoassay done in the lab? And I don't know that yet because it's too recent. As far as the opportunity, I believe I think I share comment that some competitors make vis a vis 2021. So if you heard what I believe QIAGEN said, Ross said, everybody sees that 2021, we like it or not, notwithstanding our ability of vaccine, we are going to go through the hurdles of COVID and we will need more testing for COVID. In my opinion, we will need more molecular testing because of the need to isolate people very rapidly. You see what is happening in Europe. Because of the fact that this swab is becoming common practice in admitting people at the hospital, for public workers, for police people and so forth. So I see 2021 still COVID. I have no idea whatsoever what is going to be 2022. And to be honest with you, I wish to myself that COVID goes away because quality of life and economy needs a free a word free of COVID. As far as we are concerned, I would like to make a comment. What is COVID doing to us? Tremendous branding because everybody we were the one that because of the characteristic of our technology for molecular, we do not extract. So it's a direct determination of the virus. That allowed us not to go through the hurdles of a shortage of reagents for restructuring, which has been one of the problems of other competitors. And since the beginning, we have not back ordered a single customer with COVID. So there is a reputation that we've acquired in the business. On top of that, we clearly had an acceleration of said as said of the installed base, both of COVID and the non COVID, so the serology. And today, as far as serology is concerned, if I look at what the company got out of it, we got cash, for sure, from serology because it has been a significant opportunity in Q2. But strategically, we got an installed base of systems in hospitals, especially in the U. S. That we'll continue to do COVID serology at a much smaller volume than what was expected from a very large labs. But they do COVID, they use the serology and taking our system there, they will do QuantiFERON, they will do all the rest. As I said before, we had a target of hospitals to be closed by in 2020. And by June, we already almost doubled the number of hospital we have enrolled as customers. And this is, I think, as much as a common sense person can say about COVID. Okay. And just a follow-up, color. On the saliva test that you briefly mentioned, that would be for active infections, correct? Yes, it would be for active infection because today, if you there are assays that and I think Quidel is a good example. So there are companies that launch product on NPS or on NASL, right? So the UniFi swap and then you can test antigen with a relatively good sensitivity in the active phase of the infection. There are 2 problems. The first one is the swab per se, which, as you know, is relatively complicated, especially you can get negatives if it's not done properly. So swabbing people, it's an art, isn't is not something that anybody can do. Saliva is a perfect medium for testing because it can be simply collected by the needle device. And we do have collaboration with a U. S. Company that does have this kind of experience and device on saliva collection. And this is why we believe that antigen and something else that we have not stated yet, but an improved antigen test on saliva would be a tremendous tool because it's much simpler to collect. It can be a widespread use and it can be adopted very rapidly by hospitals. You saw that in the U. S, I believe government has signed up for I think they stated 700,000 tests. So the need for this kind of test is huge. Okay. Thank you very much. The next question is from Scott Bardo of Berenberg. Please go ahead. Yes. Thanks guys. Thanks for taking my questions. Your first question on serology again, sorry for that. I think at the time that you and the industry were developing serology tests, it was pretty apparent that there was no strong evidence that detecting antibodies, IgG antibodies strongly correlated with immunity. Yet I think the adoring claim that you had isolated a neutralizing antibody and you're better to prove that. I think that you were expecting very strong lab demand as a result of that along with the whole industry. So what I'm trying to understand is in the last few months, what has massively changed such that the industry has got it completely wrong with respect to capacity and demand and the ability to make this link to immunity. So I wonder if you could discuss that a little bit more. 2nd question, please, on the antigen test. I think at the last call, you highlighted that this could indeed be an even bigger opportunity than serology, and those expectations last quarter were clearly quite high. Along this development process, first of all, can you give us a bit of an update? Are you incrementally more positive on your ability to launch a solution here at all or in full? Or is this still in a high risk camp? If we could just discuss that a little bit more, that would be helpful. And last question, please, Carlo, and I appreciate that this is somewhat of a sensitive topic. But can you give us some sense and understanding for some of the legal challenges that you've been facing in investigations in Italy and where the company's stance is with respect to the forward positioning of the business? Thanks. Okay, Scott. Now let's talk about serology neutralization and immunity. Since the beginning, we clearly stated that we were not providing an information on immunity. And if you follow the spread of information back then, funny enough, we're more I think we're more politicians saying we're going to have now the silver bullet with serology because it's going to provide what everybody was in Italy was called the patentino di munitra, so like the mimiti part, which was obviously a surreal statement by politicians. And we had devoted an amount a certain amount of time in clinical studies to look at neutralizing antibodies because we thought that as it is true today, if eventually, in order to provide an information around immunity, it has all to do with the ability to neutralize the virus. And this is why we conducted a clinical study in order to prove that. And we provided a tool ex U. S. That has been used by several centers around Europe that appreciated that the neutralizing claim. In the U. S, we did not get the claim approved, as you noticed from the packages for a very simple reason because the FDA came back with the $100,000,000,000 question. Tell us what's the immunity threshold. So tell us, okay, we understand you measure neutralizing antibodies, but tell us what would be the threshold of neutralization that provides immunity. That's a very smart way out of the question because we cannot that's a question for the vaccine industry. But the signal that came from the agency is, look, we understand value of neutralization. By the way, there are different labs that today are providing LDT solutions for neutralization. I think Quest announced it, LabCorp announced it. It's a research tool. But nobody can actually claim what neuterization means until somebody will establish what the protection level and that can only be a company that has conducted a clinical study. So this is why at the beginning look, at the beginning, I think everybody in the industry declared that extreme capacity for this because nobody really knew what where the what how it going to be used. And governments were making statements, public statements about their willingness to conduct very large studies with millions of people involved in this study. Well, it didn't happen, in my opinion, for two reasons. First, that eventually, if you run an immunological study to understand immunity, when on the general population, you're going to have a prevalence, which is very low with the exception of few places. If you go today in Bergamo in the area where eventually was a hospital for Italy, you would find 30%, 40% of the population, which is actually being infected. But if you go anywhere else in Italy, especially if you go south, you would find a prevalence of 0.1%, okay? So the concept was with exception of a clear use in certain spot, why should we conduct a study when the prevalence is so low? The second the second information back then was the so called tool to reopen. If you remember, in all the newspapers, everybody was saying, Cerrodi will allow companies to reopen. But then the algorithm was set such that you will do serology you can do serology, but then any positive find, then it goes to now enters into a program, which has been managed by the government, which means, A, you need to be quarantined B, you need to get a swab until you return and 3rd, you're going to take you and your family and be segregated until you get the result. And people will start to wonder what's the value of this information. So I'm going to do an IgG, God permits, I'm going to turn up positive. And if I'm turn up positive because of a past infection, I know information about immunity, 1st. 2nd, I get into a nightmare because I need to get tested, I need to be quarantined, I need to be segregated. That's fundamental. That uncertainty has created a lot of questions about, okay, why do we need to do serology? And surgery today are reverted to where it belongs to clinical use. So when your patients which are hospitalized, then you do serology in order to understand when they develop after the swab, when they develop the IgG and IgM as part of an algorithm, which is a diagnostic algorithm, but it's not for epidemiological studies. And this is what honestly we see today. There is one more usage of the serology test, which is very interesting, which has to do with the fact that one possible treatment for COVID, as you know, is a transfusion to critical patients with blood coming from donors, which got infected, developed a titer and then eventually recover from the disease. There are certain protocols, experimental protocols, which have been approved in Italy, in Pavia, for example, and in the U. S. But still, there is not a massive use of the product to screen donors then for donation. That is fundamentally the story around serology. Antigen testing. Antigen testing, where are we? We are in the we are beginning the clinical studies and is a complex clinical study simply because today in Europe, you have you understand first that you need to do a clinical study on active patients. And today, with few hotspots in Europe, you know there are no active patients so any longer. So it's difficult to find these patients. It sounds funny, but it's terrible the place today where to do clinical is the U. S. Because it's a place where you can find lots of active patients. Therefore, we are initiating the studies with the U. S, although you know the IRB and the time it takes in the U. S. To get the clinicals approved, they takes longer in Europe. And so today, we are in the phase where we have internal data, which are interesting and promising, but then we need to validate this data with patients that we will need to collect we are collecting in the U. S. So I believe we are going to have more certainty around the September timeframe. And we plan eventually to bring this product to the market hopefully by year end. 3rd element is the legal. Look, unless you're Italian, it's very complicated to describe the legal system. But I'm trying to do it the best I can. And clearly, I'm not going to make any statement vis a vis the current DOJ investigation because it's not I cannot do anything like that. A there has been a legal case, which has been brought up by a competitor, a Chinese competitor in under in front of the administrative court in Pavia and that was against the agreement, which was a clinical experimentation between us and the hospital in Pavia. And the claim of the company was that that agreement, which was gave Diasorin an unfair advantage in terms of its ability to develop a serology asset. In the first degree, the administrative court actually ruled in favor of the company. And so the net result was that the agreement between us and the hospital, which at this point was concluded because the experimentation was concluded, was in fact declared nil and invalid without repercussion on the diasporin product per se. Then we appealed to the High Court in Rome. And the High Court in Rome ruled recently to say that the actually, the first administrative court ruling and then it indicated the court in Rome asked the Minister of Research in Italy to give an opinion whether the clinical study, which was conducted in Pavia with the San Mateo hospital was something that was common, let me say, or it did and or if it showed anything there that would be unusual in the way it was conducted. And but as we speak today, the court, the High Court ruled that the first court ruling has been declared nil and suspended, okay? So we are now waiting for the Minister of Health to provide a report to the High Court and then we expect that by year end, the High Court is going to rule the initial indications of the High Court. I'm not going to comment, but if you read what the High Court said, I think I believe that you understand what the inclination of the court is. And this is from the Omninifos' point of view. That company also has provided to the Department of Justice to Justice in Paria documentation to look from a final point of view the agreement again between Diasora and San Mateo. And I think that what we have seen in the news these days is that I can comment on is that the Department of Justice has decided to initiate an investigation. Again, based on some material and diaspora agreement, which has been declared today valid by the High Court. That's the interesting part. So the final judge has issued an investigation. They came to the company and they've taken information about all the development work that has been done in Diosorin for the development of the serology assay. And this is where we sit today. So today, there is no effect as far as the business is concerned. The company continue clearly to operate. You know that as far as internal responsibility is not with the company, it has to do with the company legal representatives. So the company continues to operate as is, continue to manufacture products and serve customers. And we're waiting to see what the DOJ will decide to do, but you know that it may take a long time. And this is what I can say factually for what has happened in the last 90 days. Thanks so much, Carlo. I'll get back in the queue. The next question is a follow-up from Scott Bardo of Berenberg. Please go ahead. Thanks very much. I have a follow-up. Just a real quick one. And Pier Giorgio, I wonder if you can help. I think you're expecting then a recovery of your base business in the second half of the year and pretty high continued growth in molecular diagnostic, which, as we said, is coming largely from the U. S. And compares stable margin. So the nature of the question is this 43% EBITDA margin that you post here in the second quarter. I mean, is this a basis that you can progress from in the second half of the year? Any understanding about the sort of profitability development of the businesses for the rest of the year unfolds would be very helpful. Yes, Scott. So it's very difficult to make projection for the second part of the year, and that's the reason why we are not giving the guidance. But I believe that 43% margins, I'm not expecting to be able to maintain such a level of margins in the 2nd part of the year, also because these margins in Q2 have been driven by the fact that OpEx have been very low. As I believe I said during my remarks, we had a slowdown of a lot of activities because of the lockdown measures in all of our geographies. Now activity is are picking up again. So our people do travel, see customers on a recurring basis, a few projects which we put on hold at the beginning of the pandemic are now picking up again. So I'm expecting OpEx to pick up again. Besides, as you know, and I believe we have discussed a few times, margins of molecular products are lesser kind of than clear products. So what I'm expecting to see is some kind of pressure on the gross margin, which will be somehow offset by some operating leverage, but not to the extent we saw in Q2. What I believe it's fair to say is that I think we should be able to maintain an EBITDA margin around, let me say, 39%, 40 percent by year end, but I'm not expecting to see anything like what we saw in Q2 for the reasons I just mentioned. Mr. Raza, there are no more questions registered at this time. Thank you, operator. Bye bye. Ladies and gentlemen, thank you for joining. The conference is now over.