Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the DiaSorin full year 2019 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, Chief Executive Officer of DiaSorin. Please go ahead, sir.
Thank you, operator. Good morning, good afternoon, and welcome to this conference call. I think we all recognize that these are exceptional times. What I will do, I will go briefly through the quarter four results and the events, and then I will spend some time commenting on two things. One is how we see the situation in Italy. We got lots of questions about business continuity. I will cover the corona and the opportunity and comments about corona effects. If we go back to the numbers and the status of the business, if we look at quarter four and we look at the different regions, I think we continue to have good results in the direct geography.
Overall, if I extrapolate the direct countries from export, we continue to see growth, which is in line with the low end of the guidance, which is around 5%. Then we have a drag on export, as we did comment a few times. We saw lots of visibility in some of the geographies, and certainly the volatility in these regions now is becoming even more so because of the current situation. Again, going back to Europe, we saw Europe continuing growth at around 5%- 6%, and again, driven by the QuantiFERON. Clearly in Europe, there is a slowdown compared to the first quarters because of the success of the QuantiFERON program.
We are coming to a situation where we are getting as much business as is possible as a result of either conversion from the ELISA, QIAGEN product, as well as the send-out that hospitals decided to bring in-house. I'm going to focus on QuantiFERON a little later when it comes to the U.S. There is a fundamental difference between the U.S. and the European market. The U.S. market, a lot of it has to do with send-outs in the two, three major labs, whereas in Europe, the send-out is very limited, is more in inpatient testing and within hospital testing. The send-out opportunity is not there. Overall, though, Europe continues to do well. North America, clearly North America fell slightly short in Q4 from expectation, but that has to do with the fact that we were delayed, as you know, with the QuantiFERON program.
QuantiFERON was just approved, I remind you, in late November, early December. When it comes to how we see the opportunity today in the U.S. for QuantiFERON is going above expectations. This is because, again, the strategy of the two companies, QIAGEN and DiaSorin, was to go to the hospital market and capture the send-out opportunity. The send-out opportunity is big in the U.S., and it's a true opportunity because of, A, the send-out cost, which allows both companies to capture a premium versus what is the average price today of TB in the U.S. The second thing is that the volumes that today are sent out at each institution are high enough that would allow, financially speaking, a placement of a system.
Today, we're going with the XL, clearly when the XS is going to be available second part of the year, it's going to be an XS opportunity. So far, we have in literally eight weeks, we see 180 offers made and 30 customers already buying. The ramp-up is significant. By the same token, we are working also with the major labs, together with QIAGEN, in order to provide to the core facilities of the large labs, the XS solution. As far as I'm concerned, as far as the U.S. is concerned, the hospital strategy is working. The TB is a driver, clearly we follow suit with all the other specialty products, as we indicated in the previous calls, very important to notice that we were able in Q4 to hire all the people we were planning to hire.
We have a full staff now of salespeople dedicated to the hospital market. Very positive about the U.S. China was fine in Q4. It did continue the trend as before. We placed last year over 100 systems, XL systems in China, so strategy is working well. I'm going to make comments about China today, but if I need to go back to Q4, China was fine. Last but not least, LATAM. You notice that in the first couple of quarters we had of last year, we had an issue with Brazil, and that issue eventually resolved itself and Brazil came back to net positive growth. LATAM actually in the last quarter actually grew by 7%. Again, the direction and geography are all fine. The net effect of that is that clearly our gross margin is benefiting significantly from this.
You saw that the EBITDA of the quarter is in line with what we achieved previously. Clearly, net of an effect that I'm going to comment later, which has to do with certain accruals taken in light of the decision to continue consolidation of manufacturing and shutting down one of the plants of the company. If we move to, again, major, let me call it business development activities, before we get to the corona situation. I think that there has been a lot of attention drawn by the fact that QIAGEN and Thermo Fisher came to, I think, a conclusion of their relationship, and it's been announced that Thermo is subject to antitrust, it's going to buy QIAGEN.
I think there's been a lot of questions that came our way about, "Okay, what is going to happen?" Without getting into confidential details, I'm drawing everybody attention to what the CEO of Thermo Fisher said when he did comment the acquisition. He made a clear reference to two companies that they do business with. One is Illumina, the other one is DiaSorin. As far as DiaSorin is concerned, he said, "We've been doing business with DiaSorin for 10 years. We have a great relationship, and we want to continue the relationship with the company as is." I am very positive about the fact that the Thermo acquisition is not going to destabilize the current program. There are 12- 18 months, depending on antitrust, in front of us, where we will continue anyway business as usual.
Clearly, when we get closer to the deadline, then we're going to transition the relationship from QIAGEN to Thermo Fisher. As far as Lyme is concerned, it's the same situation. We will continue. We agreed to go ahead with the clinical studies, which will happen this summer, to obtain CE marking by year-end. If I see a positive effect of all of this from Thermo Fisher, besides the financial relationship and the relationship between the companies, is the fact that Thermo Fisher is a great company when it comes to sales and marketing. That is in market creation. I am excited about the opportunity to working with Thermo and developing the Lyme. This is an opportunity together because of the strength that they have, clearly in pushing the scientific value of products through the channel and to the customers.
If I can go back to the elephant in the room, which is the gorilla, which is clearly what makes the future, I think, of all of us difficult to predict, and explains why we decided to qualify our guidance for 2020. I would like to touch base on two things. One has to do with business continuity. Clearly, if you're not Italian and you read the newspapers, you get very alarmed by what the government is doing, and the impression is that the country is caged. The truth of the matter is that today, all businesses continue. Logistics is in place, and goods continue to be shipped to hospitals, actually with a priority. As far as what DiaSorin has done, we have our primary centers in Italy. We have segregated people.
We have created two shifts so that in case of a possible, a potential infection of one of the employees, then we can conduct by law. What we have to do is clearly go back and understand all the contact that the person has, which probably means that we have seen with other companies that for a week or so, if you've segregated, only one part of the company will be closed. We have placed 30% of the workforce in smart working. This is to reduce as much as possible, clearly the risk of spread of an infection. So far, so good. We have two months inventory. We took inventory directly to customers or to locations outside Italy, namely in the U.S. to serve the U.S. market, in the U.K. to serve the European market. In Germany, also for the European market.
I think business continuity is not a problem at this point. Let's talk about business effect of the coronavirus. We announced yesterday that we are very close to launching on the MDX platform, a coronavirus molecular diagnostic test. Just to make sure that everybody understands, the MDX is a small footprint system, and we have 800 systems placed worldwide. The majority of these systems is actually placed in hospitals where they do influenza testing in the U.S. and/ or they do tests like HSV, so herpes virus, cerebral spinal fluid analysis, so for emergency.
It's a system that is typically has been designed because it was originally designed for military use, for fast response, clearly low throughput, and it fits like a glove the requirement of healthcare systems today, what we have seen in China, but now we see it in our own countries, the typical effect is that The government first elects a certain number of labs to perform the tests, and then the logistic goes crazy and meaning that you have swabs going all over creation trying to get to the hospitals. It takes up to two days to get a response back. Even if the patient is at the hospital, it takes six to seven hours to get the result back because they are all batched and then they are sent to the core lab.
In the core lab, they use high throughput system that typically take the time to generate the response. The excitement we got over here around the MDX is the fact that it would be ideal as a system to be placed in the emergency room for triaging the patients that you know. At least if you live in Italy and you will see that in all the other countries, what happens immediately is that they need to set up external facilities to test patients, not to allow infected patient within the hospital. In these triage facilities, it would be ideal to place the MDX. That's an opportunity for us, and today we are two weeks away. By the end of March, we're going to have the CE marking, and we're going to launch the system in Europe and submit for EUA.
Very difficult to understand how long an EUA process typically takes. Typically, it used to take four to eight weeks compared to 6- 12 months, which is a traditional type of care approval in the U.S. The signal we get from the government is that they are speeding that up even further under pressure of having products available. If everything works well by April, we should also have the EUA certification and the ability now to distribute in the U.S.
What would be the potential positive effect of a corona assay? Look, I don't have a crystal ball, but we did some quick calculation here, and we believe that having Italy as a major market and the U.S. that have an install base of MDX up and running, we think at that point the potential would be between EUR 5 million-EUR 10 million per month of business. Clearly, that's an estimate today that depend on for how many months this would last. To prevent the question that would come for sure, this would be the opportunity.
Let's look now about the negative effects. The negative effects are very clear. Because of the pressure of the hospitals to have access and beds for the infected patient by COVID, what happens is that they push people without acute problems away from the hospital. All regular routine test is postponed. All the insurance testing, whatever that's applicable, is postponed.
It's very interesting if you listen to what Quest and LabCorp are saying about how they start to see the business in the U.S. They see in the U.S. exactly the same thing, all the insurance checks are postponed, and there is more emergency testing for COVID corona. All in all, without having a crystal ball, we believe that there is temporary effect on volume because hospitals would test less volume. How long it lasts? To say, we saw in China that for the first month when the infection was at peak, it's a heavy effect, and then it tends to go back to regular course of business. Again, you need a crystal ball to understand how long is it going to take. From the corona effect, in summary, I see no problems today as far as supply is concerned.
I see that there is an opportunity for DiaSorin to develop the molecular business around the coronavirus, and mainly, again, focused around the domestic market in the U.S., and I see a temporary negative effect on volumes of regular testing, which would be decreased. Last but not least, I would like to make a comment on another press release we had, which has to do with TTP. That is perfectly in line with what we said during our investor day meeting. We said we believe decentralization is the way to go. To be able to decentralize, you need a technology that allows fast results.
We've been searching for a while, we found this very promising technology in England, we signed it up, we got exclusivity, as we speak, we're working in transferring the know-how of the platform and the consumables to our facilities. It's interesting that we made that comment nine months ago about the necessity to decentralize, especially for infectious disease. Unfortunately, coronavirus is one of the best examples where if these systems were, in fact, available, portable, it would clearly allow management of these situations completely different from the mess we are seeing today. All said and done, I will leave now the CFO, Mr. Pedron, to go through the numbers, then we're going to Q&A.
Thank you, Carlo. Good afternoon, everybody. In the next few minutes, I'm going to walk you through the financial performance of DiaSorin in 2019, and I will also make some comments on the contribution of the fourth quarter. As usual, I would like to start with what I believe are the main highlights of the period. We closed 2019 with an increase in revenues at constant exchange rate of 3.8%, a little shorter than the full-year guidance. Quarter four confirms the good performance of all geographies where we have a direct presence. + 4.8% in the last three months of 2019 and + 6.3% for the full year. Whereas the export business decreased by 13.7%, 12.7% for the full year. Carlo has already covered the drivers behind these variance.
Quarter four gross margin reaffirms the very good results achieved in the first nine months of 2019, therefore closing the full year with a ratio over revenues of 69.2%, and the profitability improvement versus 2018 of 110 basis points. 2019 full year EBITDA is EUR 277 million, increased by 6.3% constant exchange rate compared to 2018. The EBITDA margin, again at comparable exchange rate, is at 39.1% vis-à-vis 38.2% of the previous year. I believe it is important to underline that during Q4 2019, we booked some one-off restructuring costs. Net of which, 2019 EBITDA margin at comparable exchange rate would have been 39.6%, with a growth over 2018 of 7.6%, therefore doing better than the full-year guidance. 2019 net results at EUR 176 million or 24.9% of sales, records an increase of EUR 18 million or 11.1% compared to 2018.
Lastly, we keep maintaining our ability to generate a very healthy free cash flow, EUR 180 million in the year vis-à-vis EUR 164 million in 2018. The net financial position, positive for EUR 173 million, has been negatively affected by the introduction in 2019 of IFRS 16, which accounted for about EUR 30 million. This means we closed the year with no debt and EUR 202 million positive cash position.
Let's now go through the main items of the P&L. 2019 revenues at EUR 706 million grew by 5.5% or EUR 37 million compared to 2018. During the year, we enjoyed some FX tailwind, mainly driven by the strengthening of the U.S. dollar against the euro. 2019 gross margin at EUR 489 million grew by 7.2% compared to the previous year, with a ratio over revenues of 69.2%, as I said, 110 basis points better than 2018. This increase is a result of two major drivers. On one side, a positive sales mix coming mainly from lower export markets and instruments revenues, and the very good performance of U.S. markets and specialty test sales.
On the other side, lower manufacturing and distribution expenses coming from the several cost reduction initiatives started in the last couple of years. The divestiture of the manufacturing site in South Africa, announced in this quarter, which follows the shutdown of the one in Ireland in 2017, goes exactly in the very same direction and is coherent with the journey to safeguard margins that we started a couple of years ago. 2019 operating expenses at EUR 260 million have increased by 6.1% compared to the previous year. The growth at constant exchange rate is a touch above 4%, therefore in line with the growth in the top line. 2019 full operating expenses ratio of the revenues is basically in line with 2018, 36.9%.
2019 other operating expenses at EUR 11 million are higher than 2018 by EUR 5 million, or almost 80%. This increase is driven by some one-off restructuring costs booked in Q4. In particular, as I said, I'm referring to the divestiture of our manufacturing site in South Africa and to a structuring program done in Italy, which has been made possible by the introduction in the 2019 budget law of a measure that allows employees to voluntarily anticipate their retirement with the support of some monetary contribution from the employer. It's the so-called "Quota Cento." Both these initiatives are consistent with our effort, as I said, to safeguard margins and to streamline manufacturing footprint. We will start seeing the positive effect from 2020 P&L.
2019 EBIT, because of what described, closed the year at EUR 118 million, with an increase compared to the previous year of EUR 13 million or 6.5%. The EBIT ratio of the revenues is 30.8% is slightly better than 2018, which closed at 30.6%. Q4 2019 EBIT decreased compared to Q4 2018 by EUR 3 million, just because of the restructuring costs we have discussed about. Full year net financial expenses are higher than 2018 by EUR 1 million. This difference is mainly due to the positive revaluation at fair value of the participation in our Indian subsidiary booked in 2018 after the takeover of full control from the Indian partner. In 2019, we also have to account for the negative impact of the figurative interest driven by the first time introduction of IFRS 16. Net of this element, 2019 net financial expenses would have been close to zero.
2019 tax rate at 18.7% is better than 2018, which closed at 22.6%, because of the booking in Q4 of deferred tax assets related to the intangibles, which we moved to Italy in connection with the shutdown of the Irish manufacturing site. Net of this positive one-off, 2019 tax rate would have been substantially in line with 2018. 2019 net result at 176 million EUR or 24.9% of revenues is higher than previous year by EUR 18 million or 11.1%. Lastly, 2019 EBITDA at EUR 277 million is better than 2018 by EUR 22 million or 8.4%, with a ratio of the revenues of 39.2% vis-à-vis 38.2% of 2018. The variance at constant exchange rate and net of the one-off costs we discussed about is positive for 7.6%, with a ratio on revenues of 39.6%.
Quarter four EBITDA decreased compared to Q4 2018. This is entirely due to the mentioned restructuring cost. Full year 2019 improvement, EBITDA improvement compared to last year, is driven, as we have discussed, by higher gross margin and by the first time adoption, starting from 2019, of IFRS 16, which accounted for about EUR 7 million. Since there are many moving parts, for the sake of clarity, let me underline that 2019 EBITDA margin is better than full year guidance, which was calling for 30.2% at constant exchange rate, even without considering the positive impact of IFRS 16, which accounted for a bump of a touch less than one percentage point. Let me now move to the net financial position and the free cash flow.
We closed 2019 with a very positive net financial position of EUR 173 million after the introduction of IFRS 16, which implied the booking of financial liability for about EUR 30 million. In 2019, the group generated EUR 180 million of free cash flow vis-à-vis EUR 164 million of 2018, therefore recording an increase of EUR 17 million, 10%. This variance is the result of the good economic performance of and the positive working capital variance, mainly driven by an improvement in the DSO, which is a direct consequence of the different geographical mix we discussed about, and of a very disciplined collection policy.
These two positive elements have been partially offset by a higher tax cash-out, mainly coming from the one-off exit tax deriving from the shutdown of our operation in Ireland on one side, and on the other side, from the depletion of the patent box tax credit granted by the Italian authorities in 2017. For the sake of clarity, let me underline that the Italian patent box tax regime has been renewed till 2024. What has changed is simply that during 2019, we have exhausted the tax credit accrued for in 2017 and related to the years between 2015 and 2017. Lastly, let's move to 2020 guidance at 2019 constant exchange rates. We expect revenues to increase at around 5% and an EBITDA margin between 38% and 39%. As Carlo already said, please consider that this guidance does not incorporate the effect coming from COVID-19 outbreak.
We will review our projection as soon as we will have a better picture of the impact on the different geographies in which we operate. Before concluding, let me remind, please, that DiaSorin financials are fairly sensitive to FX fluctuations, and in particular, to the U.S. dollar, and that for every $0.01 movement of the dollar against the euro, DiaSorin revenues move by about EUR 2.5 million on a yearly basis. Let me please turn the line to the operator to open the Q&A session. Thank you.
Thank you, sir. Excuse me, 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 touch-tone telephone. To remove your question, please press star and two. Please pick up the receiver when asking questions. One moment for the first question, please. The first question is from Maja Pataki of Kepler. Please go ahead. Ms. Pataki, your line is open, madam.
Yes. Hi, good afternoon. Sorry. Carlo, I have a couple of follow-up questions to your comments around the coronavirus. Apologies, my line isn't too good, so I missed some things. Could you just confirm that you said that in Italy you had full access to hospitals and therefore there was not an interruption of revenue generation due to a lack of access?
Do you want me to take this question now, or you want to give me both?
I would actually ask three if I may. Second of all, the potential that you've given us for the COVID test, is that correct? You said EUR 5 million- EUR 10 million per month. If that is correct, could you just tell us what kind of volumes you're assuming underlying? The last question, it hasn't been really a topic at the conference call, obviously, because there are more pressing topics. Could you please give us an update on what is happening with regards to negotiation with Quest and what has happened subsequently with the other larger customers? Thank you very much.
Okay. The Corona question, yes. So far, there has not been any disruption in supply in Italy. Because of the corona, what we have seen clearly in some institutions, especially in the north, is that the testing volume of regular stuff clearly is going down because you have less people, as said, accessing hospitals. There is a recommendation not to go to the hospital except for urgent cases. So far, access and supply, no problem. The second question as to the potential.
Look, we see as follows. There are millions of tests today that are done or prospectively will be done. I've seen what happens here in Italy, and let me just give you a couple of numbers. Every night on TV, the Minister of Health goes on TV and gives numbers, and they say that until today, officially, they performed 60,000 [audio distortion]. We know from a different source because of the volume of swabs supplied that so far, suppliers have sent to hospitals over 800,000 swabs.
Okay, it is very clear that this market, this volume, and this is Italy alone, is hitting the suppliers as a storm, and everybody is on the curve. Everybody I know of is on the curve, from people that are actually synthesizing primers t o companies that launch products. Nobody was able to cope with this surge. It's very clear that the way I see this business of security is that there is going to be a pie that will be carved out among different suppliers, and it's going to be a mix of LDT tests. You're going to have tests performed with labs that just buy the stuff, and that's today the reality in the U.S., as you follow the LabCorp, Quest are gearing up, and they are able to perform LDT testing.
Then you're going to have a dissemination of testing in the periphery, in the core labs, and here you're going to have bigger system, and then in the emergency room where you're going to have a smaller system, and we would be the first one with small system to go out.
I don't think, by the way, that this is going to be a lot to do, especially in Europe with panel testing, because it's so expensive. The real solution here would be a coronavirus test that is either you're corona or non-corona. This is what you need to know today. To make a long story short, I'm saying that if I do all this, and I look at what would be the reasonable number of systems we can place, customers we can serve without really going back order, because you cannot start with the opportunity and then go back order. We did a quick calculation, and that is at full speed.
Assume that you have a month where Italy is buying and U.S. is buying because we will try to serve other markets, but eventually the surge is so big that we will try to focus initially on these two markets. We believe the potential is EUR 5 million- EUR 10 million. Okay? I cannot give you the volume because I would have to disclose the price, and I don't want to do that. Okay? This is how I am carving out this, and this is simply saying a piece of this volume that DiaSorin can commit to supply and support. Okay? Other companies are going to then take other pieces of this business.
What is very interesting is that you are seeing, by the way, you saw that there's been lots of discussions about the fact that governments are actually pushing local suppliers, local company, to start to give priority to their own country. Okay? I would not be surprised if what you will see coming is that all the diagnostic companies will have somehow to supply their own domestic market first and then export. Okay? It's very interesting. You already heard in Germany what happened and the situation there. Third question has to do with Quest and the big labs. Look, the negotiation with Quest is not a negotiation. The negotiation has been done, meaning that we announced that two things happen.
One is that the contract has been renewed for 18 months. That is the time it is estimated by Quest originally to actually bring up to speed all their systems because the tender has been won by Siemens. These are two official information. Today, I have a feeling that the implementation of all these changes are going to go through some hiccups because everybody has been hit by storm. How this is going to pan out, I have no idea. Facts are that as far as Quest is concerned, Siemens won the tender. We kept all the infectious disease. Vitamin D was assigned to Siemens to what we understood. There is a soft landing period of 18 months where our vitamin D will continue to be used at the current price. Okay? God knows what happens.
LabCorp, as said before when I was talking about TB, we strategically want to develop with QIAGEN the business going after send-outs, but also exploring the opportunity of the centralized labs. With LabCorp, we have a great relationship over the years, and we are clearly working with them to explain, understand, and have them buy into our technologies with our friend from QIAGEN. Every time we do have negotiations of this type with customers of this size, we always have a trade-off, meaning that we provide discount or certain things in order to have opportunities on other products. I think let me just leave the comment there. Stay tuned. To us, it's very strategic to have access to the big volumes that the big labs are getting today. In the next call, we're going to update the market about where we are at.
Thank you.
The next question is from Mr. Peter Welford of Jefferies. Please go ahead, sir. Mr. Welford?
Oh, sorry, I was on mute. Apologies. I was on mute. Just a follow-up, please, on the coronavirus situation. You mentioned, I think I'm right in saying, there were 800 systems that have been placed at the moment worldwide. I wonder if you could give us some sort of geographical breakdown of those systems that have been placed so far, and also whether or not the capacity to actually supply the systems is potentially a limiting factor at all for the coronavirus tests as you roll them out. Equally then, I wonder if you've looked into, are there any supplies of any reagents or third parties that you rely on, where you see risk there, and have you, I guess, conducted due diligence of your suppliers to determine whether or not there's any risk from a raw material input point of view to your business longer term?
Just on the QuantiFERON business you mentioned there, you talked about, I think, the opportunity there in the U.S. and the ramp-up that you've seen so far there based on, I think, 180 offers, you said. I guess, could you just give us some insight into those customers that didn't choose to buy? What the sort of dynamic is there, and what the sort of negotiation and discussion centers around for QuantiFERON TB in the U.S. Thank you.
Okay, let me start from the last one. It's easy to remember. On the QuantiFERON for the U.S., as said, today we have a position with our partner, QIAGEN, and the position is, look, guys, we bring tremendous benefits when we upgrade, either if we upgrade you from ELISA to a fully automated system, and/or if we allow you not to send out, but to do all testing in-house. We believe that it's fair for the customer and fair for DiaSorin and QIAGEN to split the gains. Today, we are positioning our pricing into an area which is very interesting for the send-outs, because today, send-out cost is between $50-$70, and therefore there is lots of space for the customer to gain efficiency and for us to gain the right value for the product.
When it comes to customers that we convert from ELISA to LIAISON, we ask for premium. We took with QIAGEN a very hard stand saying if customers don't want or don't understand the value of the technology, we are not going to make concessions. I have to say today that, again, 180 offers, and with few exceptions, we see pricing as an issue. It's safe to say where we are not going to bend is about value for this product. Okay? Going to supply chain, I see honestly today as we speak, I don't see issues. Keep in mind, fortunately for us, we are a manufacturer, so we don't buy raw material. I've always been very proud of saying that we make all our stuff ourselves in terms of biology, o therwise we would not be a diagnostic company.
The only area where I think there could be an uncertainty, but again, this is just a presumption, it's not what we see today, it's simply what we hear, is that when it comes to some of our instruments, it's very clear that some of these, which are actually bought in Europe, as you know. Some of the sub-assemblies are maybe coming from other parts of the world, maybe China. What is very interesting about this coronavirus effect is that everybody is now discovering that the supply chain is global and never local. Even if you think you're buying something in Europe, at the end of the story, a sub-component is coming from somewhere else.
If I have to look forward, it would be interesting to understand how long is it going to take for the Chinese supply chain of parts to be activated and made available to Europe. For the time being, we see no issue with instruments availability. We continue to be alert with strategic. If I need to point my finger somewhere as a potential risk of some backorder in the future, not only for us, but for a lot of companies, really could be instrumentation. Working back the list. The first question was on coronavirus. Can you hear me? One second. What was the first question?
Yeah, sorry. The 800 instruments, just whether or not you could potentially give us a breakdown of where they are, I guess, and whether or not you think you've got enough supply of the actual instruments to meet demand of the tests when obviously the CE mark and the EUA is approved?
Look, needless to say that this business was a U.S. business. We bought it from Focus, from Quest. It was 90% U.S. developed business. As you can imagine, a good chunk of the install base is in the U.S., and it sits in hospitals, and that's the perfect location to exploit the opportunity because hospitals are the one that will do testing in the U.S. In Italy, we do have an install base, the problem is that the way now in Italy the system is positioned or now they want us to position this is more on the triage emergency room.
What we are doing is, we are dedicating to this a certain number of systems that we have in inventory, or we are taking away from certain customers where today the priority is not what they do, it would be more the corona, and reposition these days into the emergency room. To make a long story short, in U.S. install base, in hospitals or our install base in Italy, systems we are in inventory or we're taking away and putting inventory to make sure that we deploy into the emergency room as soon as the product is available.
That's great. Thank you.
The next question is from Mr. Andrea Balloni of Mediobanca. Please go ahead, sir.
Good afternoon, everybody, and thanks for taking my question. Obviously, a lot of question about COVID, positive and negative side. On a positive side, I understood that the impact of COVID new test should be in the range of EUR 5 million-EUR 6 million per month or EUR 5 million-EUR 10 million per month, which is a pretty huge amount, and this should be at full speed coming from Italy and the U.S., and correct me if I'm wrong. I have understood that the impact in Italy should be very soon, to current situation. About the U.S., when do you think to receive the approval? Usually, it's a pretty long period to receive an approval from FDA, in this case, could be pretty soon as well. Just to calculate the full speed could be calculated starting from probably already in May. Is something doable?
My second question is about the negative impact of COVID. You have mentioned that so far you are normally supplying the hospital, but the level of volume of test in the hospital is dramatically lower compared to the past month in Italy. I would like you to help me in modeling this. In China, where they have, let's say, one month ahead of Italy, what has happened? Which is the drop in terms of volume marshaled to the hospital you have experienced in Q1 in China? I would like to know if this is something which could be repeated even in Italy. My last question is about tax rate. You have mentioned the renewal of a patent box. Which is your guidance on 2020 tax rate, please?
Good question. I think, in your comment, you already have a lot of the answers. Let me just try to add some. I think you said EUR 5 million-EUR 6 million, but I think you didn't understand what the number was. We said EUR 5 million-EUR 10 million. That's my first comment. As far as the opportunity is concerned, then, you ask about the negative impact on volumes. I said I wish I had a crystal ball. I will play lotto. I think that what I caution the market is that what we have seen is that in certain hospital in Lombardy, that clearly is the region that has been hit first, we saw a 30% drop in existing volumes. We've not seen this so far in the South. Italy is a complex situation because it's a blend.
Today you have the North that has been hit by a storm, and the South so far it has been preserved. Okay? What I'm saying, what we saw right now is around 30% drop in volume. China is a different situation because everything was very much concentrated in four to six weeks. At the peak of negative effect, you could see certain hospital even down 70%. In China also, you need to understand that fortunately for all of us, they were able to impose certain restrictions right away. Right? The effect was immediate. It didn't last long, and then you see a slow recovery. I don't know if this can help you to model it. Believe me, I wish I had a crystal ball to model it myself. How this is going to be translated into Europe, I have no idea.
Until yesterday, in France, they were still celebrating in the streets as if anything is happening. Germany has been hit hard, and I saw a picture of Frankfurt Airport completely empty . This is why I'm saying the crystal ball, how long this is going to last. What we've seen so far is what I told you. About the patent box?
Yes. As I told you, the patent box has been renewed. What we are shooting at in terms of tax rate for 2020 is a similar number of 2018, which is between 22% and 23% tax rate as group average.
The next question is from Mr. Scott Bardo of Berenberg. Please go ahead, sir.
Yeah. Thanks very much. Yeah, just a few questions, please. I'm a little bit confused, so I just want to be 100% clear on a few things. Firstly, encapsulated within your around 5% group revenue guidance, do you include this new coronavirus test that you have within the portfolio? That would be helpful to get some understanding on or whether this is excluded. Actually, it would be wonderful if you'd answer that one first for me, please, if possible.
Very simple, no. It's excluded positive and negative effects. The guidance we gave, or we try to give, is what we saw in the business trends with regular course of business. On top of that, what we excluded, so we don't know and we'll be able to quantify better moving forward, is the positive effect. We try to give you what we estimate will be the opportunity that we will look at as the side of the business we can get, which is in full month, EUR 5 million-EUR 10 million. The negative one, which will be the volume drop. All of this is not included in the 5%.
Understood. All right. Thank you for that. I appreciate it's an evolving situation, but you already have, then, a very established routine diagnostic business. The test that you talk about here is a new test, which hasn't, if you like, established itself in the market yet. What I'm trying to understand is, at this point, do you consider yourself a net beneficiary, if you like, of the coronavirus attempts to contain the outbreak? Should we expect, even including this test, some negative impact to your business? In which case, just help us understand, is this a couple of percent on the top line? Is this 100 basis points additional margin compression to your guidance? I think it'd be useful in this environment just to get a little bit more clarity as to what is a more realistic scenario for us to embed at this point.
You know, honestly, Scott, we've been working together for a few years, so if I knew, I would give it to you. I don't know. I'm trying to explain to you what the uncertainty is and why it is so difficult to evaluate. It is difficult to evaluate because you don't know how long is it going to last.
Okay? It now is shifting by different geographic regions. How long is it going to last? We now know, or we can predict what is the effect in China. Okay? I don't think that the Chinese model is reproducible, unfortunately.
I understand.
We're not reacting with the same speed as the Chinese did. I'm giving you some guidelines on what I see in Italy. So far in Germany and France, we've not seen decrease in testing volumes, business as usual. We both know that it's getting there. It's hitting hard, and you're going to see the same effect. Certainly, nobody knows what is going to be the effect in the U.S. No. That, I think, is a fair statement. I'm telling you, I have no idea.
Okay. Understood.
One thing is for sure, it is temporary. It is temporary because it's just a decreasing volume, patients not being admitted, but they will be admitted. Insurance testing being postponed, but it will be done.
Okay. Understood. Maybe just following on from this, you've commented about China, routine testing falling quite considerably in the month of February. These are, if you like, again, established profitable product lines. Is it fair to assume that the new test that you launch is of a profitability profile that can compensate for some of these losses? In a sense, is this more of a revenue generator than a profit generator for the company?
Again, complicated to tell you. Look, I think that we made a decision as a company with social responsibility. We decided that we're going to provide this test to organizations at a reasonable price. We're not going to try to exploit the opportunity and the emergency. That's an ethical decision that was made by the board this morning.
Yeah.
We're going to sell this product at the same price that is actually paid for a regular influenza test.
Which is the only established reference you can use today.
Yeah. Great.
This is as much as I can tell you.
All right. Maybe last question on corona aside, I think your guidance excluding all of these impacts is at the low end of your midterm aspiration for mid to high single- digit. I think you also mentioned some comments about renegotiation with reference laboratories. I just wonder if you could share a little bit more about this dynamic, because it was my understanding you had previously reached some agreement with some reference laboratories. Just some comments about how watertight these negotiations and previous contracts are, and whether the end goal is still very much in sight to become a high single-digit organic growth business.
Okay. If we go back to the regular course of business and we forget corona. Let's look at two effects in 2020. One which is to do with the discontinuation of Siemens' ELISA. As you know, when we have discussed, we are proceeding and we have an acceleration of the cannibalization of the last accounts from the Siemens' ELISA to LIAISON. The contract allows Siemens to stop supplying products to us by mid to the second part of 2020. This is when the last lots will be actually shipped with DiaSorin to customers. When we had bought this business, there were two segments of the market we bought, of the customer list we bought, that we knew we would have lost. One were three very large blood banks that were still using ELISA.
We knew that when this would convert, it would convert to another technology, not DiaSorin, because we're not a blood bank company. This happened, we are still supplying ELISA to them, but in the next few months, this will disappear. They're going to move to a different technology. The long tail of smaller customers where we don't have a solution for the small customers, too small even for the XS, and we're going to lose them. Net- net, all this discontinuation effect is going to happen in 2020. Okay? That's a one-off drop that you see. The other one, look, is a qualitative comment that we made. For us, it is very clear that, and we said it many, many times, we are vulnerable on certain larger contracts on vitamin D with these big accounts because it's high volume, it's me-too, and so forth.
It was very clear when Quest made a decision to automate all of their immunoassay that we would be certainly not vulnerable on specialties. Actually, we would gain more specialties like calprotectin, but we will lose vitamin D. When it comes to vitamin D, with these very large accounts, it is, for us, better, in my humble opinion, to trade some vitamin D value, which is always at threat of being reduced by any of the lab's competitors putting in front of these labs an absurd price, and/or the concept of vitamin D being a me-too and being, at this point, automated on a track system.
To make a long story short, every time I have a chance to get more business at a better value with a good contract, and if I need to do that, take an existing assay and exchange some value to get more value, we always do it. Okay? What I'm saying is if I need to use our vitamin D existing business in order to speed up or make more comfortable a large customer than to introduce another product that gives me more stability and more value, I think it is worth it for DiaSorin to do it. One is compensating the other. If you give a financial incentive with vitamin D, that is going to be more than compensated by what you get in return from the lab.
I would like to leave it here because it's confidential information, but it's a principle that we've used in the past and we want to use in the future to secure strategic opportunities with the large labs.
Okay, thank you.
The next question is from Ms. Catherine Tennyson of Bank of America Merrill Lynch. Please go ahead, madam.
Hi. Thank you for taking my questions. I have three, if I may. My first one is on China. Of your 2019 revenue number, what proportion of that came specifically from China? Out of your Chinese business, if you could just remind us what portion of that is me-too tests versus specialty tests? That was my first one. If we look at Q1 for China, as we've seen a number of new coronavirus cases start to decline a bit in March, have you seen an increase in activity there? Secondly, if I could look at the increase in operating expenses in 2019, could you give us a little bit more color as to what those were and if that step-up level is what we should expect for 2020?
My third one is on your Siemens' ELISA customers that you're looking to convert to CLIA. What proportion of those have been done as of late? Thank you.
Okay. Let me say, we never disclose what China is, but I think we say that APAC is around 15% of total business, and China is a good chunk of that business. You can, I think, have enough to make your own assumption. Fourth one in China, what we saw is January, which now seems 10 years ago, but in January, we didn't see much simply because there was the New Year. Then we saw in February, a deep dive in testing volume, when the country fundamentally frozen. Not only the one region, but as you followed everywhere, the country froze. Now we see in March, a recovery, which today I see the recovery coming from the fact that we are back into business of installing new systems because hospitals have opened up now access to engineers for installations, and that's very positive.
It's still very difficult to get data from hospitals. From the data point we have, we see a recovery in testing volumes still well below last year, certainly not to the dramatic levels that we have seen in February. OpEx, the vast majority of OpEx has to do with the investment we have discussed on commercial and the prep of the U.S. organization. We have hired over 20 people to be dedicated to the hospital segment and to push the QuantiFERON, and that's a major factor that we have seen, plus some value-based care initiatives online, because we are hiring people also to support that program. Last is Siemens. I think to this stage, we have converted roughly 75% of the install base of the convertible customers, and we're going to have all up by June. Was that all right?
Super helpful. Thank you.
Thank you.
The next question is from Mr. Luigi de Bellis of Equita SIM. Please go ahead, sir.
Yes, good afternoon. Two quick questions from me. The first one on the QuantiFERON TB. How much of the Italian and European revenues growth in 2019 has been related to the TB test? The second question on the molecular test. Could you elaborate on the decentralization process affecting large hospitals served by Dia and the impact expected for 2020? Thank you.
In fact, look, I will talk about the decentralization. The impact we discussed is embedded in a corona number. Concept is very simple. You are Italian, so unfortunately, you do see what we see every night on TV. The net effect today is that the hospitals are trying to fence out the infected patients. Every day you read in the newspapers that if they cannot filter patients, even acute care people that come in for other diseases. There was a case a couple of days ago about a hospital in Torino, acute case. A guy with a heart stroke come in and then is not tested because he's rushed in. He's positive, and then they need to pretty much shut down cardiology. They're building fences today to avoid that these people get inside.
They cannot do it, because the only way to do it is to stop them outside. They build these tents, awful tents. They put people inside, they take the swab, and then if they don't have a way to test the swab right there, now the journey starts. The swab is sent, if lucky, to the reference lab, to the core lab in the hospital, and that takes, it says, six hours to come back. If they're not lucky, meaning that they've not been allowed to do testing, so it goes to another hospital, it takes 12 hours, and the patient is stuck outside. This is why yesterday we announced and we got caught by complete surprise, to be honest with you, by the reaction of the system, of the political system, of the hospital system.
Everybody immediately understood the value of the test because they want to triage people right there and right away. This is the value I see of the decentralization. By the way, I hate to say this, but six months ago, when we were discussing about why decentralization is strategic and why point-of-care small system are strategic, we referenced this. We said, in case of epidemics, this is what you need. Again, it happens. This is the only thing. Again, just watch TV at eight o'clock and you see what I see.
Carlo, I don't believe we give a breakdown of the contribution of related to the close of sales and the growth of Europe, right?
This is confidential information. It is a contributor that is alongside with all the other CLIA assays of vitamin D tests that we have.
Okay. Thank you very much.
We have a follow-up question from Maja Pataki of Kepler. Please go ahead, madam.
Thank you for taking my follow-up questions. Carlo, you mentioned all the tests that are related to life insurance. There is a certain proportion of your test volumes that are not necessarily linked to acute conditions of patients. Could you provide us a bit of a number or guidance how much of your tests in general are more used for checkups that should be actually recuperated in the second half of the year? My second question, it's very helpful to get the understanding of what the potential could be from COVID-19 tests per month. Shall we just think that if new countries start to see really dramatically increasing numbers, we should add anything between EUR 2.5 million and EUR 5 million per country to that potential? Thank you.
Maja, very difficult to answer your question. Look, let me just give an example. We are market leaders of prenatal testing for some infectious disease. CMV, toxoplasmosis, rubella testing, and so forth. There are guidelines that Italy and France, a good example, where this testing is done every trimester. Okay. They are not done, meaning that if today a physician is to recommend to a pregnant woman to go to the lab and get tested versus [audio distortion] settling, they say, "Listen, take the risk [audio distortion] ." Okay. This is why I'm saying routine versus non-routine today is becoming a very loose definition. vitamin D testing. Everybody knows in the U.S. that the vast majority of vitamin D testing is actually related to the 40 million screening insurance programs that are done every year in the U.S. Read what the LabCorp investor is saying.
They're seeing all of this postponed. Okay? I think if you look at our portfolio, vitamin D, vast majority of it is actually related to clearly a non-acute case situation, and a lot of it in the U.S. is related to insurance programs, and I see that to be postponed after the tsunami hits, and things will revert to our regular course of business. On the infectious disease prenatal, again, I see some of it for this period of time not to be done. Other infectious disease for hospital admission, for example, for hepatitis, they do it every time patients are admitted. In this case, more patients are admitted, more infectious disease is done, more hepatitis testing is done now versus the future.
The truth of the matter I'm saying is that everybody is looking carefully to what is happening in China because it's the first country where it happened and now they recover. As we discussed before, China was relatively short. In Europe, we don't know how long it's going to take before it starts, it peaks, and it reverts. I think you're going to have an effect in Italy in the next few weeks because now they're going through draconian measures. They're pretty much shutting down all the north. You cannot leave your house, let's see how long is it going to take before the relatively small number of cases. We're talking about 10,000 cases up to yesterday, but still increasing by about 2,000-3,000 a day. Let's see how long it's going to take to peak and go back.
Italy will, in my opinion, provide a good example to everybody on what a democracy can do under certain democratic rules.
Thank you very much for that.
Just for lack of time, the last question is from Mr. Scott Bardo, a follow-up from Berenberg. Please go ahead, sir.
Thanks very much for making both the extra time. A very quick follow-up. Balling this all together and some of the puts and takes and moving parts, you had highlighted that you are looking to file for approval for your coronavirus test, and you have some renegotiations with reference laboratories and some Chinese impact. If I were to ball this together or distill this, is it fair to say that we are likely to have a pretty weak soft start for DiaSorin from a revenue perspective, or do you expect it to be broadly in line with your full-year guidance? Maybe some, Piergiorgio, maybe some comments on margin. Would margin, in your opinion, be down in the first quarters or half of the year as compared to the prior year, or are you expecting a stable development? If you could just comment there, that would be helpful.
Scott, clearly, I think Q1 is going to be difficult because Q1 is pretty like with the tsunami. You had China, you have Italy now. Looks like you have in Germany. I think Q1, first half for everybody, forget DiaSorin, for everybody is going to be complicated unless you are in the business of supplying reagents to labs to do corona. If you just do that, you are doing very well because you enjoy the peak of the demand. If you also have with your regular business, diagnostic business, you will suffer from the decline in volumes. The answer is yes, I believe Q1 and Q2 will be soft. By the same token, I believe that as far as margins are concerned, we see clearly you're going to have less.
Since we are investing, since we believe all of this is temporary stuff, we continue to invest to future programs. Our OpEx rate will go up because we have value bases care, because we have the Lyme disease clinicals, because in the U.S., we have all the good people to push programs. At the level of gross margin, I think you're going to continue to see very good margins. At the level of EBITDA, you make a dilution simply because the weight of your OpEx, since we don't want to stop it because it's the future of the company, you're going to have in the first two quarters a margin compression with relevant because of the OpEx, certainly.
Very clear. Thanks very much indeed.
Mr. Rosa, back to you for any closing remarks, sir.
Thank you, operator. Bye-bye.
Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.