Earnings Call: Q3 2019

Nov 6, 2019

Good afternoon. This is the CorSo conference operator. Welcome and thank you for joining the Diaspori 9 Months 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. At this time, I would like to turn the conference over to Mr. Carlo Raza, CEO of DarioSorin. Please go ahead, sir. Yes. Thank you, operator, and good morning, good afternoon to everybody. Welcome to the Q3 conference call. As usual, I'm going to make some comments about the quarter and then I will turn the microphone to Mr. Pedro, who is going to address the financials. As usual, I'm going to make my comments in constant exchange rate because of the we the company enjoys a favorable effect coming from the strength of the U. S. Dollars. So first, I believe that this was a good quarter, both in terms of growth in the very rare geographies where we play as well certainly as well as for the profitability. And I think we hit a record quarter in terms of cash flow generation. If we look at the overall situation, I think that all the assets that have been developed by the company over the last couple of years are coming to fruition and mainly referring to the availability of new products, the strategic alliance with QIAGEN and the launch of the Aon XS, which I will comment separately during this conference call. So as far as products are concerned, I think that as we discussed many times, there has been a clear strategic indication by the company to invest in certain clinical areas and then take these products to what we consider the main market, which is the U. S, obviously. And we have now all assets except one, which we think will come very shortly, which is the QuantiFERON. We have all these products now approved by the U. S. And ready to go. As far as the quantifying is concerned in the U. S, we are waiting the approval and we have overall almost 13 products lined up for approval. The first two were cleared in the last couple of weeks. 1 was hepatitis C, which was which is the beginning of the hepatitis strategy in the U. S. Is one of the most complicated and got approved first. And the second one was Zika, which was approved last week. So we expect next to come would be the QuantiFERON and then the rest of the hepatitis, the hepatitis menu. As far as the U. S. Is concerned, it's very clear today that the company does have a position on the market, a very good positioning on the market with the commercial labs. And I'm not only referring to Quest, LabCorp and Sonic, which are the main three commercial labs in the U. S. But we do have if we look at the commercial laboratory, including regional labs in the U. S, which we estimate to be around 200, we have penetration today, which is close to 70 percent in this segment, whereas strategically and historically, we've always been weaker on the hospital segment. As we have discussed in the past, we have focused our research and development and the and through the strategic alliance with Cajun TV to develop a set of products that are actually targeted to support the company in deploying a strategy in the hospital segment. And in order to do so, not only products are needed, but also an organization. So we are in the process of actually reorganizing the U. S. Commercial sales force and split our organization into 2, one that will continue to serve the segment where we play today and one dedicated to the hospital market. We expect that this investment is going to hit starting from the Q4 and Q1 of next year. And we expect that by media, we're going to have all the resources deployed and necessary to launch effectively all the products in this very relevant segment. Today, the U. S. Is doing well As you have seen from the quarterly result, there has been an acceleration. The growth in the U. S. Was 10%. We have an clear ex D growth of over 15%. We have molecular that is growing over 30%. And we have softer than expected vitamin D decline. On vitamin D, again, I warned everybody to the fact that reading vitamin D results on a quarterly basis is crazy and should not be done. A good quarter or a bad quarter for vitamin D today means really nothing. I keep to maintain my skepticism over vitamin D is an effect of the fact that this product has been commoditized and pricing clearly has been affected over the years and then volumes are supposed to decline as an effect of the reimbursement policy. But all said and done today in 2019, vitamin D again was better than expected as far as our projections are concerned. If we leave the U. S, we're again, I think we have a set of good solid track record, a good product line and a phenomenal future in front of us having QuantiFERO and the rest of the stool products. And we go to Europe, Europe is fine. Clearly, it's growing 9%. We all know that the European markets today are not growing at all. If not, they are contracting in certain geographies as an effect of higher pressure on pricing as well as consolidation of laboratory testing in large private players that are certainly better negotiators than hospital when it comes to contract and pricing renewal. But notwithstanding that, Europe is doing very good for us. We certainly have Italy that is doing well. Italy is doing very well because it's been the market clearly domestic market is where we launched the clear QuantiFERON. So it should be expected that Italy was over delivering at the beginning of this, and we expect then certainly Italy to go back to a more moderate growth going forward once the first wave of customers have been hit by the QuantiFERON conversion and development of the QuantiFERON business. Germany is accelerating in the quarter, almost plus 6%, and that's the result of the Siemens conversion. I think we did comment in the past with the Siemens conversion was softer at the beginning and that is the result of the fact that customers are very busy and the conversion did not necessarily come up as a priority. However, since we are approaching the time when this product line is going to be officially discontinued, this will happen by the end of next year, then certainly there is more urgency on customers to convert and we are seeing more conversions to the Clear technology, which certainly do benefit they are sorry in 2 ways. 1 is from a margin point of view, clearly, we move from a distributed product, which is a current analyzer to a manufacturer product, so it's positive. And the other one is the add on business and the availability and the accessibility of new customers, which is a strategic reason why we decided to buy this dying product line from SIMS. The only black eye we have in Europe is France, which is declining 4% and that's not unexpected. Lots of companies are not doing well on France and that's the result of the ongoing consolidation and price situation in France. I don't expect this trend to change shortly because again, it's structural, modern company specific. And I think that we will need to learn to live with France, which is not a contributor for a while, us meaning as an industry until things will stabilize. In Europe, we have seen this in the past. We saw Spain in great difficulties at the time of the 2010, twenty 11 crisis situation and then eventually Spain recovered and now is a positive contributor for the industry. So I believe France is going to go through a very similar cycle. But overall, Europe is fine. It is certainly the first geography where we launched QuantiFERON with the satisfaction. And I continue to consider Europe as a stronghold of this organization. Now let's move to China. China is fine. The growth has been 6.6%, but clear sales actually grew 11%. And the result, the 6.6% come from the fact that we still have residual Eliza revenues, which are flattish, plus we do have instrument sales, which do not are not a positive contributor. Actually, they are a negative contributor to the growth due to the reagent rental versus instrument sales policy. But overall, China is fine. We will end up 2019 installing over 100 XL, which is the yearly rate that we have been hitting over the last few years. So we continue to deploy our strategy, which is a combination of me too's and some specialties, especially in an era in the era hypertension, which has been a recent focus of the company with products approved and there is a vast market in China. So China is delivering as expected. I wanted to comment on export because it's clear now from few quarters that export is not where the company wants it to be. Let me just qualify definition of export. Export for us is where we don't do business with our own commercial subsidiary. Over the last 10 years, we have consolidated a lot of this export business into direct subs. And we open up our own commercial subsidiaries in those countries where we thought the geography, the country per se was offering a strategic opportunity to the company to grow the business. Today, what we have left in export are difficult geographies, which are mainly located in South America, where we operate through distribution except for Brazil and Mexico, Africa, North Africa and the Middle East, which is contagiously becoming more and more complicated. And then finally, Asia Pacific. So when it comes to Asia per se, Asia Pacific is doing fine for us. So those all those economies that are actually somewhat connected to China, they're fine. And we're not suffering there. We are suffering clearly North Africa is a problem and we are suffering in South America. And that's because in these export countries, which are left as export, I think there are a combination of 2 factors. The first one is that we don't sell specialties in these geographies, certainly. We sell commodities even on Clear. And we see that the commodity market is becoming is very affected by price and by business conditions. You notice that our cash flow is extremely positive also because we manage very well our receivables. We have a DSO to the other group level, which is outstanding in the industry. But this means that quite often we need to we make decisions in certain geographies not to operate because we feel that the credit worthiness of some of these opportunities is not there. And somehow we pay the price, but by the same token, we don't have problems with receivable and we have a very nice cash flow. The second problem I'm referring to is that in certain in some of these geographies, I honestly believe that we do have an export network of distributors, which belong to Diasporium 1.0, which is what the company was 10 years ago. Some of these distributors are still with us. And I think that we want to be more strategic about this. We really need to make an investment in the distribution in the distribution channel, not meaning we don't go direct, but we find different partners. We went through a competitor reorganization or exporting. Now we have new people. We have delocalized some of these people in the geography, if that matters, especially in Asia Pacific and Singapore. And I believe that we're going to fix this we're going to go through a fix. I believe next year is not going to be a draw any longer. I'm not necessarily sure it's going to be a positive contributor, but I think it's not going to be a problem for the company any longer. Certainly, we spent a lot of time and a lot of resources in the domestic markets. And again, working in the U. S, working in Europe and China, we neglected some of the export, and I think it's time to go back and rethink about the distribution network. So from just the product opportunity, I said HCV very important approved by the FDA. Zika is very important. And it should not surprise anybody the fact that we had Zika before and it was sold to the U. S. Market under a special permit that the U. S. Was granting companies because of the fact that there was a national emergency and no kits available. Now what the FDA is asking is to go through official process, we did. Today, our major we certainly the vast majority of this business in the U. S. Is left with the 2 big labs, And we are very well positioned in these labs with the Zika products. So we are there. There are 2 companies in the U. S. With FDA approved products. We are the only one with chemiluminescence. The truth of the matter is that Zika today, Zika volumes are relatively small. The epidemic and emergency that was expected did not materialize. But certainly, we are there to capture any business opportunity that may present in the future. Last but not least, I said is the QuantiFERON. For the QuantiFERON, we are waiting for the FDA to come back and approve. We don't see there are no more comments. There are nothing there is nothing on the studies that has been contested and they literally expect that the approval will come very, very shortly. All that said, I'm going to leave the microphone to Mr. Pedro. He's going to take you through financial and then we start the Q and A session. Didier? Thank you, Thiago. Good afternoon and good morning, everybody. In the next few minutes, I'm going to walk you through the financial performance of the SLR during the 1st 10 months of 2019, and I will also make some remarks on the contribution of the Q3. As usual, I would like to start with what I believe are the main highlights of the period. We closed September year to date 2019 with an increase in revenues at constant exchange rate of 4.2%. Quarter 3 grew at constant exchange rate by 5.3%, mainly driven by the good performance of the geographies where we are direct. Cargo has already covered the drivers behind this variance. Q3 2019 gross margin confirmed the very good results achieved in H1 2019 with a ratio of revenues of 68.5%, improving versus last year by 140 basis points. This brings 2019 year to date gross margin ratio at 69.1%, 110 basis points better than 2018. September year to date EBITDA at €209,000,000 increased by 9.2% at constant exchange rate compared to the previous year. EBITDA margin, again at comparable FX rates, is 39.7%, visavis37.9% of the 1st 9 months of 2018. The margin of the quarter at 39.9% is confirming the very good performance achieved in the 1st 6 months of the year. Lastly, we keep maintaining our ability to generate a very healthy free cash flow, €138,000,000 in the 1st 9 months of the year, visavis €101,000,000 of the same period of 2018. Let me please remind you that the net financial position, positive for EUR 133,000,000 has been negatively affected by the introduction of IFRS 16, which accounted for about EUR 30,000,000 Let me now please go through the main items of the P and L. September 2019 year to date revenues at €525,000,000 grew by 6.3% or EUR 31,000,000 compared to last year. The growth at constant exchange rate is 4.2%. The strengthening of the U. S. Dollar against the euro is the main reason behind these FX tailwind. Considering where the U. S. Dollar is trending now compared to 2018, I believe it is fair to say that the positive FX impact should be less significant in the last quarter of 2019, even if still positive for the group. Gross margin at EUR 363,000,000 grew by 8.1% compared to last year, closing the 1st 9 months of 2019 with a ratio of the revenues of 69.1%, 110 basis points better than 2018. Q3 2019 margin at 68.5 percent is better than Q3 2018 by 140 basis points. This increase both in the quarter year to date is the result of the following 3 main drivers: 1, a positive sales mix coming mainly from lower export markets and instruments revenues, offset by a very good performance of our direct market and higher specialty test sales. This effect is particularly material in Q3 2019, where export market sales represented slightly less than 11% of total sales compared to north of 13.5 percent of 2018. The second element is lower manufacturing and distribution expenses coming from the several cost reduction initiatives started in the last couple of years. And just to remind one of them, let me mention the shutdown of the Irish manufacturing site. And last, lower royalties come mainly from the fact that at the end of 2018, some patents and key raw material of our molecular kits have expired. This royalty upside has been more sensible in H1 2019. Total year to date operating expenses at EUR 192,000,000 have increased by 6.7% compared to last year. The growth at constant exchange rate is a touch above 4.5%. Year to date, OpEx ratio of revenues is basically in line with last year at 36.5%. Q3 OpEx ratio is 36.5 percent visavis 37.3 percent of Q3 2018. Year to date, other operating expenses at EUR 6,000,000 are lower than 2018 by EUR 1,000,000. The main reason of this difference is due to the fact that in 2018, we booked some legal expenses related to a litigation with Meridian, which has now been settled. Actually, it was settled last year. Please note that most of this variance has been recorded in Q3. Because of what just described, the EBITDA in the 1st 9 months of the year at EUR 166,000,000 or 31.8 percent of revenues has increased compared to last year by 10.9% or EUR 16,000,000. The growth in the quarter has been EUR 9,000,000 or 20%. September year to date net financial expenses are higher than 2018 by €2,000,000 This difference, as already said last quarter, is entirely due to the revaluation at fair value of the participation in our Indian subsidiary booked in 2018 after the takeover of Food Control from the Indian partner. The year to date tax rate at 23% is substantially in line with 2018. 2019 year to date net result at EUR 127,000,000 or 24.1 percent of revenues is higher than previous year by EUR 10,000,000 or 8.5%. Lastly, September year to date EBITDA at €209,000,000 is better than 2018 by €22,000,000 or 11.7 percent. The variance at constant exchange rate is positive for 9.2%. 2019 year to date EBITDA ratio on revenues is 39.8% at current exchange rate and 39.7% at constant exchange rate, visavis37.9% of last year. The year to date improvement compared to last year is mainly driven by the higher gross margin we just discussed about and by the application starting from 2019 of IFRS 16, which accounted for about EUR 5,000,000 in the 1st 9 months of the year. Let me now close and move to the net financial position and free cash flow. We closed the period with a very positive net financial position of €133,000,000 after the introduction of the just mentioned IFRS 16, €138,000,000 free cash flow visavis €101,000,000 of 2.18, thus recording an increase of EUR 37,000,000 or 37%. This increase is the result of the better economic performance of the period and the positive variance of the working capital, mainly driven by very good DSO coming from a favorable geographical sales mix, as we said, less export sales and more sales in direct countries with lower payment terms, such as U. S. And by a very, very disciplined collection policy. Lastly, we confirm 2019 guidance, which foresees an increase in revenues between 5% 8 and 8% and an EBITDA margin at the same level of 2018. Please let me remind you that the guidance is, like always, at constant exchange rate. Now let me please turn the line to the operator to open the Q and A session. Thank you. Excuse me. This is the CorSo conference operator. We will now begin the question and answer session. The first question is from Maja Pataki of Kepler Cheuvreux. Please go ahead. Yes. Hi, good afternoon. I have three questions, please, if I may. Carla, I would like to start with the latent TB approval delay in the U. S. At the Q2 call in August, you seem to be fairly confident or very confident that the approval would come through shortly. And you indicated that there was a 3 month timeline during which the FDA would have to approve the test, which would have brought us to October. Now we're in November, we don't have the test approved yet. Could you just tell us why there was this delay? And what makes you so confident that we should see it in the coming weeks before year end? Then the second question relates to your guidance. You're re trading your full year guidance for 5% to 8% local currency growth, which would imply to meet the 8%, you would have to have a very strong Q4 in the high teens. Do you believe that you can achieve the 8 percentage points? And if so, yes, could you tell me what the potential drivers would be for that in Q4? And then the last question relates to Quest and their streamlining the business to 1 supplier and the fairly upbeat comments by Siemens about potentially getting that contract. Could you tell us what is in your medium term guidance, I. E, if Quest were to move to Siemens and would allocate the vitamin D business also to cement, what impact would that have to your medium term guidance? Thank you very much. Okay. I'll take the first and last, and P. J, I think we'll take the second. So let me start with the TB. You're right. I made a comment saying that the procedure is 180 days, which from the end of August is taking to September, so the FDA to November, sorry. So the FDA is on time as far as that window, and they have to approve it within that window. What I think it happened is that there has been an introduction at the FDA level in the last process of the review of a 3 weeks window period whereby there is a newly appointed commission. And don't ask me what the name is, but it's a procedure whereby all PMAs before getting approval are there is a further review by a commission that will fundamentally validate what the reviewer does. And so I believe we enter into this phase, and this is why we saw a delay over 3 weeks. The questions that we are getting that we got out of it are very formal and not really of any substance in terms of the challenging clinical data and everything else, which would be the one are the ones that usually require time extension. So this is why I'm saying, Maja, that as far as I am concerned, we are very, very close now to the approval. And us and Cajun are gearing up in order to get the benefit from this. As far as marketing the product, you are not allowed to do much with the exception in the U. S. So you're not allowed to provide pricing to customers, but you're allowed to that as soon as we do have the approval of the product, then we can hit the market quite rapidly. And I know because of the from the European experience that the conversion and business development activities are relatively fast when it comes to moving from an ancient to a much better fit, which is the clear liaison. Now let me comment on the Siemens call and Quest and all that. Look, there is one thing that I get today, we sell 20 some products into Quest. And I guarantee you that all these products are going to be assigned to the soy, okay, with one exception, which is vitamin D. And I guarantee you that because first of the contracts as far as all the other products are going to 2021. But second, I also see that Quest has fundamentally made a decision, which is main fact that Quest has chosen a diasering specialty supplier. This is proven also by the fact that very recently, we got awarded by their business, which is a specialties multimillion dollar contract. So I have no problems with how we are positioned within Quest. As far as vitamin D is concerned, the main driver for this for the main for the selection of the mainstream supplier is the fact that Quest, as you know, is building a new lab in Copton, which will be the one of the largest I mean, the largest labs, I believe, in the U. S. They're going to consolidate in Kapton some of their operations, and it's fully automated. It's da da da da da. So we set for the we set fundamentally for what they call Operation 2.0 of the future. And I honestly and I honestly sorry, I said content, but it's Clifton. And I honestly believe that Siemens has a good chance to get the business because of the fact the relationship that they have, because of the fact that if you think about all the suppliers, some of those would be excluded because they are also supplying to a competitor lab. So Siemens may have a very good shot at getting this. And I think that if that happens, it's certainly clear that vitamin D following into mainstream may follow that contract. However, I see that in order to then deploy change all the suppliers because we're not talking about only vitamin E and diasporium, we're talking about multiple suppliers, clinical chemistry and all that and make all the deployment of the Atelicast if they win and have all the lab ready, which by the way, the lab is not going to be ready until 2021. It's going to take time. So I'm a very pragmatic person. So in my own calculation, I think that there is a chance that when it comes to Quest, we may lose the vitamin D. But I'm quite confident that that loss is going to be partially, if not totally, offset by the fact that we have been chosen as a good partner for specialties. You also need to keep something in consideration. I cannot disclose, but pricing for when it comes to the standards, pricing for vitamin D, Maya is getting to a point where it's not even funny. Because when you look at an overall bid for all the Quest business for immunoassay and clinical chemistry, then you go there's no differentiation in terms of price per test. So you can allocate to vitamin E whatever you want. And you get to a point where you really need to wonder if that business is still worth it or not. One more comment. I think that I made I mean, this company made a decision fortunately long time ago to try to balance the exposure that we have in the commercial labs with a different strategy. And that decision was taken a while ago because when you do that, you start first from product development and you start with getting a product registered and designing a system that fit that space. And it is very clear that when it comes to the U. S, where today we have a beautiful business with the commercial labs, but we are overexposed, we need to move the needle toward the hospital strategy. I continue to say QuantiFERON is a tremendous opportunity to move in that space alongside with all the gastroenterology assays that we have. And that is the way to balance the exposure and guarantee that in the U. S, we will continue to see growth because as I think we discussed during my presentation on the Analyst Day, now I see the future, I see polarization, I see Quest and LabCorp, they're going to win a good chunk of that market because they have set strategically to be able to be more efficient. Therefore, you need to be at Quest and LabCorp because they will continue to gain market share, but they are formidable negotiators and the price that you enjoy with these accounts unless you are a pure specialist player is peanuts, okay? Because they're very good negotiators and they have tremendous volumes that nobody else has. So to make a long story short, in my pragmatic approach, I believe the vitamin D is at risk. But I'm not losing sleep because I know that we have a slew of products with these specific big accounts that would provide us an opportunity to offset this loss if it comes. But I'm quite comfortable that it's not going to come necessarily next year. This is how we see it. So I will take the second question, the one regarding 2019 guidance. Hi, Majer, by the way. So when we gave 2019 guidance, I believe qualified the 5% to 8% range saying that we had a few moving parts, which were kind of difficult to forecast. One of them was the registration of latent tuberculosis in the U. S, which we know is the biggest market for this kind of test. And the other one, I don't know if you recall, was the big tender in the export market, in the Korean market, which we didn't know if we would have been awarded tender or not. So considering the fact that latent tuberculosis is going to be registered very, very like in November, so later than our original expectations. And the South Korean tender is unlikely we'll get it. I think that we will be shooting for the lower range of the guidance. So I see very likely more likely the 5 percent and the being closer to the 8%. Perfect. Thank you very much for clarification. Carlo, just to make sure I got you right. So you're saying there is a good chance that you might lose the vitamin D business with Quest, but you are confident that you will be able to compensate for those lost sales with the specialty menu that you will continue to provide with Quest. Is that correct? Maya, yes, you know me, I'm very I'm pragmatic. And I never look at the quarter and I look at the development of the business without count. I believe if I look in front of me, the opportunity that menu provides availability of PB, which is a significant business in the U. S. And in this big account, If I look at the other specialties that we have with Gartner and Peric and so forth, I believe that we do have the possibility to offset that loss with more business coming from other from the other products we have. If you're not asking me, but how is this going to play in the next 12, 18 months? I have no idea because I don't know about the implementation of Siemens. Okay. Got it. Whoever is going to win, okay? Perfect. Thank you. Thank you. The next question is from Catherine Tennyson of Bank of America. Please go ahead. Hi, thank you for taking my questions. I just have 2. So my first one would be on China. Can you just give us some color on how you think the sustainability of low double digit organic growth is for your CLIA business there as we look to 2020? And have you seen any changes in China in terms of market softness as some of your competitors have seen? And secondly, if I can ask on the rate of conversion from your Siemens clients from ELISA to CLIA. Have you seen any pickup in that in Q3 or Q4? Or is it likely to still be a H1 issue for next year? Thank you. Okay. Let me start from the easy one, which is conversion. I've seen a pickup for a very simple reason. We communicated to lots of customers that the product is going to be killed, comes at the end of mid end of next year. And so even if they don't like it, they don't like to do conversion because there are plenty of things to do. And so today, they have a product that is the ELISA, which is suboptimal, but is a product. And if they are rethinking about the layout of the clinical chemistry, certainly, this comes second. But now they're forced to do it. So yes, I see we see a pickup in quarter 4 of the Siemens conversion. The now let's talk about China softness. I was in China last week, so it's fresh in my mind. I think it is sustainable because the growth the double digit growth of our clear because it's driven fundamentally by 2 factors. One is that we it's a market that is expanding and we continue to sell mainstream products in China, the thyroid oncology, that stuff that interestingly enough is still growing for us 7%, 8%. And that's the more mature market, okay? Then we have a traditional franchise legwork we call legacy, which is prenatal testing, where we now have a very significant market share. And that yes, so it used to grow a lot, certainly, 20%, 25%. Now we are really the growth is more correlated the amount of newborns in China because it's prenatal testing. And so that depends on it may be a good year and bad year, but fundamentally still is not a drag. It is a product line that is growing 3%, 4%, 5%, but I consider that mature. Then you have a tactical opportunity and a strategic opportunity. The tactical opportunity, which is tremendous, is appetites, because it's a big market in China. We there are 4 companies with hepatitis products approved, still plenty of ELISA. We have the Beckman relationship. So that is tactically growing. Double digit, but it's not something, again, that strategically is keeping me excited because I believe that as far as China is concerned, there are 3 strategic opportunities. 1 is to again move away from the high the big hospital segment into the midsize small hospitals and that's an area zone access strategy. So it's driven by the system. The second opportunity is the fact that being China is becoming a mature market. And when markets are becoming more mature, it's certainly clear that you have they turn from mainstream only to mainstream plus specialties. And as we have enjoyed specialty strategy in all the markets, we are going to enjoy this conversion in China, which today is a very untapped opportunity. One of the first products that we are using to test the market with is hypertension because hypertension is certainly an issue in China. There is nobody there. We have 2 tests approved, and we're working with some of the local institution and opinion leader to educate physicians on the use of hypertension. So this is just an example of an opportunity that I see to finally the specialty market to develop. Last but not least is QuantiFERON because today, there is a very awkward situation in China where QuantiFERON is approved, but is used for active diagnostic and not for latent diagnosis. And so with CAGR, we are going through registration of the DiaSorin and their product with the latent claim. It's going to take 2 years because of the classification of the product. But that's if you ask me what is going to be your mid- and long term growth strategy that guarantees 11%, that is the this mix of different products. Now last but not least, we commented, I think in the previous in some of the previous calls, we were talking about strategy that in China, we do have an Achilles heel and that's the fact that we are a pure importer, okay? And it's part of the strategy to set up a manufacturing site, which we are working on and then become for mainstream products, local manufacturer. That is giving you advantage versus competition because then you're class expires not a manufacturer and you apply to certain tenders where today you are excluded from. To make a long story short, I think it's sustainable. It's a combination of these facts that to continue to grow China at double digit as we have done in the past. Super helpful. Thank you. The next question is from Scott Bardo of Berenberg. Please go ahead. Yes, thanks for taking my questions. So first question please, I wonder if you could talk a little bit about how the QuantiFERON tuberculosis collaboration is working in Europe. I think historically, if I'm not misquoting you, you had expressed an opinion of around 50% conversion of the test at full conversion globally. I just wonder whether some of the early evidence in Europe is pointing towards that booking or a little bit ahead, a little bit below, if you could share some thoughts there as well as how the Liaison Excess platform is initially performing in that market? That would be helpful, please. Second question, Seth, just really following up for Maia's questions surrounding Quest. So I just want to make sure I understand your comments correctly. So you're suggesting that you're confident that you are the specialty immunoassay provider of choice over the coming periods because you're still entering into new specialty contracts on your Liaison XL system and you're still shipping Liaison XLs, which is evidence in your mind that you are a continued trusted partner. Is that correct? Thank you. Scott, listen, let's talk about QuantiFERON and the development. To me, there is a very crystal clear evidence to the fact that ELISA is not a viable technology, okay? It's complicated. Even if you make an effort to automate, as I think Agilent has done very well in some very large accounts because then you need to put lots of processors to handle the plate, but also to handle the tubes. I think that ELISA is unsustainable. And to that extent, I think that the fact that BioMarriott is coming to the market with Adidas and certainly, Adidas is a small system. So they are going after send out markets and so forth to smaller accounts. But it's very clear that there is lots of pressure to automate, okay? So evidence in Europe is that is more is not a problem of the customer to convert was the fact that we had to work with Caijin and gear up our commercial organization and their commercial organization to work together to make sure that we do this in an orderly manner, right? And also, we exploit the opportunity of going after the Oxford business. You've seen Oxford, I think, reporting yesterday. There is still a hefty there is a good chunk of business that today is done by Oxford. I think roughly EUR 80,000,000 worldwide. Certainly, there is that business is a U. S. Connotation now in the hand of Quest. And then there's more Japan and China, still some business in Europe, mainly in the UK. And that business is where strategically us and QIAGEN see the opportunity to increase the our overall combined market share after certainly some of the cannibalization of, let me say, transformation of the existing Cajun business from Eliza to Liaison has happened. And with neutral satisfaction, meaning that it's very clear that on the Calgon side is a defensive move, But by the same token, it's also a move to allow customers to do the testing better and enjoy in several cases better pricing simply because customers are available to pay some more for automation when you provide them automation and efficiency. So let's also though remind you that when it comes to the U. S, our strategy in the U. S. Is different from Europe. And this is because of a peculiarity of the U. S. Market. The U. S. Market is, as usual, highly polarized, meaning that you have a good chunk of business in the hands of a few commercial labs because of the fact that in U. S. As we saw with vitamin D, everything with a new assay starts from the commercial labs because in the periphery, the volumes are too small. And especially, if you have Eliza that small accounts don't want to use, they send it out, right? So today, there is a duopoly or 3opoly today in the U. S. Of a few large labs which are dominating testing. In the U. S, what we want to do is to go after hospital market and send out. And there is plenty of opportunity and financially make a ton of sense because the send out cost in this case is very high, okay? So the European model and U. S. Model are different. In Europe, both defensive posture and opportunity to move exhausted customers from a market development going after send out, where you're actually taking existing business done in the commercial labs, the 2 biggest and turn it into end user revenues, okay, just to make sure that everybody understands the difference. Excess is very relevant in the U. S. In Phase II because the initial effort certainly is going to go is to go after what we call low hanging fruits, which are accounted today using a laser set in volumes and they are fed up with the technology and then they want to move to a new box. But Xeti is strategic certainly on the long term to mid long term to allow the development of the hospital strategy in the U. S. And QuantiFERON. That's certainly true. As far as Quest is concerned, Scott, I think I exhausted this with Naya, but let me repeat it once more. I believe that Quest gave a very clear indication that they're going through transformation. And they're going through transformation in the way they intend to do business, meaning that they're consolidating into a very large lab some of their operations. They are investing massively into automation. And when they do that, they need to tackle the mainstream. So the issue, I don't think has never been specialties because by definition, specialties stay out of that. Adding specialties to a mainstream line is adding an unneeded complexity, okay? Now vitamin D used to be a beautiful specialty, it's a mainstream. So it's very clear that vitamin D will go on that line, in my opinion. It's going to take time because it's going to be related to the deployment of the full line of whoever is going to win that bid. It's going to take a substitution of multiple suppliers with a unique supplier. It's going to take a software infrastructure. It's going to take time, okay? So if we lose vitamin D, I would be very surprised if that is going to be a sudden death. I think it's going to be there's going to be soft landing. And if I look at soft landing, which again, how long is it going to take? I don't know because it depends on the deployment or where it's going to win that bid. Then I'm asking myself, what do I have in my what do I have today in my quiver to counter the loss? And I have stuff. I have specialties, I have TB, I have good stuff that I think encounter the business I'm going to be losing in that account. This is it. Okay. Very good. Well, with that in mind, if we could just perhaps just talk high level thoughts into next year. You mentioned that your export business is a couple of percentage points drag on growth this year that you think you can, if you like, quell next year? You're launching your hepatitis products. You expect to get the QuantiFERON tuberculosis product approved in the U. S. Where I'm not sure if there's any pent up demand or so, if you weren't sharing some thoughts. But at the same side, the Quest contract for vitamin D, which I think is due for renewal at the end of this year, I think is about €15,000,000 or so, 2 percentage points of revenue could act as a headwind. So what I'm trying to understand, in the framework of the group where you have this mid- to high single digit high level. Is 2020 shaping up to be any different from that sort of trajectory that you've outlined over the medium term? That would be helpful. Scott, I'll give you I think it's very interesting because you pretty much summed up by yourself what how I see it. But in order to be more specific, I believe that I want to see the U. S. QuantiFERON to kick in because that is what makes it or break it vis a vis the speed of growth because we both again, we've been discussing this for a long time. The U. S. Strategy is a hospital strategy. The U. S. Strategy is QuantiFERON and gastroenteric driven. And that is what guarantees the future growth in the main geography, okay? So and I'm not referring just to be specific, it's not that I'm doubting about the approval. I give the approval for granted, no problem. But I want to see the product and the program hit the floor, hit the customers, us and cash and working in sync to make this happen. Because what I saw in Europe is that you really have an acceleration of the project and a lot of success when the 2 companies are working like 1 in deploying all of this, okay? And we went through months where we had to gear up in Europe. We brought many, many countries together. It was a tremendous effort. And still today, we have weekly calls between the two companies to manage all of this. U. S. Is simpler because it's one geography, but it will take to bring everybody in sync and move on. So to make a long story short, I have no doubt strategically that we have all assets that are necessary to do to deliver what we said we're going to deliver, okay? To give you more specificities about the good, the bad and the ugly. Whatever is going to be the reality of all of it, I think I need a little bit more time. So we're going to talk about this in, I think, March. And at this point, we will have 2, 3 months of under our belt quantifuran development in the U. S. And are going to be more specific on the short term. But as far as the midterm is concerned, I'm super fine. Okay. Very good. All right. I'll jump back in the queue. Thanks very much, indeed. Mr. Rosa, there are no more questions registered at this time. Okay, operator. Thank you very much. Bye bye. Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.