Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the DiaSorin first half 2018 results conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Mr. Carlo Rosa, CEO of DiaSorin. Please go ahead, sir.
Yes. Thank you, operator. Ladies and gentlemen, good morning, and welcome to the Quarter Two conference call. Let me remind you that I will make initial comments at constant exchange rate, since, as you have seen, the currency fluctuation has an impact on the business. After my remarks, our CFO, Mr. Pedron, is going to take you through the numbers. I will focus my comments on three points, which are key, in my opinion, to understand our business and the business in Quarter 2. I will talk about top line, I will talk about margins, and I will talk about new product launches. Let's start from the top line. Let's start from Europe, which is simple. Strong growth, and in line with plan to incorporate the Siemens customer base, then initiate the transfer of the business from the ELISA technology to the LIAISON technologies.
We had good growth in all the different countries. One point I want to make, which has to do with Germany, because of the fact that in the last two months, we hired a significant number of new commercial reps and engineers to support the Siemens business and also to facilitate the transition and installations we expect to come of new instruments. We will remove from ELISA to LIAISON. What we have seen in Q1 and in Q2 is a slowdown of the development of the new business. This is temporary for Germany. Again, because it has to do with the fact that a lot of attention was actually dedicated to incorporating the Siemens business, and we expect Q3 and Q4, the CLIA ex-D business to start to grow again as a net result of the transition of the Siemens customers to our platforms.
Europe, I think is self-explanatory and no concern, and we move forward. Let's go to APAC. When it comes to APAC, it's certainly true that we need to discuss China, since China does represent the lion's share of the revenues in this area. In China, we see a strong reagent growth, which is partially offset by the change of instrument policy in China. What does it mean, change of instrument policy? It means fundamentally two things. First, as we said, in the previous quarters, starting from late last year, we are refocusing our distribution network from the current one, which is okay, serving Class III hospitals, which do represent the vast majority of our business today, into a distribution network that is able to serve all the Class II.
Which as you know, as we discussed with time, does represent the future growth opportunity for DiaSorin, in preparation of the launch of the LIAISON Access. Second element is that we change our policy in China, whereby rather than favoring instrument sales, we are now favoring reagent rental. The reason why we do that is that with reagent rental, we can clearly better control where those instruments are actually going. The net result is that, you don't experience per se, a decrease of placement, whereas what you see is a decrease on the revenue line, on the instrument line compared to 2017 because of this change in policy. When you look at China is doing well, and China is growing the CLIA business as expected, double-digit, and we expect to close 2018 with double-digit growth.
What you see in the top line, what seems a non-growing top line, is a cosmetic effect because of this situation with the instruments. Let's talk about the U.S. When we talk about the U.S., we need to talk about the elephant in the room, which, as you know, for the U.S., for us, is vitamin D. Which in Quarter 2 took a downturn versus the previous quarters. As said in the past, it is our expectation that vitamin D decline at a worldwide level ranges between 3%-5% per year. That's a combination of decline in mature markets like the U.S., and upside in other countries where the adoption rate is still low. What we saw in Quarter 2, which we did not expect, is that there has been a volume decline steeper than in previous quarters.
Volume decline means utilization of existing customers, of some of the existing customers of the vitamin D assay. This is certainly new compared to what we have been experiencing in previous years because the decline in previous years was mainly an effect of pricing, whereas the volume has always been flat or growing as a consequence of the fact that some of these very large commercial labs were acquiring smaller labs, and therefore their volume was growing, and/or because the utilization, the usage of the vitamin D test in the U.S. was still slightly growing. Starting from quarter two, we have seen a change in pace, and this is mainly due to a recent policy change with one insurance company, which is Cigna.
Cigna changed their reimbursement policy when it comes to testing, where now is recommending to all doctors not to use the test for screening purposes, but only to use it for diagnostic purposes. What's the consequence of this? The consequence is that the rejection rate has increased for certain labs, the ones that have patients that are reimbursed under Cigna. The testing volume has softened with those physicians we see patients, again, covered under the Cigna policy. We've seen this happening before in other countries. Let me remind you, Australia, let me remind you, France. It is something that does happen when it comes to an assay like vitamin D that is used in high volume. Typically, what we have seen in the past is that it takes the market a couple of quarters to settle down.
There is a decrease in usage, the market does settle, it continues at that pace. This certainly was not foreseen in our plan. The Cigna policy was actually changed at the beginning of quarter two. We are recalculating or reassessing the vitamin D opportunity or decline actually in the U.S. for the next two quarters, that led to the fact that we had to revisit our top-line guidance when it comes to 2018. Otherwise in the U.S., now that the elephant is out of the room, in the U.S., the CLIA ex-D continues to grow double digit. Which is very important, we expect a series of new products to hit the market in Q3, Q4 this year when it comes to 2 stool specialty assays that are in the final round of discussion with the FDA to be approved.
As you all know, we expect to have the QuantiFERON-TB assay coming to the U.S. next year. Last but not least, all the hepatitis and HIV panel to hit the market, starting in the market next year, continue into 2020. From a strategic point of view, I have no concerns about the fact that we do have the U.S. well covered with new product launches. Certainly, we need to face the short-term reality of the fact that there is this vitamin D reassessment. Let me talk on margins, because I think it is noteworthy and important to see that the quarter has been very good in delivering margins. This has to do with two things. First, good mix. If you think about it in the past, the fact that vitamin D was declining did affect margins of the company.
Notwithstanding the fact that again, in the quarter, we took a hit on vitamin D more than expected, margins didn't suffer. This shows that, A, we don't have dependence on vitamin D margins any longer because we launched recently many products which are highly profitable as well. Again, our dependency on vitamin D from a margin perspective is not there any longer. The second consideration, which is very important to make, is that as we have discussed, we have been working over the last two years into operational efficiency, which resulted into two things. First one has been a heavy investment in the manufacturing side in order to increase automation in manufacturing, decrease the cost of labor, we start seeing this.
Last but not least, the fact that we decided to consolidate some of our operations, we came to the conclusion of closing Ireland last year. What is very interesting is that, notwithstanding the fact that Ireland is still active, as you know, we foresee to close pretty much everything by year-end. The net positive effect is not there yet of closing Ireland. Still, margins are good. From a margins perspective, I am very reassured that we can maintain the profitability as a net result of innovative products that we launch and continue to launch, the fact that from an operational point of view, the system is becoming extremely efficient. Last but not least, has to do with new product launches. Certainly, I know questions will come on QuantiFERON, let me try to give you some answers.
We do have this partnership with QIAGEN. You have listened to what the QIAGEN CEO has been saying about the assay per se and the way the two companies work together. We are on track to launch the product on the LIAISON in mid-September, CE mark, and we foresee U.S. FDA submission happening sometimes in early Q4. This is a very important product for both companies. It is very important for us because it's going to give us access to a set of customers today that are using this product, and it's going to give QIAGEN access to a very large installed base of instruments that we do have in hospitals that today are still doing skin tests. Certainly, we're going to work together to convert and increase adoption of blood tests versus skin tests. QuantiFERON on time and to be delivered.
It's going to hit the market in Europe in a month or so. The last comment I want to make, again, is to be with the other two products, which are key to us, which are the stool products that we decided to bring to the U.S., and we are very close to get approval. Stool is very important because the U.S. is the last geography that we are missing actually. Especially when it comes to Calprotectin, is a growing market, and it's a market today that is a high margin, high price market. It's a market that is mainly a send-out market from hospitals into the big labs, and where we're very well positioned to capture that wave of initial testing and then move downstream adoption into the hospital market. Overall, as far as short-term future is concerned, I feel very comfortable.
At this point, I will pass the microphone to Mr. Pedron, who's going to take you through the numbers, then we're going to go through Q&A. Thank you.
Thank you, Carlo. Good afternoon, everybody. In the next few minutes, I'm going to walk you through the financial performance of DiaSorin during the first half of 2018. We'll also make some remarks on the contribution of the second quarter. Before we start, let me please remind you that we began reporting the Siemens ELISA business from Q4 2017, so the perimeter of consolidation is different from the one of last year. Said that, as usual, I would like to start with what I believe are the main highlights of the period. The strengthening of the EUR against all the currencies in which we operate has generated some notable FX headwind on revenues during the first six months of the year. Even if, as expected, the impact has been less material in quarter two compared to quarter one.
We had EUR 6 million in Q2 of headwind and EUR 11 million or so in Q1. The variance has been mainly driven by two currencies, the USD, which depreciated by almost 12%, and the Brazilian real, -20% in the first half. Considering the U.S. trend in 2017 and where we are now, I think it is fair to say that this effect will materially decrease in Q3 and Q4 2018. Moving to the second point, we closed half one with an increase in revenues at constant exchange rate of 9%, or almost EUR 29 million. After a strong first quarter, the second quarter has been kind of soft for the reasons that Carlo just covered, recording a growth at constant exchange rate of 6.7%.
We closed half one EBITDA at EUR 128.2 million, with an increase at constant exchange rate compared to last year of about 8%, and with better margins than what we expected. 39.1% at constant exchange rate versus 38% implied by our full year guidance. H1 2018 EBITDA margin, net of the expenses we booked for legal action in the U.S. considering the future introduction of certain products into that market, and net of the tail of the Irish site divestiture cost, would have been slightly better than last year. Lastly, we closed the half with a very strong free cash flow, EUR 69.2 million versus EUR 61 million of 2017, with a growth a touch better than 13%.
The net financial position, at about EUR 104 million, has been affected by the payment of the ordinary dividend for EUR 46.8 million in May, and by a shares buyback program for about EUR 60 million. Please pay attention to the fact that the net financial position does not include about EUR 98 million of debt towards shareholders for the extraordinary dividends, which will be paid out in December 2018. Let's now go through the main items of the P&L. H1 revenues at EUR 331.2 million, driven by 3.7% or just shy of EUR 12 million compared to last year. As said, the growth at constant exchange rate is 9% or EUR 29 million. Gross profit at EUR 226.8 million, driven by 3.5% compared to last year, closing the first six months of 2018 with a ratio of our revenues of 68.5%.
Which is basically in line with 2017, in spite of the dilutive effect of the Siemens Healthineers sales and of the price pressure on vitamin D. This performance, which is better than what we expected, is mainly driven, as Carlo just discussed, by higher manufacturing efficiencies and better product mix, and has been helped by a very good and solid quarter two, which reported a growth profit margin of 69.4%. As you might remember, we have discussed in the previous quarters and during our Investor Day, about several initiatives aimed at squeezing costs out of our P&L in order to safeguard our EBITDA margin. I believe we have start seeing the payback of those initiatives filtering through our numbers. Total operating expenses at EUR 119.2 million, or 36% of revenues, have increased by 3.9% compared to the first six months of last year.
Please remember that about EUR 7.2 million of H1 OpEx have been driven by depreciation of intangible assets coming from the Siemens Healthineers and Focus Diagnostics business acquisition. Net of these elements, H1 OpEx increase at constant exchange rate versus last year would have been 8.2%, and duration revenues would have been 33.6% against 34% of 2017. H1 other operating expenses at almost EUR 5 million have increased by EUR 1.2 million compared to last year. As said, the period has been affected by some expenses related to the regulation in the U.S., concerning the future introduction of certain products into that market and by detail of the Irish site divestiture cost. Because of what we described, H1 EBIT at EUR 103 million or 31.1% of revenues have increased compared to 2017 by 1.9% or about EUR 2 million. The growth at constant exchange rate is positive for about 8.5%.
H1 tax rate at 22.5% is almost at 10 percentage points better than 2017, which closed at 32.3%, and is in line with what we anticipated and discussed during 2017 year-end call. This variance is mainly driven by the positive impact of the Italian patent box and the U.S. tax reform. Net result at almost EUR 81 million or 24.4% of revenues is higher than previous year by EUR 14.4 million or almost at 22%. This increase is the result of what described so far and of a lower net financial expenses, mainly driven by minor interest and the tax losses compared to last year, and by the revaluation of the participation in our Indian subsidiary, following the takeover of its full control from the Indian partner. Lastly, H1 EBITDA at EUR 128.2 million is better than last year by EUR 2 million or 1.6%.
The variance at constant exchange rate is positive for just shy of 8%. First half EBITDA revenues is 38.7% at current exchange rate and 39.1% at constant exchange rate, thus confirming the strong profitability seen in the last quarters and actually improving it. Quarter two has done particularly well, closing at almost EUR 65 million or 39% of revenues. Please remind that H2 2017 was materially affected by the Irish site divestiture cost. The growth of H2 2018 over H2 2017 is going to be more material than what we have recorded in H1. Let me now move to the net financial position and the free cash flow. We closed the period with a positive net financial position of about EUR 104 million and about EUR 118 million in cash. The net financial position has been affected by two elements.
As said, the payment of ordinary dividends for EUR 46 million in May and the share buyback program for EUR 60.3 million. The group generated EUR 69.2 million free cash flow in the first six months of the year vis-à-vis EUR 61 million in 2017, reporting an increase of 13%. This variance is the result of the better economic performance of the period and of the lower tax cash out coming from the patent box in Italy and the U.S. tax reform. Lastly, in view of the group operating performance, the management has reviewed its 2018 guidance as follow. Revenues growth at constant exchange rate of about 9% vis-à-vis 11% of the previous guidance. EBITDA growth at constant exchange rate of about 12% vis-à-vis 13% of the previous guidance. Let me please turn the line to the operator to open the Q&A session. Thank you.
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 yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Romain Zana of Exane BNP Paribas. Please go ahead.
Yes. Thank you. Can you hear me?
Yes, we can hear well.
Yeah. Perfect. I have three questions, if I may. The first question is rather a clarification. Can you just clarify the pure organic growth reported in Q2, so without the contribution from acquisition? The second question will be on CLIA excluding vitamin D. In Q2, you obviously still had a very solid growth, but how should we extrapolate the slowdown? It seems, Mr. Rosa, that you see the slowdown as temporarily. Is that fair to say that you expect a return to double-digit growth along with the launch of new tests like PCT? Would be good to have a flavor on that. And I have a follow-up question on the guidance. I will first let you answer the two ones.
Hello, Romain. I'll start taking the first question you made about the organic growth. The organic growth in the first half is around 4%, which means that the organic growth in Q2 is just north of 2%. If you remember in the last call with you guys, we told that Q1 growth was around 6%, these make all the math. I believe that you need to have.
Sure.
Okay. When it comes to CLIA XD, I made some comments before, let me just summarize. Yes, I see no problems with CLIA XD growing by year-end at double digit. Year-to-date is 10.5% growth. With 13% in Q1 and 7 point some percent in Q2. The difference in quarter two versus quarter one has to do with two effects. Mainly, as said, the first one is to do with the fact that in Germany, which was a contributor in Q1, did not contribute necessarily in Q2 in growth because of the fact that we spent the last few months reorganizing the business, we saw that our reps are spending more and more time in acquiring the Siemens business rather than developing new business. Certainly, you in Q1 didn't feel much the effect, but you start to seeing it in Q2.
It's temporary because of the fact that the next step, now that the business is solidly in our hands, now is going to be promoting and converting those ELISA customers to LIAISON. Let me remind you that Germany is a significant portion of our European business. The fact that they don't contribute to CLIA growth, clearly you can feel it in a quarter. The second element is to do with the fact that as far as China is concerned, China, this has a lot to do with timing, because don't forget, in China, we sell to distributors, depending when they schedule the shipments, you see a shift from one quarter to the other. It grew 18% Q1, it grew single digit in Q2. Overall, is growing 12%.
I believe the 12% for China growth for CLIA XD is what we should expect from this business. There are certain one-off elements when it comes to the CLIA XD that made the quarter too light, I don't see this to be, honestly, a problem. Keep in mind that starting from quarter three quarter four, you're going to have PCT, which is a CLIA XD assay. You're going to have the approval of some of these products into the U.S. We just got the hepatitis B CE mark. As usual, the funnel is delivering, I'm not at all worried about the performance of the CLIA XD.
Okay. Very clear. Last one, if I may, about the guidance and the comments you made in the press release about the evolution of the diagnostic sector. Just wanted to clarify this point. Are you revising the guidance because of the changing guidelines of some payers, as you alluded on vitamin D? Or is it rather like a permanent part or general comments that you are doing about the diagnostic sector as a whole?
I think that that statement is always there, and it is a general disclaimer, which fundamentally says we don't have a crystal ball when it comes to the overall market. I believe the fact that we revised the guidance has to do with the business effects we have discussed. Certainly vitamin D, which was not expected.
Second, the fact that contribution of growth of CLIA revenues in the second largest European market, Germany, did slow down for the reason we have discussed in quarter 2, and we don't expect to recover that. Last but not least, which I did not mention because I don't believe is strategic, it's more tactical, but does bear some consequences to the performance of the business, is the fact that when we bought the Siemens business, there was a part of this business, which is roughly EUR 3, EUR 4 million, which had to do with a very large tender that Siemens had in Brazil historically for Zika. Because of the fact that Zika fundamentally disappeared or the infection rate has dramatically decreased, this tender has been postponed by the government.
What we consider base business, roughly EUR 3, EUR 4 million, which was in our forecast, all of a sudden was canceled. I consider this really tactical, because a Zika tender in Brazil is very tactical, but certainly it did somehow impact on the fact that we feel more comfortable decreasing growth from 11% to 9%.
Thank you very much.
The next question is from Maja Pataki of Kepler Cheuvreux. Please go ahead.
Great. Thanks for taking my questions. I would like to start off with the U.S. sales performance. Could you give us a bit of a feeling or some color on what clear growth was in vitamin D in the U.S.? In the past, you have given us a bit of a color to understand what is happening. The second question relates to the softer performance in molecular tests in Q2. Could you give us a bit more color on that? The last question would relate to your comments about the change in the vitamin D reimbursement policy with Cigna. Do you think that this is just the beginning of others following suit, and hence vitamin D could once again see a deceleration in the trend? Thank you.
Okay, I'll take these questions. Let's start from vitamin D. As said, strategically, vitamin D for us can only be a lose-lose proposition because of two things. First, the still very relevant market share we have in the U.S. market, thanks to the fact that we do have contracts with major labs. From a volume perspective, we still have a very large market share in the U.S. Second, the penetration. If you remember, we stopped talking about it because we consider this history. However, the penetration, which is the percentage of population tested by vitamin in the U.S., is by far one of the highest in the world, next, I believe, to the heydays of Australia and France. For that reason, it's very clear that vitamin D, its destiny is to decline. We always stated, if you remember, it can go from 3%-5%.
I believe last year was actually less than 3%. It was pretty much flat last year. If you remember, I warned everybody, "Don't cork up your champagne because next year can be different." vitamin D is unpredictable because of this. What Cigna is doing is fundamentally reminding doctors that vitamin D is not a screening assay, which is a fact. When we got approval for vitamin D with the FDA, it was never intended to be a screening assay. The success of vitamin D in the U.S. is related to the fact that it became part of the employment screening and insurance screening program. It's not really used as a screening, but part of screening programs for vitamin D deficiency. Last but not least, there is a strong consensus among the physicians that there is a need of assessing the vitamin D level.
Let me tell you my gut feeling, but again, if I had a crystal ball, I would play the lotto and retire. My gut feeling when it comes to this is that what this will do is we're going to take away some of the misusage. Misusage means that you check the box even if it's not needed. That will go away. To be honest with you, my expectation is that now Cigna is a player, but there are many different insurance companies that do serve the U.S. market. My expectation, to be honest with you, is that this is going to be done also by some other providers. Is this going to have a dramatic effect on vitamin D assay? I believe not.
I believe, again, as we have seen in other countries, we will see a reassessment of volume testing, of testing volume, and then there is going to be a new baseline which. Gut feeling tells me maybe 20% of volume will disappear, but the bulk of the volume will continue to be there. Again, what I would like to remark on this, and I draw your attention to this, is that vitamin D is still a very profitable assay for us, notwithstanding the fact that we took this hit in the quarter, did not affect by a bit our margins. Everybody should take note of that, in terms of the ability of the company to defuse that risk, which was certainly there a few years ago. Today, we're not exposed to that any longer. Okay. This, I hope, is taking care of the Cigna story.
Let's go to molecular. Unfortunately, for reasons that have nothing to do with you, but it had to do with exposing data to competition, we cannot show breakdown of revenues when it comes to molecular. However, we have always indicated that when we bought this business, this business had two components. It had a component, which is extremely, by the way, profitable, which has to do with ASR. ASR means that we sell reagents to the very large labs, and this was done by Quest. Remember, we bought the business from Quest. Quest was using this outfit to develop reagents to then be used in the Quest lab to develop LDTs. They developed an interesting business, which is significant in the U.S., which goes under molecular revenues. What happened in quarter two things about this business.
Since they buy reagents for internal use, they buy it in big chunks. What happened in Q2 is that some of the orders did not fall in Q2, some were anticipated in Q1, some will come in Q3. You see a dive of the ASR component of the business, which is the part that is more tactical and less strategic for us. The underlying business, which is why we bought this company, which is the kit, which has to do with the flu, the herpes viruses, and the C. diff, and all the other products that we have bought, it continues to grow strongly, double-digit as expected.
Okay, ASR, where you should look at molecular, is doing very well when it comes to the kit, and then you have this blip when it comes to the ASR business in the U.S., and we are very exposed to it because of, again, the nature of the asset that we bought. Last but not least, U.S. sales. We don't break down. However, the growth of our CLIA ex-D in the U.S. is around 12%. Okay? It's good growth. It does represent, today, something like 40% of the U.S. revenues. It used to be almost nothing, then we developed a very good business, and it is the one that is going to be fueled by launch of new products, including stool and the TB. Okay?
Certainly, if 60% of your business declines by 10%, then you do have a problem, and that is to do with the fact that you see there's the vitamin D, and then you see the North America revenues overall going down by 4.5%. The math is not complicated.
Great. That's very helpful. Just to follow up on that, Carlo. You expect actually for the full year molecular to be in double-digits? Given you have the lumpiness of the orders of the ASR kit, shall we expect for the full year that you see double-digit growth for the total of molecular?
I do expect the double-digit growth, but let me make a fundamental disclaimer, which you know, a portion of our business is flu. With a regular flu season, I do see double-digit growth. I don't expect flu to be a great contributor of growth, but I don't expect flu to be something that is going to depress revenues. This is my assumption. There is a flu component, which has to be same as previous years, and then the rest of the business, which is growing strongly. If that happens, I think double digit, and then ASR being flattish pretty much. If that happens, then we will see double-digit growth.
Thank you very much.
Thank you.
The next question is from Michael Ruzitsch of Berenberg. Please go ahead.
Yeah, guys. Thanks for taking my question. Just two from me. One, I was just recently reading the transcript for Quest over in the U.S., and they seem to allude to the vitamin D slowdown being a miscoding issue, and that this might actually be more temporary. Obviously, a bit different than what you were saying, and I'm just wondering if you can help me kind of reconcile those two explanations. Secondly, I was just wondering if you had started to see any effect from PAMA. I know a lot of people are talking about this, and you guys have spoke about it before, but I was wondering if that had started to bite your ex vitamin D CLIA franchise in the U.S. at all. Thanks.
Look, without really trying to put myself in the shoes of my largest customers in the U.S., take that as a disclaimer. What I believe we are saying is very similar, simply in different words, because miscoding fundamentally means that. How do you prescribe vitamin D? If you use it for screening or not, and if it is for screening, then under Cigna, you would get some of these assays that are rejected. Why temporary? Because it is the same, as I said, temporary because it's going to take away some of the miscodings, but then the legit use of vitamin D, which is a clinical use, will continue to exist. This is why I think they alluded to the fact that it's temporary, is pretty much the same way, the same concept, just said in different terms. In fact, you're right.
This concept of change of reimbursement recommendation certainly does impact some of the large labs, but because lots of vitamin D testing today, it is actually with the very large labs. I'm not talking about Quest, I'm talking about the commercial labs in the U.S. Now let's go to PAMA. With PAMA, look, I am very agnostic about PAMA for two reasons. PAMA should, if anything, affect vitamin D testing. Again, as you see and as I said before, the vitamin D market actually has been destroyed by competition, by price. From my perspective, has been completely devastated by some foolish pricing policy by very large companies. That has been done. Now, PAMA changing reimbursement, not doing much in my very humble opinion. Again, as you see, nothing to do with changing the reimbursement.
It has to do with changing the fact that you reimburse for a certain use. That is affecting volume testing, and that does affect the market. As far as PAMA is concerned and vitamin D, no problem. As far as everything else in PAMA, look, we sell products that are either very high specialty, and so price is not necessarily a big issue. Are products that are so small, so they are specialty, but so small in terms of the volume that they not draw necessarily the attention of any of the labs because don't affect their math. As far as DiaSorin is concerned today, I don't see PAMA honestly affecting tremendously our business.
Understood. Thanks.
For any further questions, please press Star and one on your telephone. The next question is from Patrick Fuchs of AGI. Please go ahead.
Hello. I have just a question regarding, again, vitamin D. When we look at the overall sales development, constant exchange rate in Q2, down minus 4%. That's not completely out of the range that we were expected. Would you see the vitamin D slow down then more in H2, getting at a run rate at the end of the year below the range that you have given previously on that? The second question is just to get a view of potential impact. Currently, what would be your estimate of vitamin D screening in the U.S. versus really diagnostic use if a patient presents with some maybe vitamin D relevant symptoms or so? This question basically. Finally, the guidance cut that you've given, so you would basically say German situation and the vitamin D situation is the largest explanation of the cut here. Thanks.
Yes, Patrick. I would say again, three things when it comes to the guidance cut has to do with events that are mainly to do with certain situations that stop growth in a geography but are not permanent. Germany is a good example.
The one-off tenders which have been canceled, which we didn't comment too much, I just comment before, which is a Zika tender, very sizable business, non-strategic, but sizable, and that's gone because government canceled the tender. The third element is certainly to do with vitamin D. I think we killed that bird already three times, and we discussed vitamin D. Yes, vitamin D in H2 will decline compared to last year, more than expected because of this phenomenon in Cigna up in the U.S., and I believe that is going to, as I said before, is going to take a couple of quarters to settle down, and then we have better visibility. What does screening means?
It's a very difficult question to answer because if you go on Cigna, if you look at the Cigna recommendation, it says, "Well, you should be testing for if you suspect intoxication, if you suspect any issue with osteoporosis, or you suspect any clinical condition associated with vitamin D deficiency. Vitamin D for screening purposes should not be used." What the heck does it mean? I don't know. It is interpreted saying if you are just curious about vitamin D volume and you cannot justify vitamin D level, and you cannot justify, we don't reimburse.
That increase the rejection rate. It's going to actually, in my opinion, drive doctors to be more precise in terms of indication why they test for vitamin D. It's going to take away some of the fluff that today is certainly there, not only for vitamin D, but for a lot of the products when there is a lot of flexibility on the reimbursement. As far as I can say, this is it.
Okay. Thanks a lot.
The next question is from Alex Kogut of Kempen. Please go ahead.
Hi. Thank you for taking my question. In the context of your reaffirmed 2019 guidance, could you help me understand what you see offsetting vitamin D decline, to be able to basically reconfirm your guidance? Thanks.
Hi. Hello, Alex. We have a few elements which we believe will offset the vitamin D thing that we just mentioned about. On one side, there is TB, which definitely will start to play a role in our numbers. We will see the full effect of the conversion of the Siemens ELISA business we just bought. Because so far it is true that we started converting a lot of customers to our CLIA technology, but still volume have not started. What we see is that every time we convert a customer, we are able to gain much more revenues than the original ELISA revenue we bought from Siemens. We have the impact. Another element is the impact of these stool menu that Carlo just mentioned about, for which we are expecting some decent growth, especially in the U.S.
Eventually, as you know, we also have in 2019, the launch of the new platform, the LIAISON XS, which is going to be addressed also to new customer settings, and which we believe will bring additional growth to our revenues. All this compounded plus the normal growth we have on the like-for-like business on the, let me say, CLIA ex-D franchise, without considering what I've just mentioned, makes us comfortable on our 2019 guidance.
Yeah. Hello?
Yeah.
That's assuming vitamin D drops like 30% this year and then sort of stays stable over 2019 going forward, right?
We will be more precise in terms of our guidance for 2019 when we will do our 2019 guidance. The 2019 numbers we have now is the one we gave to the market when we did the Capital Investor Day. All things considered, we still believe that 2019 is achievable because of what I just said. The vitamin D, the additional decline in vitamin D, is going to be offset by all the elements which I just mentioned.
Okay. Thank you.
Thank you.
The next question is a follow-up from Maja Pataki of Kepler Cheuvreux. Please go ahead.
Yes. Thank you very much. Carlo, just quickly to double-check. Did you say that the Zika tender was EUR 3 million? Wasn't sure whether I got that right. Just quickly, you've really highlighted very well what has been driving the strong margins in H1. Is there anything that we should be focusing that could represent a risk to margins in H2, or should it just improve from here? Thank you.
No, I don't think Sorry, let me just, the quick one. The Zika tender was close to €4 million when it was done under the Siemens watch. Clearly was not in our numbers last year because we bought the business at the end of it, but we assumed it would actually be reissued this year, and it did not happen. When it comes to margin, though, to be honest with you, I don't see any issue why H2 margins should necessarily be affected. Now more on the midterm, again, don't forget, margins so far are where they are still with all the costs associated with the Irish plant, which is still active because we are transferring manufacturing from that site to other sites.
When it comes to the 2019, we're going to have the benefit of the shutdown of Ireland, which if I remember correctly, we have indicated to be in the range of EUR 7 million-EUR 8 million.
Okay. Thank you so much.
Thank you.
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