Good afternoon, this is the Chorus Call Conference Operator. Welcome, and thank you for joining the DiaSorin nine-month 2023 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 the telephone. At this time, I would like to turn the conference over to Mr. Carlo Rosa, CEO of DiaSorin. Please go ahead, sir.
Thank you, operator, and good morning, good afternoon, and welcome to the Q3 conference call. As usual, I'm gonna give some comments at constant exchange rate about the three legs of the business, the immunodiagnostics, the molecular diagnostics, and the life sciences. And then I will let our CFO go through the numbers. So if we start from the overall results, the quarter was in line with the expectation. Growth excluding COVID at constant exchange rate, it was 2% in the quarter, over 3% year to date, so is in line with the guidance and expectations. Although, if we look at the three legs of the business, we have different results. So let's start from the immunodiagnostics.
Immunodiagnostics continues to do extremely well for the company. In Q3, growth is 6% and has been a very strong growth in Europe and in North America and some other smaller geographies, and notwithstanding some of the weakness that we continue to experience in the Chinese market. If we look at CLIA, which is the main component of our immunodiagnostics, overall in the quarter, +10%. So we continue to experience double-digit growth in our main technology. If we go now by the different geographies, starting from Europe in the quarter, immunodiagnostics up 7%, with CLIA up 13%.
What we continue to experience in Europe is a combination of a growing business and sustained volume of testing in all the different geographies from Italy to Northern Europe. We see that the trend that we've been experiencing from Q1, which is an increase in testing volumes, continues, and we expect to see it as well in quarter four. We believe that this is not only a post-COVID effect, but I think structurally after COVID there is more testing that is requested by physicians, and this goes across all the different countries, as I said, and we don't see today in any particular geography any effort to curtail this increase in testing volume in terms of reimbursement decrease which is pushed by government.
So, Europe is doing extremely well, for the company and better than expectation. When it comes to North America, in the quarter, the immuno is up 13%. If we look at the CLIA, standalone is +16%, in line with the, company expectation. This is the result of, the hospital strategy that, is working very well for DiaSorin because of the, the menu and the platforms, that we have now approved in the U.S., and certainly we also see, a very interesting contribution coming from MeMed, which I'm gonna comment, later. So North America and Europe, the main geography, are doing very well.
If you look at the rest of the world, the quarter is negative for immunodiagnostics 4%, CLIA -3%, which is, although a combination of plus and minuses, if you look at Brazil, Mexico, Australia, and India, which represents, give or take, half of the business, we see in quarter three immunodiagnostics up 8%, with CLIA up 9%. So in these direct strategic geographies, we see the business continuing to performing according to expectation. If we look at exports, what we see is we see a phasing effect in the quarter due to shipments to a very relevant country for us, which is Iran, which have been delayed and are gonna be actually postponed to quarter four. So we see in that case a phasing issue, although it's impacting the quarter.
Then if we go to China, we continue to see headwinds, which is a combination of volume and pricing effect. The value-based pricing is not in effect yet, but we see pressure on pricing, notwithstanding that, and we clearly see the made in China effect for some of our mainstream commodity products. We don't have still visibility in quarter four, and certainly we don't have visibility in 2024, when the value-based procurement is gonna be set in place. And so once the final ruling is gonna be out, then I think we'll have better visibility on China. So overall, in immunodiagnostics, our strongest markets are performing as expected.
From a strategic point of view, we, I think we're collecting what we've been seeding in the last few years in terms of product, product development. In terms of future development, I would like to comment on MeMed and then Lyme. When it comes to MeMed, there has been, as you know, an acceleration in the marketing program, which has been decided at the beginning of 2023, where we have increased the number of clinical reps, which today are doing the product promotion in the market, digital marketing campaign and clinical studies to support the product. We see that the funnel of hospitals interested to implement the MeMed product is very rich. We are talking about over 200 hospitals so far that have been touching and evaluating the product.
So we're building the funnel. And, I think what is very interesting and strategic about this product is that roughly a third of these customers are actually hospitals that we did not have access before. So we're actually building a business on our install base of system alongside with new customers. So it's a very, very important door opener for the DiaSorin in the US. Lyme, we completed the clinical study, and I'm talking about the Lyme detect algorithm, which includes a B-cell and T-cell response. We are completing the file, and we expect to submit on time by December in the US to have possibly approval by the next Lyme season in the US.
Results are promising, and we believe that the combination of T cell and B cell response is really addressing the need of a better early diagnosis, which was what this product was intended for. Last but not least, I would like to comment on QuantiFERON. QuantiFERON is continuing to grow. I think that we mirror what QIAGEN is experiencing on the market, and QIAGEN has been reporting and commenting on the success of QuantiFERON a couple of days ago, so I will not spend too much time. But certainly we continue to see an uptake and an interest in our technology in all the main geographies, so U.S., Europe, and everywhere else.
And, we certainly see an opportunity to continue to expand this business, as QIAGEN is saying, both geographically, because China is an untapped market, as well as, from a technology point of view on migrating skin to blood. Okay, so as an overall, remark, I believe the immunodiagnostics franchise is doing very well. Now, let's talk about molecular diagnostics. Molecular diagnostics is performing as per expectation. We, fundamentally, we have a stable, business when it comes to multiplexing. The VERIGENE technology is holding its position, slightly growing. Certainly, the limitation is the technology per se, which is very strong, but, it's very manual as well.
When it comes to the rest of the, the rest of the menu, so the single plex, we see a growth of, single digit, around 5% of the portfolio. What we see, are two negative effects. One is on the, revenue line on instruments, because we are comparing to, 2022, where, on the tail of COVID, we were still selling a lot of instruments, and this is not happening any longer. So, the lack of growth that you see, there is mainly attributable to the sale of, systems. The reagent line is again growing.
The second element that we have discussed already in the last two quarters is the fact that is the loss of a very large contract that Luminex had with the main lab in the U.S., which is now affecting Q3, Q4, and I think the tail of it is gonna be Q1 next year, and then that business will go back to where it was. As far as what we are doing strategically with the business, I think three things which are very relevant. The LIAISON PLEX, the respiratory panel has been submitted, as discussed a month ago, and the interactive review was started.
You know, this is very important for us because, through the first panel, we're gonna get clearance also of the platform. And clearly, we expect now to be able to play in the U.S. market with this platform starting from the next flu season. When it comes to the LIAISON NES, we have completed the preclinical study in Australia, and now we are evaluating the clinical study in quarter four and in 2024. But I think we're gonna give you shed more light and give an update on this one when we're gonna be discussing the long-term plan in December of this year.
Last but not least, as we had anticipated in our strategic plan, part of the synergy plan with Luminex was a consolidation of platforms, and so we have announced the discontinuation of the Aries platform, which was generating very, very low revenues and actually at a high, high cost of infrastructure that we're gonna be removing the platform from the field. And this does have a non-monetary impact in this quarter. Very limited amount of monetary impact, like a little bit over EUR 1 million, and we clearly have a very positive benefit starting from next year on the margin on the company.
But more than anything, we are progressing in a simplification of catalog that I think was one of the main issues with the profitability of the Luminex business run as a standalone business. Last but not least, is the licensed technology. Let me remind everybody that, this business is a B2B business primarily, so we actually sell to life science companies. I think most of the life science companies are using our technology. And, we see this business, flat, flattish. Year to date, I think we are in line with 2022, with a mix which is, actually, favoring, the royalty line, and, the service contracts, which is expected, which means that fundamentally, our partners continue to sell their reagents, in their markets.
Although we see today two very important effects. One is decrease in inventory, so de-stocking, when it comes to instruments and when it come to some of the raw material consumable. We expect the de-stocking to be pretty much completed in quarter four, so we will start clean the 2024. We are clearly following what our partners are saying vis-à-vis this market, but due to the fact that we have a fairly wide portfolio of partnership which include life science and diagnostic users, we see a less draconian effect vis-à-vis what some of the partners are saying, are saying when it comes to specifically biopharmaceutical and life science business per se.
So, my message is, this is a more protected business because of the diversification of partnership geographies and applications. So certainly we were expecting growth, but we don't see the level of decline that some of the partners actually have anticipated in their numbers. Now I'm gonna leave the microphone to Mr. Pedron, who's gonna take you through the numbers. Thank you.
Thank you, Carlo, and good morning. Good afternoon, everybody. In the next few minutes, I'm going to walk you through the financial performance of DiaSorin during the first nine months of the year. I will make some remarks on the contribution of the third quarter. Please, let me remind you that consistently with what we did over the past earnings calls, to better understand the performance of the business, I will mainly refer to adjusted P&L items, therefore, sterilizing the impact of the Luminex integration elements. So that, I'd like to start with what I believe are the main highlights of the period. As Carlo just mentioned, and during Q3 2023, we started the sunset program of Luminex ARIES, a single plex molecular business platform, offering to ARIES customers the possibility to switch to DiaSorin MDX products.
In line with the synergy plan we presented after the Luminex acquisition during 2021 Capital Market Day. I believe this to be another very important step toward the complete integration of our combined product offerings. This initiative will be accretive both at gross profit and EBITDA level, starting from 2024 onwards. The total P&L impact of the ARIES discontinuation is about EUR 50 million, non-recurring one-off costs, the vast majority of which has been booked in Q3. Only EUR 1.5 million of these costs will have a monetary impact. Year to date, the total revenue at constant exchange rate decreased by 15%, whereas the reduction at constant perimeter of consolidation, which means without the contribution of the flow cytometry business, has been 13%.
This result, which is in line with the full year guidance, is a combination of the expected falling COVID sales, down by EUR 156 million in the first nine months of the year, partially offset by a growth in the ex-COVID business in the first nine months of the year of about 3.5%. To be more precise, this variance, this 3.5% variance, is the result of the following elements. As we saw, a very good performance of the immuno franchise, which grew by almost 7% year to date and 6% in the quarter, despite some negative phasing in the shipments to distributors, which moved to the very first days of Q4 2023. As we saw, a weak performance in China.
A flattish LTG business, which is expected after the spike in Q2, is recording a decrease in Q3 because of the anticipated de-stocking of consumables implemented by some major partners, and the general softness in the life science business, which has recently been reported by many industry players of the space. A negative performance of the molecular franchise, net of respiratory business, minus 7%, driven by the budgeted loss of the cystic fibrosis business, with one primary commercial customer in the US. And lastly, the molecular respiratory business recorded year-to-date is slightly better performance than 2022. September year-to-date Adjusted EBITDA at EUR 278 million, or 33% of revenues, is substantially in line with the full year guidance and aligned with H1 2023 margins.
The decrease compared to last year, EUR 114 million, 29%, is mostly driven to the drop in COVID sales, and therefore, to the corresponding worsening of the operating leverage. Lastly, we generated EUR 160 million of free cash flow in the first nine months of 2023, down EUR 92 million compared to last year. This variance is mainly driven by the fall, once again, in COVID sales. Before moving to the P&L, let me please summarize for you the last episode of the so-called payback saga. As you might remember from previous earnings call, this measure, originally introduced in 2015 by the Italian government and never implemented since then, has been eventually reactivated in September 2022, but only for the years between 2015 and 2018.
Not clear yet what might happen, if anything, for the years after 2018. DiaSorin, as almost 2,000 other operators, have filed a legal appeal to the competent courts to challenge this reactivation decree. The payment due date, originally set for January 2023, after being postponed a few times, was eventually shifted to the end of October, so to the end of last month. Moving from this very complex situation, reach of legal controversies, the government introduced the faculty for each company to settle any dispute by paying 50% of the total amount requested by the region and by renouncing any pending legal action.
In the meanwhile, the Administrative Regional Court in Rome is at the first hearing on October 24th, so just a few days ago, to discuss the merits of the appeals, and pending the legal conclusion of this litigation, has suspended the payment terms for the companies that have made such a request, including us. DiaSorin, as many other companies, and this is the piece of news, has decided not to settle and to continue its legal dispute, which might take 3-4 years before reaching its conclusion. Please note that prior to September 2022 reactivation of the payback mechanism, DiaSorin had already built in its balance sheet a provision based on the information available back then, and it's a relative risk assessment.
Now, pending more clarity on the legal front for the years following 2018, and considering the amount already booked for in our balance sheet in the past, we have not changed our provision for the period of 2019-2022, and we've not accrued anything more from 2023. We will keep on monitoring the evolution of this complex and changing, ever-changing situation and update investors during the next quarter course. Now, moving to the P&L. September year-to-date, total revenues at EUR 846 million, decreased by 16%, or EUR 166 million, compared to last year, as we saw variance due to the expected lower COVID sales and the disposal of the flow cytometry business.
Year to date, adjusted gross profit at EUR 553 million, decreased by 18% compared to last year, with a ratio of the revenues of 65%, broadly in line with the same period of 2022, which closed at 66%. The carve-out of the flow cytometry business, alongside all the initiatives aimed at improving operations processes and containing costs, some of which part of our broader cost synergy plan, allowed us to preserve margins despite the reduction in COVID revenues and the tail of the inflationary pressure we talked about in 2022.
I believe this to be a remarkable indicator of the relentless efforts we put in place to safeguard margins, which has been confirmed by Q3 2023, which closed with a gross profit ratio of the revenues of 65%, despite lower quarterly sales, as it is typical for the summer months, when most Northern Hemisphere countries enjoy their summer vacation. The difference with the reported, so not the adjusted, but the reported, gross margin in the quarter is entirely due to the provision booked for the Aries inventory write-off, as we've just discussed. September year-to-date-adjusted operating expenses at EUR 342 million, decreased by 1% compared to 2022, with a ratio of the revenues of 40%, vis-à-vis 34% of last year.... The worsening of the operating leverage ratio is entirely due to the reduction in COVID sales.
Moving to Q3, adjusted OpEx decreased compared to last year by 7% or EUR 8 million, with a ratio of revenues of 41%, vis-à-vis 37% of 2022. This reduction is mainly the result of all the initiatives we implemented to control costs, the positive impact of the cost synergy plan, which followed Luminex acquisition, obviously the disposal of the flow cytometry business and eventually some positive FX effect. Adjusted other operating expenses at EUR -1 million are better than 2022 by EUR 7 million. The difference with last year is mainly driven by the combined effect of some positive one-off elements booked in the quarter, and negative ones booked last year, such as the cost of the shutdown project that we went through in 2022, and some material severance costs we had last year.
The difference with Q3 reported, once again, reported, not adjusted, other OpEx is mainly due to the write-off of the ARIES tangible and intangible assets, once again, as we just mentioned at the beginning of the call. As a result of what we just described, year-to-date Adjusted EBIT at EUR 209 million or 25% of revenues, has decreased compared to 2022 by 34%. Adjusted interest income at positive EUR 4 million is better than last year by EUR 7 million, mainly because of improved yield on our cash investment, whereas the tax rate at 23% is in line with 2022. Year-to-date, net adjusted result at EUR 164 million or 19% of revenues, is lower than previous year by EUR 80 million. Let me now move to the net debt position.
At the end of September 2023, the net debt was negative EUR 832 million, vis-à-vis negative EUR 907 million at the end of 2022. This improvement has been mostly driven by the operating cash generated in the first nine months of the year, and by the proceeds of the sales of the flow cytometry business, partially offset by the payment of just short of EUR 60 million dividend to our shareholders in May 2023, and EUR 28 million of treasury shares buyback. Lastly, we confirm 2023 guidance, as usual, expressed at previous year exchange rate. Total revenues, -14%. Total revenues at constant perimeter of consolidation, -11%, and Adjusted EBITDA margin, around 34%.
Please let me remind you that 2023 guidance does not include any possible impact from the payback, as we just discussed, since the company decided not to settle and consider your situation, which is in the flux and the most recent news. We believe it is even more difficult to make any long-term reliable prediction on what is going to happen. Let me now turn the line to the operator to open the Q&A session. Thank you.
This is the Chorus Call conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove yourself from the question queue, please press star and two. We kindly ask you to 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 Odysseas Manesiotis with Berenberg. Please go ahead.
Hi, thanks for taking my questions. Great to hear some encouraging KPIs from MeMed in the U.S.. So first of all, could you touch on where these discussions with the 200 hospitals interested in the ASA focus, and is there a lot of willingness for adoption prior to the DRG and bundling? And on the back of that, your previous midterm guide implied this franchise could generate low- to mid-double-digit EUR million sales by 2025. Are you still confident this is achievable? And secondly, could you please, please remind us of the basic specs of LIAISON PLEX? I understand there's a cost advantage with the flex panels, but how does time to resolve and ease of use compare to the newer platforms that we've seen in this market?
At what timeline should we expect GI and stretches to be in the market, post-launch, pre-season next year? Thank you.
So I'll take, I'll take the question. Let me start from, Flex first. Clearly, as we have described, the system, I think, is par for the course with other systems that today are available on the market. The differentiating factor, as we have again discussed, is the positioning of the system, which makes more financially viable for some of the account to do multiplexing versus other solutions, where there is, in our opinion, excessive cost in performing the plexing.
...When it comes to ease of use, is sampling result out to single cartridge. When it comes to menu, we're not going to comment on menu now. I think that we're going to give a more detailed explanation on our view on menu development during the LTP presentation, which will happen in December, around mid-December of this year. When it comes to MeMed, yes, I reiterate the concept that the opportunity we see is what you describe in 2025. I think that bundling was not expecting, or the unbundling was not expected to happen, after two years, after launch. And I think that today, our partner MeMed, is actually working to achieve that result together with reimbursement coming from the private insurance.
I believe that clinically it should not be a surprise, the fact that there is an interest because there are very strong clinical evidence provided by MeMed on the use of this product. And I think, as I stated several times, every time we have repeated our own clinical studies, we were able to pretty much confirm the very high negative predictive value that this test has with the bacterial infection, which is actually the added value for this algorithm. So I'm not actually surprised by the fact that it is a perfect assay for hospitals.
And I think that what we are understanding in terms of the positioning, which is interesting, is that there is a high level of interest in the small- to mid-size hospitals, where it is more complicated to penetrate the high end of the hospital market. But simply is because of technology availability, current platforms that are widely available in very large hospitals, but they're still lacking when it comes to the small mid-size hospitals, and where clearly there is more interest. Because with a very easy assay, with immunoassay, you can actually discriminate quite rapidly between bacterial and viral. Again, we're going to give, I think, a more detailed view on MeMed, the opportunity during the LTG discussion.
Very clear. Thank you.
The next question is from Maja Stephanie Pataki with Kepler Cheuvreux. Please go ahead.
Hi. Thanks for taking my questions. I have a couple. Carlo, just very quickly, when you talk about the discontinuation of the ARIES platform and, you know, consolidating the test menu on the LIAISON MDX, is that on the existing platform? Because I think you mentioned at the Investor Day in 2021, that you're planning to have a next generation platform in the market that would combine the test menu. That's one question. Then the second question, you mentioned a delay in Iran for some of the instruments. Could you just remind us how big Iran is?
I remember a long time ago, it represented a enough big part that it had an impact on your revenues when there were the sanctions, and given the uncertainty or the instability in the region, it was just good to have it for modeling purposes. Then the next question, when you talk about lower instrument sales on the molecular side, is that a swap from instrument sales versus instrument placements? So, you know, we've seen a high degree of instrument really being purchased during the COVID period, and now we're returning to reagent rental model, or is it really a decrease in instruments that you're putting into the market? And then my last question is purely for clarification. When you talk about the strong growth in in immuno, you referred to CLIA.
Is that CLIA X vitamin D, or is that including vitamin D? Thank you.
Maja, long list.
Long list, I know.
Long list.
I'll repeat. It's Friday afternoon late, so I'll repeat if you can't-
No, no, don't worry. You know, you're trying my memory. Okay, let's start from the last, which is easy. All the CLIA numbers now I'm giving are, with vitamin D inside, right? And so I'm referring to the full CLIA franchise. So 10% does include clearly a decrease in vitamin D and, which will continue, forever, I believe. As a combination, mainly at this point of pricing, as pricing continues to decline, and a strong increase of all the other product lines. Now, second is Iran. Look, I don't want to give... You remember well, we did suffer in the past, from Iran. In this case, I honestly don't see, an effect as we had back then.
I think it's more a phasing of the shipment, but overall is around less than EUR 10 million of business in Iran. It's all clear, by the way. When it comes to instrument, I'm referring to the sale of systems, because as you stated, and I think everybody is saying during COVID, everybody bought systems without tomorrow. And now, clearly, there is a slowdown in so there is no capital available any longer. And so you go back to the typical model of reagent rental. You don't sell anymore, and that line suffers from that. And the last question was Aries, right?
Mm-hmm.
So the Aries, this was a very controversial technology, and actually was one of the technologies that were scoped by the FDA. And, since the beginning, a combination of the size of the business, very limited. The fact that we had, with the exception of one assay, we had everything on the MDX that we can offer to the customers. And, the extent of work that our engineering had to do, you know, to take care of obsolescence of parts, and the fact that we don't see a future for this technology. All in, since the beginning, we said: "Let's get rid of it," which we are doing elegantly. We gave 12 months last buy to our primarily US customers.
This technology was primarily in the U.S., and then we're gonna clear the market from this technology. A great benefit in three ways: A, we are addressing, so we are limiting the work that it had to be done to redo all validations for the FDA. Second, we are limiting and free up resources of engineering for the development of new platforms. And the third element, I think, we are clarifying for customers the portfolio products that they need to run products.
Okay, thank you.
Thank you.
The next question is from Aisyah Noor with Morgan Stanley. Please go ahead.
Good afternoon, Carlo and Piergiorgio. Thanks for taking my question. My first one is on China. Do you have any early thoughts about what proportion of your testing menu could see VBP next year? And based on what you've seen so far, what magnitude of price cuts that could be seen? And the second question is on the U.S. hospital strategy. Where are you tracking against the 50 hospitals per year target, and how much would you say is driven by the doubling of the U.S. sales force you mentioned, I think late last year? That would be helpful. Thank you.
Aisyah, good morning. Yep. Look, when it comes to China, today is a little bit over EUR 5 million that would be subject to the current VBP in the 17 provinces. Okay, so it's relatively minor. The, what everybody expects to see is a price effect of anything that goes from 50%-65%. And that's what I think the expectation from the business is today. So today is a relatively small effect, but it can be more than EUR 5 million if it is extended in Beijing and Shanghai and the other provinces where a lot of our business is concentrated. When it comes to the U.S. hospital, actually 50 was the old target. So the first three years it was 50 per year, done.
And then starting from 2023, our target is actually 75, 90, 90, for a total close to 250 new hospitals. And we're actually tracking above that number when it comes to 2023. So, it is working really well.
Great. And then just to follow up with Piergiorgio on the Aries integration. You mentioned it could be a certain impact on growth and EBITDA next year. How big is the Aries business today? And if it is low revenues, then would it be a small impact on margin, or would that be countered by the fact that it has a higher cost structure? Just some thoughts on moving parts for 2024.
Yeah. So I would say... Hello, Aisyah, by the way. I would say that, you know, the bolt-on number, in order to assess the impact on our EBITDA for next year, positive, obviously, impact on our EBITDA, is a number between EUR 5 million and EUR 10 million. That's what we are expecting. And that is coming from two factors. One, the fact that, the ARIES, without COVID, the ARIES business, was actually, you know, having, almost a negative impact at the EBITDA level. Whereas all the business that we will be transferring to the, our, to the existing DiaSorin MDX, offering, will enjoy much higher margins.
So as a combination of those two effects, let me say, lower costs coming from the ARIES platform and much higher margins on the molecular platform, we are expecting to have a positive impact in the range of EUR 5 million-EUR 10 million next year.
Okay. Thank you very much.
Thank you.
Mr. Rosa, gentlemen, there are no more questions registered at this time.
Thank you, operator. Bye-bye.
Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.