DiaSorin S.p.A. (DIA) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the DiaSorin 9 Months 2021 Results Conference Call. [Operator Instructions] 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 or good afternoon to all this -- to the participants to the third quarter 2021 results. As usual, I will make a few comments about the business more qualitative. And then Mr. Pedron, the CFO of the company, is going to take all of us through the numbers. Now this is the first quarter where we also have Luminex included in our numbers. So in order for everybody really to understand how the business is trailing, I'm going to make my comments without Luminex at the beginning, then I'm going to give some remarks on the Luminex performance. So if we look at the business at constant exchange rate and without Luminex, in quarter 3, the growth was 10% versus Q3 of 2020. If we look at the different technology, CLIA ex Vitamin D had an outstanding performance, plus 30%, and we're going to see that this is the result of a successful placement in all the different geographies, primarily U.S. and Europe. And the programs that today are driving the success of our CLIA business are the specialty and the stool program together with the TB deployment and the program that we're running together with QIAGEN to convert and grow the TB franchise around the world. Vitamin D is down 8.7%, and this is clearly related to the Quest loss that happened in 2020, at the end of 2019, and now we see its effect starting from this quarter. As far as molecular is concerned, the business overall grew 5.5% versus last year. Clearly, the vast majority of the business is COVID-related, and I'm going to make some comments about the COVID later on. Now if we deep dive into the geographies and we start from Europe. Europe grew actually 20% year-over-year -- quarter-over-quarter, sorry. CLIA is including Vitamin D, so all-in is up 80%. COVID molecular is up 30% versus quarter 3 in 2020, and this is due to the fact that as I think many other operators in this industry have already commented about the European COVID business has been more flat and so less affected from volume increase or decrease over the last few quarters. We do have an installed base of MDX systems, which today sits primarily in Italy, in Spain, in France. And this is due to the fact that when we had to launch the system during the COVID pandemic, we clearly gave to these geographies preference over other geographies due to the limitation in number of systems that we could manufacture. Today, that the installed base in Europe sits into -- primarily into hospitals, and it is used to triage patients. It is used on symptomatic. And therefore, today, we are not at risk of losing some of the volume that typically was related to screening of asymptomatic that was happening in the high throughput platforms in the core labs. When it comes to U.S. and Canada, the business overall is flat, but I think we need to read between the lines in terms of how technologies are performing. CLIA is up 36% versus quarter 3 last year. Again, deployment of the hospital strategy with the TB product and the stool again and all the specialties that are really leading the charge is allowing us to penetrate this segment. If you remember, at the end of 2019, we had invested $5 million in creating a dedicated sales force for this segment. And I think that today, we are reaping the benefit of the fact that we do have many products that fit very well in the space. The TB is certainly a product that is interested in the space. Today, there is a lot of send-out in that space that due to the liability of the LIAISON XL now hospitals can bring in-house and save money versus the send-out opportunity. So overall, the CLIA strategy is working very well in the U.S. That is becoming our primary geography around the world. When it comes to the molecular business in the U.S., it's flattish. It's actually decreasing I believe 1% versus Q3 last year, and this is due to the fact that there has been a softening of volumes clearly from the peak that the industry enjoyed in Q1 of 2021. I think what is noteworthy is that when it comes to the instrument sales, we are EUR 7 million down versus last year, and this is explainable by the fact that all the emergency funding that was available in 2020 to buy instruments and now it is really dried down. And so today, we are converting. Clearly, we're not selling systems any longer. We are placing system under the reagent rental business model, which is what, as you know, we've always been doing before the COVID pandemic and emergency funds became available. So overall, the business is flat, but the CLIA is clearly very successful in the U.S. Now if we move to China, year-to-date is plus 28%. Quarter 3 is plus 5%. So we see that in China, there is a recovery compared to the backlog of 2020, although I believe that there are a couple of things that are not working in this geography. First thing is that there is volatility impacting volumes, and this has to do with the fact that in order to fight the pandemic, there are continuous lockdowns in different provinces and cities. And every time there's a lockdown, certainly, the routine testing is suffering. The second effect that is noteworthy is that we start to see, as everybody else, price effect due to the fact that these provincial tenders are entering into effect. There has been a report which has been issued couple of days ago by one of the primary research firms in the U.S. It was actually saying something interesting about the standards, DiaSorin has been one of the companies that has been on the winning side. So we won a certain number of provincial tenders, although it is very clear that the pricing structure for some of the European assays like the thyroid and oncology products that today are really suffering the competition from local manufacturer. The price pressure certainly is very different from what we used to enjoy when we were going to each hospital offering our product. So I believe that as far as China is concerned and as other manufacturers have expressed in the last few days, I believe that the future for China is quite uncertain and quite difficult really to predict what is going to happen in the next few quarters in this geography. So I believe that from an overall geographical perspective, though, today, the U.S. do represent 50% of the DiaSorin business. And strategically, if you remember, when we were commenting about the Luminex acquisition, one of the reasons why we want -- we bought Luminex is because we strongly believe that the market today guarantees growth, good pricing and work for innovation in the U.S. And DiaSorin is very well positioned to enjoy this opportunity. COVID, a little bit the elephant in the room. So today, COVID including Luminex, and again, sorry for change in the perimeter, but I think this is important, COVID for DiaSorin does represent today 30% of the overall business. Year-to-date, the business has been growing nicely, around 55%, 57%. When it comes to the last quarter, it's plus 5%, certainly with different dynamics about -- between the U.S. and Canada and Europe, which I've been discussing before. It is quite difficult to predict, in my opinion, what is going to happen to COVID as I think, again, other operators have been commenting in their quarterly results. And so -- but today, again, when it comes to Europe, we see a steady demand. And when it comes to the U.S., we certainly see a decrease in testing volume compared to peak of around 30%. But the demand is, at this point, relatively flat in the last 2 to 3 months, okay? So we now need to really wait and see what is going to happen during the upcoming flu season or respiratory season. Today, I always provided you with also volume, testing volume in terms of manufacturing. Today is a combination of DiaSorin and Luminex. We are shipping roughly 1 million testaments of COVID products. Then I'm going to make a comment about Luminex. As you know, we have incorporated our Luminex for the full quarter and roughly EUR 90 million of revenues in the quarter. The acquisition has been completed in July. Since then, we have started to work with the Luminex management on the integration. We have recently announced the new organization where we do have now a management team that is a combination of DiaSorin and Luminex managers that will have the responsibility to lead the company forward. We are completing the integration plan that will be presented to the Board of Directors in December, and it is going to be disclosed as part of the December 17 Investor Day when, in broad terms, we're going to talk about what we intend to do with Luminex. Now we intend to leverage all the assets that actually Luminex has brought to DiaSorin. I make one more comment about the Verigene II platform that, as you know, is one of the key platforms or key technologies that we acquired through this acquisition. We intend -- we are planning to have a soft launch of the Verigene II in 2022 ex U.S., so in Europe, and then we're going to have all the submissions in the U.S., where we expect to launch the platform in 2023. The platform is going to be renamed. So the Verigene II name is going to be soon abandoned and is going to be substituted by the new name, which is LIAISON Plex. And this is because this platform does complete the product portfolio of DiaSorin that I remind you is going to be made of the MDX plus which will be the platform that can offer small plexes. The LIAISON Plex, which will be the one that will allow us to develop high complex panels and the LIAISON NS that will be the one that we are going to use for a decentralization of molecular testing, alongside the ARIES platform, which is the legacy from Luminex, the ARIES platform from Luminex that today has been successfully launched in Europe in -- sorry, in the -- primarily in the U.S. with an installed base of roughly 70 systems to be placed in some European countries. One thing that is worth noting is the fact that when we look at the customer base in the U.S., what is very interesting is that Luminex is primarily offering its products. I'm talking about the IVD product to the hospital market. There are over 700 hospitals that the company is selling to in the U.S. And DiaSorin has roughly 250 hospitals that we are serving and supporting. And the interesting part is that only 70 hospitals in the U.S. are overlapping. And so we believe that there is a very interesting opportunity for cross-selling products in this hospital base. You know that DiaSorin made for the hospital segment one of its primary target to develop the U.S. market. The reason why there is no overlap between the 2 companies is because DiaSorin did develop the installed base using the LIAISON XL. And so XL certainly requires certain testing volumes in immunoassay, and the hospitals that typically were running these volumes were large institutions in the U.S. Whereas as far as Luminex is concerned, they've been serving this market really starting from a mid, low throughput system, which is the Verigene platform -- the Verigene I platform and the ARIES. And therefore, they traditionally have developed their business in the mid-segment -- midsized segment in the U.S. And this provides a phenomenal opportunity, in my opinion, to the LIAISON XS. As you know, we are waiting for the approval of the TB assay on the XS. We already have all the other products, the stool products and the PC team already are ready to go as soon as TB is going to be migrated there, and we expect to hear something from the FDA by year-end. Then we are ready. We have an available market of over -- almost 700 institutions that we can go and sell the XS, too. So I'm very excited about this cross-selling opportunity that the Luminex acquisition has provided to us. Now I think now I'm going to turn the microphone to Piergiorgio, and he's going to take you through the financials, and then we're going to open up the session -- the Q&A session. Thank you.

Thank you, Carlo, and good morning, good afternoon, everybody. In the next few minutes, as usual, I'm going to walk you through the financial performance of DiaSorin in the first 9 months of 2021, and I would also make some remarks on the contribution of the third quarter and on the impact of the Luminex business, whose acquisition has been completed on July 14. Again, please note that we are consolidating a full quarter of Luminex into DiaSorin financials. So said that, I'd like to start with what I believe are the main highlights of this period. On July 14, we closed the Luminex transaction for a total equity value of $1.8 billion. And starting from Q3 '21, Luminex financials are consolidated into DiaSorin. Please let me remind you that the acquisition has been financed by a mix of a bank term loan for USD 1 billion 5-year tenure and the 0 interest convertible bond for EUR 500 million with 2028 maturity. Revenues as reported, so at current exchange rate and with the contribution of about EUR 91 million of the Luminex business, grew by 41% year-to-date and 51% in the quarter. The growth at constant exchange rate and scope of consolidation in the 9 months is 29% and 10% in the quarter. These numbers, as we will see, are in line with the higher range of the guidance we provided in July. Q3 '21 gross margin at 65% is below last year, which closed at 68% because of the expected dilution of the Luminex business. The year-to-date margin at 68% is substantially in line with 2020. Likewise, Luminex consolidation has had a dilutive effect on Q3 adjusted EBITDA margin, which closed the quarter at 41% vis-a-vis 46% of 2020. Once again, this is in line with our expectations and the guidance we provided back in July. Lastly, we keep confirming our ability to generate a very healthy free cash flow, EUR 224 million in the first 9 months of the year with an increase compared to 2020 of EUR 71 million or 46%. The net financial position is negative for EUR 1.5 billion with EUR 330 million cash position -- positive cash position. Let's now go through the main items of the P&L. So September year-to-date revenues at EUR 859 million grew by 41% or EUR 249 million compared to 2020. Three drivers are behind this variance. The sales ex-COVID and Luminex grew by EUR 65 million or 15%, 17% at constant exchange rate. Then we have the contribution of COVID sales, which grew by EUR 93 million or 56%. The growth at constant exchange rate is 60%. Luminex, which is a difference in scope of consolidation, which accounted for EUR 91 million. September year-to-date gross margin at EUR 580 million grew by 38% compared to last year, closing the first 9 months of 2021 with a ratio of revenue substantially in line with 2020. As said at the beginning of my remarks, the difference with the previous year is mainly driven by the inclusion of the Luminex business in the scope of consolidation. This is even more clear when we consider the gross margin ratio of the quarter, which closed at 65% compared to 68% of 2020. Let me please remind you that this variance again is in line with our expectation and the guidance provided. September operating expenses at EUR 243 million grew by 24% compared to 2020, with a ratio of revenues of 28% vis-a-vis 32% of the previous year. The increase in the OpEx ratio of the third quarter from 28% of last year to 31% of 2021 is due to the very same reason highlighted for the gross margin, the consolidation of Luminex into DiaSorin numbers. Once again, let me remind you that this is in line with what we forecasted, and we are expecting this ratio to diminish as the integration process will move forward, and we will deliver the synergies discussed during the call we had when we announced the Luminex deal. Year-to-date, that operating expenses at EUR 23 million increased by EUR 12 million compared to last year. This variance is almost entirely driven by the one-off expenses related to the acquisition, which accounted for about EUR 16 million. As a result of what just said, September EBIT EUR 314 million or 37% of revenues has increased compared to 2020 by 47% or EUR 101 million. Interest expenses at EUR 14 million are almost completely driven by the bank term loan and the convertible bond to support the Luminex acquisition. Let me please remind you that this number includes about EUR 3.5 million of nonmonetary interest driven by the convertible bond. This is just due by how the IFRS is dictating the way to account for interest on convertible bond. Even though let me remind you that the convertible bond was issued with 0 monetary interest rate. The tax rate at 24% is substantially in line with 2020, which closed at 23%. And this brings us to the net result, year-to-date net results at EUR 229 million or 27% of revenues, which is higher than previous year by EUR 67 million or 41%. Lastly, 2021 adjusted EBITDA at EUR 383 million or 45% of revenues is higher than 2020 by almost 50% or EUR 125 million. The variance at constant exchange rate is positive by 51% with a ratio over revenues of 45%. The adjusted EBITDA ratio in the quarter is 41% and is lower than 2020, which closed at 46% because of what we said before, the dilutive effect of the consolidation of the Luminex business. And as I said before, for the OpEx, let me remind you that this is in line with our expectations. I want to make it very clear. And it's coming from the lower operating leverage in the Luminex business. Let me now please move to the free cash flow. As usual, in the first 9 months of the year, the group generated EUR 224 million of free cash flow vis-a-vis EUR 153 million of 2020, with an increase of 46% or EUR 71 million. As discussed back in July, I believe it is worth underlining that in 2021, we have had a much higher tax cash-out compared to 2020, EUR 78 million vis-a-vis EUR 23 million. The difference has been driven mainly by 2 elements: a different phasing accounting for about EUR 50 million and about EUR 35 million driven by the higher profit compared to the previous year. Lastly, let me please move to the 2021 guidance, as usual, at the previous constant exchange rate. So delighted at the performance of the third quarter and what we expect for the remainder of the year, the guidance for 2021 has been in case compared to July. In order to make the numbers comparable with 2020, we will also provide, as we did in July, a breakdown of the revenues between DiaSorin and the Luminex business. So the new guidance is calling for a total combined revenues increase at around 40% and the total combined adjusted EBITDA margin at around 43%. Besides the solid revenues forecasted to increase at constant perimeter of consolidation and exchange rate by around 18%. Before concluding, please remember that DiaSorin financials are exposed to the U.S. dollar, as we always remind everybody, and even more so now that the United States represent about 50% of the total group sales. Therefore, as a rule of thumb, for your modeling, consider that for every $0.01 movement of the dollar against the euro, DiaSorin revenues moved by about EUR 6 million on a yearly basis. Now let me please turn the line to the operator to open up the Q&A session. Thank you.

[Operator Instructions] The first question is from Alexander Berglund with Bank of America.

Actually it's 2. I'll start. Just wanted to get your thoughts on just kind of recent news on the COVID pill and how you think that might affect testing for COVID, if at all? I mean I always assume you need to have a positive COVID test before you taking any pill. But I just wanted to check if you think that kind of maybe on the margin, it could actually increase some testing as people get less cautious and -- or a few people that are kind of a bit more resistant to a vaccine who might can consider not taking a booster shot. So that was my first question, and I'll let you answer it and I'll follow up with another one.

Yes, I'll take the question. Look, you know the day we announced the pill, I think the whole industry lost over 5%. The company that is making the mRNA for the vaccine lost 19% that day. So I say there has been a lot of overreaction. When it comes to testing, as you said, rightfully so, you don't get it. This is not an aspirin, so you're going to get it under medical advice and you're going to get it once there is a confirmation that you have contracted COVID. To be honest with you, I don't think that when it comes to volumes, testing volume, this is going to have a positive or a negative effect more than I believe the fact that the vaccination and the fact that now the boost is going to be made available. Certainly, it's going to affect testing volume, I believe, next year, especially when it comes to the asymptomatic testing, right? Because let's not forget that a lot of testing and testing volume came from asymptomatic testing. There is a testing that will remain. It has to do with the fact that everybody admitted to a hospital is going to get tested. You're going to have professional testing. You're going to have airline testing, da, da, da. But believe me, I'm not losing sleep on the effect that the pill is going to have on the business. I think the COVID business, as said, is going to be affected by other factors.

And then just kind of moving on to kind of the base business. I mean I had a couple of feedback today that some people were kind of expecting a bit more kind of about the recovery of the base business, especially kind if you look at it compared to 2019, so looking at non-COVID. I was just going to get kind of your sense, and you kind of mentioned a little bit about what's been going on. But if -- how are your kind of expectations of kind of non-COVID business recovery? And how are you kind of seeing -- are you seeing any kind of inflection points in the trends given now that we're already quite far into the fourth quarter? If there's anything you can comment on that, how it's doing right now.

You are referring to 2019. Look, if you compare 2021 to 2019, I think there are 2 elements that make the comparison -- the overall business comparison difficult. The first one, I said, we are missing a very large Vitamin D contract that now the effect is going to be felt throughout 2021, and then it's going to go away, clearly. The second effect though that everybody is forgetting is the fact that in 2019, we had x-D still, an ELISA business that was coming from Siemens. 2019 was the year when we are still shipping the ELISA that we did not convert to the LIAISON. And all that business pretty much have operated in 2021. So this is why I keep saying, if you really look at the -- you need to look at the component of the business, which has to do with the CLIA and CLIA growth, you need to look at Vitamin D. And in the Vitamin D element, as I said, minus 8.7%. There is a negative effect of it and a positive effect to the fact that some of positive impact of COVID and COVID testing for Vitamin D on patients. And then clearly, you have on the molecular part, which has to do with COVID. So I don't understand why you are not -- you don't see the growth of the base business because to me it's exactly the opposite when it comes to the XL 440 placements year-to-date. So again, it's going to be -- we're going to be placing over 550 systems considering a slowdown of China, which is telling you that placements are not slowing down in the other geographies. Actually, they are picking up. The CLIA business again and the success of some of the programs we are conducting together with some of the partners like the QIAGEN or internally-developed products is growing very, very nicely. And on top of it, when it comes to the base business, we are weeks away from launching the MeDed assay. We are the only company that will be able to carry that product on the platform and very excited about that. Last but not least, as I did comment on the LIAISON XS, we have 700 hospitals in the U.S. that today are DiaSorin customers, and we are on the verge of launching the LIAISON XS in the U.S. with and the rest of the menu. So I'm very excited, to be honest with you, about the base business.

Carlo, if you can just add a comment for the benefit of Alex. Usually, we've always looked at the CLIA ex Vitamin D and ex-COVID as a proxy of how the base business is going. And I believe I didn't mention it in my remarks. But if I look at Q3 data, CLIA ex Vitamin D and ex-COVID over 2019 is growing by almost 20% at constant exchange rate, 19% with the size. So this is just to confirm all of your comments on the growth of the base business.

The next question is from Hugo Solvet with Exane BNP Paribas.

I have one on Verigene II. Carlo, you mentioned in the call the 2023 U.S. launch. Can you maybe give us a bit more detail on the exact timelines and phasing for this launch? Should we assume that similar to Europe, you will have a soft launch period in the U.S. during which you will probably upgrade the existing customers? So just wondering when we should expect sales to kick in from the U.S. from the Verigene II. And what menu would you expect to have by 2023 in the U.S. and in Europe? And one question on China. China is up 5%. Can you maybe remind us here what business lines are impacted? And how should we expect the recovery? And one last on the margin. You strip out for us Luminex on the top line. Can you maybe help us understand what are the moving parts on the EBITDA margin? And what would that be in the margin excluding Luminex?

Okay. In terms of color on the Verigene II of the LIAISON Plex launch, I think you will need to wait until the December 17 Investor Day because I believe we're going to be more specific about this. What I -- today, there are 5 panels that are in development, the respiratory included clearly, which has been extended to the COVID product. You have the blood culture, 3 panels. You have the GI panel and then you have the CNS panel that is the one that was -- where the Luminex started development later than the other. The bad news about the Verigene II is that the company intended to start launching the product starting from the end of this year. But due to the fact that the manufacturability of the cartridge and the instrument is not where it should be in terms of being able to face the demand that we foresee for the system and we decided that we were to make an investment into bringing up all the lines that today are sitting in Chicago, not validated, moving away from a manual manufacturing into the manufacturing line that is validated and the final manufacturing line. And this certainly is generating delays vis-a-vis the launch, but then we also believe by the same token it is guaranteeing a more robust product. As far as the good news is concerned is that product development has continued in parallel. And now rather than launching the system with just one panel, we plan to have the completion of the menu happening very rapidly after launch. Certainly, this is the benefit of the delay in the cartridge and system availability from an industrial point of view. But again, in terms of positioning, in terms of expectation, I think you need to wait a few weeks until we have made everything at the Investor Day. As far as China is concerned, plus 5%. Look, as I said, there are 2 -- there are 3 things that are happening today and they're not happening today, sorry. I think I already -- I heard a few calls from other companies and everybody has pointed with the same direction, and it's price and it's the protectionism of the government vis-a-vis the local suppliers. When it comes to price, we already did comment on that. There is an effect of official tenders, which is really a reset in the base for some of the 2 products. When it comes to the protectionism of the Chinese government, well, you can read the financial time, but it's very clear that today, there is a preference of the Chinese government to the Chinese suppliers. And when possible, there has been an acceleration of a strategy that, if you remember, was set in place with a target date of 2030 of having 50% of the medical supplies made in China. I believe that there is today a desire and an ambition to actually make this happen much faster than we thought. And as far as we are concerned and as far as how this is going to affect the business, look, I think short term, there is going to be an effect of the business -- Chinese business, because there is really nothing you can do if a provincial tender is asking you to be a Chinese manufacturer and you're not, and so you are excluded from the panel. And by the same token, I believe that we've initiated, as you know over a year ago, the construction of our manufacturing site in Shanghai, which is proceeding. And I believe that what this is teaching to all of us is that you cannot be half pregnant in China. So you have to be perceived as a Chinese local supplier with products that are also directed to the Chinese market, which, in some cases, are different from what we offer in the U.S. and in Europe. So fundamentally, I believe that we are at a crossroad today, where either you decide that you develop a Chinese brand with Chinese products or you're going to be strategically excluded from that market. And so the discussion we're having internally is that we really need to develop our strategy that goes behind what we had in mind and developing a Chinese set of products and Chinese manufacturer product just dedicated to the Chinese market.

I believe, Carlo, there was a question on margins, so I will take it. For Luminex, so we are not going to disclose a detailed margin for the Luminex business going forward. But if you just do some reverse engineering on Q3 numbers comparing to Q3 2020, what you would see is that Luminex gross margin for the quarter is around, let me say, 55%, 60% compared to the DiaSorin usaual margin, which was 68%, 69%. And if you go down to the EBITDA level for the quarter and you do a similar reverse math, you would get to a number which is around 25%. Again, this is quarter 1. This is without including all the synergies which we discussed about, and which will come from the integration process of the 2 companies. One last comment, this is a touch better than what we modeled and what we use for our guidance, so I believe we are absolutely comfortable with the numbers we are seeing.

Okay. And just a quick follow-up on those synergies given that the Verigene II launch is now expected a bit more far out in 2022 and 2023. Should we expect the impact from the synergies to kick in a bit later than you usually thought?

I believe -- yes, yes, I will take it, Carlo. I believe we would -- again, we will be more detailed and we will give more information during the Capital Market Day, which is going to happen in 1 month from now. But when we did our modeling in terms of synergies, we gave a number, which if I remember, was $55 million on the cost side. We didn't put any kind of -- we didn't share any kind of number in terms of revenues on the top line. So I don't believe that any discussion we're having on Verigene II is going to affect our synergies on the integration process side. Quite the opposite in terms of revenue side, I believe Carlo commented pretty well about the good opportunities we see from the 700 or so hospitals to which we can go and offer our XS with our menu, which was not included in our modeling and in the synergies we gave. So I -- still, I don't think that this comment on Verigene is going to have any effect on how we see the business going forward.

The next question is from Maja Pataki with Kepler.

Three questions from my side, please if I may. Carlo, you're moving up the revenue guidance to the upper end of where we were in H1. And yet when I listen to your comments about COVID testing and volumes, it doesn't really sound like you changed your view very much. So I was trying to understand what is the reason that you expect now to come in at the upper end of the guidance. If you could just share some thoughts on that. The second question is, as usual, about the point-of-care rollout that you're doing in Italy. Can you give us some feedback on how it's going? What is the feedback? What is the demand that you're seeing for that product? And then I'll follow up with a third one.

I'm going to make a qualitative comment and then P.G. can actually add to this. So it's not -- I believe that when -- let me say the visibility that we have today with COVID versus what we had when we actually gave a guidance is really -- is allowing us to be more precise. And I think it's fair to say that compared to a gloomy scenario, that could have been possible and some as anticipated vis-à-vis COVID in this flu season. I believe that quarter 3 was higher than everybody in the industry was anticipating. I believe, Maja, that the question mark still is in Q4, but not necessarily whether Q4 is going to be lower than Q3. The question is whether Q4 is going to be higher than Q3 or not and the impact of the differential diagnosis vis-à-vis the respiratory season, right? So everybody coughing from now on with some fever will have to go through some sort of differential diagnosis. And the question is, in those countries like the U.S. where there is an extended, I think, a liability of over-the-counter testing, I believe that, that volume is going to be captured primarily by the over-the-counter test in other geographies where the over-the-counter like in Europe did not really pick up because not sponsored by the government. You're going to have an increase in testing volume because it's going to be done in laboratories where all the traditional operators are operating. So this explains, in my opinion, now the comfort that we have on the upper end of the guidance. But P.G., do you want to add more?

No, Carlo, that's exactly right. I mean the rise in the guidance is coming from a better Q3 mainly driven by COVID. If you do the reverse engineering, what you would find out is that in Q4, what we are expecting in terms of revenues is a similar number to the one we saw in Q3 and with an EBITDA margin of around in the quarter of 40%, 41%. So if the visibility we have in Q3, I mean, is the actual, as you said, is the better sales, COVID sales we had in Q3.

Maybe just a quick follow-up. Carlo, you have been fairly negative in the first half of the year on what you anticipate to happen with the COVID pricing. Can you just comment whether you start to see some pricing pressure on COVID testing or whether that still hasn't really materialized?

No. Up to today, we have not seen any price effect, but this is because in the primary geographies where we operate, there has not been a reduction in reimbursement. So in the U.S., reimbursement continues to be same level as before. In Europe, in Italy, where, again, a second largest geography for us, the government with the emergency decree is actually the one buying the products at the fixed price from the different suppliers. So that will guarantee that there is no price erosion. Spain, very similar where we have contracts where, for the time being, the price stays as is. So I do not expect in Q4 price effects with one exception, which is on the overall one is the mix because as you well know, in Italy and Europe, we sell COVID at 25% -- 20%, 25% price discount compared to what we offer at in the U.S., and this is again, has to do with the different reimbursement system in the U.S. If I can move to the LIAISON IQ, which I think is your question. The program is proceeding in Italy. But I have to tell you that there is a problem, and the problem has to do with pricing because I believe that there has been overflow of products made in China that have been flooding the European market since we don't have the EUA approval system that I believe has sheltered the U.S. from this. Today, you can go to a pharmacy and Chinese are offering these products lateral flow without much sophistication at EUR 1.3. So you're getting to a point where you need to make a decision vis-a-vis do you want to make money or not on this lateral flow. And if you just sell it in the European market, I believe that the situation is very different when it comes to the U.S., where I believe one of the primary companies providing this is using $9 as an end-user price. So if you operate in Italy, today, you want to really decide if this is worth or not. And so for the time being, we have been disciplined in terms of only providing this system to those pharmacies that appreciate the technology-added value that we provide, so not a simple strip, but the instrument addressability and so forth. But certainly, the opportunity is shrinking unless you accept dumping on price, which is not what we are famous for.

Okay. And maybe my last question, now I remember them, I'm sorry. I was wondering if you could give us some qualitative statements around the growth in Luminex in Q3 for the various businesses just to -- if you don't want to touch numbers, that's fine, but just give us a bit of a feeling how things are going.

Okay. I'm not going to touch numbers, and I'll give you a feeling. How about that?

Perfect.

Okay. First, you need to take into consideration that when you are comparing Q3 to Q3 in this company, you're really comparing for certain product lines apples with oranges, and let me explain you why. In quarter 3 last year, so this company as far as COVID is concerned has 3 products, of which one is the ARIES which is the single plex. The other one is related with Verigene I and Verigene II, which were plex panels. Certainly, these plex panels are very manual and they do not stand vis-a-vis a product which are offered by competition. But back then, I remember there were shortage all over the place, so hospitals that had the Verigene I platform or the next tag, they were actually taking whatever companies were making available with them. So there has been a spike that back then that today is not repeated, notwithstanding the fact that there is COVID testing volume simply because they migrated away from these more manual solutions to more automated solutions, okay? So as far as -- so you need to clean the numbers of the company if you compare to Q3 last year from this spike effect that is not repeated. If you take that away and you look at the plex business, it is fairly stable. And this is one of the reasons why, again, we bought this company because there is $120 million of business ex-COVID effect between Verigine II and expect that it's a nice solid business and it's a business where we tend to build clearly growth for -- with the launch of the Verigene II LIAISON products. When it comes to the ARIES, I believe that compared to last year, we are miles better than where we were. And this is to the fact that we have been able -- the company has been able really to bring up the manufacturing volume and stability in manufacturing. And today, we are really serving -- we are selling like around 230,000, 240,000 testaments of this -- of the cartridge. And back then, I think that we're at 50,000. And so you understand that there is -- and not because there was no demand but because there was no ability to manufacture at that point. So that component is doing well. And also, we keep placing some of the ARIES system in Europe and in the U.S. So that's proceeding fine. When it comes to the LTG, business is booming. I mean if you look at the growth versus last year, it's around 20%. And the reason is that there is -- this business is not a life science business. And during the -- when we're going to have the Investor Day, we're going to clarify this. This has nothing to do with life science. This business fundamentally has to do with the fact that the multi-facing technology that this company invented 25 years ago has been made available to partners like Thermo Fisher, BioNTech and so forth with instruments that the company makes. And this -- the bids and the system have been utilized by these partners to develop products in the space of research, clinical research or like for Thermo Fisher One Lambda in the case of transplant IVD. The fact that, clearly, some of these programs have been very successful. If I look, for example, at the Thermo Fisher business when it comes to all the protein testing, the antibody testing business is booming or when I look at the fact that in life science, billions and billions of dollars have been put and will be put into the U.S., especially by the path and [indiscernible] expression. That explains why this business is really growing significantly. And I see this, again, as an opportunity in some of these fields to work with the partner and now launch programs, which would include also LIAISON technology in some clinical spaces where we believe the multiplexing plus the LIAISON technology can really offer an opportunity to the partner. So it's a very profitable business, by the way. As you understand, it's a solid business. This compares to be manufacturing for 20 years. So that component, I think, is performing better than what we expected, and we expect this to be in line in terms of growth to -- not diluted vis-a-vis the group revenues growth in the foreseeable future. Again, Maja, we're going to be discussing this better and more specifics during the Investor Day.

The next question is from Peter Welford with Jefferies.

I've just got 2 left, I think, please. Firstly, just to try to understand with regards to the cost synergies. How much of that EUR 55 million cost synergies is potentially, I guess, has to be delayed or slowed down given the need, as you said, to invest in the manufacturing improvements that you're doing? Or should we regard that as anyway been, if you like, than just the -- some of the investment you're doing in Luminex is more offsetting, if you like, upside or near-term upside to about EUR 55 million? So I guess what I'm asking, is there more expense than you'd initially assumed required in the near term? Or is that to some extent anyway offset by conservatism in that original EUR 55 million aim? Second question then is just with regards to the Luminex platform itself. I think there's been a lot of discussion around the -- one of the issues in the way we actually use these cartridges has been -- there's been a reasonably high benefit to some of the peers, error rate initial using them. Just wondering whether you think the manufacturing changes that you do, will that also improve the error rates or is this purely focused on the manufacturing and the warning letter? And what steps are underway to potentially improve the reliability, I guess, of the Luminex system before you roll it out under your name?

Okay. So as far as the synergies are concerned, we said EUR 55 million, and they're going to come alive in the next 3 to 5 years. I'm very comfortable about the synergies. I don't think there's going to be any delay. We actually took into consideration the fact that we are going to -- some investments are going to be necessary in order to achieve some of these synergies. But very comfortable with that number, and I don't think there's going to be a delay, and this has nothing to do with the Verigine II manufacturing. When it comes to the Verigine II, the cartridge, I think you put it in the right term. Look, we -- this company, when I learn about this company is that it is still a notch away from being an IVD consolidated manufacturer. And this is clearly explainable by the fact that if you think about this company was actually built around the research, very successful research products. Today still, as I said, the hard core of this company, the Luminex is that business. And then the company stepped into -- tried to step in to accelerate growth in diagnostic buying technologies or buying other companies around the globe, around the U.S. and bringing that IVD well-needed infrastructure to the company. The problem, I believe that some of the companies that have been bought were small and not necessarily properly structured. And certainly from a quality from a quality system point of view, I believe, behind what are the expectations in modern IVD, I believe the 483 that was actually given to the company had to do with some of these delays or some of this -- the way that the company was operating that we are in the process of correcting. By the way, we have decided that we are going to participate to -- and we've been accepted to participate through a pilot program that the FDA has issued in the U.S., where 9 companies are going to be enrolled into a program where agency together with a consulting firm that the agency has actually selected to use. They're going to be working with the company for 18 months. During this 18 months, we're going to redesign the quality system, and we're going to redesign it in light of what are the most recent expectations by the agency. And this, to me, is great because as far as Luminex is concerned, it's clearly focusing the people to the program. It's giving a free access, by the way, to one of the top notch consulting firms that the FDA is putting -- is making available at no cost to the company to redesign the quota system. And my expectation is that at the end of this process, 18 months from now, we're going to pretty much exit this program with a very modern up-to-date and FDA blast coexisting. Okay? As far as the cartridge and what you said, again, I think you are very right, and the problem is that the cartridge we found and the manufacturing system we found over here was not really ready to launch product. It was ready for prototyping launch, which is not a tradition of DiaSorin. Being an IVD supplier, we look at products -- finished products are launched in the market. Also, we are talking about a much bigger commercial infrastructure, so we would expect the ramp-up of volumes to be faster than prior with Luminex, and we did not feel that we could really go to the market with the manual manufacturing lines and a process that was very cumbersome, prone to errors. Whereas the company already ordered some fully validated, completely automated lines that now we are in process of validating and putting it into operation. And then we are going to conduct clinicals then with a much better process under control. So long story short. We always -- it's very clear that when it comes to multiplexing, this is not a space where we're going to be pioneering. It's a space that today already has good solutions. And so the only way, in my opinion, to make it to that space is with a system that is very solid and stable with the complete panel. And what is very attractive of this system, in my opinion, is the flexi concept, the ability to utilize the flexi concept that provides flexibility of the launch of the panels in -- especially in the European countries where other reimbursements are different and also in the U.S. where there has been recent pushback vis-a-vis the complexity of the panels that are offered by the competition. Clearly, if you want to make money with the flexi concept, you better have your manufacturing costs under control because certainly, there is a margin effect on the flexi concept, and this is why the company more established today are selling products that cannot really go back to that concept. They will be killing their business. As far as we are concerned, we want to have all ducks in a row and manufacturing costs under control before we launch it. So we will launch it, we're going to make money, right?

The next question is from Scott Bardo with Berenberg.

So I've got a couple of questions for Piergiorgio please and one high-level question to Mr. Rosa. Piergiorgio, I just wonder if you can please qualify. I think at the last H1 update, you provided an implicit guidance for 15% growth for your base business ex-COVID. I just wonder if you could now give us an update on what your expectation this year on that basis. So outside of the scope of consolidation ex-COVID, that would be helpful, please. And second question for you, Piergiorgio please. So the revenues coming in from Luminex, I think, were better than we expected, and I think you talked about performance being pretty decent there. Can you confirm, please, whether Luminex original guidance to the market of $480 million is still on track this year? And maybe give us a sense of what COVID was for Luminex last year. And roughly speaking, what you expect it to be this? That would be helpful. And I'll follow up with Carlo in a moment, if possible.

So let me start with the first one. I believe what we see, as we said before, the case in the guidance, we said that we are now in the high part of the range has been driven by better Q3 sales and mainly by better COVID case. I believe we have commented at length about the -- what we see in the ex-COVID business, which is going very well. And in terms of the ex-COVID sales for the business for the remainder of the year, I believe that what we said in H1 was 15%. And I think that, that is still the right number, the way in which we look at it. It's there, 1% better, 1% lower but that's the right number. In terms of the guidance for Luminex, the EUR 480 million, I believe we said a few times that when we modeled the Luminex business, we didn't take sales paid in the guidance. We didn't take face value. But annually put together which was made public in all the filing that followed the acquisition. So we didn't use that value -- face value, we used a different one, a lower one. And we are a little bit better than what we modeled for this year. Then for 2022 and so on, I believe you need to wait until the Capital Market Day when we will be more specific. In terms of COVID sales, I believe Carlo said that overall in the quarter, DiaSorin plus Luminex accounted -- COVID sales accounted for 30% of the total quarter sales. The Luminex part of those revenues, we said EUR 91 million of Luminex sales in the quarter, I believe both part number on the top of my head at the COVID-related sales, COVID only, right? So I'm not taking a respiratory panel, COVID only, is ballpark EUR 15 million out of those EUR 91 million.

That's very helpful. And question for you then, Mr. Rosa, please. There's been some market speculation about a potential tie-up combination between bioMérieux and QIAGEN. bioMérieux, of course, having [indiscernible] business, QIAGEN, of course, being a player in QuantiFERON. So I wonder if you could talk to a little bit about your current relationship with QIAGEN and whether any combination of these 2 companies could impact your ongoing relationship with QuantiFERON, align and so forth?

Listen, Scott, since I'm in Texas, I think I can use the fifth amendment, and I will not comment on this rumor and speculation because I think, again, today it's a rumor and a speculation. I can comment on the fact that the relationship today with my good friend, Thierry, is doing very well. I believe that in Europe, the program today is almost to maturity because together, we have been driving conversion and growth of this business. And today, we are working on -- actually, QIAGEN still works on driving demand. So testing volume, now that we have almost 400 accounts today that are using the product on our platforms. In the U.S., we are at the beginning of the story. We had a very successful conversion of 1 of the 2 largest labs in the U.S. to the technology. We have today a very significant number of hospitals that are using the XL. And together with QIAGEN, we are working, and we are eagerly waiting for the approval of the XS because in the U.S., we see the midsized hospital market as an untapped opportunity. A lot of this business is send-out. And we can capture the businesses at a price range that really makes QIAGEN both parties very happy. I would like just to make one comment, Scott, to the famous EUR 480 million that you were discussing about. Look, if you look at those EUR 480 million, there are 2 components to it that did not materialize. And actually, they were in the expectation of Luminex. And when we look into it, we decided to derisk. One has to do with the fact that in those numbers, you had the Verigine II launch in 2021, which we know we expect it not to happen when we make certain decisions as DiaSorin about the launch of this product. The second thing is the fact that in that assumption, there was a certain dynamic of increase in manufacturing capacity. That eventually did not happen. And so today, the volume is capped at 230,000, 240,000 testaments. I believe the plan was actually calling for an increase that would have taken the company behind that number. So if you really take out these 2 effects and if you look at that number, we -- I think we are running pretty much to where the company was saying with, I believe, a better mix which does contribute to profitability, which is an LTG performance, which is above expectations.

Mr. Rosa, there are no more questions registered at this time.

Okay, operator, thank you. Take care.

Ladies and gentlemen, thank you for joining. The conference is over. You may disconnect your telephones.