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 First Half 2022 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. Ladies and gentlemen, good morning, and welcome to the H1 conference call. I'm going to make the initial remarks on the top line by geography and by technology and then I'm going to make a few comments on some of the major events that happened in the quarter, and then I'm going to leave to our CFO for the commentary on the numbers. So starting from the technology. I will discuss immuno, I will discuss molecular, I will talk about license technology, and this last but not least, I will talk about COVID. When it comes to immuno, which I remind everybody it includes our CLIA reagents as well our residual ELISA business franchise in H1 this plus 5% which is in line with our expectations. If we look at CLIA, so we exclude the ELISA franchise that, as you know, is a cash cow for us and its declining. CLIA alone grew 7%. If now I exclude from CLIA, the vitamin D franchise, which also you know is a very profitable franchise, but not growing any longer, it's now slightly declining. Now if I look at CLIA standalone growth ex-D is growing double digit and this is fundamentally telling you that when it comes to the immunoassay franchise for DiaSorin, it continues to perform strongly following the usual strategy that we discussed many times which is positioning of DiaSorin as a specialty -- it's under specialty products that we have been launching in the last few years and we continue to launch moving forward. Now if we look at our performance by geography, what is remarkable is that the North America, today which is open, represent the 50% of our overall revenues, is by far the #1 market for the group. In North America, the growth of CLIA is around 30% if we exclude the vitamin D. That is remarkable and it is driven by the hospital strategy. I remind everybody that starting from 2019, the company put together a strategy, a combination of diversification of revenues from the original footprint we had which was centered around the commercial labs and trying to penetrate the hospital market. COVID hit. And during COVID time, on one side, we got some help at the beginning, because there was a lot of interest on serology by the hospital market in the beginning in 2021. Then COVID became more of a problem because of the availability of hospitals to accept new technologies in USA because they were very busy with COVID. But also then that notwithstanding all of this, we are on the verge of delivering our 3 years' plan, which I was calling for the creation of a new -- of 150 new hospitals in the U.S., which was achieved. And this was achieved mainly driven by a combination of menu, certainly our gastroenterology panel and the QuantiFERON have been driving this strategy. In this achievement we still don't see fully the contribution of the Luminex acquisition and this is because we spent time in -- at the end of second half of 2021 and beginning of 2022 in rationalizing our commercial sales force. As we discussed in the past, the Luminex business which is a molecular business was primarily centered in the hospital market. And we expect moving forward that our penetration in that market will accelerate, thanks to the fact that we were going to be able to cross sell across the different customer groups in the hospital market. And -- so at the end of the story, what is very important for us is that in our #1 market, which pays, as I commented many times, for innovation is recognizing the specialist that we are. We continue growth and I believe that we have a long, long runway in front of the company. So North America all good and exceeding expectations. When it comes to Europe. Europe is, you know for us is -- our data represents 30% of revenues. If we look at CLIA, we have more than 2,000 systems already installed. We have good penetration in the market. So Europe for us is more steady single-digit growth, which we continue to see. In the first half, we are actually high-single digit growth for CLIA, again, driven by fundamentally the same strategy, menu driven. We have initiated also the launch of the XS. even if I remind everybody that the XS system was designed primarily for the Chinese and the U.S. market, notwithstanding. So we have now over 100 XS placed, and now we start to see traction in the U.S. market, where we got approval of -- on the XS of -- we're, sorry, getting approval very shortly of QuantiFERON, also on the XS. And also, we expect MeMed to be validated by the fall on the same platform, on XS. So when it comes to Europe, again, solid growth. Europe for us is a geography very well penetrated. It continues to contribute to the growth of the company. Now let's move now to Asia. When it comes to Asia, we continue to see problems in China or China lagging behind. And -- the major problem on China has to do with the fact that we have an installed base of over 800 systems in China of LIAISON XS -- XL, which are primarily placed in large urban centers. And every time -- so Shanghai is a good example. We have a good chunk of business in Shanghai. And every time there's a lockdown and the lockdown, typically, it happens in the urban centers, we really suffer from the lockdown. And this is what we continue to experience. So China continues to -- revenues of CLIA continue to decline. The primary driver, again, is volume related. So as soon as China is stabilizing when it comes to the COVID policy lockdown, we believe that the business will stabilize. But still in quarter 2, unfortunately, China is declining. I remind everybody though, that today, China overall represents around 3% of total revenue. So this effect has been completely derisked from a group perspective. Now let's move to molecular. When we look at the molecular franchise, let's first discuss molecular ex-COVID, otherwise, it gets very confusing. And we'll start from the VERIGENE I business, which is a multiplexing business. It is a very resilient business, and we have experienced double-digit growth in VERIGENE, which is driven by the fact that there is a stable business when it comes to the blood culture, and there has been a positive effect clearly on respiratory because of the COVID situation. So overall, we have around 700 VERIGENE users. Certainly, some of the accounts are migrating. But by the same token, this is overly compensated by the fact that we continue to see a positive effect on volumes. So the franchise itself is growing nicely. When we look at the -- what we call molecular reagents singleplex, which primarily has to do with the technology -- the older DiaSorin MDX technology, the growth is substantial. On the reagent side we are up almost 25%. And this is a combination of 2 things: first, recovery of testing volume, which certainly during COVID, we were affected because we were actually selling -- we are selling here high profitable, but highly specialized products. So now we are back fundamentally to all the elective surgeries and everything else that is using our products on one side. But by the same token, we see that there is a continuous -- there's an acceleration, in my opinion, in the adoption of molecular technology. I think I did comment previously, the fact that one of the benefits of COVID is that there has been a dissemination of molecular platforms even in smaller institutions that were not using molecular before. And today, this is the incremental volume that we see on our installed base. So there is a very nice growth of that business, which is also a very profitable business. Where we are suffering in molecular, which is I think what is happening to everybody in the industry, is on the instrument revenue. This is due to the fact that during the COVID time, customers, because of the emergency funding, were buying instruments. And so we had higher revenues in 2020 and 2021. On the instrument side, we typically did not carry high margins, but there were positive revenues. When it comes now to post-COVID in 2022, we go back to reagent rental. And so on one side, we see placement of systems, but we don't get the revenues because we go back to the reagent rental model. So overall, the molecular franchise ex-COVID is growing very nicely for DiaSorin. Now let's look at the third leg, which is the license technology. I remind everybody that this is combination of 2 different product lines. We have Flow Cytometry, which represents around 25% of the total business. And then we have the license technology business, which has to do with partnership at Luminex and now DiaSorin has with all the primary players in the biopharmaceutical and bioanalytical business. The business overall, I remind you, that is on an annual basis for 2022 around EUR 210 million. And we are trailing to hit that target, because our partners are really growing nicely. I believe, driven by the fact that there is a flow of funding in the biotechnology, biopharmaceutical that is increasing volume consumption of these reagents. And this is notwithstanding the fact that in this business where 25% of the business has to do with instrument sales to the partners, we are certainly experiencing some issue in terms of shortage of parts. Notwithstanding the fact that there is a shortage and so we are limited in our ability to supply certain instruments, because of the mix and the ability to carefully plan the shipment of the different systems, we are able to make that anyway to top line, which is strong effort in today's reality of the supply chain and especially of electronic component that, as you know, is pretty much a [ play ] for the business. I see now we have 1 year of Luminex under our belt and we have been establishing -- reestablishing some of the strategic relationship with the partners. I honestly, I'm very optimistic about the opportunity to expand the business in the future with the partners through collaboration in developing content and/or platforms. So now that we understand the business better than clearly before, I believe this is a very important leg for DiaSorin. It's extremely profitable, and I think is very well positioned strategically. Now let's talk about COVID. You have seen that we have decided to increase our guidance to EUR 200 million of COVID revenues for 2022. I believe that what is not -- although, I think that every player in the industry is recognizing the fact that there is still uncertainty about COVID, but there is more certainty to the use of COVID and the use of molecular technology versus the antigen testing. And it is very clear today that molecular testing, which is considered more expensive, it is utilized for certain applications. For example, hospital admission typically is done on a molecular test, follow-up, patients who's done on a molecular test and so forth. However, I think what we have noticed is that there is -- it's a very resilient business, especially for that business that we have today with our platform, and I think it has been highlighted also by other companies that play in that segment of the small equipment. This equipment and this testing in small, midsized hospitals, which is where today our installed bases, is resilient. And we continue to see on a monthly basis now, we are experiencing a volume that stays constant. And what is very important to understand is that, COVID today, which used to be a seasonal disease, you've seen by the current trends, becoming non-seasonal. So it's a respiratory disease, not seasonal. And I honestly believe that there is an opportunity for future growth of this business that is not indicated in our guidance, which has to do with differential diagnosis. And if you look at what is happening today in Australia where we have the current respiratory and influenza season, we see 2 things. We see a very strong influenza season, indicating that we also in the -- anything we are going to have the same effect coming in the fall. And -- but most important, what we see is what is the co-infection, which is now expected. It's called flurona. And fundamentally indicates the fact that when patients are going to show up in the winter with a respiratory infection symptoms, not only it's important to be sharing diagnosis, but also it's important to understand if there is a co-infection because it does guide the treatment differently. So it's going to be very interesting to understand what kind of protocols hospitals will adopt for differential diagnosis. As said, our projection today is not really indicating or is not including this potential, and I believe we're going to be able to quantify this potential better at the end of quarter 3. So when it comes to COVID in summary, resilient business. We have 1,500 systems today that continue to run COVID. We lost some business but relatively small in very large accounts where initially, they were using the box, because they needed multiple suppliers because of volume. But now with more availability of high throughput system, clearly, we lost that business, which did correspond to 15%, 20% of our customer base but now the remaining customer base is again extremely resilient, okay. And my view is that at least for 2023, we are going to have a COVID testing and use of COVID, which is different from what the whole industry has projected, just 1 year ago, we were looking at how long COVID is going to stay with us. Now let me move away from revenues and let me comment more some on the effects that happened in the quarter. First, and I believe it's very important for us is that we got final approval in the U.S. of the MeMed test. It is very relevant because, as discussed many times, MeMed is in -- is a test that clearly performed in the hospital segment. The hospital traffic is the key strategy for the U.S. So this assay in the U.S. is key to the future strategy. Our partner MeMed is working in the U.S. in the promotion with the medical doctors and is also working on obtaining the reimbursement. And so this approval, which came unexpectedly in a sense because we really didn't know how long this will take. But it took a relatively short time, 6 months. Now it's putting us in a very good position to gain from incremental revenues from the product. The second comment I would like to make is to do with integration. In Luminex, the integration is proceeding as expected. And synergies are in line with the goal that we have outlined during our investor meeting or the 5 years plan meeting, which I remind everybody was to achieve $55 million in savings by end of 2023. So a running rate in 2024, we are in line with that goal. And so I feel very comfortable about the savings that we promised as a result of this acquisition. Let me also remind you that saving is -- does not necessarily represent -- does not necessarily mean cost savings, but it means also a better way to do business. Because one of the problems that we found in Luminex many times is that it was very convoluted in a way it was managing the business. So streamlining some of the processes really improve productivity and therefore, are allowing us to serve a growing business with a lower cost base. The third element that I would like to discuss has to do with the fact that is inflation. And I know that our CFO, Piergiorgio, is going to get more into the numbers, but let me just give you a couple of remarks. Inflation so far for DiaSorin has been manageable, I would say, and we have calculated that on an annual basis, it will represent an increase of the cost base of roughly EUR 15 million which certainly is an increase compared to previous years. But if you look at the cost base of DiaSorin its less than certainly other industries or other competitors. The primary driver for the inflation for DiaSorin is the logistic cost, which -- that represents almost 1/3 of this one. And then the second element, which is important for us is with the cost of labor inflation, especially in the U.S. market, where we know there has been a shortage of people and that clearly demand higher, okay? So overall, yes, there is an inflationary effect, effect on our numbers, we already have almost half of the EUR 15 million in our H1. But it's certainly manageable and for the time being, is not an area of concern. Last but not least, we finally have a management in placing Luminex. Our President joined the company, it now has been 3 months with the company. Angelo is with us and is taking the helm of the company. And I'm very happy about this because I believe that Luminex has a ton of opportunities in the future in terms of technology carriers, in terms of products, in terms of opportunity to improve profitability, And key was to have a senior leadership in place. Now we have it and welcome Angelo and I'm very comfortable with the fact that you're going to be delivering growth of this business in the next 3 years. Now I'm going to leave the rest of the financial comments to Piergiorgio and start our Q&A session. Piergiorgio?

Thank you, Carlo. Good morning and 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 2022. And I will make some remarks on the contribution of the second quarter. Let me please remind you that consistently with what we did over the last calls, in order to better understand the performance of the business, I will refer to adjusted P&L items. Therefore sterilizing the impact of the following Luminex year, so to say, related elements. The one-off acquisition and integration costs, the purchase price allocation and the cost of financing and lastly, the tax impact of all of these components. The press release available on our website, we are providing a line-by-line bridge between adjusted and IFRS items. So that, as usual, I would like to start with what I believe are the main highlights of the period. H1 '22 total revenues at constant exchange rate grew by 25% or EUR 129 million vis-a-vis 2021. The immunodiagnostics franchise, ex-COVID, grew by 5%, driven by a low teens increase in CLIA ex vitamin D, partially offset by the expected slightly negative performance of vitamin D and ELISA. The molecular business ex-COVID growth is mainly driven by the difference in net of consolidation and by the very good performance of DiaSorin molecular reagents. The license technology franchise variance year-over-year is all due to Luminex's contribution. Moving to the second quarter. The total revenue growth at constant exchange rate is 22%, and the business drivers behind these variance are very much the same discussed for H1. To be noted that Q2 '22 growth ex-COVID is broadly in line with the result achieved in Q1 '22. Now moving to COVID. Sales did better than expected and recorded a decrease in the first half of the year of 21%. And in the second quarter of 35%, both variance is at constant exchange rate. This is a result of a material decline of immuno COVID sales, though in line with our expectations and a better performance or a lower decline if you wish than anticipated of the molecular business for all the reasons that Carlo just talked about. H1 adjusted EBITDA at EUR 269 million recorded an increase of EUR 25 million or 10% compared to 2021, with a margin of 39% on revenues compared to 47% of 2021. The expected decrease in marginality is the result of the combination of a diluted gross profit, mainly driven by a different product mix and a lower operating leverage, mainly driven by Luminex contribution and lower COVID sales. Both these elements are in line with the assumptions we made at the time of Luminex acquisition and are embedded in the outlook shared during the recent Capital Market Day and the updated guidance we have released today. We keep confirming our ability to generate a very healthy free cash flow, almost EUR 140 million year-to-date with an increase compared to 2021 of EUR 13 million or 10%. As you might remember, when we released Q1 '22 results back in May, we announced that DiaSorin Board of Directors resolved to launch a share buyback program for a total maximum of 1.5 million treasury shares to support the potential settlement of the outstanding convertible bond and the management equity plan. Within that program, as of the end of June, DiaSorin bought back about 530,000 shares for an equivalent amount of EUR 62 million. On a different note, and before moving to the main items of the P&L, I would like to provide some comment on the impact of the inflationary pressure on the DiaSorin total cost base. If I well remember, during Q1 '22 call with the market, we said this impact to be around EUR 7 million, EUR 8 million on top of quarter already embedded in our 2022 budget projection. Now everybody understands that this is a moving target, and there is a certain approximation. Nevertheless, we reviewed our assessment and as just confirmed by Carlo, we confirm our estimate at about a EUR 15 million impact in 2022 full year compared to 2021, of which EUR 7 million, EUR 8 million on top of our budget projection as we said, in Q1 2022. Therefore, 2022 inflation-driven increase compared to last year is less than 2% of the total cost base or about 1% of the top line. This increase is mainly driven by energy costs, transportation, distribution, utilities, labor, mostly in the U.S. and some components of our reagent and instrument sourced from third parties. We have put in place several initiatives to contain this inflationary pressure, and therefore, the overall impact on our margin will be muted as confirmed by our reviewed guidance. Now moving to the P&L. H1 '22 total revenues at EUR 685 million grew by 33% or EUR 170 million compared to last year. Luminex products revenues in the period amount to EUR 185 million, in line with our initial assumptions. COVID revenues amount to EUR 150 million vis-a-vis EUR 177 million of 2021, therefore, recording a decrease of EUR 28 million or 16%. In the first 6 months of the year, we have seen some EUR 41 million FX tailwind, mainly driven by the USD appreciation Considering H2 2021, USD-euro exchange rate and the current FX trend, I think it is fair to expect that a similar positive tailwind will continue for the remainder of the year. H1 '22 adjusted gross profit at EUR 451 million, driven by 27% compared to last year, closing the first 6 months with a ratio of revenues of 66% compared to 69% for the same period of 2021 and in line with Q1 '22. The contribution of Luminex and the reduction in COVID sales are the main drivers of this variance, which is in line once again with our expectations and modeling, and these are reflected in 2022 outlook. Adjusted operating expenses at EUR 226 million, grew by 66% compared to the same period of 2021 with a ratio of revenues of 33% vis-a-vis 26% of H1 '21. This increase, once again, in line with our expectations, is mainly driven by the different perimeter of consolidation and the higher COVID sales booked in 2021 that generated back then a very material operating leverage. Let me remind you that before Luminex acquisition COVID, DiaSorin OpEx ratio was running at around 37%-38%. We are expecting synergies to reach the level discussed during Investor Day as the integration process will move forward. H1 '22 adjusted other operating expenses are substantially in line with 2021. As a result of all of these elements, H1 '22 adjusted EBIT at EUR 221 million or 32% of revenues has increased compared to last year by 3%. H1 '22 adjusted interest income expenses at EUR 4 million are higher than last year by 60%, mainly because of commissions paid on the share buyback program and Luminex IFRS 16 impact, whereas the adjusted tax rate of 23% is in line with 2021. Adjusted net result at EUR 169 million or 25% of revenues is higher than previous year by EUR 6 million or 4% whereas Q2 grew last year by EUR 3 million or 4%. Lastly, H2 '22 adjusted EBITDA at EUR 269 million or 39% of revenues is higher than last year by 10% or EUR 25 million. The variance at constant exchange rate is positive by 4% with a ratio of revenues of 39%. Q2 adjusted EBITDA at EUR 120 million or 37% of revenues is better than the same period of last year by EUR 5 million or 4%. Let me now move to the free cash flow and the net debt position. In the first 6 months of 2021, DiaSorin generated just short of EUR 140 million free cash flow which means EUR 13 million better than last year or 10%. I believe it is worth to underline that Q2 has been negatively affected by the buildup of some safety stock and some anticipated payments to Italian vendors that we did to manage the write down of the Italian operating activities to a wholly owned new direct subsidiaries of DiaSorin S.p.A. as communicated with several press releases over the last few months. Both these elements are temporary and will be absorbed in the second part of the year. At the end of June 2022, the net debt of DiaSorin was negative for EUR 1,003 million with a negative vis-a-vis a negative EUR 986 million at the end of 2021. The difference has been driven by a strong generation of operating cash, as we said, which has been more than offset by the following items: share buyback for about EUR 65 million. About EUR 63 million of negative translation FX effect mainly due to the USD denominated term loan to finance Luminex acquisition and about EUR 56 million dividend to our shareholders. Lastly, let me move to 2022 full year guidance. As usual, as previous year constant exchange rate. Because of the higher COVID sales during the first 6 months of the year, mainly driven by all those elements that we just talked about, the outlook for the year has been increased. Specifically, the updated guidance is calling for total revenues to grow by about 2%, with the next COVID business growth confirmed at about 24% and COVID sales at around EUR 200 million. Adjusted EBITDA margin at about 38%. Before concluding, please always remember that DiaSorin financial are highly exposed to U.S. dollar and even more so now that sales denominated in USD represents more than 50% of the total group wise. Therefore, as rule of thumb, consider that for every $0.01 movement of the dollar against the euro, DiaSorin revenues move by about EUR 6 million on a yearly basis. Now let me please turn the line to the operator to open the Q&A session. Thank you.

[Operator Instructions] The first question is from Emanuele Gallazzi of Equita.

A couple of questions from my side. The first one is on MeMed test. You got the approval in the U.S. Can you give us more color on the next, let's say, commercial steps in the U.S. and your expectation in terms of contribution for the coming quarters. And still on MeMed, during the last conference call, you mentioned the positive feedback from your European clients, if you can just provide an update on deals? And the second one is a clarification on the guidance and in particular, on the profitability side. In the press release, you stated that the profitability has been increased, mainly thanks to the COVID-19 business. So I just would like to understand which are the other drivers, if any?

Why don't you take the second one and then I'll comment on MeMed?

Yes. Sure. Obviously, the most important driver of increasing profitability like it was in Q1, is increase in the top line. Then there are additional moving parts like always, which consists in all those initiatives that we have put in place to offset the inflationary pressure we discussed about. But I would say that most of the increase in profitability is related to the increased COVID revenues.

When it comes to MeMed, look, MeMed or the BV assay is a new diagnostic algorithm and therefore, there is a component of the -- in terms of generating revenues, which is the education of 2 things. One is to do with education of our physician, because, today we have 100s of hospitals that can do the testing today in the U.S., but they need to get the tests to get ordered specifically by the emergency room, because typically this test is done on patients and kids who show up an emergency room with fever and the doctor there has to decide on antibiotic treatment. Therefore, there is a component here and this is the responsibility of our pharma limit, which has raised $90 million to do so to put together a sales force that goes and educate the acquisition, and this is in progress. I believe, by the way, that we have agreed upon with MeMed that we will contribute to the education process, and we decided to start a pilot program where we are hiring Medicare reps ourselves that will have the responsibility to go and hit on the customers that today have LIAISON XL in the U.S., and they have an emergency department and they will and you want to explain to them the use of the test. We can't do this to the specific use on emergency room, this is actually covered under DRG so certainly -- so the reimbursement does not play necessarily at all here. But what you need to send to the hospital is the health economics about the adoption of the test versus mix treatment and so forth. By the same token, MeMed is actively working to get a code for reimbursement. And I believe that by year-end, Dave indicated that we are going to have the first code that will also allow specific reimbursement for this test. So it takes time because it's education. But by the same token, the reward is very significant because pricing of the assay is more in line with what a high-value molecular panel usually gets and to that way rather than the traditional immunoassay. So there is an investment by the same token, there is a hiring word vis-a-vis which you get once the volume is generated. The second element, then you ask in Europe. In Europe, we have today the first 2 customers using the assay and I think that they are in Italy. What is happening in Italy, we have a target of 100 hospitals that we already -- we have already contacted and we are proceeding into local evaluation. Local evaluation means that hospitals now definitely there are over 20, I believe publication by MeMed with thousands of patients; hospitals, they always want to generate their own data to do their internal validation. So there are validation efforts which are happening in Italy. And the ones that are concluded, are really showing that the results that hospital get are completely in line with what MeMed has been promoted and clearly what has been approved by the FDA. So I'm not expecting MeMed to be a driver in revenues in the second half of 2022. And I don't think that MeMed will be a significant contributor in 2023, simply because the sheer size of the DiaSorin business but to me, what is more relevant in between '22 and '23 is get feedback back from the prescribers. So the doctors that the algorithm makes sense because I know that when that happens, then you start to generate significant demand with a very high price and then you're going to have a significant contribution to the DiaSorin business. Keep in mind that there is another strategic factor here. And we continue to expand our customer base in hospitals where today, they are using all the specialty gastroenterology plus the QuantiFERON. And so we -- the more we add to the hospital base in terms of hospital products, the more we anchor the business. And this is the bread and butter of DiaSorin, and this is what is actually driving the profitability. So long story short, today I believe that we need to look at MeMed in the next 12 months and not necessarily as a contributor of revenues, but in terms of how much demand we are able to generate an interest, we are generating a combination of our effort and MeMed effort in the medical community.

The next question is from Maja Pataki of Kepler Cheuvreux.

Carlo, I would like to get back to your statement about the respiratory season and how COVID is now an endemic and how the differentiation diagnosis is probably going to get a foothold. And I'm trying to put that into context with your guidance because if we look at what you generated on COVID testing in H1 and what you're guiding for in H2, you're clearly expecting volumes to decline. Now my first question is, is it because you anticipate that the differential diagnosis will start to take momentum because we're seeing -- or we're entering the flu season, so we're probably going to have more than 1 respiratory pathogen floating around or is it that you anticipate pricing pressure because so far, to my understanding, you have not been facing any pricing pressure in your COVID molecular testing? And the second question is, you clearly said that things are changing, and we're learning by the month. And we probably have to, going forward, try to understand the underlying respiratory pathogens, not just by COVID and then a single flu test, but from both perspectives. So do you think that on a long-term perspective, this offers upside to your medium-term guidance? Did I get that right or did I maybe just misunderstand you?

Thank you, Maja. Listen, let me give you some high-end remarks, okay. I believe that if you just look at the industry, what everybody is doing and everybody is very cautious about COVID because we've been burned by COVID few times already, right. So I believe that you should be looking at our guidance as an indication still amidst some cloud and uncertainty that we have recovered. And let me just qualify that. As we speak, I don't see service price pressure. As we speak we don't see a material price pressure. But this is to do specifically with the positioning, as I discussed many times of our systems, right. We have lost all the business that were sitting in the large hospitals because today and last week, I was in the U.S. and I did visit a couple of accounts. I did visit hospitals, small one, and then I went to a very large lab that is serving a hospital chain of 20 hospitals that are served by this core lab. And what you see is very interesting. So this -- if you look at the 20 hospital core labs, you find lines of high throughput systems. And you find cobas, you find Panthers, you find everything. But -- and you also find sitting idle though some MDX. This is an account we had at the beginning when there was an emergency until we have lost because of the excess capacity. And what is very interesting is that you see all these high throughput systems sitting today at working at 20% capacity, okay. So they need to consolidate in the high throughput -- high-volume accounts into this total capacity ahead has forced us out from those settings. No problem with that. But that did represent only around 20% of the customer base. fortunately because very rapidly, we moved away from the emergency situation where we were serving certainly our customer base, and we had very large customers and the rest were more tailor-made and strategic placement. And now we went into mid small-sized hospital, which is the second hospital I visited where we and typically another box, small box is sitting there and we share the testing volume. That business is very resilient. And that business today is to do fundamentally with guidelines. Guidelines means any COVID patient is followed up and released, which is hospitalized, is followed up and released using molecular. The medical -- the health care personnel is tested on molecular and not necessarily with antigen because of the issue with known issue of sensitivity. And then you have the admittance. Admittance today is a combination of -- if you go to the emergency room, typically, it's antigen test because a ton of people that get into the hospital, but then you know they are 90% released. But then that means admittance to the ward, then they [indiscernible] molecular. So there is that resilience of COVID today that we still see. And because of the placement of the installed base we have, it sticks, okay. How long will it stick? I think it will stick longer than expected because of the prevalence of this COVID and the fact that it's nonseasonal, we are also learning, all of us that we are in the middle of August and -- or the beginning of August, and we have a peak in COVID cases because this has nothing to do with the respiratory disease or respiratory season, okay. And this is what we are projecting with cautious, okay. Then you have another opportunity where that clearly is not in our projections yet. And that has to do with differential diagnosis. And because we're all learning and we're all learning from what's happening now in Australia, as I did comment. And typically, differential diagnosis in our industry was intended, okay, I need to rule out one or the other, right I want to really understand if you COVID or you have flu. Now when there was a high prevalence of COVID and low prevalence of flu customers fundamentally were doing COVID first because they had a very good chance to be -- to have a COVID positive. So they will see no need to test for flu. Now what we are seeing is different because we are seeing now the high prevalence of flu as well, okay. So I believe that when it comes to diagnostic value, there is going to be more use of differential diagnosis but intended in 2 ways. Diagnostics COVID versus flu, same symptoms, but also what you are learning from Australia is the flurona or co-infection, which now is more and more prevalent because of the prevalence of the co-infection. So in all honesty, the differential diagnosis opportunity is not embedded in our numbers, as I honestly believe is not embedded in anybody's number because we are all learning, okay. And I think we're going to be able to comment on this one in quarter 3. I think the good news of the story, which was a big question to all of us how resilient was installed base, right, because clearly, we almost doubled the installed base in 18 months. And what I'm seeing is that, that installed base is resilient, and I see more adoption of other tests. And in fact, -- you saw that our molecular, what I call the legacy DiaSorin MDX business, and I did comment on going 25% that is the installed base, non-COVID that is actually growing, which means that there is more other option of products with other products with that thing. So the good news, eventually is that we now have an installed base that is there to stay behind COVID and we have a volume of COVID testing, which is there to stay, and you saw many comments related to the fact that there is an endemic situation with COVID. Last but not least, but I think it will come so far, no price pressure, significant. I think eventually, we're going to see it. So you're going to have, I believe, in the next quarters, a combination of some price pressure, but I believe now the seasonality of the differential diagnosis that will kick in. I hope long story, but I hope is short for you.

Okay. Great. And that's very helpful. And maybe just another question. You've mentioned that you were not able to fulfill the demand on the licensed technology side because there have been some supply constraints on some parts of the product and basically indicating that the demand is significantly stronger. Can you tell us when you think that you will be able to deliver on any incoming order? So basically, when do you think the supply situation will ease so that you can now fully deliver on what is really coming as an order?

The proof of the matter is that the supply -- the supply issue is far from being resolved. And in our sector and the fact that other industries like the car industry has actually invested billions in trying to support their supply chain is not necessarily helping us because it's focusing -- we are relatively small customers for the suppliers. So I don't see, to be honest with you, a solution that is going to be going to come our way soon. Although what I indicated is that we've been able to juggle some of the parts because on the part are common components. And we've been able to shift in some cases our manufacturing from one line to another one, also utilizing the workforce that we have without increasing workforce. And that has allowed us so far in the mix of products to make the revenue line. Clearly, guaranteeing more continuity and more paths to those products and those instruments that we just launched recently, the Intelliflex, for example, is a good example. And leaving behind some of the more legacy products where unfortunately, we've not been able to meet the supply. But notwithstanding all this, notwithstanding the complexity as said, that we have a EUR 210 million target for 2022. And I believe that notwithstanding this, we're going to be able to make that number. In terms of when the supply chain is going to free up, I think we need to talk about it on a quarterly basis.

The next question is from Odysseas Manesiotis of Berenberg.

Follow-up on [indiscernible] approved.

It's very difficult to hear you. You're breaking up. No, it's not improving at all.

The next question is from Hugo Solvet of BNP Paribas.

I have a few. On VERIGENE, Carlo, you mentioned some customers migrating. Just to clarify they are migrating to competitors' platform or you're moving them to VERIGENE II. Can you maybe clarify that? Second, you alluded to some flow of funds in the biotech and pharma industry, which seems a bit concerned strictly based on what we observe at the moment in the market. So just curious to hear your thoughts on more details on the type of clients, maturity of projects that you have for your licensed technology business that helps you not to be impacted by that. And lastly, on profitability and just a follow-up on the question that was asked earlier for the 2022 guidance. It's COVID-driven, as you mentioned. But in the press release, you also mentioned some less dilutive impact from Luminex, which seems to suggest that you're tracking ahead of your synergies target. Can you elaborate on that, please?

I will take the profitability one. I believe comments that Carlo made on synergies, cost synergies are pretty comprehensive. What makes us very comfortable is that we have a project with a name of responsible, timing and those projects are leading us to a number, which is in line with the number we gave to the market during the Capital Market Day back in December. And I believe we said $60 million, increasing by $5 million compared to the timing when we announced the Luminex acquisition and $55 million by the end of 2023. All of those, again, initiatives, we see them happening. The timing is in line with our expectations. And all of that is embedded in our guidance. It was already in the beginning. But as you might understand, when we started those EUR 55 million or EUR 60 million depending on where you want to put yourself on the time line, where more rough in terms of estimates. Now we have projects, specific time lines and name, people accountable to deliver the numbers. So we feel very comfortable with those numbers. And those projections are embedded in the profitability. Then when I say mainly driven by COVID, like always you have 20 different moving parts. So it's impossible to pinpoint to just one element, changes in profitability from one guidance to the other because it would mean that all the other parts would not move at all. But what I say mainly is most of it, right. So that I believe the one which you need to read mainly that you saw in the press release.

If I go back to the other 2 questions, I think it was -- if I understood correctly, you are somewhat surprised on the fact that our license technology is doing well in the space of biotechnology, bioresearch and academic, is that correct? Is that your concern?