Earnings Transcript for BIM.PA - Q2 Fiscal Year 2020

Operator: Good day and welcome to the bioMérieux Half Year 2020 Financial Results Call. Today’s conference is being recorded. All participants are in a listen-only mode. After the presentation, there will be a question-and-answer session. [Operator Instructions]. At this time, I would like to turn the conference over to Sylvain Morgeau. Please go ahead, sir.

Sylvain Morgeau: Thank you, Dana. Good day, everyone. Thank you for joining us to review bioMérieux performance for the first half of 2020. Before giving the floor to Alexandre Mérieux, Chairman and CEO; and Guillaume Bouhours, CFO; I will just make a very short introduction, provide you a couple of information. First of all, our press release was published this morning at 7

Alexandre Mérieux: Thank you, Sylvain. Hello to all. Thank you for joining this call. So, I will start with a snapshot on the takeaway messages from H1 performance. As you know, since the beginning of the crisis bioMérieux is at the forefront of the fight against COVID. bioMérieux has delivered well on our mission by developing comprehensive range of diagnostic solutions and you can see that during H1 the strong performance was driven by very strong demand for molecular, strong growth of around 16% -- 15.7% in H1, so nice increase, and also increase in term of profitability to reach around 17% EBITDA during H1. I will move to next slide. So you see that we got comprehensive range of solution, both in the field of molecular, field of serology and immunoassay. Looking at the molecular front, we have available extraction with EMAG and easy MAG. We developed the PCR test, [monocyte] test with the ARGENE solutions. And also we have now the syndromic test with RP2.1 in the U.S. and RP2.1plus for Europe and the rest of the world. Also for serology, end of June, I believe that we have -- we delivered -- we launched the test for VIDAS, bothon IgM and also on IgG. So quite a complete range of solutions coming from the portfolio of bioMérieux. Since the beginning of the crisis, we kept the same priorities. The first one is to ensure safety of our employees. Second one is to ensure business continuity. So, regarding employees, we ensure that -- their sanitary safety I would say, but took care of them more socially and also you see that the Board of Directors have decided to allocate half of dividend of 2019 to support solidarity actions. Part of this will go to the Mérieux Foundation which is very active in emerging countries and the Foundation has redirected part of its program to fight COVID-19. And also significant amount also will be allocated to support local initiatives in the countries where bioMérieux is operating. So, you have seen also an impressive regarding molecular biology in general but more particular for BIOFIRE which displayed a growth of 60% in the first semester with an installed base moving from 10,400 instruments to 14,000 new units worldwide, 80% of the business being done in the U.S. and 20% outside of the U.S. So we see a strong demand for the test, mainly for RP2.1 knowing that it is a very adequate test in the current context and it will be very adequate for the upcoming flu season where there it would be critical to detect, identify between what type of virus is impacting the population in the flu season. We are ramping up our manufacturing capacity, not only in molecular but this is also -- this is in Salt Lake. And you see that in June, we have been able to put in place or to operate on another site for the production of FILMARRAY pouches -- working for -- so we’re working to improve the capacity and production. So, strong demand surge in molecular but it is quite contracted also regarding clinical applications outside of molecular, mainly in the field of microbiology and also immunoassay. We have seen in the first six months overall reduced hospital traffic with less patients going into the hospital. So, we have seen a decline of sales on the ranges such as VITEK,BACT/ALERT and immunoassay, which is, I would say consistent with what we see also outside in the world with other competitors. Looking at the field of industrial applications, which represents 15% of bioMérieux business at the end of June. Basically, remember, there’s been 1% growth. Pharma remains solid but in the food business we have been impacted by the fact that the catering services and the restaurants were not able to work. So we had an impact on this with less testing coming from these two sectors. With this short introduction, I leave the floor to Guillaume for the financial results.

Guillaume Bouhours: Thank you, Alexandre. So let's review our financial performance in H1. Total sales growth of 15.8%, no major FX effects, actually neutral in H1, no scope effect either. Just to mention that when looking at H2,with evaluation of USD recently, I think the effects on the revenues and also operational profit will be more negative from foreign exchange impact, just to keep in mind. For H2 So let’s review now the 15.7% organic growth of H1 by range and putting that by geography. Well, this shows actually the translation in financial terms of all the trends that Alexandre just explained. So the -- especially the reduced traffic in hospitals impacted microbiology with minus 4% in H1 and impacted even more immunoassay with minus 14%.We have let’s say a mix in immunoassay of partly routine in the portfolio more impacted and partly more let’s say emergency type slightly less impacted. Molecular, very impressive. We just saw the BIOFIRE figure. Adding the ARGENE and extraction we get to plus 69% growth and actually you have to add potentially the molecular BioFire Defense, which is gray, there 3% on top to get to actually the plus 80% organic growth of molecular that is mentioned in the press release. And industry already commented by Alexandre, that pretty solid on pharma, much more impacted on food and overall 1% growth organic for H1. Now looking at the same by let’s say region. The main comment is actually that the region trends let’s say mirror reflect our exposure or penetration of molecular in the different markets. So obviously Americas is where we have the best positions in molecular with huge success of BIOFIRE, so overall 30% growth. On the other side, Asia Pacific is probably the region where the weight of molecular is least at this stage, and therefore most impacted by the H1 context with only 2% growth. And EMEA is somewhere in the middle with slightly better exposure and position of BIOFIRE and molecular than in Asia Pacific and therefore higher growth of 4.5%. Now coming to the P&L. So we just commented the first line of sales. Gross profit you can see is slightly decreasing percentage wise from 55.7 to 55.3. There are two, I’ll call it, external factors which is FX, slightly negative, and also the phantom share impact. With share price increase we had to provision more of the phantom shares bonus. When we exclude those two effects in gross profit, actually the percentage is flat year-over-year and this flat percentage includes I would say mix effect, positive on one side for the FILMARRAY growth having again a positive effect and negative on the other side with the stronger equipment sales. And as we usually mention, of course, equipments have lower margin on sales. So that's, the different effects for the gross margin. Then SG&A is up 8% on an organic basis. You will see that it's a much lower than sales trend but also much lower than our usual trend which used to be double-digits. Of course, we have there a lot of savings in the lock down period in the different regions on the less travel, less congress, less promotion on the commercial front. R&D is up 12%.So that reflect of course all the COVID-19 developments, specific developments that we had in Q1 and Q2 but also an effort to maintain as much as we could the pace of innovation for the rest of the business. So, all in, margin and operating -- current operating margin contributed at 17%,17.1% and up organic wise 32%. Just to mention on the next page are some exceptional that you might want to look at differences. So, included in this operating margin, the U.S. pension. So we finalized in June the termination of U.S. Defined Benefit Pension Scheme. So, it had, if you remember, a positive effect last year of 10 million or 11 million in H1 and negative -- minus 4 million in H1 this year, so year-on-year it's variation of minus 14 million. That's one effect. Now this operation is done, it was over two years. And we have let's say the usual 401(k) for all of our employees in the U.S. now. And the second effect is of course phantom share plan. I’ll remind everyone this is a special scheme of long-term incentive bonus, linked -- where the amounts are linked to the share price of bioMérieux and this scheme will end in Q1 -- end of Q1 2021, so next year. So, we have -- of course there’s huge increase of the share price, pretty significant expense provision for phantom shares, 42 million in H1 this year compared to 26 million last year, so this is variation of minus16 million. And a final point to mention here, minus 7 million on FX. So overall with some emerging currencies especially that devaluated in Q1. To comment on the next slide between contributive operating income and net income. So, we have our usual BIOFIRE acquisition-related costs. Amortization flat, €18 million per year, €9 million for the H1.Special line that is new and mentioned by Alexandre, the willingness and decision by the Board to support solidarity initiatives for let's say half of the dividend. So we already booked 12 million on this, the Foundation value amount in H1. It will be -- overall for the year it will be 22 million in this line and these are let's say special actions are considered as non-recurring. So that's why they are classified here. Net financial expense improved slightly to 12 million expense and the tax rate was at 22%, I will comment on next slide. But overall net income, Group share €173 million and up 23% all included. A quick comment on the tax rate.So we ended just below 22% effective tax rate. We have of course, the major effect of our mix of countries especially pretty significant exposure on the U.S. profits with lower tax rate than France. Just to mention the sponsorship. So this 12 million let’s say solidarity actions funding has a slight impact, let’s say, positive, to reduce to 21.7, reduction of 0.6 non-recurring. Let's now look at the cash flow. So, pretty strong cash flow, free cash flow generation 144 million compared to 55 million last year for H1. Of course, the third driver is operating profits, pretty strong. Working capital was at only 22 million overall. But still inside this 22 million, a very significant increase of inventory, due to slower sales in microbiology and immunoassay where let’s say the adjustments of production with the lack of visibility was difficult to grow at the same pace, a really good level of collection and AR and days of sales. We also slightly accelerated -- and we wanted to accelerate our payment to vendors. And included there a positive effect of PSOP as we provisioned more than we cashed out. In the free cash flow also let's say sustained level of investment, as you can see 127 million, 9% of sales. It includes of course the new manufacturing capacity for BIOFIRE and the new plan that Alexandre showed. But not only, we also invest in the rest of the industrial sector. We also invest in this amount, I remind everyone on the installed base with all the placements that are considered as CapEx. With this strong free cash flow, our net debt decreased to 192 million, so a pretty significant decrease to very low 0.3 times leverage. And just to mention that we refinanced our 2013bond coming due in October. We had 200 million private placement EuroPP 8-year maturity, so pretty long, for a better diversity of our financing maturity and 1.6%, pretty successful transaction. And with that, I hand it back to Alexandre for the outlook.

Alexandre Mérieux: Thank you, Guillaume. So, you see that under difficult circumstances bioMérieux has delivered a strong performance in H1. It’s true the market --there is still a lot of uncertainties linked to COVID around the world. So we prefer not to issue any new annual guidance as of this date. So, we have to follow and monitor the evolution of the market and bioMérieux even as we say we are on a good trend. With this, if it’s okay with you, we can open the floor to questions.

Operator: [Operator Instructions]. We will now take our first question from Catherine Tennyson with Bank of America. Please go ahead.

Catherine Tennyson: Hi. Thank you for taking my questions. I have three, if I may. So first would be, if you could just talk us through the exit rates that you saw on your base business in Augustin both Europe and U.S. that would be helpful? Then secondly, we’ve seen rapid flow antigen test from Abbott and also from Roche. If you could just help us understand where you see that test getting into the general COVID testing landscape and if you are interested in expanding in that space? And then finally, on the increase in BIOFIRE placements, I still see in the slides that an ex-U.S. increase in the installed base is a key priority. How then should we think about additional investments in selling and marketing and advertising in 2021 to get back on that agenda?

Alexandre Mérieux: Thank you. I'm not sure I understood the first question. Maybe for the first one, can you maybe repeat the first part of your question please?

Catherine Tennyson: Of course. It's just basically what level of activity are you seeing in your immunoassay and your routine molecular business in Europe and U.S. in August?

Sylvain Morgeau: In August, oh, okay. I'm not sure we mention this. No, as you can see, yes, the work in testing has been impacted, I believe it continues to be. We’re not back to what we can call normal, but we are monitoring in this situation. So the trend has not completely reversed yet. For immunoassay, we have launched end of June test for VIDAS COVID. It’s a bit early to say. It’s a slow ramp up.It’s a bit early to comment at this stage. Regarding your question around Abbott new test, on the upcoming potential Roche new test, difficult for me to comment especially, I would say it's good to have more players coming with more solutions because there is a strong demand for test, and the impact of test all over the world. Today the standard is PCR, but it’s a different technology. So let’s wait and see. I don't believe it will have too much of an impact on bioMérieux since most of our growth on a push and demand is coming for syndromic testing, which is different. And the idea is to have a comprehensive view of all the potential viruses and bacteria involved in this COVID disease. And I missed the third question. Guillaume, you have the…?

Guillaume Bouhours: And the third was on the placement for BIOFIRE, ex-U.S actually was 25% of the new installations over the first half. So it was a bit more U.S. focused than the past years. And yes, pharma -- I think the second part of the question was on the additional investment, sales and marketing investment to continue to expand the BIOFIRE base customer in 2021, that’s something we will continue to invest. We will continue to invest as we mentioned. It's our strategy in the -- outside of the U.S. expansion and market share gain and new customers for BIOFIRE.

Catherine Tennyson: If I could just be very cheeky and sneak in an extra quick one. Also, the new installed bases that we've had in the U.S. and elsewhere, I presume a lot of that is linked to COVID testing. Can you just talk us through the contracts that those new placements have? Do you have specific volume agreements into 2021 for tests on those machines that aren't COVID related?

Guillaume Bouhours: For your question regarding BIOFIRE, yes, most of the equipments are actually sold to customers and in this case I mean there are no specific volume agreements under the customer by the system and then can purchase reagents. What we can say today is that the demand is super high and we are even struggling to deliver at the level of the demand that we see. Yes, so it's more subject to supply in the market. Also referring to what Alexandre said that it’s good to have test with such a huge demand overall.

Operator: And we will now take our next question from Hugo Solvet with Exane BNP Paribas. Please go ahead.

Hugo Solvet: Hi, Hello, thanks for taking the question. I have one on the guidance that you've for 2020. Just wondering, if we should extrapolate the sustainable impact on financials in H2 from the base of H1 ‘20, meaning organic growth of 16% or from the base that you had in the second quarter i.e. growth of 10%? And also on the maintained pace of innovation that you had with the level of R&D at above 10% of sales. Could you remind us of the upcoming launch season product that you have in the pipeline and if you've seen any delays here?Thanks.

Alexandre Mérieux: Yes. For the level of R&D, as we mentioned, we primarily invest in R&D. But this year we have focused our results both on ARGENE on the extraction and also on syndromic and to be able to deliver in a few weeks an improved level. Also immunoassay was not planned in our budget. So we invested to deliver this -- develop this test. In terms of potential delays compared to what we announced, I think, yes, maybe on immunoassay, I think some -- there will be some delays on the tests that were announced such as TB-IGRA on the -- because the clinical trials have been a bit postponed or slowed down during the COVID crisis. So, this is, I would say, mainly -- compared to what we know this is mainly in that space that we see some delay. Your first question is on the guidance of 2020, but we don't give a guidance. So, cannot give you more details on that.There is strong -- the demand for molecular is very strong. But as you know, it's very -- lots of uncertainties, so difficult for us to project or otherwise we would have done it. Very strong for molecular and not yet back to normal. And we don't see back to normal on the other ranges that are negatively impacted.

Hugo Solvet: Okay, thanks. And just a quick follow up. Are you seeing different dynamics in the recovery of the immunoassay and micro -- and/or microbiology?

Alexandre Mérieux: Immunoassay is more impacted than micro because of the routine testing but also because of the usual consolidation of labs. Now at this stage, difficult to see a difference in the recovery.

Operator: We will now take our next question from Delphine Le Louët of Société Générale. Please go ahead.

Delphine Le Louët: Thank you. Hi, good afternoon, everybody. Alexandre, can you be more specific in the breakdown? I tried to figure out in -- when I look at BIOFIRE, how much of BIOFIRE sales is today dedicated to COVID versus the rest of the panels? This is my first question. Secondly, within the COVID testing, can we get a breakdown of revenue between the extraction and the testing, meaning between ARGENE testing and COVID-19or RP2.1 testing? And third question will deal with -- I just got the filing that Asia is a bit of a laggard. And effectively due to the immunoassay, we have normal backtracking to hospitalization there in the region? So, how do you explain this, the fact that there is no more strong rebound in Asia and how do you see more broadly speaking the sequential pick up in revenue in between April, May, June, July and even August? Just give us a flavor. Thank you.

Alexandre Mérieux: So, I'll take the last question on -- and I forgot the other one. But okay, the last question is --so, Asia Pacific, yes. As mentioned by Guillaume, Asia Pacific is less exposed to molecular than the rest of the regions. There is we don't see same uptake with FILMARRAY. It's not completely back to normal in Asia. China, we see slow ramp up, but I wouldn't say that life is going back to normal, at least in term of hospital traffic. And countries such as India are very -- are under very, very difficult situation. So I believe that the rest of Asia will come back also with return to normal. Asia is not only China for us. I mean there are many, many countries which are under difficult situation. Your question on the -- in BIOFIRE and the impact.

Guillaume Bouhours: COVID, non-COVID, okay. Most of the -- the ramp up in molecular is linked to respiratory and COVID for BIOFIRE or linked also to BioFire Defense.

Delphine Le Louët: Okay. And with the time, have you seen a switch from RP2.1 to COVID-only and/or from COVID-only to RP2.1? Is it a trend? Is it something that you observed or you have order for both COVID testing indifferently the same? How can we think about the next wave or next -- post '21, '22?

Alexandre Mérieux: So, just to think about the -- when you say COVID-only, I guess you are referring to the BIOFIRE COVID clinical test.

Delphine Le Louët: Yes. Yes.

Alexandre Mérieux: Just to explain, this one was developed by sub called BioFire Defense with the contract and demand and the financing from the Department of Defense, U.S. DoD, so pretty early in Q1.Then the vast majority of these tests were and are sold to the Department of Defense. We wondered if we should sell it broader. But we have been able to add COVID to the RP panel with RP2 becoming RP2.1 including COVID really fast. BIOFIRE teams have done an excellent job there. And therefore, our approach, our strategy is really to push syndromic value and syndromic approach. So we actually sell in the U.S. and everywhere,RP2.1, the syndromic approach. We only continue to sell the single test for the DoD.

Delphine Le Louët: And the breakdown in selling between the ARGENE test for the extraction and the RP2? Is it well balanced?

Alexandre Mérieux: So, to give you the breakdown, so you have -- in the slides, you have 557 million of molecular. You see that on slide 15 or 16. In this that includes all the ARGENE and extraction that represent about almost 70 million. And then don't forget the value for your returns, we classify in others into a gray part and about 40 million, it’s not included in the 557.

Operator: [Operator Instructions] We will now take the next question from Scott Bardo with Berenberg. Please go ahead.

Scott Bardo: Thanks very much for taking my questions. So first question, please. I think there is sort of a broader expectation that as we come into the winter months that life will get a bit more difficult for respiratory cases, those with combined flu or presenting with flu symptoms. Is it flu? Is it COVID? But I really wanted to point to your thoughts on the development in Australia, where there seems to be a very benign season indeed, with not many people presenting with respiratory symptoms. Is this a potential concern to you that -- in a sense or an observation that we might not see that strong pickup in cases into the back end of the year, thus limiting the demand for BIOFIRE and FILMARRAY consumables? So some thoughts on the Australian dynamic and read across would be helpful, please.

Alexandre Mérieux: I will cover this one. Australia, for me, it's difficult to know what it means, in fact, because I've seen the country I've been in lockdown also during part of this summer months, summer for us and winter for them. So when you're on the lockdown, I'm not sure this is where respiratory diseases are spread a lot. So I think it's difficult to see a correlation between what happens in Australia and what will happen in the upcoming winter. Whatever happens, I believe the syndromic approach is the right one to detect as you mentioned COVID [indiscernible] or the other difficult to make coloration at this stage.

Scott Bardo: Understood. And you've communicated then that you are ramping up production of FILMARRAY consumables. And obviously, I note that these are uncertain times, and you're not giving any explicit guidance. But could you help at least us to piece together some of these things by providing a sense of what your ramp-up of consumables will be at full capacities? Some sense of perspective as to where we are today would be helpful, please.

Alexandre Mérieux: For focus, it’s safe and we're working that site was down before, anticipating the future growth of BIOFIRE. I would say that now, I don't know what we need to stay. We should be soon to be able to produce around 1 million tests, 1 million pouches per month, and we’re working hard to keep on improving this production capacity.

Scott Bardo: Understood. And that compares to several hundred thousand today or something like that? Is that correct?

Alexandre Mérieux: Sorry, what you say?

Scott Bardo: Sorry. I'm trying to understand the incremental step-up. So that 1 million pouches is compared to where are we today as of Q2? About 700,000 to 800,000 per month or something like this?

Alexandre Mérieux: I should know and I'm not sure I know we are improving. We are progressing. The site is operational since June.

Scott Bardo: Okay, understood. Thank you. And maybe an additional question on BIOFIRE, please, and obviously, you've been a very important part of the solution in containing the virus and giving optimal clinical diagnosis. Has there been any evidence of a significant channel shift in North America, testing a lot of nursing patients or in the -- nursing home patients or in the outpatient setting? Has there been any change in the mix? Or has it remained predominantly hospital-related business?

Alexandre Mérieux: To be frank, I didn't follow this exactly. We have no way to know if it's hospital or if there is a change between inpatient or outpatient. We can get more efficient currently, but it's just a different test to come from the hospital.

Scott Bardo: Okay, thank you. And last question for me, please. I note that your selling and marketing costs have fallen year-over-year. And I think you explained that there was obviously some lower travel and congresses and things helping reduce that total expenditure. But as we go forward and we think about the business into the second half of the year and into 2021, could you help describe these cost reductions? Are they relatively transitory and just related to near-term COVID impacts? Or could this indeed be some more structural change or lowering of your selling and marketing costs going forward? Thank you.

Alexandre Mérieux: I think it's mainly linked to COVID. The sooner I can travel the happier I will be now. So, it's linked to COVID-19.

Scott Bardo: So we should assume that SG&A ratios sort of return to historic levels at some point?

Alexandre Mérieux: It's depending on the sanitary situation next year at some point when we can travel.

Operator: And we will now take our next question from Peter Welford with Jefferies. Please go ahead.

Peter Welford: Hi, yes, a couple of questions. I'll take them in turn. And firstly, just sticking with the sales and marketing if I may, you mentioned that it was a usual double digit trend that was decreased for SG&A due to lockdowns. I guess looking beyond therefore 2020 and given your expands to expand ex-U.S. the BIOFIRE rollout, should we consider that double digit should be a trend that will likely continue for sales and marketing for a few years? Or I guess you need to perhaps balance that with also some of the factors you mentioned, such as the change in the U.S. pension and the phantom share plan, and perhaps give us some idea how we should be thinking about the sales and marketing trend beyond 2020 if possible?

Alexandre Mérieux: Yes, you're right. Related to the earlier question, but again, a lot of the decrease or saving was into due to COVID, due to lockdown through the possibility to travel, to assist customers and to organize the Congress and events. So again, our ambition remains the same to continue to expand the data and the customer base in the U.S. but even more internationally, outside of the U.S. which we required, of course the marketing expenses and trends in a significant way. Then as a way this becomes reality depend on the sanitary crises and when we can travel, reorganize events that potentially are not digital even.

Peter Welford: Okay. Thank you. And then the second one is just don't BIOFIRE. So, when we look at the new placements that we've seen during the first half of the year, perhaps you can just talk about all the majority of those placements, new customers, new labs or new hospitals or physician offices, or all the majority of those placements from existing customers looking to increase that testing capacity beyond what they currently have? And also, has there been -- sorry, carry on.

Alexandre Mérieux: Yes, it's clearly a mix. Of course, we are gaining a new customer for sure, especially outside of the U.S. But there are also a lot of existing customers that have increased our capacity to do more. We can tell you that, approximately for the U.S. only, only the U.S. about 75% of the new installations are always existing customers. That's for U.S.

Operator: [Operator Instructions] We will now take our next question from Manon Coulon with Erasmus Gestion. Please go ahead.

Manon Coulon: Alex, thank you very much for taking the question, I have two. First, on immunoassay microbiology and industry, could you give us maybe the exit rate, I mean, the growth in these 3 segments in June? And second question would be on BIOFIRE Defense, on the COVID tests that you sell to the Department of Defense. Can you remind me what the agreement you have with them there? I am just thinking that there could be maybe at some point switch for the ultra-fast American version of the PCR test? I mean BioVax now -- the BioVax now solution? Thank you.

Alexandre Mérieux: Okay. Maybe just the trends on the micro and immunoassay, I think end of June was minus 4 for micro. Yes, I think you're asking the question was about month of June. So, probably, we don't give the month of June, but just maybe a comment. As you have seen, so the microbiology for Q2 was at minus 14, immunoassay at minus 18, which obviously Q2 is the mostly impacted with both the Europe and now lockdown most of the period, U.S. under the lockdown or measures, Latin America, India and et cetera. So, Q2 was the most impacted. So when we laid down the speed of recovery, what we discussed earlier, we kind of look at how we get back from there, and as we said, it's constructed. It's slow recovery. So, even without giving figure, it's a bit better for June and July, but not faster recovery at all, probably because again hospital traffic has not fully recovered and lockdown measures in different countries reduced also maybe ID transmission. Your other question was?

Manon Coulon: Yes, the other question was. On the Department of Defense agreement and BIOFIRE, can you refresh my memory on what is it exactly because I’m just thinking that now -- can they can be switched from your solutions to their solution?

Alexandre Mérieux: There is linked by next, I don't understand why you switch -- how can they switch. Anyway, in broad terms, so BIOFIRE Defense is a specific fab with strong link with DoD that existed before we acquired BIOFIRE and remain so specific contracts with DoD. So in this case, actually the DoD ask for developments of the COVID test and funded it. As I said in Q1, we are able to actually develop it very fast, that said to this single COVID test that was sold to DoD and that’s the main terms and the outlook for here increasing the capacity so it means that are interacted in the continuing to be supplied by BIOFIRE. But we cannot really give more detail in that, in broad terms.

Manon Coulon: Thank you very much.

Alexandre Mérieux: And as I said this represented 40 million revenue a pretty significant compared to the past in H1.

Operator: And we will take our next question from Christophe Ganet with ODDO. Please go ahead.

Christophe Ganet: Good afternoon gentleman. Can you hear me correctly? Perfect. Thanks for taking that question. Actually, three of them mainly qualitative answers with questions, the first one would be. How would you qualify maybe region-by-region the gap between demand and supply currently for COVID test? And what's your view on the markets over capacity and under capacity given what we’ve seen as fit on the market? That’s one. Second question would be, related to your guidance. I'm wondering if the biggest reason why you haven't, preside your guidance related to price evolution, related to market share competition or specific potential decisions. That's the second question and the last question, maybe more general question regarding the current position now of bioMerieux. Now, would you consider that after this sedentary crisis, the global competitiveness of bioMerieux has increased, has stabilized or declined and why? Thank you.

Alexandre Mérieux: Which one to take, I think the reason for the guidance partly to price, volume, some more uncertainties on the market it’s very volatile environments. The demand is there for molecular, but difficult to predict. The rest of this is more into that to make sure that we don’t have the facility to follow the market as a market evolution. Your last question, I believe bioMerieux, but I would say maybe a diagnostic company will be stronger because I think this crisis has shown the value of diagnostics. It's all in a case of pandemic, but also in the role of thinking of patients. And I believe also that we have increased our positioning in molecular, which is a very promising technology in that space. So I would say that we should be -- we should be in reserved positions, but let's wait for the market dynamics and what comes after COVID. But for us, I think it's recognition of the value of diagnostic. And the first question to get demand, the gap demand, so I would say now, we need this -- we need every test. I think we are we'll distinguish those things even for, I believe, the most available in the market. There's a dairy free to go back to them a license to use a place to isolate and detect, but it takes time now to get some result sometimes. So it's good to have more tests.

Operator: And we will now take a follow-up question from Scott Bardo with Berenberg. Please go ahead.

Scott Bardo: Thanks very much for the follow up. A question just related to progress with the BIOFIRE approval, FILMARRAY approval in China. I understand that there's been a lot of flexibility from the regulatory authorities, particularly in this COVID environment. And I wonder whether that's enabled some more momentum with approval in this important growth region? If you can comment on progress there, please, that would be appreciated. Second question, please. And again, I appreciate you're not giving a quantitative guidance, but if you could help me with the logic path? If one is seeing some recovery in your routine business, microbiology and immunoassay, industrial application and your expanding capacities for BIOFIRE pouches, could that indeed mean that we see accelerated growth to what we've seen in the first half -- in the second half of the year? Would you agree with that statement? Or if not, could you please provide some reasons why? Thank you.

Alexandre Mérieux: I think this 16% growth is quite each link. I would say, to exceptional circumstances. So, I wouldn't use this as a -- we don't extrapolate this for the coming years for bioMérieux. And recovery at this stage and we saw that we don't see strong signs of recovery and the rest. We don't expect things to happen overnight or for one month to - I forgot the first part of the question. In most specific progress to report on the validation or the certification or the figure at this stage go down the technical trail study. So no, boots on the side of the reading the key words, maybe we will take a couple of questions from the webcast. The first one was the recovery trend in vectors in replication in recent weeks, percent of lockdown coming from DNS to HTTP and the CapEx intensity that we have to expect for H2. So, the recovery in the microbiology I think we commented already that we see some recovery basically Q2 trend, but slow recovery. That I told back to normal in July, August on these ranges. CapEx should be probably sustained still and probably at similar level overall than H1.

Guillaume Bouhours: Second question from [indiscernible] at this point. Why was there a sequential decline in sales of BIOFIRE in Q2 from 125 million to 65 million in Q1? Was it due to a net decrease as there were more test COVID to singles like tests before the launch of RP including non-COVID?

Alexandre Mérieux: No, it's not price. Price was pretty stable actually. It’s more question of inventory and capacity on our site to manufacture. So, we ended the year 2019 with a pretty high inventory. I think that's also something we commented with you. So, high inventory especially on RP to prepare for the flu season, and actually these were totally sold especially in March, April, when RP was used. RP without COVID as a first line, let's say detection of non-COVID patients. So, that boosted actually Q1 revenues. And then in Q2, we also had switch effect. We had the monster stranger revenues when we announced the launch of RP 2.1. And suddenly, the demand moved massively, as very quickly from RP without COVID to RP 2.1 with COVID. So, that explained also maybe slight timeline of but I think in Q2.

Guillaume Bouhours: Thanks and then we have a question from Dariusz from Kepler, but I guess he's also queuing on the phone, so maybe we can move to phone.

Operator: Dariusz Ubik from Kepler, your line is open.

Dariusz Ubik: Yes. Thank you. It's Dariusz Ubik frome Kepler. Thank you for taking my question. Two.

Alexandre Mérieux: We can't hear you well. Can you speak a little bit louder?

Dariusz Ubik: Is it any better now or?

Guillaume Bouhours: It's okay.

Dariusz Ubik: Thank you. That was a big problem. Thank you for taking my questions. Two if I may. My first question would be on the positioning of different testing alternatives. And what's your view on the world populations or what applications do you see for the antigen status? And maybe where do you think that PCR tests are also necessary and maybe also positioning of multiplex increase? And my second question, if you could please share your view on what is the risk that the FILMARRAY instruments will no longer be used once the pandemic period is over? Thank you very much.

Alexandre Mérieux: Just pushing as a test, I would say, for me, the most additional value, I believe the most comprehensive test is done with FILMARRAY. It's done with FILMARRAY. This is where you get the most indication. It is important for patients for showing symptoms. I believe PCR today is a standard thing in the lab, so it will remain on this new antigen test using a different technology, with different performance but I think can be useful but if I understand for people without symptoms, with symptoms at this stage. So it bit different. There will be room for everyone because medical value, I believe, will be for the syndromic one.

Guillaume Bouhours: The second question was about the risk that FILMARRAY instruments will no longer be used. We don't know. Plus today, the focus is of course a lot on our aptitude as one but we have a very comprehensive range of range of tests for FILMARRAY and we have gastrointestinal. We have meningitis. We have a pneumonia test. So that it’s a mini impact that we have with the FILMARRAY. There, the focus is on RP, but the menu is much, much broader with strong indications for other type of disease.

Operator: And we will now take the follow up question from Delphine Le Louet with Societe General. Please go ahead.

Delphine Le Louet: Two additional questions. One, regarding the industrial application, can you give us the sense of the business and then Q2 was poor and everybody understands, what do we see in that space since summer time, any recovery? And can you quantify that or carry forward this recovery? Secondly on the European business, it sounds like very, very strange for European companies not to be more present in Europe and especially regarding, BIOFIRE. How do you explain that? What's your take from the decision you have with the government? Everyone is in entirely for testing everywhere. And, it's a bit difficult in understanding, at least from my point of view where Europe is not more reactive with European company like yours and why we have such a pessimist in Europe. Can you elaborate a bit on this one?

Alexandre Mérieux: Yes, we have a good growth FILMARRAY in Europe. You don't see the same results as we see in the U.S., in the Americas because in the Europe, we are more impacted by the decline of immunoassay into the routine testing, business presence also efficent. But FILMARRAY is increasing in quite steadily. I would say, with the COVID in Europe. It's not at the level of the U.S. for many reasons. It could be reimbursement. The focus also on the value-based health care, which I believe is stronger in the U.S than it is in some countries in Europe, but this is during the crisis that has or is accelerating the penetration of FILMARRAY in Europe. Regarding your question on the too early to tell for food business. As we mentioned nothing here, part of the business which is into catering or in France, restauration collective, has not really started yet again. So we'll have to monitor this it could be, we’re expecting to improve, we have so many doubt.

Operator: And we will now take a follow up question from Manon Coulon with Erasmus Gestion. Please go ahead.

Manon Coulon: Thank you for taking my first question, just one for me please. Looking at your BIOFIRE system installed, looking at your installed base, do you know the average capacity utilization rate be forecasted and what is the this capacity is revision rates today? Thank you.

Alexandre Mérieux: I don't think we have looked at it like this. We don't communicate it externally.

Manon Coulon: Okay, thanks.

Alexandre Mérieux: It has increased for sure, and that's why we explained earlier that a lot of our existing customers have increased their capacity by buying new BIOFIRE instruments. So, yes, the consumption has increased by instruments.

Guillaume Bouhours: And maybe we have last question coming from the webcast. And what is the installed base potential for BIOFIRE in the U.S. and ex-U.S.? And where we stand regarding the market penetration?

Alexandre Mérieux: I don't think we will be quantitative on this. But from a qualitative continue, as we said, we believe that, potentially still a lot of growth outside of the U.S., clearly, we are not continuing to gain new customers in Europe in Latin America, a lot to grow for sure in Asia Pacific, by the way of Japan, that we entered more recently to the really good success. Australia as well, so until more recently, so it's clearly still a lot to gain. And in the U.S. probably as well even though it's more difficult to say because our penetration is off course much stronger. So, that's something to see when all this settles in the U.S.

Guillaume Bouhours: Very good, thank you very much. I think we don't have any more questions, both from the call and from the webcast. Thank you everyone for attending this meeting, for a very good interactions, and we are looking forward to speaking to you in the next couple of days or weeks for the Q2 results.

Alexandre Mérieux: Thank you very much.

Guillaume Bouhours: Thank you very much. Bye.

Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.