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DiaSorin to maintain a competitive advantage in immunodiagnostics

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Business Strategy and Outlook 

DiaSorin is a niche player in the fragmented in vitro diagnostic market with diagnostic specialization in infectious diseases. Its systems are able to perform tests for diseases such as hepatitis, tuberculosis, mumps, and measles. Despite operating in a competitive industry with high research and investment requirements, DiaSorin has consistently been able to expand its installed base and deliver strong returns for shareholders over time. DiaSorin’s research strategy has three pillars: expand the market with new testing, advance market share in existing testing areas with improved features, and maintain current market positioning, while also expanding margin growth from better efficiency and pricing. Though a combination of these objectives is necessary for long-term success, market expansion from new testing products, such as recently launched tuberculosis and Lyme tests, and the partnership with MeMed, are especially important for DiaSorin to maintain a competitive advantage in immunodiagnostics.

Building a stronger presence in this hospital setting is another area of focus for DiaSorin. The hospital market is somewhat less exposed to clinical point-of-care decentralization risks, given the consolidated nature of hospital testing and higher throughput requirements, and the opportunity for DiaSorin to drive further growth in this market, which has historically been less of a strength for the company than the clinical lab setting. In the near term, DiaSorin is prioritizing the integration of Luminex and rebalancing test capacity initiatives as demand for COVID-19 tests wane. Overall, the pandemic can be seen as a net benefit to DiaSorin as the exclusivity of tests on the Liaison XL analyser (used for COVID-19 testing) are likely to provide a permanent boost to the equipment installed base, and some of this additional placed equipment is likely to remain in use beyond the pandemic.

Financial Strength

DiaSorin’s financial strength is solid. The company ended 2021 with EUR 985 million of debt, taken on to fund the $1.8 billion acquisition of diagnostic and biotechnology firm Luminex. The firm’s current degree of leverage does not concern us, and it is expected DiaSorin to quickly pay down debt with free cash flow generated from the combined business. In the first quarter of 2022, DiaSorin reduced the debt load down to EUR 860 million, and further debt reduction over the course of the year is likely. One should not be surprised to see DiaSorin pay off all or most of the new debt within the next two to three years. On balance, the firm’s financial position remains strong, even with the additional leverage being added by the Luminex purchase, which was the largest acquisition in company history. Apart from 2016, when the acquisition of Quest’s Focus Diagnostics immunodiagnostic and molecular business created a negative cash flow year, DiaSorin has consistently thrown off positive free cash flow to the firm, averaging EUR 145 million annually over the last five years. There are no issues with cash flow going forward and forecast free cash flow averaging EUR 330 million annually through the five-year explicit forecast period. Additionally, DiaSorin has maintained a strong balance sheet and ended 2021 with a cash balance of EUR 340 million. DiaSorin has also maintained a small dividend over the past decade. Notwithstanding a special dividend paid in 2013, the dividend payout ratio has typically hovered around 30% of earnings. There are no difficulties seen with maintaining a dividend payout ratio of about 30%, given the healthy cash position of the firm.

Bulls Say’s

  • DiaSorin has seen significant benefits from the ongoing COVID-19 pandemic, with diagnostic testing providing short-term cash flows and the higher installed base could support excess returns over the longer term. 
  • The equipment lease model used by DiaSorin reduces short-term revenue variability from temporary demand disruptions, and securing minimum reagent sales should allow the company to take share in less differentiated testing. 
  • DiaSorin has a history of niche expertise in infectious diseases, and it operates in an attractive competitive position as a growing diagnostics player.

Company Profile 

DiaSorin, headquartered in Italy, is a global provider of in vitro diagnostics–testing done on samples taken from the human body, such as blood and issue. DiaSorin produces and markets testing reagent kits for immunodiagnostics (55% of sales) and molecular diagnostics (35%) and has a total installed base of over 9,000 diagnostic systems. Licensed technologies contribute the remaining 10% of total sales, DiaSorin has a strong presence in Europe, the Middle East, and Africa; the region accounts for the largest portion of company revenue (44%), followed by North America (41%), Asia-Pacific (11%), and Latin America (4%).

 (Source: MorningStar)

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