Vaccine Rollouts Cloud Covid-19 Testing Industry Outlook

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It was a revealing moment for one of the biggest U.S. processors of Covid-19 tests last week when Laboratory Corp of America Holdings Chief Executive Officer Adam Schechter said business in that service may decline by as much as half this year.

But later on the same conference call with analysts, Schechter all but reversed himself, acknowledging that there could be “opportunity in the second half.”

“It’s just too hard to know right now,” he said.

Vaccine Rollouts Cloud Covid-19 Testing Industry Outlook

The feeling is shared industrywide. Companies like Labcorp saw their stocks surge as Covid-19 testing became a key line of defense against the pathogen that’s killed almost half a million Americans. Yet vaccines have the potential to decimate demand for diagnostics, rendering a lot of their scale-up superfluous.

Labcorp’s projections imply that Covid testing sales “are going to be essentially zero in the second half of the year,” Nephron Research analyst Jack Meehan said to executives on the conference call.

As Covid-19 vaccines become more widely accessible in the coming months, and more people gain protection from the coronavirus, testing needs are expected to ease. How quickly that happens and by how much, though, is uncertain, with the pace of immunization, the durability of shots and the emergence of more contagious variants all unknown factors.

Meanwhile, some industry observers are still pushing for expansion. Screenings will be key as long as vaccines aren’t widely available, according to Michael Mina, a Harvard epidemiologist. Low-cost, easy to manufacture tests made by companies like Innova Medical Group Inc. can also play a lasting role at the entrances of workplaces, shopping centers and restaurants, he said.

The Biden administration said Wednesday that it would invest $1.6 billion to increase diagnostic supplies and testing at schools. That follows an announcement earlier this month that it made investments in expanding supplies of tests that can be performed by consumers at home or by health-care workers in medical settings, manufacturing of which can take many months to years to scale up.

Widespread testing is needed to curb the pandemic, yet “we still don’t have enough,” Carole Johnson, the White House’s testing coordinator, said at a briefing.

Labcorp rose 2.7% at 2:30 p.m. in New York.

‘Not Going Anywhere’

Mina wants the federal government to invest $20 billion this year in ramping up testing supply. He says $5 billion to $10 billion could put tests in every home, allowing people to be screened two to three times a week for six months.

Vaccine Rollouts Cloud Covid-19 Testing Industry Outlook

“Testing’s not going anywhere,” he said.

But for laboratories and testing manufacturers that spent the last year scrambling to meet insatiable testing demand, forecasting has become a maze. Labcorp expects non-Covid testing to rebound as higher-margin virus testing recedes.

“It’s going to be important for them to make sure they’re prepared for whatever’s next,” said Lisa Gill, managing director and senior equity analyst at JPMorgan Chase & Co.

The threshold for herd immunity, when an entire community is protected though not everyone has been immunized, has been estimated as coming when about 70% to 85% of the 330 million Americans have received shots or been exposed to Covid, experts say.

“That’s when you’ll really see utilization start to fall,” said William Morice, president of Mayo Clinic Laboratories, who described the demand for Covid testing to date as something he had never seen before in his career. “If it doesn’t, that’s not a good sign.”

Vaccine Rollouts Cloud Covid-19 Testing Industry Outlook

Growing recognition that Covid-19 testing sales won’t last forever has shadowed companies’ share growth, despite standout financial results, said Richard Newitter, managing director and senior equity research analyst at SVB Leerink. The iShares U.S. Medical Devices ETF, which holds shares of test manufacturers like Abbott Laboratories, Thermo Fisher Scientific Inc. and Becton Dickinson and Co., has risen nearly 26% over the last year.

Quest Diagnostics Inc., another major U.S. laboratory, said Tuesday that demand for Covid-19 diagnostic testing has fallen, and most results are returned in a day, “faster than at any other time during the pandemic.” There could still be another surge in cases, the company said, and it is still adding more Covid testing capacity.

Long-Term Role

Still, there is growing agreement that even in the best of circumstances, Covid-19 tests will play a long-term role in control efforts. Flu tests, for example, are still common despite the widespread use of vaccines.

Covid tests are likely to become part of panels that will be used to screen anyone with telltale symptoms, according to JPMorgan’s Gill. LabCorp does about 130,000 to 135,000 tests daily, and Gill said those numbers could fall by 90% to 95% beyond 2021. Labcorp says it has capacity to process 275,000 Covid tests a day.

That world might also include testing available in new places, including when people do higher-risk activities.

“As we go forward, we do believe we’ll start to see more of a nontraditional use of these tests,” in places like airports and on cruise lines, said Dave Hickey, executive vice president and president of life sciences at Becton Dickinson, due to “the ability of these tests to sort of open up the economy.”

Becton Dickinson is in the “very early days” of looking at these types of new opportunities, Hickey said.

SVBLeerink’s Newitter expects testing demand to peak in the spring. He predicts $768 million in Covid-related revenue for manufacturer Hologic Inc. to drop by about 60% from the current quarter to the fourth quarter. The company’s $2.5 billion in Covid testing sales for fiscal 2021 could drop by about two-thirds in the following year, he said.

Still, “that number is very challenging to predict,” he said. “The companies don’t know. We don’t know either.”

©2021 Bloomberg L.P.

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