COVID-19 Continues to Drive Massive Earnings Growth But in a New Way

The earnings narrative for Q1 is essentially the combination of growing COVID-19 revenues, albeit at a slightly slower pace than the previous quarter, and the continued recovery of non-coronavirus core segments. Essentially, the DX industry is getting the best of both worlds. And while the long-term sustainability of COVID revenues remain in doubt, the boost from resumption and catch up in medical care and surgery engendered by the pandemic should be more than enough to take up the slack.  

Revenues Continue to Surge But Growth Patterns Change

Of the 39 diagnostics firms that had reported their 2021 Q1 earnings as of press time, Abbott and Quidel were the only two to fall short of their Wall Street top line revenue targets. But Abbott just narrowly missed and both firms generated robust growth levels. In fact, every single company experienced positive year-over-year growth, the vast majority growth in the double digits. No fewer than seven companies increased their revenue guidance for the full year, with only two trimming down their projections, Fluidigm and Meridian Biosciences. 

Continuing pandemic patterns, the demand for COVID-19 tests, collection kits and instruments fuelled unprecedented growth in diagnostic revenues at a time when routine testing volumes have fallen off a cliff. However, the pattern is changing. The previous engine of growth, SARS-CoV-2 molecular testing, is now in sharp decline thanks to the COVID-19 and falling case rates. Exhibit A: LabCorp reported that it delivered an average 112,000 molecular COVID-19 tests per day during Q1 but that the daily average had dropped to 80,000 by the end of the quarter. During the company’s Q1 earnings call, LabCorp CEO Adam Schechter projected that molecular testing revenues would decline between 35 percent and 50 percent for the full year.

The pattern was much the same with Quest Diagnostics, which reported that it expected to was average around 50,000 SARS-CoV-2 molecular tests per day throughout Q2, as opposed to the 73,000 daily tests it was averaging at the end of Q1. Similarly, Opko Health subsidiary BioReference Laboratories reported that daily averages fell from between 50,000 and 60,000 molecular tests in Q4 2020 to between 40,000 and 50,000 tests in Q1. Neither company projected an overall rate of decline for all of 2021.

From PCR to POC Testing

The flipside to the decline in molecular testing is the surge for rapid point-of-care (POC) and antigen COVID-19 testing. As society reopens, the center of gravity in the coronavirus testing market is shifting to relatively lower cost, fast and scalable tests that can be provided at the point of care for screening the asymptomatic, including at schools, workplaces and major sports leagues like Major League Baseball and the NBA. 

“If you look at PCR testing throughout the United States and you look at the estimates that are coming from the antigen and point-of-care providers, you see that the actual level of testing is almost at the same level as we were [last] summer, but in different forms,” noted Quest CEO and chairman Steve Rusckowski. “There is a transition from PCR exclusively … to more capabilities around point-of-care and antigen testing.

Many of the leading companies have done a good job of anticipating the shift and pivoting by delivering the products to meet it, including POC and antigen tests as well as tests and self-collection kits for home use. The Q1 earnings reports demonstrate that this strategy is paying off, with many companies, including Abbott, Danaher, Opko Health, Quest and Siemens Healthineers reporting significant spikes in rapid COVID-19 POC and antigen tests. 

The At-Home and DTC Opportunity

Direct to consumer (DTC) and at-home testing represent a parallel path for COVID-related growth. Abbott has staked out an early claim by focusing on its BinaxNOW COVID-19 Antigen Self Test, which customers can now buy over the counter from CVS, Walmart and Walgreens. The strategy looks to develop a template that can be used to deliver DTC, at-home test products for other ailments if and when the COVID-19 crisis ever ends.

Quest estimates consumer testing to represent a $2 billion opportunity by 2025, growing at a 10 percent compound annual growth rate and is expanding its DTC operation with hopes of capturing a $250 million share of the market.

Recovery of Core Testing Markets

The other positive development to emerge from the 2021 Q1 earnings reports is the continued rebound of other segments devastated by the pandemic, with many firms reporting positive growth in cancer screening, blood testing, non-COVID genetic molecular testing and other divisions that experienced steady declines in 2020. Although the pandemic losses haven’t yet been made up, things are clearly trending in that direction as surgeries, clinical trials and doctor visits resume, often at a stepped-up pace to make up for lost time. 

Still another indicator of financial strength lies in the bottom lines, with only eight companies missing their Wall Street earnings per share targets during the quarter: Fluidigm, Guardant Health, Hologic, Invitae, NeoGenomics, Quidel, Twist Bioscience and Veracyte.  

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This article and a chart summarizing the Q1 earnings reports of all the major lab companies originally appeared in G2 Intelligence, Laboratory Industry Report, June 2021.