Covid-19 tests are generating revenues – But for how long?

The most recent Omicron variant surge provided a revenue boost to diagnostics makers in the fourth quarter, but with cases on the decline, the revenues for 2022 are expected to decline.

Within one year after the WHO declared the pandemic dimension of Covid-19, scientific ingenuity and unprecedented clinical development efforts gave the world a fighting chance of halting the progress of this infectious menace.

After the rollercoaster change in Covid-19 test demand, from sky high over the winter to rock bottom as the vaccine rollout advanced, and then back up again as the delta variant took hold, the question is what happens in 2022.

Demand for Covid home testing kits is increasing and contributing significantly to the device makers’ Covid portfolio.

Mylab, the first in India to get approval for its Covid testing kit – Coviself – has witnessed a growth of 400 percent since its launch. The growth of this segment comes at a time when the Covid portfolio for testing labs is gradually coming down.

For SRL Diagnostics, Covid contribution to the overall revenue was 18 percent versus 28 percent in Q2 FY21. It was no different for Dr Lal PathLabs. Revenue from the Covid portfolio in Q2 FY22 stood at Rs 51 crore, accounting for 10 percent of the total revenue against 22 percent in Q2 FY21.

The ebb and flow of coronavirus testing demand during the pandemic has made forecasting difficult for diagnostics companies, including Abbott Laboratories, Thermo Fisher, Becton Dickinson, Roche, and Quidel. The most recent Omicron variant surge provided a revenue boost to diagnostics makers in the fourth quarter, but with Covid-19 cases in decline, the sustainability of the business in 2022 is in doubt.

Manufacturers are scrambling to keep up with the overwhelming demand for at-home tests, including Abbott, which continues to ramp up its manufacturing capabilities.

Abbott has plenty of capacity to support international demand, with current manufacturing capacity of more than 100 million tests per month globally. Domestically, the diagnostics maker said it will manufacture 70 million BinaxNOW rapid tests in the US, with plans to increase that output.

Earlier this month, Abbott Laboratories reported Q1 2022 sales of USD 11.9 billion, a 17.5 percent increase on an organic basis from a year ago, driven by heightened demand for Covid-19 tests and strength in its base business. The company beat the Wall Street consensus estimate by USD 900 million. Global Covid-19 testing-related sales were USD 3.3 billion in the quarter, more than 90 percent of which came from rapid test, including BinaxNOW in the US, Panbio internationally, and ID NOW globally. Sales in core laboratory and molecular diagnostics were impacted by year-over-year declines in Covid-19 testing-related sales in these businesses.

Abbott’s 2022 guidance now includes expected Covid-19 test-related sales of approximately USD 4.5 billion, which it anticipates will largely occur in the first half of the year and will update on a quarterly basis. The company in January previously provided full-year guidance that included an initial coronavirus test sales forecast of USD 2.5 billion. Looking ahead to 2023, the management expects that as the pandemic moves into an endemic state, testing will allow people to live their day-to-day life, and it is more about surveillance and screening.

Thermo Fisher brought in USD 10.7 billion in revenue in the fourth quarter of 2021, flat compared to 2020. Roughly USD 2.5 billion of that was related to its Covid-19 response. For the full year, Thermo Fisher’s revenue increased 22 percent to USD 39.2 billion.

Thermo Fisher is boosting its guidance for next year to assume USD 1.75 billion in testing revenue, though there are scenarios where testing demand could be higher, CFO Stephen Willamson said during the earnings call. The company expects most of that will come in the first half of 2022, while assuming roughly USD 100 million in revenue per quarter, should cases stabilize.

Thermo Fisher is slated to report financial results for its Q1 FY22 on April 28.

Quidel reported Q4 FY2021 revenue of nearly USD 637 million, in line with the company’s preannouncement last month, fueled by strong demand for Covid-19 tests. Covid-19 tests generated roughly USD 512 million in the fourth quarter, based on sales of approximately 65 million QuickVue antigen tests and over four million Sofia antigen tests. However, the company has not provided 2022 guidance.

Looking ahead to the first quarter of 2022, CEO Doug Bryant said that Quidel in January saw strong demand for its antigen tests as a result of the omicron surge. However, Bryant said from February onwards, the company is seeing demand moderate in the professional and retail markets, commensurate with lower Covid-19 positive cases.

Bryant sees the potential for Covid-19 to ultimately change over from a pandemic to an endemic just like the other seasonal respiratory viruses with a corresponding decrease in need for testing, although Bryant did not provide a timeframe for that transition or a business forecast. “We do see flu popping up,” the CEO added. “I do not know what that will mean for the next couple of quarters, but we are making both more flu and the combo products.”

Quidel is slated to report financial results for its Q1 FY22 on May 4.

Becton Dickinson reported first quarter of its 2022 fiscal year revenues at USD 5 billion, a 5.9 percent decrease on a reported basis due to a USD 681 million year-over-year decline in Covid-only testing revenues. BD’s testing decline was in line with past guidance, however, and the company still beat Wall Street revenue expectations by USD 240 million last quarter.

CEO Tom Polen told investors that BD was able to deliver these results in an uncertain market environment in the first quarter across its medical, life sciences, and interventional businesses, growing the company’s base business revenues by 8.3 percent. BD saw increased demand in the quarter for its professional and at-home Covid-19 tests, fueled by the Omicron variant surge. However, the CEO said that compared to last year, Covid-only diagnostics revenues declined, driven by lower antigen test pricing and volumes as well as increased competition from over 40 rapid tests with emergency use authorizations in the US market.

BD raised its full-year guidance, and is now expecting revenues to be in the range of USD 19.55 billion to USD 19.75 billion, compared to the USD 19.47-billion consensus, an increase of approximately USD 250 million from what was previously announced.

In November, when BD announced fourth fiscal quarter and full-year-2021 results, the company provided first-fiscal quarter guidance that assumed approximately USD 200 million in Covid-19-only diagnostic testing revenues. It came in at USD 185 million, down from USD 866 million in the prior year. CFO Christopher DelOrefice told investors that BD’s total year-over-year 5.9 percent first-quarter revenue decrease was entirely attributable to the decline in testing revenues.

Hologic brought in roughly USD 1.47 billion in revenue for the first quarter of 2022, driven by lower sales of Covid-19 assays, compared to the prior year period. Revenue, however, was significantly higher than the company’s guidance of USD 1.1 to USD 1.15 billion provided last quarter. Excluding revenue from Covid-19, organic revenue grew 9 percent on a constant-currency basis, comparing favorably to the company’s long-term goal of 5-percent to 7-percent growth.

Company’s global diagnostics revenue of USD 950.4 million decreased (15.8%), or (15.2%) in constant currency, driven by lower sales of Covid-19 assays. Excluding Covid-19 revenues, however, global diagnostics revenue grew 10.2 percent on an organic, constant-currency basis. Similarly, global molecular diagnostics revenue of USD 813.3 million declined (18.3%), or (17.8%) in constant currency, yet grew 14.1 percent on an organic, constant-currency basis, excluding Covid-19 revenues.

Roche reported a 29-percent year-over-year increase in sales in its diagnostics division for full-year 2021, driven by momentum in the base business and continued demand for Covid-19 testing. Overall, Roche reported CHF 62.80 billion (USD 68.09 billion) in revenues for the year, up 8 percent from CHF 58.32 billion in 2020 and up 9 percent at constant exchange rates.

Roche CEO Severin Schwan said on a conference call to discuss the firm’s financial results that there was an enormous impact on revenues due to Covid-19 but noted that there was also solid growth in the base business that should continue into next year as the company gets back to a more stable rhythm. He added that the current demand for Covid-19 diagnostics is incredibly high and that the company expects a strong first quarter in Covid-19 testing.

Meanwhile, Roche Diagnostics had sales of CHF 17.76 billion in 2021, up 29 percent from CHF 13.79 billion in 2020. For the fourth quarter, diagnostics sales increased 8 percent to CHF 4.46 billion from CHF 4.13 billion in the same quarter in 2020.

Point-of-care revenues more than doubled during the year to CHF 2.58 billion from CHF 1.08 billion in the previous year, and contributed nearly 15 percent to diagnostics division sales. The sharp increase was largely due to the rollout of the firm’s SARS-CoV-2 rapid antigen test.

Roche expects 2022 sales of Covid-19 medicines and diagnostics to decrease by approximately CHF 2 billion to about CHF 5 billion and sales losses to biosimilars in 2022 to be around CHF 2.5 billion. Excluding both of those effects, the firm anticipates sales growing in the high single digits.

Schwan said that the company is predicting very moderate growth for the year and sees two potential scenarios for Covid-19: one where the most recent Omicron surge is the last and the pandemic becomes endemic, with Covid-19 sales slowing, starting in the second quarter of 2022; and one where the pandemic remains steady, with another wave or outbreak occurring.

The company based its guidance on the former scenario, forecasting a slowdown in Covid-19 testing and medicines in Q2 FY2022.

Roche is slated to report financial results for its Q1 FY22 on April 25.

Covid-19 test revenues to crash in 2022. While receding of the pandemic is a good thing, makers of Covid-19 tests do stand to lose out as case numbers continue to fall. All the big Covid test makers that have given guidance for the coming year expect sales of these products to fall – but by widely varying degrees.

The European groups seem to expect a better year than those based in the US, perhaps because assays tend to be centrally distributed, often free of charge to the user, in European countries. Of the US cohort, Abbott expects to do best, though it still expects test sales to fall by two thirds from 2021’s total of USD 7.7 billon. But there is a chance that test sales might not fall quite so sharply. Covid transmission is notoriously unpredictable, and another new variant and corresponding surge cannot be ruled out.

Moreover, when reporting fiscal first-quarter results this month, some companies raised 2022 Covid test guidance from the numbers they had given in November. It is certainly possible that these estimates might be raised further over the next few months.