After Abbott Laboratories, Laboratory Corp. of America Holdings and Quest Diagnostics Inc. benefited from a surge in COVID-19 testing due to the delta wave of the virus, the diagnostic companies will lean on their core businesses to see them through an uncertain 2022.
Abbott, which sells the rapid COVID-19 test BinaxNOW, saw sales in its diagnostics business rise 46.8% year over year on an organic basis in the third quarter, with almost half of sales occurring in the U.S. Global COVID-19 testing-related sales reached $1.9 billion during the quarter.
However, the North Chicago, Ill.-based
Looking to the fourth quarter and beyond, CEO Robert Ford said testing will continue to be critical to fighting the virus. Even as cases have declined, the demand for tests for screening purposes by the government and private businesses has remained strong, Ford noted.
"I don't know how much is going to be there next year, but it's clearly here that that screening segment of the market is going to be an important part, even with therapeutics and vaccines," the CEO said.
The company also expects that its base business will continue to perform well in 2022, Ford said. Excluding COVID-19 tests, organic sales increased 12% year over year during the third quarter with the medical devices and established pharmaceuticals segments seeing growth of about 13% and 15%, respectively.
"While COVID testing sales did drive the majority of the upside, mid-teens organic sales growth in the medical devices business suggests to us that underlying fundamentals at [Abbott] remain strong and arguably best-in-class," SVB Leerink analysts wrote in an Oct. 20 note.
Labcorp's drop in PCR profits
In contrast, Labcorp experienced a 6.8% year-over-year decrease in its COVID-19 PCR and antibody testing, offsetting 10.2% growth across its organic base business to produce a total organic revenue increase of 3.4% during the quarter.
Despite the year-over-year fall in COVID-19 testing sales during the third quarter, the company averaged 85,000 PCR tests a day — an increase on the average of 54,000 daily tests in the previous quarter, CEO Adam Schechter told investors on an Oct. 28 earnings call.
These volumes had begun to drop again toward the end of September, Schechter noted, and the company expects a daily average of 50,000 to 70,000 tests during the fourth quarter.
Looking across the company, the CEO said the drug development and diagnostics businesses had rebounded well. "If you look even for the first couple of weeks of October, it rebounded from where we were even in September, so we would expect the base business to continue to improve."
COVID-19 testing could fall to flu levels
Quest Diagnostics also expects that the growth in COVID-19 molecular tests it saw between the second and third quarters will be followed by a drop in the final months of the year, according to CFO Mark Guinan.
"So far in October, average COVID-19 molecular volumes have declined approximately 10% from where we exited Q3, but are still above the levels we expected prior to the surge of the delta variant, while the base business continues to improve since September," Guinan told analysts on an Oct. 21 call.
At the lower end of the company's outlook for the fourth quarter, the company assumed 50,000 molecular tests per day with serology test volumes remaining at about 5,000 per day.
"We did assume that COVID will continue at a much lower level than we saw in '20 and '21, but still to be significant and certainly much larger than our current flu testing," Guinan added. "And we've referenced in the past that at some point, COVID testing will still be here, but maybe more on the level of flu testing."
Across the company's base business, which excludes COVID-19-related sales, Guinan said Quest anticipates low single-digit growth in the fourth quarter compared to 2019. "Getting to the midpoint, our higher end of our outlook range assumes stronger COVID-19 molecular testing volumes and/or stronger growth in our base business," the CFO added.
PCR testing should continue to be a meaningful tailwind for both Quest and Labcorp heading into 2022, Mizuho Americas research analysts said in an Oct. 28 note.
"We continue to believe [Quest and Labcorp]'s earnings visibility remains high in the near-term, given strong PCR testing volumes and recovery in both companies' base businesses above pre-COVID levels," the analysts added.