NEW YORK – When the COVID-19 pandemic hit the US toward the spring of 2020, many diagnostics companies jumped into action to meet astronomical demand for SARS-CoV-2 tests.
Most of those firms saw boons in their businesses, accompanied by record-high revenues throughout the year and into 2021 and 2022, as well as increased attention on an industry that has often taken a back seat to drugs and therapeutics in the public eye.
But as the world slowly emerges from the pandemic with the advent of both vaccine-induced immunity and natural immunity, many of these companies that have focused so heavily on COVID-19 testing in the past two years are returning their focus to core businesses.
While most diagnostic companies that offer COVID-19 testing aren't abandoning it entirely, recent financial results and their accompanying 2022 estimates are baking in significantly lower demand for SARS-CoV-2 tests. Abbott, for example, offered full-year 2022 financial estimates that included COVID-19 testing-related sales, but CEO Robert Ford cautioned on the company's Q4 earnings call that forecasting COVID-19 testing demand for more than a few months at a time is challenging. Abbott currently offers a variety of COVID-19 tests, including antigen and molecular assays, and has seen diagnostics revenues rise every quarter since Q2 2022, largely on the back of its COVID-19 business.
Although the firm declined to be interviewed for this story, its 2021 Q4 and full-year 2021 financial results show its base business is recovering — while the firm's molecular and rapid diagnostics sales were negatively impacted by lower year-over-year COVID-19-related sales during the quarter, both divisions saw revenues rise when COVID-19 sales were excluded. Throughout the pandemic, the company has continued to roll out its Alinity instruments for immunoassay and clinical chemistry testing, placing more than 3,000 in 2021, suggesting the firm is prepared for COVID-19 demand to wane.
Other companies with major COVID-19 testing booms, however, have seen downturns in diagnostic revenues as SARS-CoV-2 test demand wanes. Hologic, Becton Dickinson, Quidel, and Meridian Bioscience — four firms that saw massive influxes of cash from COVID-19 testing — all announced revenue declines in their most recent quarters. Thermo Fisher Scientific and PerkinElmer, two other beneficiaries of COVID-19 testing demand, saw incremental revenue increases, although PerkinElmer's diagnostics revenues slid 17 percent during the recently completed quarter.
Not all diagnostic companies with major COVID-19 businesses have seen downturns — LumiraDx, Roche, Siemens Healthineers, and Danaher all reported at least partially COVID-19-related revenue growth in their most recently announced financial results — but as the COVID-19 revenue ramp shows signs of slowing, firms in the industry are having to plan where to go from here.
New product launches
When the pandemic began, plans for new products were put on hold at many Dx firms as R&D teams were redeployed to COVID-19 testing. Now that the pandemic is edging toward an endemic, and most companies already have SARS-CoV-2 tests on the market, those businesses are returning to the plans they left on ice.
Amar Kamath, PerkinElmer's former VP and general manager of diagnostics who left the company after speaking for this story, said that while the base business slowed in some places during the pandemic, that business is bouncing back. In the last seven months, the Waltham, Massachusetts-based company has put its R&D teams back on their original projects that were placed on hold at the start of 2020, he said.
"We're going to be launching some projects that we … expected to launch in 2021 that will now launch in 2022 or in 2023," Kamath said. Those projects stretch across PerkinElmer's business, including reproductive health products expected to launch at the end of this year or the beginning of 2023, as well as applied genomics and workflow automation solutions, he said.
Other firms similarly have shifted their focus as COVID-19 testing demand fluctuates. Point-of-care diagnostic firm LumiraDx, which went public last April through a special purpose acquisition company, also saw its priorities change. The firm has long had an emphasis on infectious disease, according to Chief Product Officer Pooja Pathak, but when the pandemic hit the company dedicated R&D and operations teams to COVID-19 testing. The pandemic allowed the firm to scale up its R&D and operations capabilities, and as the company has grown it has been able to bring back new projects that are expected to launch within the next two years, she said.
The London-based firm plans to launch "five or so" products this year, Pathak said, including a multiplex COVID-19/influenza test that has been submitted to the US Food and Drug Administration for Emergency Use Authorization and is commercialized in Europe. The company has also brought D-dimer and C-reactive protein tests to market since the pandemic started, she said.
It has tests for other respiratory diseases, such as respiratory syncytial virus and group A Streptococcus, in the pipeline, as well as assays for cardiovascular markers and diabetes. Although a lot of the customer demand has been focused on COVID-19, Pathak said, "one leads to another," and LumiraDx expects some customers to evaluate the company's platform for other tests after using it solely for COVID-19.
Becton Dickinson is also shifting focus after redeploying R&D staff on the assay development side to COVID-19 testing, according to Dave Hickey, executive VP and president of the firm's life sciences segment. That choice "was the right prioritization decision to be done," and those resources have now been deployed back to their original programs, which were largely for molecular testing on the firm's PCR-based BD Max instrument, he said.
In contrast, Hologic, a major beneficiary of COVID-19 testing, may have shifted its focus slightly to COVID-19 testing at the start of the pandemic, but Diagnostics Solutions President Kevin Thornal said via email that its product development and portfolio expansion plans "were not materially affected by the pandemic."
In fact, in 2021, the company went on a buying spree, building out its non-COVID-19-related business. Last year, it made three acquisitions, buying Biotheranostics for $230 million, Diagenode for $159 million, and Mobidiag for $759 million. Thornal noted that the firm's "response to the pandemic and the success of our COVID assays actually allowed us to reinvest in our business more so than originally planned, and even accelerated certain projects and strategic plans." He added that the three acquisitions complement the company's existing business, "expanding our portfolio internationally as well as into oncology and closer-to-patient testing."
Cowen analyst Max Masucci noted in an interview that the acquisition of Biotheranostics offers an opportunity for further consolidation in the oncology space, while the Mobidiag buy increases Hologic's presence in the decentralized testing arena.
Utilizing installed bases for menu expansion
Another major effort by diagnostic firms during the past two years has been to leverage the pandemic to expand instrument placements. According to Cowen analyst Dan Brennan if a company already has an instrument on the market and customers using it, it only makes sense for the firm to expand its testing menu for the platform as a way to tout its capabilities, compete with other players, and take market share from smaller players.
One of those smaller players, LumiraDx, had 21,000 instruments placed at the end of 2021 and is looking at how customers are using those instruments when deciding on its product launches, Pathak said.
When it comes to COVID-19 testing, "it's been a combination of customers evaluating our product, and then, as there's been an increased need ... and they've gotten a lot more confident with the performance, so they've kind of scaled up," she said. That doesn't apply to every customer, however. "Across the board, customers have been in different phases of adoption," she said. Usually "customers will start with one or two use cases and expand volumes but then also expand the different care settings that the platform [is] used in," such as physicians' offices, hospitals, and emergency departments.
For broader applications, some customers may begin with COVID-19 testing and then expand to other types of testing on the platform, Pathak said. Others may use it only for COVID-19 testing, but because the platform can run multiple types of assays, a user may run COVID-19 antibody, antigen, and molecular tests, she said. Each use case depends on the setting, she noted — a platform placed in a doctor's office will likely use all of the products currently available, since they are commonly run tests.
PerkinElmer's Kamath also touted the growth of the company's installed base as a driver of new products, and the non-COVID-19 parts of the business are focusing on how to adapt products to the new instrument placements. As the installed base grew during the pandemic, the company evaluated "other things that could be done with the same platforms, depending on the customer's focus," including test menu expansion and workflow automation, he said.
Like LumiraDx, the firm is also looking to convert its COVID-19 customers to other tests on its platforms. The company is looking to take its existing infectious disease menu, which includes tests for Lyme disease and Epstein-Barr virus, to customers using its COVID-19 tests, Kamath said. While "there's nothing that's going to be as big as COVID," there are other smaller things that "can combine to have a decent post-COVID revenue for us," he said.
"We are looking at this holistically," he said. The firm offers a variety of different technologies, including DNA extraction, workflow automation, liquid handling, and detection technology, so it's asking, "What can these things do?" for any given customer, depending on the existing products and services they already use, Kamath said.
Some potential options he cited are providing workflow automation for an existing assay or offering its DNA extraction technology for customers to use with other infectious disease or oncology testing.
"We are keeping ourselves flexible, open, and just responding more to what the customers are looking for from us, than saying here's a menu of things we would like you to do," he said.
BD is also joining the fray to garner more market share in the industry by focusing on using its expanded installed base to push its tests to new customers. Before the pandemic, the Franklin Lakes, New Jersey-based company had 25,000 placements of its point-of-care Veritor instruments across the world, Hickey said. It now has more than 100,000 Veritors placed globally. Its BD Max installed base, meantime, has increased by more than 60 percent throughout the pandemic, he added.
With that significant installed base increase, there is now an opportunity to expand its menus by developing more clinical diagnostic tests for those platforms. The firm plans to put new infectious disease tests on the BD Max platform but is also considering the possibilities of multiplex or combination tests for at-home, over-the-counter use under its Veritor at-home brand, Hickey said.
BD has increased the level of R&D investment for BD Max, he noted, and between now and 2025 the firm plans to release multiple respiratory infectious disease assays for the platform. According to a BD investor presentation in November, the company has plans for multiple respiratory panels and a meningitis test.
For the Veritor instrument, more respiratory tests are planned, as well as a test for Clostridium difficile. And for Veritor, a combo COVID-19/influenza test is in the pipeline, along with a Streptococcus test.
Hickey also highlighted the potential to leverage the firm's installed base in nontraditional settings, such as nursing homes, "which typically would never do testing." Now that the installed base is out there, "you would ask yourself, in a nursing home, in a long-term care facility, what's the type of test that could be useful to the staff and to the patients in those types of facilities?" Hickey said.
The migration to new care settings during the pandemic is particularly important for BD's go-forward strategy. The move toward at-home healthcare "has broad positive implications for BD" because diagnostics and medical devices will have an increasing role to play in these settings, Hickey said. "Developing easy-to-use, easy access, CLIA-waived instrumentation and assays to enable growth in new care settings is a key piece."
Thermo Fisher Scientific has also seen its installed base of qPCR and sample prep instruments grow and expects that increase to be "largely permanent," Manoj Gandhi, senior medical director of genetic testing solutions, wrote via email. That expectation is "due in part to continued demand for COVID-19 testing as we reach an endemic phase," Gandhi said, particularly a demand for multiplex testing. However, Gandhi noted that customers "are now starting to repurpose qPCR instruments for other molecular diagnostic testing," and the firm is working to expand its molecular diagnostic menu with tests for sexually transmitted infections, urinary tract infections, and women's health.
Cowen's Brennan, however, said that Thermo Fisher's focus doesn't seem to be on broader diagnostic testing, but rather focusing on more specialized areas, such as sepsis, organ transplantation, and allergy testing.
Meanwhile, Hologic emphasized the growth in its installed base as a driver of future strategy. Thornal said that the firm's Panther installed base grew by 75 percent during the pandemic, with almost half of those systems placed internationally. Ninety percent of the company's customers are running at least one test other than for COVID-19 on their systems, indicating that customers "are investing in molecular testing on the Panther for the long haul," he said.
The Marlborough, Massachusetts-based company plans to release tests for "opportunistic infections typically monitored in transplant patients," Thornal said, and is working on building out the menu for its molecular NovoDiag platform as it prepares to commercialize the instrument in the US.
Not every company, however, has been able to capitalize on an expanding installed base. Meridian Bioscience, which saw its pandemic-era revenues climb on demand for life sciences reagents used in COVID-19 tests, has faced struggles on the molecular side of its business. Although it has a molecular instrument, the Revogene, on the market, the firm has been plagued by difficulties in attempts to launch a SARS-CoV-2 test on the platform.
The Cincinnati-based company had to resubmit its test to the FDA for EUA, and though it received authorization in November, the test still hasn't begun shipping to customers. That wait has resulted in slower placements of the platform, said Charlie Wood, VP of strategy, business development, and investor relations. Hospitals aren't interested in new instruments that don't have a COVID-19 test, Wood said, so the instrument is seeing a much lower rate of adoption than before the pandemic. The struggles with the SARS-CoV-2 assay "cloud potential demand" for the instrument, he added.
On a conference call to discuss the firm's fiscal Q1 earnings results last month, Meridian CEO Jack Kenny said he expects the test to begin shipping by the end of fiscal Q2, which concluded on March 31, and Wood noted in an interview that placements for the instrument are expected to pick up once the test begins shipping. In an attempt to mitigate the issue, Meridian required new customers to take on at least one non-COVID-19 test for the instrument to ensure there would still be interest in the platform once the pandemic ended, but some customers are continuing to wait for the SARS-CoV-2 test to become available, Wood said.
Meridian is preparing for an uptick in Revogene placements, however, with plans for multiple new tests ahead. Those tests include a respiratory panel, which is being developed with funding from the US National Institutes of Health, a gastrointestinal panel, and another test that Wood declined to disclose but which will fit into its priorities of respiratory and GI testing.
As for diagnostic companies that currently only offer COVID-19 products, the path forward is the same as for legacy firms: expanding their menus, Masucci said. However, "the question is, how long will it take to develop offerings that aren't pandemic-dependent," he said.
SVB Leerink analyst Puneet Souda noted that for "pure-play COVID companies," there is still value, because the COVID-19 testing demand likely won't go away, but it is hard to predict. For a smaller company, it is "more efficient to expand the menu on the current platform," he said, because "the more tests you have on a single platform, the more valuable it is, generally speaking, across the board."
Many of the larger players in the diagnostics industry have reinvested the cash gained from COVID-19 into their businesses with acquisitions to beef up their portfolios with an eye toward a post-pandemic world. 2021 saw the highest volume of M&A deals since before 2017, with four deals totaling more than $1 billion each and many of the larger acquisitions specifically for molecular diagnostic companies.
Aside from Hologic, PerkinElmer was a major acquirer and spent $5.25 billion to purchase life science antibodies and reagents provider BioLegend. That buy, Masucci said, provides an opportunity to participate in the cell and gene therapy market. BioLegend also offers reagents that can be used in a wide variety of applications.
Brandon Couillard, an analyst with Jefferies, wrote in a note to investors that the deal "builds on [PerkinElmer's] ongoing portfolio transformation toward higher-growth markets."
Beyond the BioLegend deal, PE spent $591 million to buy Oxford Immunotec in 2021 in an effort to grow its infectious disease testing portfolio and $155 million to buy Immunodiagnostic Systems to bolster its immunoassay offerings.
Thermo Fisher's purchase of Mesa Biotech for up to $550 million was also an attempt to beef up its diagnostics offerings beyond COVID-19. Mesa Bio offers multiple respiratory infectious disease tests on its point-of-care platform, and Cowen's Brennan said Thermo is looking to expand that menu. He added that Thermo Fisher is using the purchase as an opportunity to further enter the point-of-care molecular arena in light of growing interest in the space post-COVID-19.
In a note to investors when the deal was announced, Cowen analyst Doug Schenkel wrote that the acquisition appeared to be a solid strategic deal, expanding Thermo Fisher's MDx portfolio to the point-of-care market, which has historically grown at least 10 percent annually.
Quidel, Roche, and DiaSorin have also all made big purchases to expand their diagnostics offerings since the pandemic began, spending billions on acquisitions in 2021. Quidel aims to build up and complement its own immunoassay portfolio with its proposed $6 billion purchase of Ortho Clinical Diagnostics, while Roche's $1.8 billion buy of GenMark and DiaSorin's $1.8 billion purchase of Luminex are for diagnostics firms that can help increase the acquirers' molecular test offerings.
Molecular diagnostics, particularly point-of-care molecular tests, are a "meaningful opportunity," SVB Leerink's Souda said in an interview. While most of the US is still doing central lab testing, point-of-care testing is an area where infectious disease testing could expand. However, he cautioned that part of the appeal of POC testing is due to the pandemic — the demand may not be as strong once the pandemic is over, and definitely won't be as strong for other viruses.
"We are dealing with massive volumes of COVID on a [type of] test that is very attractively priced, and that's why you're seeing the market opportunity," he said.
Regardless of their specific strategies, most diagnostics companies are using the benefits of the pandemic — increased awareness of the diagnostic industry and significant revenue growth, among others — to refocus on their base businesses and make strides toward normalcy.
"COVID-19 has kind of accelerated the pace at which we can do things," LumiraDx's Pathak said. "But besides that … our mission remains unchanged."