The infection of president donald trump and members of his close circle has highlighted the importance of coronavirus testing, with demand surging, it would be easy to assume business is booming for us laboratory testing companies.
Members of the american clinical laboratory association processed nearly 27m tests between march and end of july. of these, the bulk was done by just two companies: quest diagnostics and laboratory corporation of america. yet perplexingly, the two stocks which have a combined market value of more than $34bn are trading at only a little above their pre-pandemic levels.
The problem for testing labs is that while the pandemic has brought in a flood of new work detecting covid-19, it has also prompted many people to postpone routine medical visits and cancel non-emergency procedures.
At quest, testing volumes fell 18 per cent year on year during the june quarter as people opted to stay at home. revenue was 6 per cent lower for the period while net income dropped nearly a fifth as the company invested to expand its covid-19 testing capacity. it is a similar story at labcorp.
The upshot is as more cities and states ease lockdown restrictions, testing labs should see a bounce back in routine testing. last month quest raised its full-year outlook, citing a quicker than expected recovery in testing volumes.
Even so, investors would be better off putting their money on test makers rather than test processors.
Widespread testing is key to safely reopening communities and the economy. the rockefeller foundation reckons the us would need about 30m tests a week. but for this strategy to be effective, the us needs quick-turnround tests that can be performed at doctors offices, schools, offices or airports. in other words, tests that do not require a laboratory.
Abbott laboratories has emergency authorisation from the food and drug administration for its rapid response test. the us government has reportedly already sealed a deal to buy 150m of these $5 kits, which can return results in 15 minutes. as more companies race to bring their own quick and inexpensive tests to market, medical labs should brace themselves for more testing times ahead.
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