LabCorp has warned investors that COVID-19 testing revenues could fall by as much as 50% this year as the mass-vaccination campaigns now underway start to drive down cases.
In 2020, LabCorp generated $2.8 billion from COVID-19 testing, helping it to grow revenues by 50% in the fourth quarter and 21% across the full year. Demand for COVID-19 diagnostics currently remains fairly high but LabCorp and other testing companies expect that to change.
LabCorp predicts its base business will achieve double-digit growth as the pandemic abates but the surging sales will be more than offset by the lost COVID-19 revenues.
Multiple companies exposed to the COVID-19 testing boom have advised investors to expect demand to remain elevated throughout the first half of 2021 before falling away later in the year. However, the forecasts have been qualitative, not quantitative. LabCorp went a step further by predicting how much COVID-19 will be worth to its business in 2021.
The lab network expects COVID-19 testing sales to fall by 35% to 50% this year. LabCorp CEO Adam Schechter told investors the wide range reflects the fact "it's very difficult to have precision" in such an uncertain environment. The range is broad enough that LabCorp could hit it despite being unsure how demand for COVID-19 testing will change throughout the year.
"If you look at the last several weeks versus the end of 2020, if that decline continued throughout the whole year, you could get there. If the amount of testing we're doing today, on average, was maintained for the six months of this year, then you could do zero for the second half of the year and still be there. So there are multiple different ways to get there," Schechter said.
If COVID-19 sales fall within the target range, the pandemic will still be worth at least $1.4 billion to LabCorp. However, the prediction also suggests the company will face a headwind of $1 billion or more.
LabCorp is looking to the recovery of its base business to offset the lost COVID-19 revenues. Sales at LabCorp's base diagnostic business rose almost 4% in the fourth quarter but still fell by 5% across the full year. The decline reflects the disruption the pandemic caused to routine testing and healthcare.
With LabCorp assuming the crisis will ease this year, management is advising investors to expect ex-COVID-19 diagnostic sales to increase by 11% to 14% from the low base set in 2020. Even so, with the loss of COVID-19 sales creating a major headwind, LabCorp expects total diagnostic revenues to fall in the single digits this year.
LabCorp's willingness to make full-year predictions contrasts with the caution of its chief rival, Quest Diagnostics. Last week, Quest shared its outlook for the first half of 2021 but opted against giving a full-year outlook in light of the uncertainty about the pandemic. The emergence of variants with some degree of resistance to existing vaccines has raised fears that the pandemic and, by extension, significant demand for testing will persist for longer than expected.
There is also scope for the vaccines to create demand for serology tests. Schechter said there are scenarios in which serology tests become important and LabCorp is preparing for those eventualities.
"If you need a vaccine every several years, then I believe serology will be very important. The real question is going to be, what's the quantitative analysis that you need for a certain level of antibodies to feel that you're protected? If there is a quantitative number, that people can feel comfortable, they can fly, they can go to events, that they can do many other things, then it will be very important. And what we're doing is we're preparing for that just in case," Schechter said.