Swiss testing giant Roche is downplaying the longer-term prospects of significant antigen testing for COVID-19, arguing that in largely vaccinated populations the sensitivity of PCR will be needed.
At a diagnostics investor day, Roche management argued the lower viral loads present in vaccinated individuals could lead antigen tests to deliver more false negatives. The comment follows Quidel's decision to cut its guidance amid a "drop off" in demand for testing.
Analysts at Evercore ISI said Roche's comment bodes well for Abbott, Hologic, Thermo Fisher Scientific and PerkinElmer but adds to the questions about antigen testing raised by Quidel's reduced guidance. William Blair analysts echoed the sentiment, though was not completely on board with the argument on antigen testing.
Roche is exposed to both the PCR and rapid antigen testing spaces, although it is a late entrant to the latter market in the U.S., filing for emergency use authorization last month. Even so, Roche sells both types of kits in many major markets and has the capacity to be a significant force in antigen and PCR testing. From that vantage point, Thomas Schinecker, CEO of Roche Diagnostics, sees reasons to believe PCR has the brighter future.
"The fact is that antigen testing is not as accurate as PCR testing," Schinecker said. "If you look at flu, rapid antigen testing is not a preferred method, because the viral load is not so high. You actually have an issue detecting, you get a lot of false negatives. And as people get vaccinated, rapid antigen testing will become less relevant simply because of the same reason."
Schinecker said antigen testing has played a role in the response to COVID-19 so far because of long turnaround times due to a lack of PCR capacity — demand is still exceeding supply at Roche — and the fact that unvaccinated people have high enough viral loads to make it possible to detect proteins. As COVID-19 cases fall and vaccinations rise, turnaround times and viral loads could drop, tipping the balance in favor of PCR.
"For our part, we are not yet totally sold on this notion given the science is still evolving," William Blair analyst Brian Weinstein wrote, predicting a continued demand for rapid results
Proponents of widespread antigen testing, including Harvard epidemiologist Michael Mina, have made a different argument than Roche, calling the rapid diagnostics the best way out of the pandemic because of their effectiveness during the most contagious stage of the virus.
Quidel, which is more focused on antigen testing, is betting on an "avalanche of rapid testing" as economies open up and businesses start screening for COVID-19. Still, this month it surprised investors when it slashed its forecast.
As it stands, Roche said supply of antigen tests exceeds demand in Europe, where more companies are on the market compared to the U.S., but acknowledged signs that countries such as Germany, Switzerland and the U.K. will increase the frequency of testing to keep COVID-19 under control.
Over time, Roche predicts the coronavirus to become endemic like the flu, a view shared by many public health experts.
The Swiss company contends that will result in an ongoing opportunity of a few billion dollars. Evercore analysts said Roche's forecast low-single-digit billion dollar testing opportunity supports PerkinElmer's belief that COVID-19 could be worth $100 million to its business in fiscal 2023.
William Blair analysts estimate a slightly lower potential market, at least when compared with the flu.
"Our belief has been that the influenza testing market has been in the hundreds of millions of dollars (i.e., $300 million to $500 million) depending on the severity of the season, with markets outside the United States variable depending on the region," Weinstein wrote.
Roche said the relatively low price of its COVID-19 tests means it will suffer less pricing pressure as the pandemic recedes and supply starts to exceed demand.
Roche and its rivals are betting that the long-term tailwinds of the pandemic will extend beyond tests for COVID-19. In 2019, there were around 800 cobas 6800/8800 systems installed around the world. Last year, that figure rose 42% to around 1,200. Roche expects the growth to continue, bridging its installed base up to more than 1,600 systems this year. The forecast is underpinned by a belief that hospitals and laboratories will favor automated systems such as Roche's cobas.
"They need to reduce the amount of manual labor. There are a lot of people that I've spoken to that are using more research-like platforms. They're saying, 'as soon as you deliver more, we really need your help, because people are burning out doing all these manual steps,'" Schinecker said.