Thermo Fisher Scientific generated $2 billion in sales related to COVID-19 in the third quarter on the back of strong demand for testing products and instruments, while its base business returned to growth.
The coronavirus-driven revenues, which were almost double Thermo Fisher's original target, drove organic sales growth of 34% and a 91% jump in adjusted earnings per share. The organic increase exceeded even the raised forecast the company issued toward the end of the third quarter.
Even with the potential for a widespread vaccine to dim coronavirus testing demand, CEO Marc Casper said the company has "significantly increased our installed base of sample preparation and PCR instruments over the last nine months" which will "create new opportunities for us going forward."
Thermo Fisher went into the third quarter expecting COVID-19 to add $1.1 billion to revenues. Last month, management added $500 million to the forecast in light of its performance over the first two months of the quarter. That beefed up forecast still proved to be too conservative, in large part due to demand for testing products and reagents.
"While we continue to see the impact of a lower level of routine doctor visits and related testing, demand did improve from Q2 levels and our COVID-related testing revenue grew significantly," Thermo Fisher CEO Marc Casper summarized on Wednesday's conference call with investors.
Testing revenues were the biggest piece of the $2 billion in COVID-19 revenues, with Thermo Fisher's proprietary PCR kits being the single largest contributor. Instrumentation and reagents produced for use in laboratory-developed tests also contributed, Casper said, and viral transport media (VTM) sales grew rapidly. Those drivers offset declines in the price of personal protective equipment and ongoing pressures on non-COVID-19 testing, notably immunodiagnostics and transplant diagnostics.
Casper said demand for PCR "continues to be very strong" and expects it to endure into 2021, pointing to the persistence of the pandemic and the trust Thermo Fisher has earned by building capacity ahead of demand to make his case.
Based on anticipated demand for PCR and its broader portfolio of test kits and reagents, Thermo Fisher expects COVID-19 to contribute $1.75 billion to revenues in the fourth quarter. The forecast reflects the limited visibility Thermo Fisher has into December, when it is unsure how much money companies will have to spend. With Thermo Fisher tipping its base business to be flat to up slightly sequentially, management expects sales to grow 29% organically in the fourth quarter.
SVB Leerink analysts wrote in a note to investors that those PCR, VTM and instrument product lines will continue to benefit "as the colder months drive more respiratory infections worldwide."
As in earlier quarters, testing demand will dictate whether Thermo Fisher beats or falls short of its goal. The company said it has the capacity to serve the industry if testing demand exceeds the level assumed in its guidance.
With 2021 on the horizon, Thermo Fisher has begun to frame its current performance and its active areas of investment in the context of its longer-term prospects.
The anticipated rollout of COVID-19 vaccines next year could cause Thermo Fisher's testing revenues to fall but Casper sees the pandemic having lasting, positive effects on the business, including in its VTM business. That strategy has led Thermo Fisher to add manufacturing capacity in Scotland to serve the European market.