COVID-19 diagnostics surge as industry prepares for spike in at-home testing

Dive Brief:

• Hologic and Thermo Fisher Scientific reported earnings benefiting from strong demand for their respective SARS-CoV-2 assays. Hologic's fourth-quarter revenue of $1.32 billion beat the Street by $280 million, while Thermo Fisher's third-quarter revenue of $9.33 billion beat analyst estimates by $920 million.  
• The two lateral flow assay companies have ridden the recent wave of strong COVID-19 testing demand in the molecular diagnostics category, which has proven to be just as robust as the rapid, at-home antigen tests that have seen a comeback from Abbott and Quidel.     
• Thermo Fisher credited a surge in the delta variant for strong testing demand globally in the quarter, which resulted in $1.55 billion in revenue. However, CFO Stephen Williamson told investors last week that Thermo expects COVID-19 testing to produce $450 million in revenue expected in the fourth quarter. Hologic CFO Karleen Oberton said on Monday's earnings call that while the company expects a "meaningful" contribution from coronavirus-related revenue in its fiscal first quarter, the pandemic remains highly unpredictable.

Dive Insight:

Although COVID-19 testing revenue for both Hologic and Thermo Fisher declined in their respective quarters compared to the prior year, it still exceeded analyst expectations as the delta variant drove demand for molecular diagnostics. The turnaround is far cry from the cautious expectations that executives from both companies provided in early 2021 for their coronavirus test businesses.      

Thermo Fisher CEO Marc Casper said on last week's earnings call that in August the company started seeing the delta variant creating major demand for COVID-19 tests. Hologic CEO Stephen MacMillan told investors on Monday that its Street revenue beat in the September quarter was driven by coronavirus-related assay revenue of $443 million globally, versus guidance of $150 million to $170 million, with two-thirds of the demand coming from the United States.

Going forward, MacMillan said that if the pandemic "drags on" Hologic will be able to "respond aggressively and generate financial upside." However, Hologic's CFO Oberton warned that the pandemic "remains highly unpredictable" and that the company is "not immune from the supply chain challenges" that have been hitting the medtech industry.

"In the last 12 months, we have seen testing demand increase rapidly then decline rapidly, then increase rapidly again," Oberton told investors. "Demand remains unpredictable and a lot can change between now and the end of our fiscal 2022. So we continue to forecast conservatively."

Hologic expects COVID-19 assay sales to be at least $200 million in the first quarter of 2022 and at least $300 million for the full year. Coronavirus-related testing at this point is "heavily weighted to the first half of the year," Oberton said, adding that the company "assumes a pretty low COVID contribution as we exit the year."

William Blair analysts in a Tuesday note wrote that Hologic's COVID-19 revenues are "completely incremental to long-term growth expectations and could provide meaningful upside in the short term should testing remain elevated." Jefferies analysts similarly predict that Hologic coronavirus assay revenue of $300 million in 2022 is "overly conservative" with significant potential to the upside.     

Looking forward to 2022, Thermo Fisher expects to see $750 million of COVID-19 testing revenue, a figure that Casper said the company would narrow at the start of the new year.

Dive Brief:

• Quidel late Thursday announced preliminary third-quarter results saying it expects total revenues to be between $505 million to $510 million, above the Street’s estimate of $186 million, fueled by coronavirus-related test sales of about $406 million.
• CEO Doug Bryant in a statement said Quidel has seen a "significant uptick in demand" for its COVID-19 tests in the third quarter due to the delta variant, with the company shipping more than 45 million SARS-CoV-2 diagnostics, an 135% increase over the third quarter of 2020. William Blair analysts noted the preliminary results did not include any coronavirus-related revenue from the first round of federal contracts, which came in at $284 million for the company.     
• The Biden administration on Wednesday announced that it will spend an additional $1 billion, on top of the previous $2 billion outlay, to get more rapid at-home COVID-19 tests into the U.S. market. Abbott Laboratories, Becton Dickinson and Quidel are among the diagnostics companies analysts believe will benefit.  

Dive Insight:

The White House is responding to nationwide shortages of rapid at-home COVID-19 tests amid a surge in demand from U.S. employers and school systems. Bryant said Quidel secured a 12-month contract worth an expected $284 million to supply up to 51.2 million QuickVue antigen tests to the federal government, though he added that the order quantities "have not yet been confirmed."

Diagnostics companies including Abbott and Quidel are scaling up production in an attempt to meet the demand but it will take weeks to months to boost testing output. Abbott CEO Robert Ford on Tuesday told Yahoo Finance it will soon be producing as many tests by the end of October as it was in 2020, prior to vaccines being available.  

Quidel is expanding its manufacturing capacity for tests and expects to reach a run-rate of 70 million rapid antigen tests per month by the end of the year, with further expansion a possibility early in 2022, according to Bryant.

William Blair analysts noted Quidel is still waiting for a schedule on the 51.2 million QuickVue tests the federal government has so far ordered but they believe it is just the beginning. 

"For perspective on the size of the first government deal, the team only produced 46 million tests across its portfolio in the entire third quarter. And with the government recently announcing an extra $1 billion investment in rapid at-home COVID-19 tests, it would seem likely for Quidel to benefit further," the analysts wrote.

However, Bryant has tried to temper expectations for the fourth quarter and beyond.

"Even with this incredible performance in the third quarter, we must reiterate that the SARS testing environment remains highly fluid, and we’ve learned that demand can change very quickly," Bryant warned. 

Craig-Hallum analysts in a Friday note said that future coronavirus-related sales remain "unforecastable" while adding that COVID-19 testing "is not going away any time soon and the federal government seems to agree."

Quidel expects to issue full financial results for the third quarter in an as-yet-unnamed date in November.

Dive Brief:

• FDA has granted emergency use authorizations to both Labcorp and PerkinElmer for tests able to detect SARS-CoV-2 and influenza A/B simultaneously as laboratories are looking to test for common respiratory illnesses this flu season alongside COVID-19.
• In addition to the three viruses, the so-called "ABC test" (for flu viruses A and B and the coronavirus), PerkinElmer's assay also provides detection and differentiation of respiratory syncytial virus. Labcorp's home collection kit uses a Roche PCR test for use on lab-based cobas 6800/8800 systems. The PerkinElmer PCR panel is for CLIA-certified labs that meet requirements to perform high complexity tests.     
• Test makers are gearing up for what is expected to be a severe flu season this year. CDC Director Rochelle Walensky warned Wednesday that Americans may now have reduced immunity against influenza with cases reaching an all-time low last year. Jeff Andrews, vice president of global medical affairs at BD, told MedTech Dive that with COVID-19, flu and RSV circulating in the U.S. population, the country is going to need combination tests to help distinguish these viral infections.    

Dive Insight:

October marks the beginning of the flu season and CDC officials are warning of a possible "twindemic" of COVID-19 and influenza. The problem for healthcare providers are that symptoms alone are not enough to differentiate SARS-CoV-2, flu and RSV infections, which are all highly contagious respiratory illnesses.

"A lot of people are concerned because they don't know if their symptoms are related to COVID or not," BD's Andrews said, who noted the company is ramping up for the surge in combination testing.  

BD has a point-of-care antigen test, which received FDA emergency use authorization in March, that can rapidly test for both COVID-19 and influenza at the same time providing results in 15 minutes, as well as a PCR test that can be used in hospital laboratories.

Growth in BD's Integrated Diagnostic Solutions unit was "unfavorably impacted" by the lack of a traditional influenza season in early 2021. However, CEO Tom Polen told investors in May that combination COVID-influenza tests "are going to be important in the next flu season."  

CDC has said reduced population immunity due to lack of flu virus activity since March 2020 could result in an early and possibly severe flu season. COVID-19 pandemic mitigation measures last year, such as masking and social distancing, drastically reduced opportunities for the influenza virus to spread.

However, this year's flu season could see a much bigger outbreak in respiratory illness cases with people going back to work, kids returning to school and large gatherings at public events.

"One clue we have is the severity of respiratory syncytial virus right now," said Andrews, who is a practicing physician. "I got another alert in Maryland that RSV is very strong and that's the beginning of the respiratory season as we enter October."

Labcorp's rival Quest Diagnostics also recently launched a new multitarget molecular test service to help detect and differentiate SARS-CoV-2, influenza A, influenza B and RSV viral RNA.   

Dive Brief:

• FDA has ordered manufacturers of COVID-19 tests to assess the impact of SARS-CoV-2 viral mutations on the performance of their products.
• The request, which applies to molecular, antigen and serology tests, is part of a set of extra conditions of authorization for coronavirus tests cleared for emergency use in the U.S. 
• FDA's order comes amid renewed focus on COVID-19 testing that has seen manufacturers add capacity and land contracts with the federal government worth more than $1 billion.

Dive Insight:

FDA released guidance on how to assess the impact of coronavirus mutations on test performance early this year as the effect of the variant now known as alpha on some products became clear. The latest FDA update formalizes the earlier recommendation for manufacturers to assess the impact of variants by making the evaluations a condition of emergency use authorization.

The new EUA conditions require manufacturers to evaluate the impact of viral mutations on their tests on "an ongoing basis."

Manufacturers must include any additional data analysis requested by FDA and be prepared to submit records of their assessments to the agency within 48 hours of being asked to do so. The agency also expects manufacturers to update their labeling within seven days of the identification of additional risk mitigations covering the impact of mutations on test performance. 

All manufacturers now need to update their labels with information provided by FDA in the updated EUA conditions within three months. The updates add a caveat that "clinical performance has not been established with all circulating variants" to authorized labeling and healthcare provider fact sheets.

Thermo Fisher Scientific said last month FDA granted emergency use authorization for two COVID-19 assays designed to "compensate" for current mutations and emerging SARS-CoV-2 variants. FDA in January first reported PCR tests from Applied DNA Sciences, Mesa Biotech and Thermo Fisher may be affected by variants but said the impact does not appear to be significant, later adding Cepheid products.  

Manufacturers will need to comply with the latest FDA requirements while continuing to adapt to a changed testing environment. The bottom fell out of the market for COVID-19 tests, notably rapid antigen kits, earlier this year but demand roared back as delta took hold in the U.S., leading to a series of steps to boost supply. 

The Biden administration remains under pressure to expand access to rapid COVID-19 tests despite the president vowing to spend $2 billion to make 280 million kits available to vulnerable populations. 

Over the past week, the U.S. government has ordered more than $1 billion worth of rapid tests from Abbott Laboratories and Celltrion, and the Department of Defense has awarded $647 million to a handful of suppliers of over-the-counter kits, including Quidel and OraSure Technologies. The DoD contracts cover 60 million tests that will be delivered from October to September 2022.

However, test manufacturers warn that the U.S. is still weeks, if not months, away from the kind of ramp-up in manufacturing needed to meet Biden's plan for mass-scale rapid COVID-19 testing.

Dive Brief:

• The Biden administration on Thursday announced an action plan to combat the surge in new U.S. coronavirus cases, including requiring employers with more than 100 employees to mandate vaccines or require weekly testing for their workers.
• President Joe Biden in remarks said the emergency rule from the Department of Labor will impact more than 80 million employees to ensure workforces are fully vaccinated or show a negative test at least once a week. AdvaMed and the American Clinical Laboratory Association in separate statements applauded Biden's focus on testing.
• Abbott Laboratories, Becton Dickinson, Qiagen, Quest Diagnostics and Quidel are among the companies analysts believe will benefit. Using the Defense Production Act, the White House will push for expanded test production, with $2 billion earmarked for the federal government to purchase nearly 300 million rapid antigen tests for U.S. schools, health centers and food banks.

Dive Insight:

The initiative comes as the diagnostics industry has scrambled to add manufacturing capacity as the surge in delta variant cases has increased demand for PCR and at-home rapid antigen tests.

"We see this announcement as another proof point that testing is not going away or falling off rapidly any time soon," William Blair analysts wrote in a Friday note. However, even with DPA invocation they predicted "it will likely be months before meaningful additional supply comes on the market to be able to address the current demand, and at that time it is unclear what the demand will look like." 

Quest on Thursday, prior to the White House announcement, updated its 2021 outlook due to stronger than anticipated COVID-19 molecular testing volume. Revenue for 2021 is now expected in a range of $9.84 billion to $10.09 billion up from a prior view of $9.54 billion to $9.79 billion.

The lab giant said it expects the delta-driven surge will remain stronger than previously anticipated, with Quest's low-end outlook now assuming average volumes of at least 40,000 molecular tests daily for the second half of the year versus previous guidance of 20,000.  

William Blair analysts noted the 40,000 molecular tests per day figure is the low end of Quest's guidance and they "expect that floor to prove quite conservative with additional opportunities for upside from return-to-office and back-to-school testing regimes."  

William Blair analysts contend the most obvious beneficiaries of the initiative are Abbott, Becton Dickinson, Qiagen and Quidel, all of whom make rapid tests.

"There is simply nowhere near enough supply of POC or OTC tests (PCR tests could be used for regular screening but come with logistical and cost hurdles) today to meet the demand of the U.S. government (280 million tests), employers (likely millions of tests per week), schools, traditional healthcare settings, and retail demand," they wrote.  

Still, William Blair analysts believe molecular testing companies such as Hologic "could also see a benefit from school programs and other types of non-POC or OTC settings (mandated employer testing)."

Benefiting Quidel, according to Craig-Hallum analysts, is rival Abbott's workforce reduction this summer.

Qiagen in July joined Abbott and Quidel in cutting 2021 outlook as coronavirus testing demand waned. However, BD and Quidel have respectively said there was "increased" and a "surge" in demand in August. 

Quidel last week reported strong demand for both its Sofia and QuickVue COVID-19 rapid antigen tests, as the company makes its at-home OTC QuickVue diagnostic available at more than 7,000 CVS locations in the U.S. and online.

"On the negatives, QDEL is now selling a higher mix of COVID tests through QuickVue at-home, which carries a lower gross margin than Sofia or PCR. We are also seeing out-of-stock notifications for QuickVue at-home at Amazon, while some Walgreens stores are out of physical inventory (despite being on the website)," Craig-Hallum analysts said.

Amazon, Kroger and Walmart will offer at-home rapid COVID-19 tests in stores and online at up to a 35% discount beginning this week as part of the Biden plan. The nation's largest retailers will sell the tests at-cost for the next three months.

William Blair analysts noted that CVS and Walgreens were not mentioned in the administration's announcement, despite the fact that they are where the majority of OTC tests are sold. "It is unclear if that means CVS and Walgreens will operate under different pricing than these other locations," the analysts said.       

Mammoth Biosciences, a biotech startup co-founded by CRISPR pioneer Jennifer Doudna, is expanding its efforts to turn the gene editing technology into curative treatments for disease, announcing Thursday $150 million in new funding that will help it expand beyond its current focus on diagnostic tests.

"Traditionally, Mammoth has been positioned as a diagnostics company," Janice Chen, a co-founder who serves as the company's chief technology officer, said. "But really, our vision is much broader than that. We're thinking about CRISPR as a search engine at large."

Chen said the company, which pivoted quickly at the beginning of the pandemic to develop a CRISPR-based coronavirus test, saw an opportunity to use its technology to improve upon the first generation of medicines based on the gene editing technology.

"In the very beginning, we already had an exciting new product, which was these new diagnostic applications," Trevor Martin, another co-founder and current CEO of Mammoth, said. "But it wasn't lost on us that as we continue to explore the diversity of life, there can be exciting things in therapeutics."

The Series D round, which follows 10 months after Mammoth raised $45 million, was led by Redmile Group, with support from Foresite Capital, Senator Investment Group, Sixth Street, Mayfield, Decheng Capital and NFX.

With the fundraising, Mammoth claims it's now worth more than $1 billion, a sizable sum but significantly less than the market valuations of public CRISPR drugmakers like Intellia Therapeutics, CRISPR Therapeutics and Editas Medicine.

Those companies are well out in front in using CRISPR to craft human medicines. Each is currently in clinical testing and initial results from Intellia and CRISPR Therapeutics are promising. The first data from Editas are expected later this month.

All three are researching CRISPR gene editing as a technique to modify patients' cells in a laboratory as well as directly inside the body. It's the latter, more challenging task that Mammoth plans to focus on.

Mammoth owns rights to CRISPR-associated cutting proteins that are particularly small, an advantage when trying to package the editing tool into a delivery vehicle that can enter cells inside the body. Martin said these "ultra-small" proteins will help the company aim at tougher-to-reach disease targets, although he didn't disclose which ones.

The proteins Mammoth uses are known scientifically as Casφ, Cas12, Cas13 and Cas14, each a different flavor of enzyme than the Cas9 protein that Doudna and others made famous a decade ago. In addition to their small size, Mammoth claims these enzymes are more temperature stable and capable of high fidelity editing.

Both Martin and Chen are former students of Doudna's in her lab at the University of California, Berkeley, where they launched Mammoth.

Mammoth gained recognition earlier in this year by developing a diagnostic test for COVID-19 based on CRISPR science. Researchers discovered Cas12 enzymes could be employed to identify and tag the coronavirus' genetic sequence, which then provides a visual result that can be read by a machine. The company partnered with the National Institutes of Health, the Defense Advanced Research Projects Agency and GlaxoSmithKline to develop the test and recently secured emergency authorization for it from the Food and Drug Administration.

Mammoth will continue to work with "both industry and government agencies" to create CRISPR diagnostics for this pandemic and future ones, too, Chen said. She said the coronavirus pandemic served as a "proving ground" for the company.

PerkinElmer and Qiagen are among other medtechs to target the rapidly growing CRISPR market with technologies designed to aid gene editing to correct genetic defects and treat cancer, hemophilia, sickle cell anemia and other diseases.

With a $1 billion valuation, Mammoth could be the next Doudna-founded company to go public, though the company did not respond to questions on whether it plans to do so. Caribou Biosciences, another Doudna-associated startup using CRISPR, recently raised more than $300 million in an IPO.