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COVID-19 demand buoys diagnostic companies in Q3 as patient procedures recover

This article is an overview of the financial results of Quest Diagnostics, Thermo Fisher, Johnson & Johnson and select other healthcare companies who have reported their earnings since Oct. 13.

Strong demand for COVID-19 tests propelled sales growth for certain healthcare equipment companies during the third quarter, while others absorbed a bigger hit from the pandemic's effect on patient behavior.

With several of Quest Diagnostics Inc.'s COVID-19 tests receiving U.S. emergency clearance this year, the Secaucus, N.J.-based company saw a 42.4% annual boost in third-quarter net revenue to $2.79 billion. Chairman, CEO and President Steve Rusckowski attributed the growth to continued demand for COVID-19 testing, along with recovery across the healthcare system.

As potential coronavirus vaccines and treatments become available, demand for serology, or antibody, testing will continue and could possibly grow, Rusckowski said during an Oct. 22 earnings call.

"We believe [serology testing is] going to play an increasingly important role as we get into 2021, as the vaccine becomes available," Rusckowski said. "We're actively engaged with those pharmaceutical companies that are doing the trials for the vaccine, trying to understand where we might play a role … either with a vaccine or post-vaccine."

Thermo Fisher Scientific Inc., meanwhile, reported that $2 billion of its $8.52 billion third-quarter revenue — a year-over-year rise of 35.9% — was pandemic-related.

SNL Image
Thermo Fisher CEO Marc Casper
Source: Thermo Fisher Scientific

In an Oct. 21 earnings call, Thermo Fisher CEO, President and Chairman Marc Casper said the biggest single driver of this extra revenue was the TaqPath COVID-19 RT-PCR diagnostic kit, developed by the company's Applied Biosystems unit. The company continues to bank on polymerase chain reaction, or PCR, testing as demand remains strong into the fourth quarter. "And we expect that those products are going to be relevant in 2021 because, unfortunately, the pandemic is still with us," Casper added.

Abbott Laboratories also gained from the pandemic, with the company raking in $900 million from COVID-19 testing in the third quarter, CEO Robert Ford said in an Oct. 21 conference call. Total sales from Abbott's diagnostics division during the quarter grew 38.2% annually to $2.64 billion, thanks in part to its BinaxNOW 15-minute antigen test.

Thermo Fisher's Casper described PCR kits as the "gold standard" for COVID-19 testing due to their accuracy, but Abbott's Ford predicted these tests could see demand drop once a vaccine is rolled out — while cheaper, faster, but less accurate antibody tests might see an increase.

"I think the rapid testing is not going to go away like that. I think it's going to be around for a while just because it's easier to do, it's an easier sample, it's a faster result," Ford said on the call.

Surgery slowdown

Intuitive Surgical Inc., maker of robotic-assisted medical technologies, cited the postponement of surgical procedures for a 4% year-over-year decrease in third-quarter revenue. "That said, full diagnostic recovery is in everyone's interest, and we expect surgery to return to pre-pandemic levels over the midterm," CEO Gary Guthart told analysts in an Oct. 16 call.

Meanwhile, Tenet Healthcare Corp. faced a more challenging third quarter amid a surge in COVID-19 patients being treated across the hospital chain. Despite the slowdown and a growing COVID-19 patient population, analysts judged Tenet to have had a successful quarter overall.

The company reported a "better COVID recovery than expected," Piper Sandler analysts wrote in an Oct. 21 note. "Though we see structural headwinds for the facilities sector we believe [Tenet] is leading the industry in proactive efficiency initiatives and we believe this will show in margin expansion post-COVID."

Big Pharma takes a hit

After analysts predicted a third-quarter dip for some pharmaceutical companies, the impact of COVID-19 proved to be uneven among the first to report their earnings. Roche Holding AG saw an estimated pandemic impact of between $1 billion and $2 billion, mainly due to missed doctors' appointments and diagnoses, as well as delays in switching to new therapies, according to Bill Anderson, CEO of the Swiss drugmaker's pharmaceutical division.

Roche's Japanese unit Chugai Pharmaceutical Co. Ltd. saw demand for its therapies cushioning the impact of the pandemic. The company booked a 5.5% year-over-year hike in sales for the first nine months of 2020, due in part to an increase in overseas demand, including the export to Roche of rheumatoid arthritis drug Actemra — which is being used in clinical trials for COVID-19 pneumonia — and hemophilia treatment Hemlibra.

SNL ImageBill Anderson, head of Roche's pharmaceuticals division
Source: Roche

Cambridge, Mass.-based Biogen Inc. lowered its full-year guidance after third-quarter revenues fell 6% year over year to $3.38 billion, due to competition and slower uptake of its medicines.

"[W]hen we see fewer new patient adds going through loading doses and some dosing delays, we know that part of the reason is related to COVID and patients not getting in to get those treatments," Biogen CFO Michael McDonnell said in an Oct. 21 earnings call.

In contrast, the diversified business model of Johnson & Johnson the biggest drug- and device-maker by market cap helped soften the pandemic's blow, Cantor Fitzgerald analyst Louise Chen said in an Oct. 13 note.

Jennifer Taubert, J&J worldwide chairman of pharmaceuticals, said some of the company's assets are still below pre-pandemic levels as patients are just returning to treatment. "But as we take a look at total demand, most of our brands ... are really back to and above pre-COVID levels. And we're definitely seeing stability and some growth in that area," Taubert added.

"While we certainly continue to watch closely as the rest of 2020 plays out, we remain optimistic heading into 2021, and as you might expect, anticipate to deliver robust double-digit sales growth." J&J CFO Joseph Wolk said.