Q3 Creates the Perfect Storm of Sustained COVID-19 Tailwinds and Diminishing Headwinds
July through September 2020 was a remarkable quarter for most diagnostics firms. In fact, it was the closest thing to a perfect storm for earnings. Pandemic tailwinds drove massive revenues for firms that had made the pivot into COVID-19 testing; meanwhile, the momentary lull in case rates allowed for firms that were buffeted by declines in baseline testing in Q2 and the end of Q1 to get back to almost pre-pandemic levels. The bad news for the latter group is that the surge in COVID-19 cases will make that formula totally unsustainable in Q4. Almost All Firms Experience Positive Growth Before the pandemic began, DX earnings were on a long-term upward trajectory with gainers outnumbering decliners at a rough rate of 3 to 1. COVID-19 came too late in Q1 to make a dent in earnings. But things came home to roost in Q2 2020, with decliners leading gainers 29 to 12, including testing giants Abbott, Agilent, Becton Dickinson, LabCorp, Quest, Roche, and Siemens Healthineers. But the Q3 turnaround is even more dramatic, with 36 of 41 firms posting growth, including almost all of the companies that experienced losses in the previous quarter. Bruker, Illumina, Myriad Genetics, Oxford Immunotec, and […]
July through September 2020 was a remarkable quarter for most diagnostics firms. In fact, it was the closest thing to a perfect storm for earnings. Pandemic tailwinds drove massive revenues for firms that had made the pivot into COVID-19 testing; meanwhile, the momentary lull in case rates allowed for firms that were buffeted by declines in baseline testing in Q2 and the end of Q1 to get back to almost pre-pandemic levels. The bad news for the latter group is that the surge in COVID-19 cases will make that formula totally unsustainable in Q4.
Almost All Firms Experience Positive Growth
Before the pandemic began, DX earnings were on a long-term upward trajectory with gainers outnumbering decliners at a rough rate of 3 to 1. COVID-19 came too late in Q1 to make a dent in earnings. But things came home to roost in Q2 2020, with decliners leading gainers 29 to 12, including testing giants Abbott, Agilent, Becton Dickinson, LabCorp, Quest, Roche, and Siemens Healthineers.
But the Q3 turnaround is even more dramatic, with 36 of 41 firms posting growth, including almost all of the companies that experienced losses in the previous quarter. Bruker, Illumina, Myriad Genetics, Oxford Immunotec, and Siemens Healthineers finished the quarter with declines.
Gains Are Greater than Expected
Growth was not only almost universal but way higher than expected, with only two firms failing to meet their Wall Street targets—NeoGenomics and Pacific Biosciences. Most firms not only exceeded but annihilated their earnings targets for the quarter. Notable examples:
Companies Significantly Exceeding Third Quarter Wall Street Revenues Targets
| Company | Q3 Wall Street Target | Q3 Actual Revenues |
|---|---|---|
| Abbott | $8.51 billion | $8.85 billion |
| Bio-Rad Laboratories | $570.6 million | $647.3 million |
| Danaher | $5.51 billion | $5.88 billion |
| Exact Sciences | $337.4 million | $408.4 million |
| Fulgent Genetics | $48.5 million | $101.7 million |
| LabCorp | $3.63 billion | $3.90 billion |
| Perkin Elmer | $841.2 million | $964.0 million |
| Thermo Fisher | $8.52 billion | $7.65 billion |
Nor were the gaudy gains confined to the top line. Firms with eye-popping earnings per share for the quarter included:
- Bio-Rad Laboratories: Adjusted EPS of $3.00 vs. $1.80 Wall Street target;
- Fulgent Genetics: $2.88 vs. $0.55;
- Hologic: $2.07 vs. $1.22;
- LabCorp: $8.41 vs. $5.25;
- PerkinElmer: $2.09 vs. $1.50;
- Qiagen: $5.78 vs. $4.75;
- Quest: $4.31 vs. $3.73; and
- Thermo Fisher: $5.63 vs. $4.31.
LIR Takeaway
Takeaway:
Criticism of diagnostics companies reaping massive earnings from the pandemic are incredibly misplaced and overlook the herculean efforts firms have made to meet unprecedented demands for COVID-19 testing. In the early days of the public health emergency, these firms had the foresight to recognize the opportunity and develop innovative tests for coronavirus. These innovators included not only firms in immunoassays and molecular testing, but genomics testing firms like Exact Sciences, Fluidigm Genetics and Quidel. For other firms like Natera, the formula has been to remain in their core non-COVID-19 space but adapt their businesses to remote ordering and other logistical challenges posed by the pandemic. Regrettably, the COVID-19 headwinds will be back in Q4 to wreak destruction on the revenues of companies relying on baseline, routine and hospitalization-associated testing, while serving as significant tailwinds to COVID-19 testing firms.
Diagnostics Earning Reports for Q3 (period ended September 30, 2020)
(At least $10 million in sales)
| COMPANY | FY 2020 Q3 | DX Segment Performance | ||
|---|---|---|---|---|
| Total Revenue (vs. Wall Street) |
YOY Revenues | EPS (vs. Wall Street) |
||
| Abbott Laboratories | $8.85 billion ($8.51 billion) | +10% ( +11% organic) | Adjusted +$0.98 (+$0.90) | DX up 38% to $2.64 billion, even though core DX flat at $1.18 billion, driven by massive demand for COVID tests, including 313% increase in molecular to $458 million and 83% increase in rapid diagnostics to $875 million; point of care drops 10% to $131 million |
| Adaptive Biotech | $26.3 million ($23.6 million) | 1% | Net -$.27 ( -$.28) | Sequencing down 3% to $11.3 million even though test volume for ClonoSeq increased 58% with 4,023 tests delivered; developmental revenues up 5% to $15.0 million |
| Agilent Technologies (FY 4Q) | $1.48 billion ($1.40 billion) | 8% | Adjusted +$0.98 (+$0.93) | Diagnostics and Genomic Group up 9% to $294 million, Life Sciences and Applied Markets up 8% to $671 million; CrossLab group up 11% to $518 million |
| Becton Dickinson (FY Q4) | $4.78 billion ($4.48 billion) | 4% | Adjusted +$2.79 (+$2.52) | Growth driven by COVID -19 testing, including newly launched Veritor assay and Veritor and BD Max platforms; COVID testing generates $440 million; routine testing rebounds from Q3 but remained below pre -pandemic levels |
| Berkeley Lights | $18.2 million ($15.3 million) | 16% | -$0.16 ( -$0.20) | Product revenue up 7% to $14.1 million, driven by $12.4 million in direct platform and instruments sales |
| BioMérieux | $934.2 million | +21% ( +27% organic) | Clinical applications up 27% to $818.47 million, with over 100% growth in molecular and immunoassays more than offsetting 9% decline in microbiology | |
| Bio -Rad Laboratories | $647.3 million ($570.6 million) | 15% | Adjusted +$3.00 (+$1.80) | Life Sciences up 50% to $324 million driven by PCR and Droplet Digital PCR products in response to COVID -19, which also drove Clinical DX down 6% to $322.2 million |
| Bio -Techne (2021 FY Q1) | $204.2 million ($185.0 million) | 11% | Adjusted +$1.43 (+$1.09) | DX & Genomics up 18% to $50.1 million driven by RNAscope RNA in situ and hybridization products; Protein Sciences up 10% to $154.4 million due to reopening of biopharma and academic sites after COVID shutdowns |
| Bruker | $511.4 million ($483.7 million) | -2% | Adjusted +$0.35 (+$0.31) | CALID group up 8% to $171.3 million, including $8.5 million in molecular SARS -CoV -2 testing, 6% increase in BioSpin to $152.1 million, which offset 13% decline in Bruker Nano to $147.1 million and 17% decline in BEST to $43.8 million |
| CareDx | $53.4 million ($53.0 million) | 58% | +$0.10 ( -$0.06) | Testing services up 61% to $45.5 million driven by 65% increase in AlloSure and AlloMap sales; Products sales up 29% to $5.4 million; Digital and other revenues up 79% to $2.5 million |
| Castle Biosciences | $15.2 million $15.0 million | 3% | -$0.23 ( -$0.11) | Decision Dx -Melanoma test reports up 7% to 4,404 due to COVID respite |
| Danaher | $5.88 billion ($5.51 billion) | 35% | Adjusted +$1.72 (+$1.36) | DX up 18% to $1.89 billion, driven by demand for Beckman Coulter and Cepheid COVID testing, with Cepheid experiencing over 100% core growth after shipping 7 million tests, which is expected to rise to 8 million in Q4; Life Sciences up 72% to $2.92 billion, including newly acquired Cytiva |
| Exact Sciences | $408.4 million ($337.4 million) | 87% | -$1.46 | 2% decline in screening revenues to $214.6 million, including Cologuard, more than offset by $91.6 million in precision oncology revenues from newly acquired Paradigm Diagnostics and $102.2 million in COVID testing, nearly tripling $34.6 million in COVID tests in Q2 |
| Fluidigm | $39.9 million ($32.5 million) | 50% | Adjusted +$0.07 ( -$0.20) | Pivot to COVID testing enables microfluidics and cytometric testing firm to hold pandemic losses to mass cytometry to less than Q2 levels (down 3% to $15.5 million) and massively grow microfluidics products by 88% to $20.2 million with nearly 800,000 COVID tests and sales of 30 Biomark HD instruments |
| *Fulgent Genetics | $101.7 million ($48.5 million) | 1000% | Adjusted +$2.88 (+$0.55) | Adaptation of genetic testing platform for COVID testing drives massive year -over -year increase in billable tests from 20,697 to 1.04 million |
| GenMark Diagnostics* | $42.6 million ($39.3 million) | 104% | Net -$0.05 ( -$0.06) | Pandemic drives 187% increase in ePlex revenues to $38 million with 70 new analyzer systems placed during quarter, raising global total 47% to 720 |
| Guardant Health | $74.6 million ($65.9 million) | 23% | Net -$0.78 ( -$0.38) | Revenues return to nearly pre -pandemic levels with oncology up 16% to $60.4 million; development services up 65% to $14.2 million driven by new companion Dx products for biopharma |
| Hologic (FY Q4) | $1.35 billion ($1.12 billion) | 56% | Adjusted +$2.07 (+$1.22) | Total DX up over 300% to $939 million driven by over 500% growth in molecular diagnostics to $818.9 million due to demand for COVID tests on Panther and Panther Fusion instruments; decline in non -COVID tests, including 48% in blood screening to $8.7 million, and 6% decline in cytology and perinatal revenues to $111.4 million |
| Illumina | $794 million ($715.9 million) | +$1.02 (+$0.77) | Sequencing consumables down 5% to $500 million, offset by 3% growth in mid -throughput systems, with $109 million in total sequencing systems; Sequencing services 28% to $99 million; Microarray down 16% to $88 million | |
| Invitae | $68.7 million ($59.7 million) | 22% | Non GAAP -$0.62 ( -$0.66) | Test revenues up 21% to $67.3 million with test volumes bouncing back due to easing of COVID conditions; Samples acquisitioned up 32% to 170,000 |
| LabCorp | $3.90 billion ($3.63 billion) | +33% ( +32% organic) | Adjusted +$8.41 (+$5.25) | Diagnostics up 54% to $2.70 billion driven by 54% increase in COVID testing (vs Q2) and recovery in baseline testing, which was down only 2% year over year; PAMA price cuts responsible for 1% decline |
| Luminex | $106.1 million ($105.0 million) | 35% | Net -$0.04 ( -$0.20) | Assays up 89% to $55.6 million driven by COVID molecular testing, which offset declines in clinical tools and life sciences; cytometry down but to a lesser extent than in Q2 |
| Meridian Bioscience (FY Q4) | $64.2 million ($59.6 million) | 26% | Adjusted +$0.19 (+$0.14) | Molecular reagents, including COVID, up over 400% to $22.7 million, which offsets overall 11% in DX revenues to $29.8 million, including 23% decline in molecular tests to $6.1 million, and 8% decline in non -molecular assays to $25.2 million; immunological reagents down 1% to $11.6 million |
| Myriad Genetics (FY 2021, Q1) | $145.2 million ($135.2 million) | Adjusted -$0.15 ( -$0.30) | Testing volumes recover to 90% of pre -pandemic levels by end of Sept. but still down across all segments due to COVID -19, with molecular DX down 21% to $135.7 million, including 23% drop in hereditary cancer ($80.6 million), 48% decline in GeneSight ($11.9 million), 17% decline in Vectra ($9.1 million), 2% drop in Prolaris ($6.4 million); | |
| NanoString Technologies | $31.8 million ($28.7 million) | 4% | Net -$0.56 ( -$0.60) | Product + service pro forma revenues up 22% due to acquisition of Prosigna breast cancer test; consumables down 11% to $13.7 million; Instruments up 60% to $12.9 million, including $7.5 million from newly launched GeoMx system and $5.4 million from nCounter |
| Natera* | $98.1 million ($87.2 million) | 26% | Net -$0.72 ( -$0.69) | Third outstanding quarter in a row, with 39% increase in products to $93.3 million; 31% more tests processed at 200,200; lab has minimized disruption to core reproductive health business, including Panorama and Horizon assays, thanks to improvements to remote ordering capabilities |
| NeoGenomics | $125.4 million ($126.2 million) | 20% | Adjusted +$0.06 (+$0.04) | Core oncology testing bounces back with overall test volume up 2% to 255,458 tests performed, requisitions up 2% to 147,518, but revenue per test down 3% to $359 |
| Opko Health | $428.1 million ($376.4 million) | 87% | Pro forma +$0.04 (+$0.05) | 111% increase in services revenues to $382.5 million, due to COVID testing with BioReference Lab processing over 3.5 million PCR and 300,000 antibody tests, which more than offsets drops in genomic and clinical testing; product revenues up 10% to $28.7 million |
| OraSure Technologies | $48.0 million ($41.7 million) | 33% | Net +$0.01 ( -$0.07) | Products and services up 32% to $46.7 million, driven by 79% growth in molecular solutions to $31.7 million and $18.4 million in sales for molecular SARS -CoV -2 sample collection devices, which more than offset 38% decline in genomics to $8.5 million and infectious disease testing products, including 3% decline in microbiome to $1.8 million |
| Oxford Immunotec | $19.4 million ($18.7 million) | Net -$0.01 ( -$0.05) | Tuberculosis and other testing volumes recover but remain at below pre -pandemic levels in all geographic regions | |
| Pacific Biosciences | $19.1 million ($20.4 million) | Net -$0.14 ( -$0.13) | Products down 15% to $15.7 million, Services down 3% to $3.3 million, as pandemic aggravates pre -existing problems | |
| PerkinElmer | $964.0 million ($841.2 million) | 36% | +$2.09 (+$1.50) | Follows Q2 recovery with massive Q3, driven by 93% growth in DX to $540.4 million, with COVID PCR tests and RNA extraction solutions each contributing over $100 million—although serology testing for COVID was below Q2 levels; Applied genomics up 360%; “modest declines” in reproductive health |
| Qiagen* | $483.8 million ($462.8 million) | 26% | Adjusted +$5.78 (+$4.75) | 23% growth in consumables to $420 million driven by unprecedent demand for COVID testing cartridges, including 29% increase in molecular diagnostics to $237 million, as well as spikes in sales of reagents + RNA extraction kits; Instruments up 57% to $67 million; QuantiFerron -TB tests fall 20% to $53 million |
| Quanterix | $31.4 million ($14.9 million) | 111% | Not reported | One -time recognition of $11.2 million license payment from Abbott drives revenues increase and belies more modest 9% growth in Products to $11.7 million; Services up 56% to $6.6 million; Company expects 2H rebound to continue into Q4 |
| *Quest Diagnostics | $2.79 billion ($2.73 billion) | 43% | Adjusted +$4.31 (+$3.73) | Test volume down 5% but partly offset by expanded COVID testing capacity with 9.9 million molecular + 1.5 million serology tests performed, enabling Quest to return $138 million in CARES Act payments received |
| Quidel | $476.1 million ($450.4 million) | 276% | Adjusted +$5.78 (+$4.75) | Molecular DX up from $4.7 million to $63 million, including $57.8 million in Lyra SARS -CoV -2 test revenues; Rapid immunoassays up from $42.5 million to $337 million, including $317.9 million from Sofia SARS Antigen test; Cardio immunoassays fall 3% to $64.8 million due to decline in hospital visits; Specialized DX down 10% to $11.2 million |
| Roche Diagnostics | $4.23 billion (DX revenues) | 18% | Not reported | Molecular DX up 67% to $2.86 billion, offsetting declines of 1% in tissue DX ($882.67 million) and 10% decline in diabetes care ($1.40 billion) |
| Siemens Healthineers (FY Q4) | $1.25 billion (DX revenues) | Adjusted +$0.58 | Modest gains in COVID reagent products not nearly enough to offset huge losses in routine testing | |
| 10x Genomics | $71.8 million ($61.2 million) | 17% | Net -$0.65 ( -$0.30) | Rebounds from Q2 declines. 22% increase in consumables to $60.6 million; Instruments down 7% to $9.7 million despite higher average prices for Chromium Connect platform sales; Service up 46% to $1.6 million |
| Thermo Fisher | $8.52 billion ($7.65 billion) | 36% | Adjusted +$5.63 (+$4.31) | 23% of total revenues ($2.0 billion) come from COVID and continued recovery of baseline testing fuels another massive quarter; Life Sciences up 101% to $3.42 billion; Specialty DX up 63% to $1.43 million driven by COVID testing; Lab products + services up 19% (16% organic) to $3.11 billion driven by pharma services and research + safety, including PPE sales |
| Veracyte | $31.1 million ($23.9 million) | Flat | Net -$0.08 ( -$0.21) | Genomic testing volumes up 3%, including increase of 6% for Affirma and 37% decline in Percepta |
| Waters | $593.8 million ($546.5 million) | 3% | Non – GAAP +$2.16 (+$1.93) | Pharma up 5%, Industrial up 5%, Academic and government sales down 8% |
| Bold face: Companies that met or exceeded average or consensus Q3 Wall Street revenue estimates Italics: Companies that missed average or consensus Q3 Wall Street revenue estimates * Companies that raised their revenue or EPS guidance during Q3 |
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