Abbott Labs Outlook Cools the Omicron Led Testing Boom

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Todos Medical’s TolloTest Bright Light in Abbotts Dim Testing Outlook

Abbott Labs ABT handily beat wall street estimates with Q4 sales of $11.4 billion beating the forecast of $10.7 billion, but then provided weak 2022 guidance on COVID-19 testing, citing an uncertain outlook. Investors ran for cover pulling the stock down in response to the FY2022 EPS outlook of $4.70 which was $.08 under forecast.  

Investors were bruised by the outlook because in response to the surge in the Omicron variant, the Biden Administration announced 1 billion free COVID at-home test kits were to be distributed to Americans.  The tests are just starting to hit American mailboxes. 

ABT is almost a direct beneficiary of this program. During the Q&A of the conference call CEO Robert Ford said, “Forecasting COVID testing demand for more than a few months at a time has been challenging. . . We forecast COVID testing-related sales of approximately $2.5 billion with a significant portion of these sales expected to occur in the early part of the year. We'll update our COVID testing sales forecast one quarter at a time throughout the year.”

What appeared to make the analysts grow uneasy were all the uncertainties that Ford pulled in the formulation of his estimates. Things like supply chain concerns, the duration of future waves, staffing shortages, and patient hesitancy to undergo procedures during COVID-19 surges.  The spark that seemed to fuel the selloff might have been his comment that he was “unsure” of how testing was going to evolve over the next 9 - 12 months. 

People may have extrapolated that the problems in detecting the disease early enough may be a factor in the future of the COVID-19 testing business. After all, Pfizer's PFE Paxlovid and Merck’s MRK Molnupiravir both require a positive COVID-19 test in order to get a prescription for the oral antivirals. Logistics handling on the testing side are real risks that may be the source behind Ford’s overall cautiousness about the testing business, but Todos Medical TOMDF has a new technology coming that may spark new life into the testing sector.

Making Sense of the Tests

1. RT-PCR/molecular tests
2. Antigen tests
3. Antibody tests
4. cPass Neutralizing Antibody Test

As COVID-19 testing demand soars and labs limit access, it’s important for patients to know what information the different tests provide. 

There are different types of tests patients can take to help them determine whether or not they have COVID.  It's important to know the difference between them to understand which ones apply in which scenarios. 

Most COVID-19 tests fall into three categories: RT-PCR/molecular tests, antigen tests, and antibody tests. 

• Antigen tests detect a little piece of the virus and are used as rapid tests; however, they can be inaccurate. 
• RT-PCR (reverse transcriptase-polymerase chain reaction, aka PCR) tests amplify the viral nucleic acids (RNA) of the virus to detect the virus and are considered more accurate than antigen tests. However, they take longer to process. 
• Antibody tests are primarily used to tell if one has been infected in the past. This is typically one of those finger prick, lateral flow blood tests that measure your immune response to antigens but may take 9 days from infection to register whether you’re infectious or not.  

The last test is actually quite important, but few are aware of the cPass Neutralizing Antibody Test. This is a EUA approved test that is capable of quantifying the levels of neutralizing antibodies that were stimulated from the vaccine and booster.  Many immunocompromised and elderly patients that got vaccines don’t know for sure if they are protected from getting an infection and this test reveals if your immune system has enough antibodies to fend off symptomatic infection from Delta or Omicron.  

Fast coronavirus tests: what they can and can’t do - note that this graphic was created in the early days of the pandemic, mid-2020.

In order to curb community spread infections need to be found as soon as possible so that a person can have an oral antiviral treatment option.  In the latest Omicron wave, antibody tests are virtually useless. This is why investors will want to look at companies with tests that can distinguish active infection. This leaves antigen tests or PCR tests as the only existing alternative. 

ABT had their fair share of failure with antigen tests. ABT’s PanBio antigen test was found to have about a 50% false negative rate in the pediatric population. This will vary from test to test, but the takeaway is that this can be problematic. In fact, a recent study showed early infection antigen testing for Omicron resulted in 28/30 false negatives, meaning that the test could be telling most people that they don’t have COVID when in fact they do.

Despite that, Abbott shipped more than a billion tests since the beginning of the pandemic. With that, they raked in billions of dollars of COVID-19 testing sales in the last quarter alone. Abbott knows it has a potential problem, but doesn’t quite have the solution figured out.  ABT has a $237 billion market cap and provides nine COVID-19 tests, including PCR, antigen, and antibody tests.

Investors might want to be wary of antigen testing companies on the back of this shocking data—especially those companies with higher exposure to COVID-19 antigen tests.

This is bad news for other antigen test providers such as Quidel QDEL, which has a rapid diagnostic testing provider generating revenues of $510 million per quarter.  They are best known in the market for their QuickVue at-home antigen test. The company stated that its antigen test is accurate for Omicron. Antigens are subject to error in mutations, but the inability to be detected early is a whole different issue. The company’s market cap is $5.6 billion. 

Todos Medical TOMDF is developing a new kind of test that is intended to detect early infection between 1 to 3 days after exposure.  It is called the TolloTest, and it tests for the presence of  the 3CL protease enzyme (which can be found during viral replication in concentrations 70x the number of virions).  Since protease outnumber the virus in early disease, it can reach detectable levels much quicker than PCR.  The test was shown to be 100% accurate in the outpatient setting and also extremely accurate in the hospitalized setting, demonstrating utility across patient populations. 

The TolloTest seems much better at identifying more/all patients with COVID-19 with fewer false negatives (i.e. a person with COVID-19 that would accidentally test negative) in the early infection time window. For rapid testing, TolloTest and Todos Medical might be the way to go, but they still face an uphill battle trying to get it approved by unseating the incumbent PCR.  

Among the largest in the PCR testing company group is Labcorp LH which has a nasal swab self-collection RT-PCR kit. The kit can be sent through FedEx to the end user and then back to  the lab, or to  Walgreens which are located in 32 states throughout the U.S.  

Since Labcorp is a larger company it also has antibody tests and genomic testing to determine the variant. The company can handle 275,000 molecular tests daily, and its quarterly testing revenue is over $2.5 billion. They also have a myriad of other tests in other markets such as oncology, and are a major player that conducts the tests done in clinical trials. Since their market cap is $27 billion it's unclear to what degree additional COVID-19 testing could move the needle. However, the Biden administration talked about purchasing 500 million tests, and LH could be a direct beneficiary of his initiative and this could represent significant revenue even for a big company like Labcorp.

Co-Diagnostics CODX, a $255 million company, has a platform technology that makes PCR tests more accurate. Because of this, it quickly became a favorite COVID-19 stock in early 2020. Since then, the stock has drifted down with the biotechnology sector XBI, but also due to the lack of the Biden administration’s focus on testing. The vaccine stocks have had massive moves already as that has been the focus. Co-Diagnostics guided for $96-$100 million in sales for FY2021, and recently, the company had its Logix Smart™ COVID-19 2-Gene Test approved in the United Kingdom. This positions Co-Diagnostics for  major growth as COVID-19 testing makes a comeback. 

Conclusion

Many think there is going to be a big push for testing as the vaccine mandate has failed and breakthrough cases are skyrocketing. Additionally, the new and effective treatments available like Paxlovid and Molnupiravir have some significant issues associated with them from safety to availability, and it will be critical to make sure those who receive COVID-19 pills first confirm illness via tests. Thus testing volumes should see huge growth. With this backdrop it’s difficult to understand how Abbot's CEO painted such a dismal landscape for COVID-19 testing on the Q4 call. His outlook makes sense if he believes the current PCR and antigen technology is insufficient.  The clues were there on the Conference Call.  They need a better test and luckily TOMDF has a potential solution that just needs to complete the regulatory pathway.  It's unclear if TOMDF is seeking a partner or when or if they will complete an EUA, but the TolloTest might be an essential factor in jumpstarting the oral antiviral business or the testing business.  TOMDF also has an oral antiviral called Tollovir that just announced excellent phase 2 data that paves the way for a pivotal trial in the United States or an EUA in either Israel or Greece.  The woes for ABT on the COVID-19 testing business could continue until they find a way to get better technology that addresses the market need for an accurate rapid test that identifies infection earlier than the current PCR and more accurately than the antigen tests.  

This post contains sponsored advertising content. This content is for informational purposes only and is not intended to be investing advice.