NEW YORK – From where Abbott was standing at the end of March, even meeting estimates for Q2 looked like it could be a pipe dream.
In the throes of the pandemic, with core laboratory testing volumes and routine procedures in free fall, CEO and President Robert Ford emphasized how difficult the second quarter would be in terms of revenue and growth for the diagnostic firm. During the first quarter earnings call in April, Ford said he expected the second quarter to be the toughest in 2020, especially for the core lab business.
He wasn't wrong – core laboratory revenues decreased nearly 16 percent in the second quarter of 2020 – but skyrocketing growth in molecular revenues, 234 percent year over year, resulted in overall revenues that were down 8 percent compared to Q2 2019, but easily surpassed the consensus Wall Street estimate.
SARS-CoV-2 testing, especially molecular testing for the virus, was key to the surprising results, with Abbott selling 40 million tests across all of its platforms for COVID-19, Ford said on Thursday's second quarter earnings call. Abbott currently has five SARS-CoV-2 test options available in the US: a molecular test running on the m2000 instrument, a molecular test for the higher-throughput Alinity m platform, a rapid diagnostic ID Now point-of-care test, and a serology test for detecting IgG antibodies running on both the Architect and Alinity i platforms. Ford noted the firm also has a lateral flow antigen test in the works.
Looking to the future, Ford emphasized that the demand for coronavirus testing products won't go away anytime soon, and they'll continue to contribute to Abbott's revenues. During March, April, and May, the US experienced what Ford called "the pandemic phase," where testing was prioritized for essential workers and symptomatic patients. That phase was characterized by high demand for molecular tests, which Abbott has worked to address.
Now, as stay-at-home orders across the world relax, Ford said we're in a new "recovery phase" where the continued testing of symptomatic patients will overlap with broader surveillance testing of asymptomatic patients. As a result, the demand for molecular tests will continue to flourish, but demand for antigen and antibody tests will increase, with this part of the demand curve being where most testing will occur.
These needs won't go away once a vaccine becomes available either, Ford noted, because continued surveillance testing using antibody-based tests will be needed to measure the immune response. He called the vaccine phase a "demand driver" on the serology side.
"Ultimately the [COVID-19 testing] demand and need will be with us for the foreseeable future," Ford said. Abbott's "comprehensive portfolio" and variety of tests is one of its strengths, and the firm will be adding new tests in new formats during the second half of 2020, he added. One of those is a lateral flow antigen test, which Ford said Abbott was working on. The Abbott Park, Illinois-based firm wants to "produce a reliable test that's easy to use, that's affordable," and which will remove the restriction of requiring an instrument, he said. "If we want to get to more mass screening, more mass volume, tests need to be more affordable," he added.
In that vein, Abbott has rolled out a lateral flow antibody test internationally and is working on launching it in the US, Ford said. "You're going to need to have different solutions for different environments, different countries, different trajectories countries are on," Ford said. He also said there were some countries where Abbott was seeing growth in the number of routine procedures, including growth in China during June.
When asked about Abbott’s confidence in providing an EPS estimate Ford noted the strong performance across Abbott's businesses, as well as the recovery of core laboratory volumes throughout the quarter. Non-COVID-19 testing volumes rebounded to approximately 90 percent of pre-COVID levels by the end of the second quarter, he said.
Another emphasis for the company has been increasing its manufacturing capacity. In April's earnings call, Ford said it would take time for the company to scale up manufacturing due to the high-precision processes. Manufacturing expansion was a focus in the second quarter, Ford said, and the firm is continuing to add manufacturing capacity for molecular and lateral flow platforms. Manufacturing capacity wasn't limited to "one single site or one single technology," but rather across all testing platforms, he added. "You've got to be able to have the scale and the manufacturing footprint to be able to scale up and build," Ford noted.
In April, Abbott was manufacturing 50,000 ID Now tests per day. The firm is continuing to invest in capacity expansion for the rapid test, with Ford calling the 50,000 per day rate "not enough" to meet the demand. With demand for COVID-19 testing continuing regardless of when a vaccine will become available, Abbott is building its manufacturing capacity to meet that steady demand beyond the ongoing testing needs of the next 12 months, Ford said.
If the manufacturing expansion stays on target and on time, Ford said there could be "potential for upside" with EPS and FY2020 guidance. The growth depends on the manufacturing ramp-up and rolling out of new tests, but Abbott could come out ahead of its guidance and "enter next year with a strong baseline," Ford said.