Inside the Lab Industry: Q2 Earnings Decline Despite Rebound in Core Business
Though COVID-19 testing declines continue to negatively affect lab industry profits, the latest figures suggest the worst may be over.
The transition from pandemic to endemic continues to take a toll on the profits of lab companies that invested heavily in COVID-19 diagnostics. However, based on key players’ second quarter (Q2) earnings for April 1–June 30, 2023, it appears the ups and downs of recent years may finally be beginning to flatten out. Here’s a briefing of Q2 earnings and some of the trends they reveal.
Biggest Firms Experience Year-Over-Year Declines
Five of the nation’s eight largest lab firms—Abbott, Danaher, Hologic, Quest Diagnostics, and Thermo Fisher Scientific—reported lower year-over-year (YOY) earnings for at least the second quarter in a row. The other companies in the top eight managed to post modest gains for Q2. In all cases, the losses were the result of lower COVID-19 sales compared with the same time period in 2022.
The good news is that there was significant improvement on a sequential basis, either in the form of reduced losses or, in the cases of Illumina and Labcorp, a Q2 gain after a Q1 decline. Danaher was the only company that incurred a larger sequential loss in Q2, but only from 7 percent to 8 percent. Meanwhile, Becton Dickinson (BD) was the sole member of the top eight to post two positive quarters in a row.
Top Lab Companies Year Over Year Sales in 2023
| Company | Q2 Revenue Growth | Q1 Revenue Growth |
|---|---|---|
| Abbott | -11% | -18% |
| Becton Dickinson* | +5% | +2% |
| Danaher | -8% | -7% |
| Hologic* | -2% | -29% |
| Illumina | +2% | -9% |
| Labcorp | +4% | -3% |
| Quest Diagnostics | -5% | -11% |
| Thermo Fisher Scientific | -3% | -9% |
Source: Company press releases.
Widespread declines in COVID-19 revenues had already begun in the first quarter of 2022, thus reducing the benchmark for YOY comparison. However, the sequential reduction in loss also reflects the continued recovery of core revenues, excluding COVID-19 products and services. Many companies affected by COVID-19 losses reported significant increases, i.e., 6 percent or more, in their Q2 core diagnostics businesses, including:
- Abbott: +6 percent
- BD: +7 percent
- Fulgent Genetics: +48 percent
- Hologic: +12 percent
- Labcorp: +13 percent
- QIAGEN: +9 percent
- Quest Diagnostics: +9.5 percent
- Revvity: +8 percent
Top Line Earnings Exceed Expectations
The Q2 earnings losses were largely in line with expectations, with 30 of 34 reporting companies either meeting or exceeding their top-line Wall Street targets. At the same time, two of the four misses were powerhouse companies—Labcorp and Thermo Fisher Scientific—the latter of which fell short of its top-line earnings and earnings per share (EPS) targets for the first time in over two years.
The other big story was the effort to dampen expectations, with 11 different companies lowering their future revenue guidance for the remainder of 2023, including Thermo Fisher, Labcorp, Agilent Technologies, Illumina, Hologic, QIAGEN, and QuidelOrtho. Only two of the 10 top earning firms—BD and Quest—actually increased their guidance.
Top Earning Lab Companies: Q2 2023: Actual Revenues vs Wall Street Targets
| Company | Actual Revenues | Target Revenues | Full Year 2023 Guidance Changes |
|---|---|---|---|
| Thermo Fisher Scientific | $10.69 billion | $10.99 billion | ↓ |
| Abbot* | $9.98 billion | $9.70 billion | — |
| Danaher* | $7.16 billion | $6.39 billion | — |
| Becton Dickinson* | $4.88 billion | $4.84 billion | ↑ |
| Labcorp | $3.03 billion | $3.15 billion | ↓ |
| Quest Diagnostics* | $2.34 billion | $2.25 billion | ↑ |
| Agilent Technologies* | $1.72 billion | $1.67 billion | ↓ |
| Illumina* | $1.18 billion | $1.16 billion | ↓ |
| Hologic* | $984.4 million | $962.6 million | ↓ |
| Revvity* | $709.1 million | $708.3 million | ↓ |
Bolded companies: Companies that raised their guidance for 2023.
Source: Company press releases.
Q2 Winners & Losers
√ Exact Sciences followed a solid start of the year with an even more impressive Q2, posting top-line growth of 19 percent. But it was on the bottom line where the company really shone by slicing its net loss nearly 50 percent to $81 million.3 Making profitability even more imminent is the recent research study finding that the next-generation version of the firm’s flagship Cologuard® test has a specificity of 91 percent and sensitivities of 94 percent for cancer and 75 percent for high-grade dysplasia.4 These results compare well with those of the 2014 DeeP-C study assessing the original Cologuard® test’s performance.5 Those 2014 results ultimately led the American Cancer Society and US Preventive Services Task Force to include the test in their colorectal cancer screening guidelines.
√ Labcorp, which despite missing its Wall Street targets and lowering its end-of-year guidance, saw its non-COVID-19 base business increase by 13 percent. The firm also made key strategic moves by completing its $146 million acquisition of Enzo Biochem’s clinical laboratory division and spinning off its Covance Inc. clinical trials and drug development business into a separate entity.6
√ 10x Genomics raised its guidance for the second time this year thanks to a 28 percent increase in revenues driven by sales of its Xenium spatial instruments, which more than doubled during the period, despite continued challenges in China.
The second quarter was far less kind to other companies, including:
X Thermo Fisher Scientific, which failed to meet its top-line revenue target for the first time in over two years. Falling demand for COVID-19 tests and instrumentation has forced the company to cut costs and lay off hundreds of staffers.
X Illumina, which posted fairly flat earnings during the quarter, has been rocked by turmoil and disruption, including a shareholder proxy battle and record €432 million (about $479 million USD) fine as a result of its acquisition of GRAIL without regulatory approval. The slowdown in China has also been particularly hard on Illumina.7
X Danaher, which saw its YOY Q2 revenue drop from $7.75 billion to $7.16 billion due to a 9 percent decrease in its COVID-19 sales, which more than offset the 2 percent increase in its core business. Even so, the firm still managed to beat its Wall Street targets on the top and bottom lines.
Smaller Genetics Companies Continue to Rebound
It was another solid quarter for smaller genetic testing firms without significant ties to COVID-19 testing. Most molecular testing firms reported top-line growth, including mature firms like Exact Sciences (19 percent), Veracyte (24 percent), Agilent (7 percent), Bio-Techne (5 percent), and 10x Genomics (28 percent). Eight genomic firms raised their guidance during the quarter, including Fulgent Genetics, despite posting YOY revenue losses of nearly 50 percent.
Things were even more positive for genetic testing firms on the bottom line. Six companies saw their YOY net losses shrink during the quarter, with major strides toward profitability made by Invitae, Exact Sciences, and Ginkgo Bioworks. Four companies saw increased net losses, including Fulgent Genetics, which incurred an $11.2 million loss after posting an $11.5 million profit the year before.
Genetic Testing Companies Net Profits/Losses in Q2, 2023 vs 2022
| Company | 2023 Q2 Net Loss/Profit (loss/profit per share) | 2022 Q2 Net Loss/Profit (loss/profit per share) |
|---|---|---|
| CareDx | -$25.0 million (-$0.46) | -$21.7 million (-$0.41) |
| Castle Biosciences | $18.8 million ($0.70) | -$1.6 million (-$0.06) |
| Exact Sciences | -$81.0 million (-$0.45) | -$166.1 million (-$0.94) |
| Fulgent Genetics | -$11.2 million (-$0.38) | +$11.5 million (+$0.37) |
| Ginkgo Bioworks | -$173.3 million (-$0.09) | -$670.6 million (-$0.41) |
| Invitae | -$206.5 million (-$0.78) | -$2.5 billion (-$10.87) |
| Myriad Genetics | -$116.1 million (-$1.42) | -$14.1 million ($0.18) |
| NanoString | -$43.7 million (-$0.92) | -$39.2 million (-$0.85) |
| NeoGenomics | -$24.3 million (-$0.19) | -$35.3 million (-$0.28) |
| QIAGEN | +$80.8 million (+$0.35) | +$96.7 million (+$0.42) |
| 10x Genomics | -$62.4 million (-$0.53) | -$64.5 million (-$0.57) |
| Twist Bioscience* | -$57.4 million (-$1.01) | -$60.5 million (-$1.08) |
Source: Company press releases.
The Road Ahead
With several companies lowering their future revenue guidance for the rest of 2023, the last few months of 2023 will likely be difficult. It’s clear the COVID-19 slowdown is taking its toll when a consistently profitable company like Thermo Fisher Scientific starts to miss its Wall Street targets. In addition to the revenue losses, increasing numbers of companies are engaging in restructuring and laying off staffers as they ramp down their COVID-19 production capacities.1
Of course, the slowdowns and dampened expectations the lab business is currently enduring aren’t all related to COVID-19. Many companies reported that the macroeconomic environment became even more challenging in the second quarter. Headwinds include continued inflation and tighter purchasing budgets, particularly in the biotechnology sector where fundraising activity is at its lowest ebb in nearly a decade. Slow growth in China and other Asian markets is especially hurting global diagnostic firms, and though supply chains have improved in recent months, shortages and other challenges remain.2
The Silver Lining
Despite ongoing challenges, there are also positive signs. COVID-19 losses are starting to plateau. Most lab companies are still posting revenue gains and hitting their Wall Street targets, thanks to the rebound in demand for non-COVID-19 lab services and products across the US and much of the world. Thus, even as leading companies seek to reduce expectations for 2023 and beyond, the signs suggest that the worst may be over and that, macroeconomic conditions permitting, the lab business is getting back to some semblance of normalcy.
References:
- https://www.g2intelligence.com/lab-company-layoff-ledger-first-half-of-2023/
- https://www.cbinsights.com/research/report/digital-health-trends-q2-2023/
- https://investor.exactsciences.com/investor-relations/press-releases/press-release-details/2023/Exact-Sciences-Announces-Second-Quarter-2023-Results/default.aspx
- https://www.g2intelligence.com/dx-deals-exact-sciences-makes-big-moves-to-maintain-leadership-of-cancer-dna-testing-market/
- https://d2ft3j3kbsqj8w.cloudfront.net/-/media/Project/ExactCore/Images/Pages/Multimedia/infographic2.pdf?rev=6dd4af5b0a7e4a11b05e85536a090bac&hash=E5538626D671BBBADE35E91C520B926D
- https://www.g2intelligence.com/the-top-10-clinical-lab-acquisitions-of-2023/
- https://www.g2intelligence.com/sweeping-new-ftc-rules-could-chill-healthcare-mergers-and-acquisitions/
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Diagnostics Earnings Reports for FY 2023 Q2
| Company | Total Revenue (vs Wall Street) | YOY Revenues | EPS (vs Wall Street) | Diagnostics Segment Performance |
|---|---|---|---|---|
| Abbott Laboratories | $9.98 billion ($9.70 billion) | -11% (-9% organic) | Adjusted +$1.08 (+$1.05) | Total DX down 46% to $2.31 billion, but up 7% excluding COVID-19; Core Lab up 6% to $1.29 billion; Molecular down 33% to $141 million; Point-of-Care up 2% to $142 million; Rapid Diagnostics down 73% to $741 million; Global COVID-19 testing down from $2.32 billion to $263 million |
| Adaptive Biotechnologies | $48.9 million ($44.9 million) | +12% (vs. -3% in Q1) | Net -$0.33 (-$0.35) | Minimal residual disease (MRD) up 22% to $25.9 million, driven by 52% increase in clonoSEQ volume to 13,665 tests; Immune Medicine up 3% to $23.0 million |
| **Agilent Technologies | $1.72 billion ($1.67 billion) | +7% | Adjusted +$1.27 (+$1.26) | Diagnostics and Genomics up 1% to $362 million, with growth in pathology, companion diagnostics, and nucleic acid solutions offsetting declines in genomic testing; Life Sciences and Applied Markets up 8% to $968 million; CrossLab up 10% to $387 million |
| *Becton Dickinson (FY 2023 Q3) | $4.88 billion ($4.84 billion) | +5% | Adjusted +$2.96 (+$2.91) | Base business, excluding COVID-19, up 7%; Life Sciences down 6% to $1.23 billion, due to decline in COVID-19 and other respiratory testing partially offset by double-digit growth in microbiology platform sales, including BD Kiestra™ IdentifA, and Total Modular Track products; Strong growth in molecular diagnostic assays run on BD COR™ System |
| Bio-Techne (FY 2023 Q4) | $301.3 million ($307.3 million) | +5% | Adjusted +$0.55 (+$0.55) | Dx & Genomics up 10% year over year to $79.0 million from $71.7 million; Spatial Biology platforms up in low-double-digit percent range in both Q4 and total 2023 fiscal year; ExoDx prostate test up 68% (92% for full year). |
| *Bruker | $681.9 million ($647.9 million) | +16% (+14% organic) | Non-GAAP +$0.50 (+$0.48) | Strong growth across all segments, with CALID unit, which includes life sciences and mass spec, up 19% to $227.2 million; Bruker BioSpin up 1% to $162.0 million; Bruker Nano up 24% to $225.1 million; BEST up 23% to $72.7 million |
| CareDx | $70.3 million ($61.8 million) | -13% | Adjusted -$0.18 (-$0.31) | Testing services down 20% to $53.4 million, due to negative Medicare coverage changes, including those affecting AlloSure Kidney test, which drive 17% decline in AlloMap® and AlloSure volumes to 37,500 tests; Patient and Digital Solutions up 33% to $9.0 million; and Products up 17% to $7.9 million |
| *Castle Biosciences | $50.1 million ($44.2 million) | +44% | Net -$0.70 (-$0.90) | Total test volume up 52% to 16,820 test reports; DecisionDx-Melanoma up 21% percent; DecisionDx-SCC (squamous cell carcinoma) tests double; MyPath® Melanoma and DiffDx®-Melanoma volumes flat; Newly launched TissueCypher® Barrett’s esophagus tests up 311% (1,447 reports); IDgenetix® PGx assay up 224% (2,681 reports) |
| Danaher | $7.16 billion ($6.39 billion) | -8% (-7% in Q1) | Non-GAAP +$2.05 (+$1.80) | 9% decline in COVID-19 more than offset 2% growth in base revenues; Diagnostics down 13% to $2.23 billion; Life Sciences up 6% to $1.80 billion; Biotech down 17% percent to $1.89 billion; Genomics consumables base up in low single-digits with robust growth in plasmids, proteins, and gene writing and editing solutions, partially offset by decline in next-generation sequencing and basic research; Cepheid respiratory testing revenue of $300 million exceeds expectation of $175 million, driven by higher volumes and customer preference for four-in-one test for COVID-19, influenza A and B, and RSV |
| Exact Sciences | $622.1 million ($600.1 million) | +19% | -$0.45 net (-$0.51 adjusted) | Cologuard® screening up 31% to $462.8 million; Precision Oncology, including new MRD test, at $157.2 million, up 2%, or 7% on core basis |
| *Fulgent Genetics | $67.9 million ($62.5 million) | -46% | Non-GAAP -$0.08 (-$0.33) | Core revenues, excluding COVID-19, up 48% to $67 million, but COVID-19 losses more than offset gains on YOY basis |
| GeneDx | $48.7 million ($47.6 million) | +35% (-20% in Q1) | Net -$1.84 (-$1.31) | Growth across all categories, except hereditary cancer testing; Exome and genome tests up 56% to company record 11,855, with revenue in segment up 36% to $28.7 million, and gross margins of over 60%; Firm stopped COVID-19 testing in Q1 2022 |
| **Ginkgo Bioworks | $80.6 million ($71.6 million) | -44% (-52% in Q1) | Net -$0.09 (-$0.08) | Cell Engineering up 2% to $45.3 million; Biosecurity Services dive 75% percent to $24.5 million, driven by continued ramp down of K-12 COVID-19 testing program, but Biosecurity Product revenues nearly triple to $10.8 million |
| *Guardant Health | $137.2 million ($129.4 million) | +26% | Net -$0.82 (-$1.18) | Precision Oncology up 36% to $125.2 million driven by 49% increase in clinical testing and 12% increase in biopharma sample volume; Development Services and other revenue down 30% due to partnership agreement milestones and changes to biopharma companion diagnostics collaborations |
| **Hologic (FY 2023 Q3) | $984.4 million ($962.6 million) | -2% (-29% in Q2) | Adjusted +$0.93 (+$0.89) | Diagnostics down 21% to $439.7 million due to lower sales of COVID-19 molecular assays; Molecular Diagnostics down 31% to $302.2 million; Excluding COVID-19, other diagnostic tests increased 12% to $374.2 million, with Blood Screening up 20% to $10.7 million, and Cytology and Perinatal up 9% to $126.8 million; Excluding COVID-19 testing, Molecular Diagnostics up 13% |
| **Illumina | $1.18 billion ($1.16 billion) | +1% (-9% in Q1) | Adjusted +$0.32 (+$0.02) | COVID-19 surveillance down 78% at only $6 million; Product revenues flat at $1 billion and service revenues up 12% at $175 million; Within products, Sequencing instruments grew 2% to $193 million, driven by NovaSeq X, and partially offset by dip in sales for low-throughput MiSeq instrument; Sequencing consumables also flat at $739 million due, in part, to headwinds in China |
| **Invitae | $120.5 million ($120.2 million) | -12% | Non-GAAP -$0.30 (-$0.37) | Losses due to exiting certain businesses and markets it was in during Q2 2022 (including sale of firm’s Archer next-generation sequencing research-use assays to Integrated DNA Technologies); Test revenue down 13% to $115.9 million; Women’s health up 18% driven by carrier testing panel and improved reimbursement and billing practices; Rare diseases up 32% driven by cardio, neurological disorder, and pediatric testing panels; Other revenue up 35% to $4.6 million |
| **Labcorp | $3.03 billion ($3.15 billion) (missed target in two of three previous quarters) | +4% (-3% in Q1) | Adjusted +$3.42 (+$3.53) | Core revenues, excluding COVID-19 testing, up 13%; After five straight quarters of decline, Diagnostics Laboratories segment experienced growth of 4% to $2.34 billion from $2.26 billion a year ago—with 2% of growth organic (12% base growth partially offset by 10% decline in COVID-19 testing) and 2% acquisitions-related growth, partially offset by foreign currency effects; Within Diagnostics Laboratories, total volume as measured by test requisitions increased over 1% |
| Myriad Genetics | $183.5 million ($187.1 million) | +2% | Adjusted -$0.08 (-$0.08) | All segments up, except hereditary cancer testing, which fell 3% to $76.7 million, despite 20% increase in test volume, especially women’s health; Tumor profiling up 7% to $36.0 million; Prenatal testing also up 7% to $35.6 million; PGx up 6% to $35.2 million; Overall testing volume up 38% to 358,325 tests |
| NanoString Technologies | $44.2 million ($42.5 million) | +37% (+15% in Q1) | Net -$0.92 (-$0.67) | Instruments up 85% to $17.6 million; Consumables up 20% to $21.3 million; $23.3 million in spatial biology and $20.9 million in nCounter® revenues; Installed base of GeoMx and CosMx spatial biology systems grew to 445 systems during the quarter, while nCounter® instruments base increased to 1,135 |
| *Natera | $261.4 million ($242.1 million) | +32% (+25% in Q1) | Net -$0.97 (-$1.09) | 617,200 tests processed, up 23% from 499,900 in Q2 2022; Oncology tests up 88.9% to 83,500 |
| NeoGenomics | $146.9 million ($137.4 million) | +18% | Adjusted -$0.05 (-$0.11) | Clinical services up 17% to $123.2 million; Advanced diagnostics up 22% to $23.8 million; Revenues per test increase for ninth quarter in a row, by 8% to an average $417 per test on 295,116 tests |
| OraSure Technologies | $85.4 million ($126.6 million) | +6% | Non-GAAP +$0.09 (+$0.06) | Core revenues up 3% to $37.9 million driven by strong HIV sales and offsetting expected declines in molecular testing; InteliSwab® COVID-19 tests up 10% YOY, down 60% sequentially, to $47.5 million |
| *Pacific Biosciences | $47.6 million (company record for second quarter in a row) ($40.3 million) | +34% (+17% in Q1) | Adjusted -$0.26 (-$0.32) | Instruments revenue nearly doubles to $29.9 million, driven by placement of Revio and two other sequencers; Consumables down from $14.6 million to $13.7 million; Service and other revenues down from $5.3 million to $3.9 million |
| **QIAGEN | $494.9 million ($492.5 million) | -4% (-23% in Q1) | Adjusted +$0.51 (+$0.50) | Non-COVID-19 products up 8% to $457 million from $423 million, but COVID-19 sales down 59% to $37 million; Diagnostics up 13% to $177 million; Within diagnostics, QuantiFERON latent tuberculosis testing up 27% to $104 million, QIAstat-Dx syndromic PCR testing up 29% to $21 million, NeuMoDx PCR testing system revenues down 42% to $11 million; PCR and nucleic acid amplification down 29% to $74 million |
| Quanterix | $31.0 million ($25.9 million) | +32% (-4% in Q1) | Net -$0.16 (-$0.38) | Product revenues up 33% to $19.7 million; Service and other revenues up 25% to $10.6 million; Collaboration and license revenues up nearly seven-fold to $629,000 |
| *Quest Diagnostics | $2.34 billion ($2.25 billion) | -5% (third quarterly decline in a row) | Adjusted +$2.30 (+$2.27) | Nearly 10% increase in base revenues to $2.30 billion partially offsets 88% drop in COVID-19 testing, from $355 million to $41 million; Test volume by requisitions up 0.2%; Organic volume down 0.3%; Revenue per requisition down 5% |
| **QuidelOrtho | $665.1 million ($615.2 million) | +8% (-16% in Q1) | Adjusted +$0.26 ($0.28) | YOY revenues down 26% had Quidel and Ortho Clinical Diagnostics been a combined company in Q2 2022; Non-respiratory up 3% to $576.1 million driven by Labs business unit; Respiratory down 74% due to COVID-19 losses; Point-of-Care down 63% to $134.2 million; Molecular Dx down 70% to $6.2 million; Transfusion medicine down 3% to $163.3 million |
| **Revvity (previously called PerkinElmer) | $709.1 million ($708.3 million) | -21% (-30% in Q1) | Adjusted +$1.21 (+$1.18) | COVID-19 losses drive 34% decline in diagnostics to $372.9 million; Excluding COVID-19, core diagnostics up 8%, driven by strong sales of immunodiagnostics products and newborn screening; Life sciences up 3% to $336.4 million |
| *10x Genomics | $146.8 million ($140.0 million) | +28% | Net -$0.53 (-$0.40) | Strong Xenium sales offset headwinds in Asia and lead firm to raise guidance for second quarter in a row; Instruments revenue more than doubles to $31.0 million, with $18.1 million coming from spatial instruments including Xenium; Consumables up 15% to $112.5 million; Spatial consumables up 70% to $11.7 million; Service revenue up 74% to nearly $3.4 million |
| **Thermo Fisher Scientific | $10.69 billion ($10.99 billion) | -3% (second straight quarter of decline after -9% in Q1) | Adjusted +$5.15 (+$5.43) | Macroeconomic environment, including slowdowns in China and growing reluctance of biotechs to spend, act as a drag on growth; Core organic revenues up 2%; COVID-19 testing revenues drop to $0.08 billion |
| *Twist Bioscience (FY 2023, Q3) | $63.7 million ($60.5 million) | +14% | Net -$1.01 (-$1.14) | Firm raises guidance due to higher than expected next-generation sequencing revenues, partially offset by lower biopharma revenues; approximately 171,000 genes shipped, up from 163,000 in Q3 2022 |
| *Veracyte | $90.3 million ($83.9 million) | +24% | Net -$0.12 (-$0.16) | Testing revenue up 37% to $59.7 million, driven primarily by strong Decipher Prostate and Afirma test sales; Product revenue up 29% to $4.0 million; Biopharma and other revenue down 55% to $4.6 million |
| Waters | $740.6 million ($733.2 million) | +4% (-11% in Q1) | Non-GAAP +$2.80 (+$2.59) | Double-digit growth in Industrial and Academic & Government segment; High single-digit organic constant currency growth in US and Europe partially offset by pharma weakness in China |
Bold face: Companies that met or exceeded average or consensus Q2 Wall Street revenue estimates
* Companies that raised their revenue or EPS guidance during Q2
** Companies that lowered their revenue or EPS guidance during Q2
Source: Company press releases and market reports.
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