Inside the Lab Industry: COVID-19 Declines Kill Top Lab Company Earnings but Genetic Firms Rebound
Yet, despite these declines, Q1 was neither as bad as expected nor totally devoid of positive signs for the future.
At this time two years ago, lab companies were raking in historic profits thanks to the unprecedented demand for COVID-19 testing products. To nobody’s surprise, the COVID-19-driven prosperity has proven to be unsustainable. The inevitable correction began during the first quarter of fiscal year 2022 when growth rates started to flatten. After three consecutive quarters of declines, the first quarter (Q1) of fiscal year 2023 was the lab company sector’s worst in recent memory. And there’s no sure indication that the bottom has been reached. Yet, Q1 was neither as bad as expected nor totally devoid of positive signs for the future.
The Top 5 Performers of Q1
1. Exact Sciences made major strides toward profitability, posting a 24 percent growth in revenue. In addition to strong screening and precision oncology sales, the firm shaved its YOY EPS net loss from $1.04 to $.42 per share. Exact also increased its full-year guidance, spurring a nine percent spike in company share prices.
2. Bruker posted gains of 15 percent, smashing its Wall Street target of $639.8 million by almost $50 million and showing strength in all its businesses, including a 16 percent jump in life sciences and mass spectrometry, which comprise the company’s CALID business unit.
3. Fulgent Genetics achieved 150 percent growth in non-COVID-19 products at $62.7 million, driven by core genetics, specifically precision diagnostics, anatomic pathology, and pharma services. Fulgent also shone on the bottom line, posting a net loss of only $0.22 per share rather than the $0.43 loss Wall Street was expecting.
4. NeoGenomics saw its revenues per test increase for the eighth quarter in a row while also improving turnaround time by 17 percent, doing it all during a quarter when testing volume hit a record high. The overall result was a 17 percent growth in revenue and a promising position for the future.
5. Pacific Biosciences had its best quarter ever, turning a 2022 Q4 24 percent loss into a 17 percent gain with a record $38.9 million in revenue, driven by strong early sales of its new Revio long-read sequencing instrument.
Honorable Mentions: Other companies that had very strong quarters include Guardant Health, Myriad Genetics, NanoString Technologies, OraSure Technologies, 10x Genomics, Twist Bioscience, and Veracyte
Source: Company releases and conference calls.
Billion-Dollar Lab Companies Take it on the Chin
For the first time in years, more lab companies reported revenue declines than gains. Of the 37 companies that had reported their earnings for the period January 1 to March 31, 2023, at the time we went to press, 20 had lower sales than they did during the same period the year before, including 10 firms with losses in the double digits.
Those 20 companies include eight of the 10 top-earning firms in the industry. Among the top 10, only Agilent Technologies and Becton Dickinson reported positive revenue growth during the quarter.
Lab Companies with Lower Year-Over-Year Sales in Q1 2023
| Company | YOY Decline in Sales |
|---|---|
| Abbott | 18% |
| Danaher | 7% |
| Hologic | 29% |
| Illumina | 9% |
| Labcorp | 3% |
| Quest Diagnostics | 11% |
| Roche | 31% |
| Thermo Fisher Scientific | 9% |
In several cases, the COVID-19 revenue declines were greater than expected. As a result, three key companies—Abbott, Labcorp, and Agilent Technologies—announced that they were reducing their revenue guidance for the full year, which did little to reassure the jittery market.
The Non-COVID-19 Headwinds
The Q1 slide wasn’t all the result of falling COVID-19 testing demand. Record inflation, the strong US dollar, continued COVID-19 shutdowns in China, weakness in global markets, especially outside the Americas and Europe, and other macroeconomic headwinds forced many lab companies—including Thermo Fisher Scientific, Illumina, Guardant Health, Natera, Foundation Medicine, and Cepheid—to restructure and lay off staff to cut costs.1
While scheduled Protecting Access to Medicare Act (PAMA) Medicare cuts were delayed for another year, Medicare and private payers continued to act in concert to hold down lab test reimbursement rates. Makers of solid organ transplant rejection risk tests like CareDx and Natera suffered a body blow when the Medicare Administrative Contractor Palmetto GBA MolDx Program imposed tough new coverage restrictions on those assays.
The Positive News
However, the first quarter could have been far worse. Lab companies and investors expected the worst while hoping for the best. With expectations deflated, no fewer than 30 companies either met or exceeded their top-line earnings targets for the period, including all nine of the US firms with revenues of at least $1 billion (Roche is excluded from this count as it’s a foreign company). All but one of these companies—Labcorp—hit their bottom-line earnings per share (EPS) targets, as well.
Highest Earning Lab Companies: Actual Revenues vs Wall Street Targets
| Company | Actual Revenues | Target Revenues |
|---|---|---|
| Thermo Fisher Scientific* | $10.71 billion | $10.67 billion |
| Abbott* | $9.75 billion | $9.64 billion |
| Danaher* | $7.17 billion | $7.14 billion |
| Becton Dickinson* | $4.82 billion | $4.68 billion |
| Labcorp | $3.78 billion | $3.69 billion |
| Quest Diagnostics* | $2.33 billion | $2.20 billion |
| Agilent Technologies* | $1.72 billion | $1.67 billion |
| Illumina* | $1.09 billion | $1.07 billion |
| Hologic* | $1.03 billion | $958.8 million |
Source: Company press releases
Moreover, 10 different firms raised their full-year guidance during the quarter, as opposed to just four that lowered their guidance.
Genetics Companies Show Strength as Core Testing Rebounds
During the pandemic, the big, established lab companies that were able to develop COVID-19 testing products flourished, while the smaller companies focused on genetic testing struggled. This quarter, those trends seemed to reverse. Thus, as the Abbotts, Labcorps, and Quests posted declines, several genetic testing companies with relatively lower revenues had very strong performances. Seven genetic testing firms raised their full-year 2023 guidance, including two firms (Fulgent Genetics and QuidelOrtho) that actually posted negative revenue growth in Q1. The other genetic companies that raised their guidance during the quarter were Exact Sciences, NanoString Technologies, Natera, NeoGenomics, and 10x Genomics.
The other positive development is that non-COVID-19-related sales continued to rebound, with just about all the companies with revenue losses reporting growth in their core lab businesses. In addition, lab companies say that the supply shortages that have bedeviled operations for over a year began to resolve at the end of the quarter and that they expect improvement to continue in Q2 and for the rest of the year.
References:
- https://www.g2intelligence.com/a-timeline-of-2023-lab-company-layoffs-so-far/
- https://www.g2intelligence.com/medicare-expands-coverage-of-molecular-cancer-screening-tests/
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Diagnostics Earning Reports for FY 2023 Q1 (period ended March 31, 2023)
(Companies with at least $25 million in sales)
| Company | Total Revenue (vs Wall Street) | YOY Revenues | EPS (vs Wall Street) | Diagnostics Segment Performance |
|---|---|---|---|---|
| **Abbott Laboratories | $9.75 billion ($9.64 billion) | -18% (-15% organic) | Adjusted +$1.03 (+$0.99) | Total DX down 49% to $2.69 billion due to bigger than expected (78%) drop in COVID-19 revenues ($730 million), which offset 7% growth in Core Lab; Molecular DX down 65% to $147 million; Point-of-Care up 5% to $134 million; Rapid DX down 65% to $1.23 billion |
| Adaptive Biotechnologies | $37.6 million ($36.8 million) | -3% | Net -$0.40 (-$0.38) | Immune Medicine down 22% to $16.2 million; Minimal Residual Disease (MRD) up 20% to $21.4 million, driven by strong growth in clinical testing and pharma partnerships; clonoSEQ volume up 57% to 12,079 tests |
| **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 Q2) | $4.82 billion ($4.68 billion) | +2% (vs -2% in Q1) | Adjusted +$2.86 (+$2.74) | Excluding COVID-19 testing, which had YOY decline from $399 million to $48 million, base revenues increased 6% to $4.81 billion; Medical segment up 10% to $2.36 billion; Life Sciences down 14% to $1.28 billion, including 23% dip in integrated diagnostic solutions to $888 million |
| BioMérieux | €905.7 million ($997.6 million) | +8% | Not disclosed | Clinical applications up 8% to €760.4 million from €703.8 million, including 10% growth in Molecular Biology sales to €352.7 million; BIOFIRE® up 32% with respiratory panels posting 3% growth despite early slowdown of respiratory pathogen season |
| **Bio-Rad Laboratories | $676.8 million ($689.8 million) | -<1% | Adjusted +$3.34 (+$3.54) | YOY COVID-19 sales drop from $45 million to $2.6 million but non-COVID-19 revenue grew 6%; Life Science down 7% to $323.6 million, but up 10% excluding COVID-19 sales, driven by qPCR, western blotting, and Droplet Digital™ PCR; Clinical DX flat at $352.1 million |
| Bio-Techne (2023 Q3) | $294.1 million ($296.7 million) | +1% | Adjusted +$0.53 (+$0.53) | DX & Genomics down 3% to $75.7 million but comparison with Q3 2022 was apples to oranges because the latter included milestone payment from Thermo Fisher Scientific for transfer of technology for ExoTRU kidney test; Protein Sciences up 3% to $218.9 million; ExoDx Prostate test volume up 70% thanks to expanded Medicare coverage |
| *Bruker | $685.3 million ($639.8 million) | +15% | Non-GAAP +$0.64 (+$0.55) | Strong growth across all segments with CALID unit, which includes life sciences and mass spec, up 16% to $236.7 million; Bruker BioSpin up 14% to $180.3 million; Bruker Nano up 17% to $209.6 million |
| CareDx | $77.3 million ($80.7 million) | -3% | Adjusted -$0.11 (-$0.11) | Missed target due to negative change in Medicare Administrative Contractor Palmetto GBA MolDx coverage policy for solid organ transplant rejection risk tests; AlloMap and AlloSure volumes up 17% to almost 50,000 test results delivered; Patient and Digital Solutions business up 39% |
| Castle Biosciences | $42.0 million ($37.4 million) | +57% | Net -$1.10 (-$0.89) | DecisionDx-Melanoma test reports up 26% to 7,583 delivered; DecisionDx®-UM test volume down 10% with 409 reports delivered |
| Danaher | $7.17 billion ($7.14 billion) | -7% | Non-GAAP +$2.36 (+$2.25) | Diagnostics down 7.5% with 10% decline in COVID-19 sales offsetting double-digit growth in Core DX; Cepheid tests drive over 30% core growth in non-respiratory testing; Life Sciences up 2.5% driven by instruments sales; Biotech (including Cytiva and Pall) down 16% as post-COVID-19 inventories normalize |
| *Exact Sciences | $602.5 million ($543.5 million) | +24% (after 17% growth in Q4 2022) | Net -$0.42 (-$0.75) | Core revenue (excluding divested Oncotype DX Genomic Prostate Score test, COVID-19 testing, and foreign currency impacts) up 33%; Screening revenue, including Cologuard and PreventionGenetics, up 45% to $443.2 million; Precision Oncology revenue, including Oncotype Dx and therapy selection products, up 2% (8% on core basis), to $155.4 million; COVID-19 testing down 86% to $3.8 million |
| *Fulgent Genetics | $66.2 million (N/A) | +150% | Adjusted -$0.22 (-$0.43) | Core revenues (excluding COVID-19 testing products and services) up 150% to $62.7 million, driven by core genetics business across precision diagnostics, anatomic pathology, and pharma services |
| GeneDx | $43.1 million ($38.0 million) | -20% | Net -$3.04 (-$2.14) | Other than COVID-19 testing, which company stopped last year, YOY testing volumes up in all areas, including whole exome and whole genome, exome-based panels, hereditary cancer tests, and single- and multi-gene disease assays; total volume up 28%, at 52.8 million tests |
| Ginkgo Bioworks | $80.7 million ($71.7 million) | -52% | Net -$0.11 (-$0.09) | Cell Engineering up 59% to $34.1 million; Biosecurity Services down 74% to $34.9 million; Biosecurity Products down 16% to $11.7 million |
| Guardant Health | $128.7 million ($117.9 million) | +34% | Net -$1.30 (-$1.31) | Precision Oncology testing up 35% to $113.4 million; Development Services and other revenue up 28% to $15.3 million from $12.0 million; Test volume up 45% to 39,100 tests |
| Hologic (FY 2023, Q2) | $1.03 billion ($958.8 million) | -29% (after 27% decline in Q1) | Adjusted +$1.06 (+$0.88) | DX down 53% to $464.7 million due to decline in COVID-19 testing, which accounted for $71 million; Excluding COVID-19, DX grew 13% to $355 million as supply shortages of previous 4 quarters ease; Cytology and Perinatal Testing down 3% to $111.9 million; Blood Screening tests were up 15% to $10.6 million; Breast Health up 24% to $385.4 million |
| Illumina | $1.09 billion ($1.07 billion) | -9% | Adjusted +$0.08 (+$0.02) | Core Illumina revenues down 12% to $1.08 billion due to COVID-19 disruptions in China, transition to NovaSeq X, and weak global markets, partly offset by stronger than expected NovaSeq X shipments; GRAIL contributes $20 million from Galleri® tests, with over 20,000 tests shipped; Sequencing Instrument revenue was $154 million in Q1, down 27% from $212 million a year ago, attributable to decrease in NextSeq 550 placements in China; Sequencing Consumables down 12% to $692 million; Oncology tests up 26% to over $25 million; Only $11 million in COVID-19 genomic surveillance |
| Invitae | $117.4 million ($116.6 million) | -5% | Non-GAAP -$0.37 (-$0.39) | Excluding losses due to exiting certain businesses and markets during Q1 2022 (including sale of firm’s ArcherDx next-generation sequencing research-use assays to Integrated DNA Technologies), revenues up 10% YOY |
| **Labcorp | $3.78 billion ($3.69 billion) (missed target in previous quarter) | -3% (after -10% in previous quarter) | Adjusted +$3.82 (+$3.96) | DX down for fifth quarter in a row, by 3% to $2.38 billion (down 5% organically) due to 84% drop in COVID-19 testing business partially offset by 20% increase in base testing (including roughly 7% benefit from the Ascension lab management agreement); Total test volume down 3%, 6% organically; Drug Development (formerly Covance) down 4% at $1.40 billion |
| Myriad Genetics | $181.2 million ($171.6 million) | +10% | Adjusted -$0.21 (-$0.19) | Oncology ($77.6 million), Women’s Health ($71.5 million), and Mental Health ($32 million) drive growth; Within Oncology, hereditary cancer test volumes grow 16%, with Prolaris® prostate cancer tests up 22%; In Women’s Health, hereditary cancer testing volumes up 32% |
| *NanoString Technologies | $35.8 million ($33.1 million) | +15% | Net -$0.88 (-$0.73) | Spatial Biology drives growth and contributes $17.1 million; Instruments up 25% to $11.4 million; Consumables up 13% to $19.8 million; Services and other revenue up 3% to $4.7 million |
| *Natera | $241.8 million ($227.7 million) | +25% | Net -$1.23 (-$1.23) | 626,200 tests processed, versus 489,300 tests in Q1 2022, with heart transplant tests offsetting some declines in kidney transplant volumes resulting from Palmetto GBA MolDx negative Medicare coverage policy |
| *NeoGenomics | $137.2 million ($126.4 million) | +17% | Adjusted -$0.09 (-$0.15) | Clinical Services up 16% to $114.9 million; Pharma Services up 22% to $22.4 million; Revenue per test increases for 8th quarter; Testing volume hits record high |
| OraSure Technologies | $155.0 million ($126.6 million) | >+100% | Non-GAAP +$0.47 (-$0.14) | Core diagnostics revenues up 50% to $17.1 million; More than fivefold YOY increase in InteliSwab® rapid COVID-19 diagnostic products from $22.1 million to $118.3 million offsets declines in COVID-19 molecular (from $8.9 million to $155,000); Molecular Products down 28% percent to $12.9 million; Molecular Services down 20% to $1.4 million |
| *Pacific Biosciences | $38.9 million (company record) ($34.4 million) |
+17% (after -24% in previous quarter) | Adjusted -$0.31 (-$0.33) | Instruments up 33% to $20.7 million, thanks to higher than expected 32 Revio instruments shipped; Consumables up 10% to $14.0 million; Service and other revenue down 14% to $4.2 million |
| PerkinElmer (renamed Revvity) | $674.9 million ($751.0 million) | -30% | Adjusted +$1.01 (+$1.06) | Losses driven by 99% decline in YOY COVID-19 revenue from $310 million to $3 million; Mid-single digit growth in Immunodiagnostics held down by declining non-acute testing revenue in China; Reproductive Health DX was flat with gains in neonatal testing offsetting declines in genomic lab business; Life Sciences up 7% to $328.4 million |
| Qiagen | $485 million ($480.5 million) | -23% (after 14% decline in previous quarter) | Adjusted +$0.51 (+$0.47) | COVID-19 product group sales down 77% partially offset by 12% increase in non-COVID-19 business; Molecular DX down 30% to $250 million; Life Sciences down 14% to $235 million; DX Solutions down 7% to $163 million; Within DX products, QuantiFERON tuberculosis tests up 17% to $92 million, QIAstat-Dx down 21% to $21 million, NeuMoDx down 52% to $13 million |
| Quest Diagnostics | $2.33 billion ($2.20 billion) | -11% (after 15% decline in previous quarter) | Adjusted +$1.98 (+$1.91) | Loss driven by 80% decline in COVID-19 testing to $119 million, which offset 10% increase in base testing to $2.21 billion; Diagnostic Information Services down 11% to $2.26 billion; Test volume as measured by requisitions down 4% and revenue per requisition down 8% |
| Quanterix | $28.5 million ($25.4 million) | -4% | Net -$0.16 (-$0.38) | Product revenue down from $20.7 million to $19.3 million; Service and other revenue down from $8.8 million to $8.6 million; Collaboration revenue up from $86,000 to $368,000 |
| *QuidelOrtho | $846.1 million ($794.1 million) | -16% (after 36% growth in previous quarter) | Adjusted +$1.80 ($1.49) | Non-respiratory up 5% to $580.5 million, driven by Labs business unit; Respiratory down 72% to $265.6 million due to COVID-19 losses; Point-of-Care down 67% to $308.1 million but loss was less than expected; Molecular DX down 75% percent to $11.4 million due to weak Lyra sales as higher-volume lab COVID-19 testing declined |
| Roche Diagnostics | CHF 3.62 billion ($4.06 billion) | -31% (after 13% decline in previous quarter) | Not provided but firm indicates EPS is in line with sales decline | Core Lab up 2% to CHF 1.93 billion from CHF 1.90 billion, driven by demand for cardiac tests and resulting in 9% growth in immunodiagnostics products; Molecular Lab down 50% to CHF 593 million due to lower COVID-19 PCR testing sales; Virology base business up 12%; Blood Screening up 15%; Cervical Cancer Detection and Monitoring up 22% |
| *10x Genomics | $134.3 million ($128.8 million) | +17% | Net -$0.44 (-$0.37) | Declines in Asia-Pacific partially offset gains in the Americas and Europe; Consumables up 15% to $112.4 million, including $101.1 million from Chromium and $11.3 million from Spatial; Instruments up 33% to $19.2 million, driven by $7.6 million in Spatial instrument revenues and partially offset by drop in Chromium instrument revenues; Services up 29% to $2.7 million |
| Thermo Fisher Scientific | $10.71 billion ($10.67 billion) | -9% (after 7% growth in previous quarter) | Adjusted +$5.03 (+$5.03) | Organic revenue down 8% and acquisition-related revenue up 1%; Core businesses up 6% organically, led by immunodiagnostics, microbiology, and transplant diagnostics; Life Sciences down 38% to $2.61 billion due to decline in pandemic-related revenue; Analytical Instruments up 13% to $1.72 billion, led by chromatography, mass spectrometry, and electron microscopy; Specialty DX down 25% to $1.11 billion |
| Twist Bioscience (FY 2023, Q2) | $60.2 million ($56.7 million) | +25% | Net -$1.04 (-$1.12) | Record revenue, with NGS up nearly 30% to $29.0 million; Synthetic Biology up nearly 25% to $24.1 million; Biopharma increases from $6.6 million to $7.0 million |
| Veracyte | $82.4 million ($75.8 million) | +22% | Net -$0.11 (-$0.13) | Testing revenue up 29% to $72.4 million, driven primarily by Decipher Prostate and Afirma test sales; Testing volume up 24% to 28,788 tests; Product revenue up 31% to $3.9 million; Biopharma and other revenue down 30% to $6.1 million |
| Waters | $684.7 million ($695.5 million) | -11% | Non-GAAP +$2.49 (+$3.73) | Instruments down 7% to $302.9 million; Service sales up 4% to $248.2 million; Chemistry up 6% to $133.5 million; Recurring revenue up 4% to $381.7 million |
* Companies that raised their revenue or EPS guidance during Q1
** Companies that lowered their revenue or EPS guidance during Q1
Source: Company releases and conference calls.
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