Abbott takes an ax to sales forecast as COVID testing dries up faster than expected

The peak for COVID-19 testing may have thoroughly passed—judging by Abbott's new sales projections, at least.

The testing giant now projects steeper-than-expected declines in diagnostic sales as vaccination rates continue to climb and health authorities loosen up their guidelines, forcing the company to slash its diagnostics sales forecast by as much as $2 billion and cut its spending plans for the rest of the year.

While the need for lab-based PCR tests has dropped steadily since the start of the year, Abbott had anticipated demand to remain high for its rapid, point-of-care tests—such as its card-based BinaxNow antigen diagnostic—thanks to continued coronavirus surveillance and screening programs meant to help people return to work or school.

However, the success rates of today’s vaccines have led many to forgo testing altogether. Last week, the Centers for Disease Control and Prevention put out new guidelines for fully vaccinated people, saying they can refrain from routine testing or screening before traveling—and go as far as skipping the swabs entirely, even after being exposed to an asymptomatic person with COVID-19, in some situations.

With a return to normalcy potentially happening sooner than expected, Abbott is cutting some of its budget projections for the remainder of this year, back to something more in line with pre-pandemic levels. And it's not just the top line—the company is also looking to roll back R&D investment plans and shrink its diagnostic manufacturing base by making cuts at U.S. production facilities.

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On a call with investors, Abbott CEO Robert Ford said the company would maintain the capacity to scale up again if called to respond to future surges. But he isn't sure the same number of tests would ever be needed, compared to 2020’s sky-high demand, with the bulk of 2021 product sales and forecasts tied to surveillance and screening.

During its last earnings report in April, Abbott projected at least $6.5 billion in COVID testing sales over the whole of 2021—at a time when U.S. and international case rates were holding steady—and up from about $4 billion in revenue across 2020. The company had also just received over-the-counter authorization from the FDA for its BinaxNow test and was launching the product for widespread home use.

But over the past several weeks, the company has seen a sharp decline in demand for COVID tests, and particularly for its rapid-result diagnostics, Ford said, as the number of daily new coronavirus cases has dropped by more than 60%.

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The aforementioned $6.5 billion in projected testing revenues was also set to supply about $1.5 billion in new reinvestments and R&D funding—but now the latter’s additional spend will be cut by “hundreds of millions of dollars,” Ford said, as Abbott instead aims for $4 billion to $4.5 billion in COVID-related sales, including about $1 billion from the second quarter of this year.

The company also revised its financial guidance for 2021, with full-year, adjusted diluted earnings per share reaching $4.30 to $4.50, down from an open-ended minimum of $5.00 set earlier this year.

But that’s still nothing to sneeze at—and it reflects 10% growth in organic sales across Abbott’s base businesses compared to 2019’s pre-pandemic levels, Ford said, as well as upcoming cardiac product launches in transcatheter aortic valve replacement, stroke prevention with left-atrial occlusion and remote heart failure monitoring.

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Other companies that have seen major financial windfalls from COVID-19 testing—such as Roche and Hologic—had also projected significant, if conservative, diagnostic revenue for the remainder of 2021, with an eye on declining demand.

Hologic, for example, projected about $1 billion in revenue for its third fiscal quarter, as COVID testing waned and its base diagnostic businesses continued to recover—including gains reaped from the new core acquisitions it’s been able to make since January, with last year’s COVID revenues. 

Analysts at Jefferies in early April predicted a “precipitous decline” in testing demand this year, including drops in sales of 20% to 30% each quarter before coming in line with the $1 billion spent annually on diagnostics for seasonal influenza.