With the coronavirus pandemic showing no signs of stopping, public health officials everywhere agree that testing is critical to slowing the spread. Nearly 100 million diagnostic tests have been administered in the U.S. alone, where major diagnostic laboratories charge around $100 per assay. Producing enough tests to serve the world's dire need is a constant challenge, and countless corporations have stepped up to pitch in. Amid the rush to manufacture tests at massive scale, companies are also competing to offer diagnostics with the features that clinicians want the most.
Between the ever-expanding selection of testing products, manufacturers, and regulatory authorizations, it's easy to see how investors might get lost in the details. Read on and you'll soon have the background you need to intelligently consider the coronavirus diagnostics market.
Diagnostic tests are the bedrock of the public health response
There are two classes of test: diagnostic tests and antibody tests. Diagnostics tell patients and clinicians whether someone is currently battling a coronavirus infection. In contrast, antibody tests, also known as serology tests, measure whether a person was infected in the past to assess if they might be immune to reinfection. I'll discuss diagnostic tests first because they're more common and also more useful to patients.
Before any diagnostic test can be run, clinicians need to obtain a sample from the patient. The most common method is the nasopharyngeal swab, which requires a healthcare worker to gather secretions from the deepest portions of a patient's nasal tract. This process is quite unpleasant, but it's the most common and most reliable method at the moment. Thankfully, saliva-based tests are becoming more prevalent. Some saliva-based kits are available for at-home sample collection, while most swab kits require a trained professional.
Once the patient's sample is in hand, there are two types of diagnostic tests that can be run: molecular tests and antigen tests. Many of the major healthcare companies, such as Thermo Fischer (NYSE:TMO) produce molecular tests, whereas a small but growing number of companies like Becton, Dickinson (NYSE:BDX) and Quidel Corporation (NASDAQ:QDEL) make both types of diagnostics.
Science and product design intersect in molecular diagnostics
Most molecular tests use a laboratory technique called reverse transcription polymerase chain reaction, known as RT-PCR. RT-PCR is used extensively to diagnose all kinds of diseases, and it works by amplifying specific sequences of RNA within a patient's sample. For those who aren't familiar with RNA, the only thing you need to know is that RNA is a type of molecule that bears genetic information and is very similar to DNA.
In the case of a coronavirus molecular diagnostic, the RT-PCR amplifies any sequences of RNA from the virus, which uses RNA to encode its genetic information. If the patient isn't infected, the RT-PCR won't be able to amplify these sequences because they won't exist, and the test will come back as negative. But if the patient is infected, the RT-PCR will show that there are a myriad number of copies of the virus-associated RNA sequences, and the patient will test positive. RT-PCR tests are heavily favored by all parties because they are exceedingly accurate, cheap to manufacture, and inexpensive to process on ubiquitous laboratory hardware in hospitals and clinics.
While there are a growing number of "real-time" RT-PCR tests that are capable of delivering results in real time, as their name implies, RT-PCR diagnostics are not inherently rapid tests. Most take several hours to be processed, but patients may need to wait for as long as a week to get their results due to backlogs in processing or reporting.
This isn't the case with antigen tests, which are typically considered rapid tests because they deliver results within minutes. Unlike RT-PCR tests, antigen diagnostics determine whether there are viral proteins in the patient's sample (rather than viral DNA). Antigen assays can deliver false negatives as much as 30% of the time if they are administered very early in the course of an infection, but their false positive rate is vanishingly low. While they aren't as sensitive as RT-PCR tests, antigen tests tend to be even less expensive to manufacture and process.
Antibody tests aren't all they're hyped to be, but Abbott's new product might be
At present, the U.S. Food and Drug Administration (FDA) has issued emergency use authorization to a handful of different antibody tests, including those produced by companies such as Abbott Laboratories (NYSE:ABT) and Bio-Rad Laboratories (NYSE:BIO). In contrast to diagnostic tests, antibody assays require a blood draw to detect immunity. These tests aren't capable of detecting an active infection, but samples are usually processed within a couple of days.
Unfortunately, antibody tests have a reputation for false positives and botched product launches. They're also significantly more expensive than diagnostic tests, and they don't necessarily provide patients with any actionable information because it's unclear how long immunity to the coronavirus lasts. It's also uncertain whether antibody tests will find a role in public health strategy or whether they're a dead end in terms of providing ongoing value to the relevant stakeholders.
Antibody assays aside, one thing is for sure: Investors should pay close attention to Abbott Laboratories' new BinaxNOW COVID-19 Ag Card test, which is already disrupting the status quo within the testing market. The antigen diagnostic costs only $5, requires no specialized hardware to process, and delivers results within 15 minutes of gathering a nasal swab from the patient. It's no surprise that after getting its emergency use authorization in late August, Abbott's stock price rose promptly.
Expect Abbott and other companies that refine this idea to prosper in the testing market. Time will tell whether future innovations in saliva-based testing can enable consumers to test themselves and get rapid results without the help of a healthcare worker when they are at home or on the go.