Dive Brief:

• Thermo Fisher Scientific has forecast COVID-19 testing revenues will come in 100% above the expectations of Evercore ISI analysts in 2022 as testing demand returns amid the delta variant surge.
• The forecast for at least $750 million in sales, versus the $365 million previously predicted by the analysts, contributed to the overall revenue guidance topping the consensus estimate by $6 billion.
• Thermo Fisher's growth forecast is underpinned by increased focus on biopharma, which has gone from accounting for 31% of sales in 2016 to 56% of sales over the past 12 months. The share of sales coming from diagnostics and healthcare has fallen from 24% to 15% over the same period.

Dive Insight:

Thermo Fisher has previously predicted coronavirus testing response revenues will total $4.9 billion this year. In discussing the longer-term prospects at a Friday investor day, Thermo Fisher management said most of the COVID-19 testing revenue will ramp down as the pandemic comes to an end. Exactly how quickly sales ramp down will influence Thermo Fisher's revenues in 2022 and potential beyond.

With multiple COVID-19 testing companies reporting cratering demand, at least before the recent delta wave in the U.S., analysts had low expectations for Thermo Fisher’s activities in the space. The actual forecast came in 105% above the estimate of analysts at Evercore ISI.

The analysts wrote that Thermo Fisher's financial targets set the company "apart from peers."

In the brief history of the COVID-19 testing market, several companies have been forced to walk back from earlier predictions in response to rapid declines in demand. However, Thermo Fisher CEO Marc Casper expressed confidence that the $750 million target is an achievable baseline objective.

"We actually de-risked the assumptions within the numbers for this year, as well as for next year, where we picked a number that I think you have a very high degree of confidence that you're going to be able to deliver. But there's obviously a range of outcomes above that as well ... depending on how long the pandemic plays out and what the back-to-life applications are," Casper said.

There is also potential for equipment installed in response to the pandemic to drive sales after the crisis ends. Thermo Fisher is including its COVID-19 vaccine sales in its core business in the belief that it can convert customers to contracts for non-pandemic products as their needs change, but it opted against making a similar forecast for its testing revenues.

Casper said the "huge install base of sample preparation and qPCR instruments" is clearly going to generate "a meaningful revenue stream going forward." Yet, Casper also expects the sales stream to be "meaningfully less" than the billions of dollars of COVID-19 testing revenues Thermo Fisher will generate this year.

Thermo Fisher's modeling for growth for 2023 to 2025 includes around $30 billion in spending on acquisitions. In recent years, Thermo Fisher has made its biggest acquisitions outside of medtech, splashing $7.2 billion on Patheon and $17.4 billion on PPD to expand its biopharma business, but has still made small diagnostics deals such as the $450 million takeover of Mesa Biotech.