Dive Brief:

• The U.S. needs to increase its coronavirus testing capacity by 10 times or more to support a planned test, trace and track program in response to the pandemic, according to analysts at Jefferies.

• In a deep dive analysis shared with investors Monday, the analysts estimated the country will need at least 400 million or 500 million tests through the first COVID-19 season to control the virus while re-opening the economy.

• If the industry scales up to hit that goal, the analysts calculate test suppliers such as Abbott, Danaher, Roche and Thermo Fisher Scientific could benefit from a collective $16 billion boost, while LabCorp and Quest Diagnostics may share in a $50 billion tailwind.

Dive Insight:

Estimates of exactly how much testing capacity America will need to lift restrictions without causing a second spike in cases vary.

At one extreme, Nobel Prize-winning economist Paul Romer wants to see the U.S. test every person twice a month, arguing the billions of dollars a month it will cost is a small price to pay to avert an unprecedented depression. The Department of Health and Human Services’ proposals appear more modest, but may still require a big jump in test capacity.

In light of the uncertainty, analysts at Jefferies assessed how many tests the U.S. may need to run and what impact that will have on the companies that sell and use diagnostic kits. The analysis suggests the industry needs to significantly increase capacity.

Based on comments from test providers such as Abbott and Roche, the analysts think the industry is targeting an annual supply capacity of 50 million. The analysts’ most conservative estimate is that the U.S. will need 400 million tests, but expect the U.S. will actually need close to 700 million tests under its base case scenario.

The Jefferies figures include both PCR tests, which detect active viral infections, and serologic assays, which identify antibodies that indicate a person was previously infected. Test manufacturers plan to scale up production of serological assays fastest, reflecting the fact they are relatively easy to make, but the Jefferies' analysis suggests the U.S will mainly need PCR tests.

In their base case scenario, the analysts calculate the U.S. will need 208 million PCR tests just to get people currently subject to stay-at-home restrictions back to work. The calculation assumes everyone will get tested once before being allowed to return to work, and that 20% of people will test positive and require three further tests. The analysts foresee more frequent testing of healthcare staff. 

The disparity between the estimates and the publicly disclosed targets of test suppliers suggests the industry will need to rapidly scale up to support the U.S. test, trace and track program. Companies that rise to that challenge may reap significant rewards. 

Depending on exactly how many tests are needed, the analysts see a total available market of $9.5 billion to $16 billion for suppliers of COVID-19 tests. The analysts’ current models predict testing will add $3 billion and $4 billion, respectively, to revenues at Abbott and Thermo Fisher over the next two years, making them the two big beneficiaries on the supply side.

The tailwind gathering behind clinical laboratories is bigger still. The analysts predict testing will add up to $27 billion to revenues at Quest over the next two years, while its chief rival LabCorp will reel in up to $24 billion. The estimates reflect a belief Quest and LabCorp’s moves to add COVID-19 services early in the crisis will enable them to capture the vast majority of the available business. 

All of the predictions are subject to assumptions that could render them inaccurate. If, for example, Jefferies’ 20% estimate of the percentage of positive tests among people returning to work proves to be very high, the U.S. may need far fewer kits than forecast. Equally, the calculations assume a vaccine will come to market in the middle of next year.