Strong demand for novel coronavirus tests is propping up Abbott Laboratories, obscuring downturns in the company's other business segments.
Without surging sales of COVID-19 tests, the North Chicago medical device maker's 8% second-quarter revenue decline would have been twice as bad. Sales are down sharply in the company's medical device and drug businesses, and flat in its nutritionals unit.
Even so, COVID test sales lifted Abbott earnings past Wall Street estimates in the second quarter, helping its shares defy a tough market for medical stocks. Abbott stock is up 23% this year, compared to a 5% decline for a Wall Street Journal index of health care and life sciences shares.
But COVID tests can't carry Abbott forever. Test sales will likely level off when a vaccine becomes widely available, pushing the company's other businesses into the spotlight. If they're still lagging, Abbott's overall performance will worsen.
"We expect there's going to be widespread vaccines available in the first half of 2021, in which case, in the second half of 2021, there's probably going to be diminishing demand for a lot of the COVID-19 testing," Morningstar analyst Debbie Wang says.
Abbott's third-quarter earnings report on Oct. 21 will provide fresh data on trends in the business units that have been hurt by the novel coronavirus. That data may also test investors' willingness to continue forgiving underperformance in nearly three-quarters of Abbott's business.
COVID-19 tests that detect current and recent COVID-19 infections have been responsible for 5% growth in Abbott's diagnostics business, which accounts for 24% of the company's $32 billion in annual revenue. Sales of other diagnostics products have been down during the pandemic amid lower patient volumes.
Total sales of COVID tests are expected to reach at least $2 billion this year, William Blair analyst Margaret Kaczor wrote in a recent report. Most are molecular diagnostic tests run on the company's "m2000" and "Alinity m" platforms. Abbott has called the latter its "most advanced laboratory molecular instrument." And the pandemic has helped the company roll it out to customers.
CEO Robert Ford recently told analysts he's looking to expand capacity for the system, which could "get a really nice jump-start here in terms of its launch with the COVID test."
Abbott this month launched its seventh COVID test, which is designed to show whether patients recently were exposed to the novel coronavirus based on infection-fighting antibodies in their blood. Ford has said he expects demand for antibody testing to continue as a way to assess vaccine-related immune response, but doctors and analysts question the usefulness of such tests.
Medical devices, Abbott's biggest business at 38% of total sales, plunged 21% in the second quarter. A sharp decline in elective procedures at hospitals overwhelmed by COVID-19 patients hurt sales of pacemakers, catheters and some devices used to manage chronic pain. A bright spot in medical devices has been Abbott's FreeStyle Libre continuous glucose monitoring system for diabetics, sales of which grew nearly 50% to $1.2 billion in the first half of the year.
Abbott's branded generic drug sales fell more than 8% in the quarter as coronavirus spread in emerging markets like Russia, Brazil and Columbia—which represent the most attractive long-term growth opportunities for the business unit.
Sales were flat in Abbott's nutritionals business, which makes infant formula under brands like Pediasure and Similac and adult nutritional drinks like Ensure. Abbott blamed declining birth rates in China, a key nutritionals market.
"The market conditions are shifting there a little bit, and we're continuing to be as competitive as we can there with our new product launches," Ford said on Abbott's second-quarter earnings call. "We'll see that dynamic play out a little bit here in the next quarter or so, until we can get some of our new launches rolled out."
But growth in the segment could continue to slow if the pandemic-fueled recession causes birth rates to drop further.
Ford, who succeeded longtime Abbott CEO Miles White in April, sounded an upbeat note on near-term prospects for Abbott's broader portfolio. The company expects full-year 2020 adjusted earnings per share of at least $3.25, a decline of 1 cent from 2019 but better than the $2.91 Wall Street was predicting before the earnings call.
"As we progressed through the quarter, we saw steady improvements in both testing and procedure volumes across our hospital-based businesses," Ford said. "At the same time, our more consumer-facing businesses, which include diabetes care, nutrition and established pharmaceuticals, continued to be resilient in this environment."
This article first appeared in sister publication Crain's Chicago Business.
