Equity Research

Q&A on Coronavirus Testing with William Blair’s Equity Analyst Brian Weinstein

June 2020 / 7 min read
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Key to reopening the economy and staying open is COVID-19 testing. Brian Weinstein, the firm's lead equity analyst covering COVID-19 diagnostics, describes the latest developments regarding tests, logistics, and the future of the industry.

The U.S. Centers for Disease Control (CDC) has said the key to reopening the economy and staying open is COVID-19 testing. Could you update us on the status of testing? Do we have enough tests, supplies, staff, and labs to run them effectively?
Testing in the U.S. has progressed meaningfully though it is still not at the level we need to have visibility on active infections—symptomatic and asymptomatic. We have dramatically improved access to testing components and more systems are being used as FDA authorizes more tests. Through the first couple weeks of June, we have ramped up to more than 3 million tests per week. That number continues to rise as we see new hotspots, like Arizona and Florida, and more tests are brought online nationwide. That said, we still have issues around having enough lab technicians to run the tests and have a significant lack of national logistical coordination that needs to be addressed.

In our view, the first thing we need is logistical coordination to get samples where test kits, instruments, and technicians are available to run the test. That would be a big help in getting symptomatic patients tested. With a lack of coordination between different healthcare institutions this is somewhat limiting. We have seen certain cities, New York for example, have issues getting testing done while there is plenty of testing capacity in other cities that sits idle.

Also, today the tests are almost entirely given to symptomatic people who show up at a healthcare facility asking to be tested because they are sick. Less than 10% of these people have a positive test. But we know many more are positive, i.e., those who are asymptomatic and are not getting tested at all. That's because our testing infrastructure is at places where sick people go to be treated.

Most of the tests done at healthcare facilities or laboratories are nucleic acid amplification tests, also known as molecular tests. This technology looks for the genetic sequence of the virus and is very accurate though not rapid and, in most cases, cannot be easily deployed outside of healthcare settings.

Rather, to understand the scope of the virus, we need to test asymptomatic people—which is difficult logistically. Who do we test? Where do we offer testing given the capacity of the system now being used to test symptomatic populations? This is why we need new technologies and capabilities. Antibody and antigen testing come into play here.

To understand the scope of the virus, we need to test asymptomatic people—which is difficult logistically.

Brian Weinstein
Brian Weinstein, William Blair Research Analyst
As far as antibody testing (also known as serology testing) which shows if someone has developed antibodies to COVID-19 we see little to no value outside of accumulating epidemiological data. If antibodies are present it presumes someone had been exposed and fought off the virus. While many believe this is useful information in opening up the country and providing immunity passports, we disagree. Prevalence of the virus is pretty low with many leading experts saying it is less than 10% of the population. So even a perfectly accurate test would only pick up and "clear" 10%, hardly a number that would help open the economy. But more importantly, these tests miss some cases and many have a false positive rate of at least a few percent. That can be dangerous because with limited prevalence, it means that as many as half of patients who are told they have antibodies will not. What will these people do with a belief they are immune? The consequences are significant. Because of this FDA recently removed some antibody tests from the market due to performance issues. Finally, we have no idea if these antibodies actually confer immunity and if so, for how long.

Antigen testing can be deployed in a variety of settings, including back-to-office protocols, school systems, travel and entertainment settings, first responders and front-line workers, and major sports organizations. Like molecular tests, these tests also look for the virus. But instead of looking for the genetic sequence, antigen tests quickly look for a protein that is part of the virus. Antigen testing can also report where someone tested positive so appropriate government resources can be brought in to minimize the spread and contain it to a small location, avoiding mass shutdowns and quarantines again.
Which companies are leading the efforts? Which ones are you watching and why?
In terms of molecular testing, large multinational companies like Becton Dickinson, Roche, Thermo Fisher, Danaher, and Abbott all have offerings as do smaller companies like bioMerieux, GenMark, Luminex, and Quidel. FDA has given emergency use authorization (EUA) for over 100 molecular tests. However, we have been most impressed with Hologic and its Panther system, which is well deployed (1,000 in the U.S. alone) and can handle around 1,000 samples per day. The combination of installed base, throughput, and ease of use is unparalleled. It has been able to help nearly double the daily testing volumes nationwide. As of June 19, FDA had authorized 122 molecular tests.

On antigen testing, Quidel is the only company with a test that was given an EUA by the FDA. It has a massive installed base and manufacturing capability. Others like Becton Dickinson and Abbott seem likely to have a product here as well, but are likely to be well behind Quidel.

On antibody testing, Abbott, Siemens, Roche, Danaher, Ortho Clinical Diagnostics, Bio-Rad, DiaSorin all have tests on the market. There are several smaller companies with rapid, point-of-care serology tests available. In total, FDA has granted 13 EUAs for serology testing. As of June 19, FDA had authorized 21 antibody tests.
What are you most concerned about regarding the pace of testing?
I am most concerned from a public health standpoint about a few of things. First, using antibody tests as the basis to decide immunity is just not a good idea. Secondly, we need to get in front of this virus by identifying people who are asymptomatic and isolate them. We have technologies available now such as antigen testing and other technologies like CRISPR or next-generation sequencing that can be helpful here. Finally, logistics have to improve so we can move available tests to where the need is—even if it is in other states or among institutions where there has not been a formal relationship before.
Test tubes
As the race for a vaccine continues will the need for testing diminish?
To some degree, yes. If there are fewer infected people then the need for testing symptomatic infections will be lower. However, even if a vaccine does come out, we believe many will be skeptical about taking it given the lack of long-term safety data. There will also be an ongoing desire to continue testing to make sure the virus is not creeping back into the community. We have no idea on long-term effectiveness a vaccine may bring. So yes, we think there may be a robust testing infrastructure for symptomatic and asymptomatic patients for a very long time.
What is your expectation on when a vaccine will be available? Will we be prepared with enough syringes and other supplies needed to administer the vaccine?
We will defer to our colleagues in the biotech space for their thoughts on vaccine availability as it relates to end of 2020 targets that have been discussed by government officials. But regardless of the timing, the question on syringes is a great one and is something not getting anywhere near the attention it deserves. Becton Dickinson controls 90% of the worldwide markets and makes 15 billion needles and syringes per year at a cost and quality that we believe is unmatched.

Many governments around the world are using them because it is the obvious choice. Yet the U.S. has elected to award contracts for the 850 million or so devices that will be needed to a very small player in the space, a distributor that doesn't even do manufacturing, and a start-up with no manufacturing in place as of yet. It was a very curious decision and we believe that if a vaccine is ready in the next several months, injection of the vaccine will be a meaningful issue for the country. We hope the government rethinks its approach.
What should investors watch most closely as the COVID-19 crisis continues?
Watch the infection rates to see if symptomatic infections remain strong through the summer as they may very well spike again in the fall. Watch for the contracts signed by private and public institutions around antigen testing. And, keep an eye on vaccine development so we have an idea when symptomatic testing should start to slow assuming we can figure out how to get vaccines actually delivered into the body efficiently.

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