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Breakingviews - Test giants have problems but a vaccine ain’t one

Lufthansa employee stands in front of a poster outside the new COVID-19 quick test center at Franz-Josef-Strauss airport in Munich, Germany, November 12, 2020.

LONDON (Reuters Breakingviews) - Diagnostic giants could be the pandemic’s big winners. News that Pfizer’s Covid-19 vaccine may work dealt a blow to shares of Abbott Laboratories and Roche. Yet a likely slow rollout, and opposition to inoculation mean they needn’t panic. The real challenge is likely to be keeping up with demand.

At first glance, a viable vaccine should be terrible news for diagnostic groups. Without a remedy, they would be society’s main coronavirus defence thanks to new so-called lateral flow tests, similar to pregnancy indicators, which enable rapid testing on a massive scale. The news of Pfizer’s vaccine on Monday sent shares of Abbott and Roche down by as much as 5%, while Italian peer DiaSorin plummeted 17%.

Delays mean test makers needn’t panic. Pfizer hopes to make 1.3 billion doses of its remedy next year, covering just a sixth of the global population. These will likely be earmarked for vulnerable people or medical staff, leaving testing as the main defence for the general public for some time. Fear of side effects will also limit vaccines uptake. Only 40% of Americans say they will sign up for a first-generation vaccine, according to an Axios-Ipsos index.

Testing will still be needed once vaccines are widely used. That’s because no inoculation is likely to work all the time, and immunity may not last. Health professionals will need to be regularly checked. The World Health Organization estimates there are some 60 million front-line medical staff globally. Test them once a week, and you need 3.1 billion tests a year, costing, at five dollars a pop, $15.6 billion.

Testing may also be needed where people are confined for long periods, such as air travel, especially during outbreaks. If just 10% of the roughly 4.1 billion passengers each year were tested, the annual cost would be $2 billion. That implies at least 3.5 billion tests a year, costing $17.6 billion.

Keeping pace with demand looks hard. Even now the two biggest test makers, Roche and Abbott, are only aiming to make 100 million tests each month by the end of the year. And there could be problems securing ingredients: a dearth of swabs early in the pandemic slowed production. Abbott’s market capitalisation has risen by $40 billion since the pandemic began. That suggests investors are not worried about a vaccine but are not prepared for any slipups.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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