At the onset of the pandemic, in spring 2020, when we were still wondering how to stop the advance of what soon looked like an all engulfing catastrophe killing scores of people in its wake, a reader’s letter was published in the Financial Times with a seemingly outlandish idea.
“Why,” asked the author, “are we not testing everyone to stop the spread of the pandemic in its tracks?” He calculated that this might cost a painful ten billion pounds.
Today, two years and nearly six million deaths later, the letter writer’s suggestion looks not only prescient but like a rather cheap alternative when compared to the multiple billions the UK and other countries have wasted on track-and-trace programmes which never worked in the first place, and the crippling amounts we had to spend on healthcare and economic support.
Thanks to the astounding scientific achievement of vaccinations, which were developed in record time, we have successfully slowed the deadly effects of the virus, at least in wealthy countries. Yet the imposition of quarantines, travel curbs and lockdowns has not gone away, at enormous cost for the tourist and hospitality industry and our freedoms.
The protection offered by a third shot, ideally with mRNA vaccines, is satisfactory, alas, not perfect. Health authorities therefore recommend booster shots as well as continued testing. Many global employers are mandating a combination of inoculations and tests. Blackstone, the world’s biggest alternative asset manager, US investment bank Goldman Sachs, or private equity firm KKR, which want their workers to come at least for a few days per week to the office, expect from their employees a third shot and routine testing. US bank J.P. Morgan is even threatening to suspend salaries for holdouts. Sick leave is becoming too expensive.
As we have come to understand that Sars-Cov-19 will be a permanent feature of our lives, the measures we have taken to curb the deadly threat in the last two years are not feasible anymore. We cannot continue with lockdowns and quarantines and closed borders for decades to come, even though China seems adamant to do so.
We can demand sick people to stay at home, but we cannot expect any contact of a proven positive to isolate too. We need bakers, drivers and health workers to do their jobs. We need teachers, police officers and all public servants to make sure that we are still governable as a country. If just a 10th of the work force were permanently on sick leave, we couldn’t function anymore.
Not every COVID contact is a deadly threat. The practical solution is permanent, cheap, reliable and speedy testing. When you have flu-like symptoms, you want to know if it’s a cold or COVID. We do this as a family on a regular basis, even within our household. If you are unwell, you need to know if you are a risk to others. Whoever of us would test positive stays isolated until negative. When in doubt, we book a PCR test to double check.
Sadly, Malta, a world champion when it comes to vaccinations, has a very Maltese approach when it comes to testing. LFD or antigen tests for home use, sold in most European countries cheaply, or handed out for free against proof of social security insurance, are outlawed in Malta. We as a family, sitting on imported bags of antigen tests, are using what is essentially contraband goods. The legal way in Malta to get tested with a PCR or rapid test are private hospitals, private pharmacies, or Swabbing Malta at the airport car park.
Interestingly all are charging the same amount, which does not look terribly competitive to me. The only free testing is 111, with possible appointments only available in the distant future and results three days after. By then, you will have either recovered already or gone under, as newly developed ant-viral drugs are only effective within five days from falling ill. This is a useless charade, and therefore a profit guarantor for private testing.
The measures taken to curb the deadly threat in the last two years are not feasible anymore- Andreas Weitzer
Germany’s Paul Ehrlich Institute has tested 245 available home test kids, of which 199 were certified to function sufficiently well to recognise Omicron or any other variant for that matter. This should put to rest doubts raised by the US FDA about FSD tests and a lot of fairy-tale stories circulating on social media. False positives with these tests are rare to non-existent and false negatives, which do happen, can be eliminated by repeated tests over 48 hours.
The UK has permitted smart-phone-documented self-tests now when entering the country and for after-arrival tests, damaging the money-printing capabilities of private laboratories quite considerably, I have to assume. A commercial assault not imaginable in Malta.
Considering the above-said, the business of testing, whether officially mandated by governments, suggested by health services and insurers, imposed by employers or demanded by consumers, will therefore grow over the years, not only for COVID, but many other endemic diseases, even when Sars-Cov-19 has lost its urgency. Tests will proliferate and become a consumer good like digestive biscuits, vitamins and food supplements.
How can we retail investors profit from billions of dollars and euros spend on test kits, now and in future? Many countries suffering test kit shortages have placed, like the US or the UK, multi-billion dollar orders for COVID tests, and will continue to do so.
Among the countless manufacturers which only came to life because of massive government advances, like Californian Innova in the UK or Global Access Diagnostics, and which will most likely fade away again, three behemoths stand out to profit on a continuous basis from testing trends, provided they are willing to invest in capacity. Laboratory Corporation of America Holdings, Abbott Laboratories and Roche Holding AG, the owner of Hoffmann-La Roche AG.
Retrospectively speaking, it was an unfortunate decision for La Roche daughter, Bio Medical, for many years the patent holder of little needed PCR tests, to sell out to a company which then became Labcorp of the US, the biggest American medical laboratory and today at the vanguard of PCR testing in the States. Saving grace that Roche still produces the state-of-the-art machines capable of churning out 10,000 test results each in 24 hours.
Abbott and Roche are both producing the most trusted antigen tests but within the broad spectrum of drugs these pharma companies manufacture, their rapid tests only make up a fraction of their turnover. Despite the fact that Roche, for instance, runs a fleet of planes delivering 2.5 million tests per week in the US alone.
These behemoths are not pure ‘test plays’. La Roche, the biggest pharma company globally, produces everything from vitamins to oncological medication. Think of Valium and Roche multivitamin pills. The astounding growth of diagnostics turnover last year (+55 per cent) and antigen tests in particular (+281 per cent) makes only a partial contribution to the 60 billion CHF turnover of the 320 billion firm.
The $227 billion US company Abbott has healthy profit margins of 19.22 per cent (Q3 2020), is expensive (P/E 29.81) and has gained 16.88 per cent year to date. Its dividend (1.47 per cent) is modest. Roche is more profitable (gross margin 24.51 per cent), less expensive (P/E 22.24) but due to the repurchase of a Novartis stake in Roche and the subsequent cancellation of the acquired bearer shares, it is now higher-geared.
It has gained 18.69 per cent over a year (dividend 2.49 per cent). Both companies could profit if they bet on rising consumer demand for everyday tests. For both to make a dash in Malta would require to make self-tests legally available.
The purpose of this column is to broaden readers’ general financial knowledge and it should not be interpreted as presenting investment advice, or advice on the buying and selling of financial products.
andreas.weitzer@timesofmalta.com