Abbott's New Antigen Test is Big Step Forward for U.S.

We think Abbott’s ABT new SARS-CoV-2 antigen test is a major step forward in increasing diagnostic testing capacity in the U.S., and have inched up our fair value estimate to $82 per share, which assumes $1.95 billion in antigen test sales over the 2020-2021 time frame. U.S. COVID-19 viral testing capacity has been hampered by its decentralized nature, shortages of various supplies and reagents, limited quantities of test kits, insufficient skilled lab personnel, limited testing platforms, and inadequate information-sharing systems to identify excess capacity in labs. The antigen test offers a compelling new option for its ease of use, point-of-care nature, lower cost, and shorter time to results. Abbott is also able to manufacture the test in huge quantities; we expect the firm to ship out close to 170 million tests by the end of 2020. We see this new test as a reflection of Abbott’s narrow economic moat—intangible assets that include expertise in diagnostics and the ability to innovate.

Unlike most antigen tests that often fall short on accuracy, early data on Abbott’s antigen test suggest it is considerably more accurate at detecting SARS-CoV-2 infection in the first seven days following onset of symptoms. While it has not yet been tested in presymptomatic or asymptomatic people for accuracy, we think the test could be adopted for larger scale, frequent screening of discrete populations, such as at office workplaces and universities. Nonetheless, accuracy of the antigen test is not completely comparable with that of the RT-PCR viral tests, and those symptomatic patients who get a negative reading will likely still need the PCR test to diagnose infection.

Thanks to the bulk purchase by the federal government and the low $5 per test price, we expect the test to bring in $900 million in revenue this year, followed by $1.05 billion in 2021, before demand winds down as COVID-19 vaccinations take hold.

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