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Federal, Private Tie-Ups Boost COVID-19 Testing Volume

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With the emergence of new strains of coronavirus that are claimed to be 56% more contagious, the demand for testing is on the rise, posing a challenge for the nation in terms of test kit restocking. At this point, when government representatives are going all out to increase the nation’s testing capacity, the news of Quest Diagnostics (DGX - Free Report) entering into a mega testing deal to aid public health response to COVID-19 is encouraging.

The Centers for Disease Control and Prevention (CDC) has entered into an agreement with the company asking the latter to provide genomic sequencing to identify new mutations in SARS-CoV-2. Also, this genomic sequencing is expected to reflect patterns of transmission of the virus.

This public and private collaboration is expected to help CDC to come up with a large-scale longitudinal genomic survey of the SARS-CoV-2 virus using Quest Diagnostics’ COVID-19 testing data and patient samples across the United States.

Government Eyes Increased Testing

This news comes close on the heels of CDC’s previous announcement about The Department of Health and Human Services (HHS) offering over $22 billion of funding to states, localities, and territories to support the nation’s response to the COVID-19 pandemic. This is as directed by the Coronavirus Response and Relief Supplemental Appropriations Act.

From this amount, $19 billion will be used to support testing, contract tracing, surveillance, containment, and mitigation to monitor and suppress the spread of COVID-19.

Not only this, President-elect Joe Biden’s $1.9 trillion American Rescue Plan showcased last week included $400 billion of funding for critical measures to slow down the spread of the infection, including vaccination and testing.

Major Private-Government COVID-19 Testing Collaborations

Last week Abbott’s (ABT - Free Report) announcement of the completion of the supply of 150 million BinaxNOW COVID-19 tests came as a major respite for the government. We note that through a combined initiative of the HHS and the Department of and Defense (DOD), the government, in August, decided to buy 150 million of Abbott’s $5 rapid antigen test for COVID-19. This Zacks Rank #3 (Hold) company also promised tocontinue supplying HHS with a total of 30 million tests till March 2021.

One-Year Price Performance

The HHS expects the supply of BinaxNow kits to significantly boost the testing capacity of the nation. These kits will be distributed through HHS to different states, territories and targeted entities like nursing homes, assisted living facilities, home health and hospice agencies, historically black colleges and universities (HBCUs), and the Indian Health Service (an operating division within the HHS).

In August 2020, Beckton Dickinson and Company or BD (BDX - Free Report) announced a $24 million investment from the DOD in collaboration with the HHS to support the scale up of U.S. manufacturing capabilities for BD Veritor Solution for Rapid Detection of SARS-CoV-2. Later in November, BD again received an order from the government of Canada for 7.6 million tests through March 2021 to support the country’s planning for an advanced COVID-19 testing strategy. The stock carries a Zacks Rank #3.

Last year, the HHS also indicated its plans of purchasing Quidel’s (QDEL - Free Report) both Sofia 2 instruments and the Sofia SARS Antigen FIA for distribution and use in nursing homes. Under the proposed terms, HHS announced its plans to purchase 2,000 Sofia instruments and 750,000 Sofia SARS Antigen Fluorescence Immunoassay (FIA) tests over the next few months to expand access to COVID-19 testing in nursing homes throughout the nation.

This Zacks Rank #1 (Strong Buy) company also received a preliminary letter contract with the National Institutes of Health (NIH) through its newly launched Rapid Acceleration of Diagnostics - Advanced Technology Platforms (RADx-ATP) initiative to support the expansion of its manufacturing capacity in San Diego for its diagnostic assays that test for SARS-CoV-2 Antigen using its Sofia FIA platform. You can see the complete list of today’s Zacks #1 Rank stocks here.

Admiral Brett Giroir, Assistant Secretary for HHS earlier noted to CNN, “With the recent Emergency Use Authorization of the BD Veritor system, combined with the earlier authorization of the Quidel Sofia and Sofia 2 systems, we now have the ability to provide more testing faster.” (as reported by Skilled Nursing News).

Again, in October, the HHS and the DOD inked a $119 million contract with Hologic (HOLX - Free Report) to establish additional domestic production to increase diagnostic testing capacity for SARS-CoV-2. The deal will allow this Zacks Rank #1 stock to expand production capacity for COVID-19 tests in their supplier’s facilities in Wisconsin (Baldwin, Hudson, Somerset, and Menomonie), Maine (Guilford) and California (Anaheim, San Diego), increasing their production capacity to 13 million COVID-19 tests per month by January 2022.

Wrapping Up

Per a report by Fortune Business Insights, the global COVID-19 diagnostics market is anticipated to reach $11.40 billion by 2027 at a CAGR of 7.9%. Uncontrolled spread of coronavirus worldwide is the major factor driving the market. Moreover, the development of real-time test, robust WHO recommendations to make COVID-19 diagnostic a top priority and rising government initiatives targeted toward the implementation of mass testing are fueling growth of the market.

Also the Centers for Disease Control and Prevention notes that almost 60% of total COVID-19 transmissions come from those who show no symptoms, signaling that silent spreaders are the ones most often spreading the virus unknowingly. Needless to say, diagnostic testing plays a vital role in identifying asymptomatic carriers, thereby isolating infectious individuals to avoid the spread of the  virus further.

Under such circumstances, while diagnostic laboratories are almost on the verge of succumbing to the enormous pressure of developing COVID-19 test kits, the ongoing government investments and team ups with big diagnostic players to expand U.S. production capacity are certainly significant.  It's also time for investors to keep a close eye on these stocks mentioned above for future gains.

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