Abbott Stock Jumps Because a New Rapid Covid-19 Test Could Bring Huge Sales

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The Food and Drug Administration issued a new emergency-use authorization Wednesday night for a quick, inexpensive Covid-19 test developed by

Abbott Laboratories

that can be administered by health-care providers using no specialized devices.

Shares of Abbott (ticker: ABT) jumped 8.2% as the market opened on Thursday after analysts said the test could bring hundreds of millions of dollars in sales over the next few months.

“This could add $750M to [4th quarter] revenues on its own,” J.P. Morgan analyst Robbie Marcus wrote in a note out Wednesday evening. “The small and simple form factor of the device will enable Abbott to rapidly ramp manufacturing, with management highlighting plans to ship tens of millions of tests in the month of September.”

Marcus wrote that sales could remain strong through the first quarter of next year, before a vaccine is widely available.

The test, called the BinaxNOW Covid-19 Ag Card rapid test, is the latest point-of-care Covid-19 test from major testing manufacturers promising quick results. But while earlier offerings, such as Abbott’s ID NOW Covid-19 Rapid Test, need to be run on expensive proprietary devices usually found in doctor’s offices, the BinaxNOW needs no tools.

The test, the size of a credit card, will cost $5. Administered by a health-care provider using a nose swab, the card itself delivers a result within 15 minutes, much like a pregnancy test. The emergency-use authorization will allow the test to be administered by school nurses, pharmacists and others.

And while questions about accuracy have dogged Abbott’s ID NOW test, Abbott says that the new BinaxNOW is 97.1% accurate in identifying positive cases, and 98.5% accurate in identifying negative cases. Unlike the ID NOW and other widely used tests, which are molecular tests, the BinaxNow is a so-called antigen test, which looks for proteins found on the surface of the virus that causes Covid-19. Though they are inherently less accurate than molecular tests performed in a lab, their speed offers advantages.

Abbott says it can increase production to 50 million tests a month by October and the test will help make quick testing more available. “With lab-based tests, you get excellent sensitivity but might have to wait days or longer to get the results,” Joseph Petrosino, a professor of molecular virology and microbiology at the Baylor College of Medicine, said in a statement provided by Abbott. “With a rapid antigen test, you get a result right away, getting infectious people off the streets and into quarantine so they don’t spread the virus.”

Analysts said the test had the potential for massive short-term sales. “Opens up +850MM [revenue opportunity]” in 2020, Evercore ISI analyst Vijay Kumar wrote in a note out Wednesday evening. Kumar noted that the test will require a prescription. Raymond James analyst Jayson Bedford said that, while the test had been expected, the timing was earlier than anticipated.

“We had been expecting a [4th quarter] approval, although it wasn’t fully baked into our estimates,” he wrote. “The timing of this approval is a positive surprise, as is the price, accuracy, and capacity.”

In addition to the test, Abbott is also introducing a mobile app to display the test results. The app will allow people with negative results to display a “digital health pass via a QR code, similar to an online boarding pass.”

Shares of Abbott are up 18.8% this year through Wednesday’s close, far ahead of the comparable gains in the

Dow Jones Industrial Average

and the

S&P 500.

The stock trades at 27.9 times earnings expected over the next 12 months, according to FactSet, up from its five-year average of 20.9 times earnings. Of the 20 analysts tracked by FactSet who follow the stock, 15 rate it a Buy or Overweight, three rate it a Hold, and two rate it a Sell or Underweight.

Write to Josh Nathan-Kazis at [email protected]