Diagnostic testing is at the forefront of the novel coronavirus (COVID-19), stimulating substantial spending on testing infrastructure to address the pandemic, according to the Healthcare & Life Sciences Insider, an industry report released by Brown Gibbons Lang & Company (BGL).

COVID-19 has triggered a resurgence in interest in diagnostics and research tools, elevating polymerase chain reaction (PCR) and antibody testing to the spotlight as critical methods to assess and address the pandemic. COVID-19 studies conducted globally underscore the importance of widespread PCR testing given the contagiousness of pre-symptomatic and asymptomatic individuals.

Investors are optimistic about the industry’s future growth prospects as exhibited in recent share price performance:

  • Diagnostics has outperformed the S&P 500 index with a year-to-date return of 6.94 percent and 25.42 percent over the last 12 months. The S&P 500 is still regaining from the market dislocation caused by COVID-19, showing a year-to-date return of -11.16 percent and 2.07 percent year-over-year. The quick recovery in the Diagnostics sector suggests a bullish outlook for the sector and the resiliency of the broader healthcare market.
  • Abbott Laboratories and Danaher Corporation, through its subsidiary Cepheid, were the first two public companies to obtain approval for rapid molecular tests to diagnose COVID-19. Companies are being rewarded in their trading performance, with both stocks outperforming industry and broader market indices. Returns for Abbott and Danaher of 7.99 percent and 4.42 percent year-to-date, and 24.24 percent and 23.80 percent year-over-year, respectively, highlight the growing importance of technology innovation in the public equity markets.

Preparedness efforts are underway as governments and healthcare systems build out diagnostics infrastructure to respond to the current crisis and ready for potential future challenges. We expect this expansion will drive investment and M&A activity across the entire sector for the foreseeable future.