A Primer on Covid-19 testing in the UK (Part 1)

As Covid-19 cases continue to climb around the world, testing stocks have once again risen in popularity. With an effective vaccine still a few months away at best, testing is currently the best solution for governments to try and keep the pandemic under control.

In the UK, the government has made it clear that Covid testing will be ramped up significantly in the coming months. Prime Minister Boris Johnson recently announced plans to test up to 10% of the UK’s population each week, a rise from the current 300,000 weekly tests to over 5 million, as part of ‘Operation Moonshot’. Even after the development of a successful vaccine, Covid testing will likely be around for a while.

With the sudden strong change in fundamentals, investors have once again set their sights on Covid stocks, driving many to new heights. So below, we attempt to demystify this part of the diagnostics market.

Some of the best performers on the UK market this year have been Covid-19 focused testing stocks and there have been more than a few multi-baggers. Below is a screenshot of the best performers on the UK market over the last year. As you can see below, 6 of the top 21 performing companies have been involved in Covid-19 diagnostics, therapeutics or equipment provision in some way.

In this article, we will explain some of the different testing solutions on the market, evaluating the different advantages & drawbacks of these solutions and where they are at in the development process.

In the follow-up article, we will briefly assess some of the UK listed companies in this space, to give investors a more comprehensive idea of the opportunities in this potentially highly lucrative but highly speculative segment of the market. We will be covering the following: Novacyt, Avacta, Omega Diagnostics, Genedrive, Braveheart Investment Group and Yourgene Health.

Types of Covid-19 Testing

It is important to remember that diagnostics testing focuses upon two key elements: sensitivity and specificity.

• Sensitivity refers to the ability of a test to accurately detect those who have the disease that is being tested for (known as the ‘true positive’ rate). A test which is highly sensitive will be able to detect most cases of infection, thereby generating few false negative results. For example, if 100 people were known to have the disease that is being tested for and the test detected 98 of these, the sensitivity rate would be 98%.
• Specificity is slightly different, it highlights how accurate a test is in generating a negative result for people who don’t have the disease that is being tested for (known as the ‘true negative’ rate). A test which is highly specific will be able to accurately rule out most people who don’t have the disease, thereby generating few false positive results. For example, if 100 people were known not to have the disease that is being tested for and the test returned 98 negative cases, the specificity rate would be 98%.

The higher the sensitivity and specificity of a test, the better the test!

PCR Tests

The vast majority of Covid-19 tests carried out worldwide are currently Polymerase Chain Reaction (PCR) tests. These PCR tests work by copying small segments of DNA and dramatically amplifying these (making millions/billions of copies) so that they can be used for molecular and genetic analysis.

Having been invented in 1984 by Kary B. Mullis (for which he eventually won a Nobel Prize in 1993), PCR has been one of the most significant scientific advances in molecular biology in recent decades, enabling the effective identification of infectious diseases amongst a wide range of other applications.

Source: Business Insider

PCR tests are typically highly sensitive, being able to detect the most minute quantities of DNA to identify positive cases. A nasal or throat swab is usually used to collect the samples and it usually takes several hours to generate the results, although this timeframe is extended if the samples must be sent to an external laboratory.

RT-PCR

Whereas standard PCR testing focuses on making copies of DNA samples, Reverse Transcription Polymerase Chain Reaction (RT-PCR) is used to convert the RNA into DNA for replication and analysis. Certain viruses, including SARS-CoV-2 (the virus that causes Covid-19) use RNA as opposed to DNA to store their genetic code. Therefore, for effective SARS-CoV-2 analysis, RT-PCR must be used.

Through RNA extraction, the enzymes in the test kits are able to make copies, which can then be amplified by the thermal cycling process of RT-PCR machines. A positive or negative test result can then be generated.

Source: CEBM

RT-PCR tests and machines are readily available globally and the latest developments will allow more decentralised testing to take place moving forward, thereby reducing testing turnaround times. It is important to remember that RT-PCR tests only detect if an individual is currently infected, not if they have previously been infected.

Advantages of PCR testing:

• Highly sensitive and specific tests.
• PCR infrastructure is already well established and it is a readily available solution for testing for most nations around the world.
• Potential for higher output through automated testing on new PCR platforms.
• Provides a good consensus of the current infection rates of a population.

Disadvantages of PCR testing:

• PCR tests are more expensive to carry out than some other testing devices.
• Due to the numerous steps involved in the PCR process, there is a higher risk of contamination or sample loss.
• Results may take several days to process if they must be sent to labs.
• Experienced professionals are required to analyse the tests.
• Only able to determine whether a person is currently infected and could therefore miss people who have previously been infected.

LAMP

Loop-mediated Isothermal Amplification (LAMP) testing uses a single test tube to amplify DNA samples. The premade reaction mix in the test tube usually contains several primers, which are then used to target the bacterial/viral genome. LAMP testing is very similar to RT-PCR testing, however, the key advantage is that no thermal cycler is needed. In LAMP testing, the amplification can take place at a constant temperature, which speeds up testing times.

Nasal and throat swabs are commonly used with LAMP tests, although mucus samples can also be used. Once the viral DNA is amplified and the reagents mix with the sample in the testing tube, the reaction that takes place can cause the solution to become cloudy, or in some cases change colour. This allows the results to be quite easily seen without the need for further machinery for analysis.

Source: News Medical Life Sciences

Advantages of LAMP testing:

• LAMP tests, much like PCR tests, have high levels of sensitivity and specificity.
• Results can be available in under an hour in some cases.
• As results can be seen by the naked eye, there is no need to send the tests to other labs for further analysis. This reduces the risk of contamination and sample loss.
• Provides a good consensus of the current infection rates of a population.

Disadvantages of LAMP testing:

• LAMP testing is a fairly recent development and more rigorous clinical evaluation may be needed if this is to become a mainstream form of testing.
• Although achieving high levels of sensitivity and specificity, the tests are still not as accurate as PCR tests.
• Complicated test design due to the requirement of 6 primers.
• Only able to determine whether a person is currently infected and could therefore miss people who have previously been infected.

LFT/LFD

Lateral Flow Immunoassays, which are more commonly referred to as Lateral Flow Tests or Lateral Flow Devices, are rapid tests that usually generate results in 15-20 minutes. Lateral Flow Immunoassays utilise liquid samples (such as saliva, blood, or urine) to determine the existence of a particular substance.

These pregnancy style tests consist of a sample pad where the patient sample liquid is placed and as it travels through the test strip it then binds to test and control lines. The colour changes on the lines can then be used to determine a positive/negative result.

Although Lateral Flow Immunoassays are usually used to detect antibodies, recent efforts are being focused on creating this style of test to detect active infection from a virus.

Source: DCNDX

Advantages of LFT/LFD testing:

• LFT/LFD tests are much faster than PCR and LAMP tests and can produce results in under 15 minutes in some cases.
• Tests can be administered by individuals and do not require professional assistance or laboratory settings to be carried out.
• The tests are also cheaper to carry out due to the need for fewer chemical reagents, machinery and personnel.
• The test is less invasive than certain nasal/throat swabs.
• Provides a good consensus of the level of herd immunity amongst the population.

Disadvantages of LFT/LFD testing:

• The levels of sensitivity and specificity of most LFT/LFD tests are not as accurate as other forms of testing.
• The test is self-administered so there is a higher risk of error and false results.
• Current LFT/LFD tests can only detect past infection in individuals. There is a lack of evidence on how effective these devices are in detecting active infections.
• Some antibodies (including those generated by the immune response to SARS-CoV-2) drop off after several weeks/months of infection. This can make gathering general levels of herd immunity amongst the population quite difficult.

ELISA

Enzyme-Linked Immunosorbent Assay (ELISA) uses biochemical substances to detect whether antibodies or antigens are present in an individual. The tests are most commonly used for antibody identification.

The way in which the ELISA tests work is that specific enzymes will bind to the molecules being tested for, which will in turn cause the biochemical substance to change colour. This change of colour can then be interpreted by a machine, to identify a positive or negative result.

Source: CEBM

Advantages of ELISA testing:

• ELISA produces high levels of accuracy around antibody testing and is a well established form of biochemical analysis.
• ELISAs can carry out batches of 96 assays at a time, allowing for high throughput and faster turnaround times.
• The process and chemical costs are relatively inexpensive compared to other forms of testing.
• Provides a good consensus of the level of herd immunity amongst the population.

Disadvantages of ELISA testing:

• ELISA tests must still be sent to labs for analysis, which delays turnaround times and increases the risk of contamination and sample loss.
• The current ELISA tests do not really cater for detecting active infections. This is currently in clinical evaluation and remains to be seen how reliable it might be.
• Some antibodies (including those generated by the immune response to SARS-CoV-2) drop off after several weeks/months of infection. This can make gathering general levels of herd immunity amongst the population quite difficult.

Outlook for Covid-19 Testing Stocks

Bull Cases:

National & international testing programmes - The UK government has its ambitious ‘Operation Moonshot’ project - but it is not alone in adopting such testing strategies. France will be launching a new testing strategy with rapid tests, India has plans to double its current testing capacity in the coming months and the Slovak government has just announced that it will test its entire population within 2 weeks.

Flu season - As the flu season approaches in the Northern Hemisphere, concerns are growing. Whilst Covid-19 is believed to be more infectious, with each person on average infecting 2.5 others (according to the WHO), the flu can still spread at similar rates. Hospitals in most areas of the world simply do not have the capacity to deal with both Covid-19 and flu cases. Wide spread testing and lockdowns may be the only current means to avoid a worst case scenario.

Endemic - The UK’s chief scientific advisor, Patrick Vallance, is reporting that Covid-19 is likely to become endemic, much like the annual flu. As it looks set to stay as one of the many infectious diseases to affect humanity, testing may be required on a permanent basis moving forward.

Economic recovery - The tourism, travel and hospitality sectors have been affected more than most by the pandemic. Large scale rapid testing could open up this part of the economy once more, which might be crucial as the furlough scheme comes to an end.

Long-term diagnostics focus - The global In-vitro Diagnostics Market is expected to be worth a staggering $133.34 billion by 2027, growing at a CAGR of 5.1% from 2020 to 2027, according to PR Newswire.

Bear Cases:

Vaccine development - If an effective vaccine, that prevents infection and provides immunity is developed in the coming months, then the demand for testing will inevitably drop off.

Lack of personnel for testing - National test & trace strategies are hugely reliant on available personnel. The UK & Germany are currently struggling with ramping up testing due to a lack of clinical professionals to carry out and analyse the tests.

Competition - The competition is fierce. International giants such as Abbott, Qiagen, Roche and Thermo Fisher Scientific are able to invest vast sums into R&D to develop market-leading testing technologies. Furthermore, as new entrants enter the market to get their share of profits, margins may eventually erode over time.

Economic collapse - One could argue that the full effects of the pandemic are yet to be felt. If a more serious downturn does occur then there is the potential risk that governments, businesses and individuals alike will run out of money. In this event, testing will likely be greatly reduced due to the costs involved.

Herd immunity approach - This is more theoretical and unlikely given the current rhetoric, but governments may at some point adopt a herd immunity approach if a vaccine is not developed in time and Covid-19 most likely becomes endemic. This could then lead to drop off or abrupt halt of testing.

Conclusion

Volatility has increased over the past few weeks as Covid-19 cases grow. The UK government has announced a 1-month national lockdown as it continues to record over 20,000 cases a day. Most countries in mainland Europe are seeing rates of infection well above this level.

Testing is likely to remain key to keeping the pandemic under control as best as we can. A full scale worldwide vaccine roll-out is still some time away and long-term full scale lockdowns may prove too costly to economies.

Whilst Covid-19 focused stocks remain highly volatile, with careful due diligence, the rewards can outweigh the risks. As the Chinese philosopher Sun-Tzu once said, “In the midst of chaos, there is also opportunity.” In the next article, we will take a closer look at a few of the UK listed companies in this space.