Dive Brief:

• The Department of Health and Human Services is leveraging the Defense Production Act to make BD and Quidel prioritize the delivery of COVID-19 antigen tests to nursing homes, which have been hotspots for coronavirus fatalities nationwide.

• HHS said use of the Cold War-era DPA to apply priority rated orders to the contracts will support a large purchase of diagnostic systems and assays as the agency looks to accelerate their shipment to 14,000 U.S. nursing homes.

• The contracts, which cover tests that deliver results in 15 minutes, are part of a push to ensure nursing homes have sufficient diagnostic capacity despite constraints in the wider COVID-19 testing market. William Blair analysts wrote Friday that testing supply secured by the DPA should be enough to test all 1.2 million U.S. nursing home residents and 3 million nursing home workers at least one time each. "Whether there are additional orders beyond this is unknown," they wrote.

Dive Insight:

The DPA, passed by Congress at the start of the Korean War to support defense mobilization, has been invoked sporadically since then. The potential for the act to enable the government to compel businesses to reallocate resources gained relevance as the U.S. struggled to source sufficient supplies of medical products early in the pandemic. 

After weeks of pressure to utilize the executive power, the president on March 27 first invoked it to require General Motors to "accept, perform, and prioritize federal contracts for ventilators."

Since, then the Trump administration has taken both a heavy-handed and conciliatory approach to using the DPA. HHS in April leveraged the law to strike ventilator contracts with companies including GE and Medtronic. Earlier this week, the Federal Emergency Management Agency proposed a five-year voluntary agreement with the private sector under the DPA to support the production and distribution of “critical healthcare resources” including medical devices.

On Thursday, HHS followed up by applying DPA to antigen supply contracts with BD and Quidel. The action applied “priority rated orders” to the deals. The DPA rated order mechanism forces companies to accept contracts, with certain exemptions, and compels them to prioritize their fulfillment, even if that means rescheduling other orders. Companies subject to the mechanism can also place rated orders with their subcontractors and suppliers to ensure timely fulfillment of the contract. 

HHS is using the mechanism to try to source enough antigen tests to supply the roughly 14,000 U.S. nursing homes that are certified by CMS with a CLIA waiver. The push to protect nursing homes is underpinned by lessons learned during the pandemic so far. Data collated by the New York Times show 41% of COVID-19 deaths in the U.S. are linked to nursing homes.

BD last month agreed to sell 750,000 antigen test kits and 2,000 Veritor Plus systems to HHS for nursing homes. Quidel around the same time said the agency was purchasing 2,000 Sofia and Sofia 2 instruments and 750,000 Sofia SARS Antigen FIA tests. However, none of the parties involved in the DPA-driven contracts have disclosed the size of the orders.

Nonetheless, William Blair analysts on Friday said they came across two contracts made public by the Defense Logistics Agency that "correlate with the timing of the DPA" and show the magnitude of the purchases in bringing antigen tests to America's nursing homes.

"Specifically, BD was awarded a contract for $89.7 million and Quidel was awarded $48.5 million," the analysts wrote. 

An HHS spokesperson in an email on Friday said the BD and Quidel tests cost between $20 and $25 each "which is cheaper than the $120 cost nursing homes had been paying for PCR tests."

William Blair analysts noted that BD's contract is sizably larger than Quidel's due to the fact that BD "had more instrument supply on hand."

BD and Quidel are both increasing output to support demand from HHS and other customers, such as the 10 states that ordered 5 million antigen tests.

BD is aiming to make 8 million tests a month by March and ramp up to 12 million tests a month thereafter. Late last month, Quidel said in theory it could ship 7 million tests a month using its existing infrastructure but supply chain issues mean it is unlikely to consistently hit that ceiling. Quidel mitigated one issue this week by expanding its label to support the use of nasopharyngeal swabs.

BD and Quidel are set to be joined on the market by LumiraDx, which received FDA emergency use authorization for its antigen test on Tuesday. As a new entrant, LumiraDx is unlikely to have a large base of installed instruments, leading analysts at William Blair to question the impact of the EUA on the antigen market. 

Abbott could make a bigger splash. Last month, Abbott told investors it wanted to enter the antigen space with “a lot of scale to be able to ... produce a reliable test that’s easy to use, that’s affordable.” Abbott factored the antigen test into its financial guidance, meaning it intends to start selling the kit later this year, and William Blair analysts think it could ship tens of millions of products a month.

Greg Slabodkin contributed to this story.