Dive Brief:

• A special purpose acquisition company (SPAC) has slashed the value of its LumiraDx merger by $2 billion in light of the slowdown in the COVID-19 rapid antigen testing market.
• LumiraDx recently halved its full-year sales guidance after being buffeted by the same forces that have rocked larger COVID-19 test providers such as Abbott Laboratories and Quidel. The SPAC, after considering other factors as well, proposed cutting the valuation of LumiraDx from $5 billion to $3 billion.
• The agreement is still set to give LumiraDx $115 million to fund its ambition to move more testing to the point of care. However, LumiraDx has delayed plans to introduce a disposable COVID-19 test at a lower price than its competitors.

Dive Insight:

LumiraDx disclosed its merger with SPAC CA Healthcare Acquisition Corp (CAH) in early April. Weeks later, Abbott and Quidel sent shockwaves through the COVID-19 rapid antigen testing market by reporting first-quarter sales that fell well short of analyst expectations. The faster-than-expected slowdown in demand forced multiple companies to cut their guidance for 2021.

Last month, LumiraDx revealed its reset outlook at an analyst day. Having previously forecast sales of $600 million to $1 billion, it lowered its guidance to $300 million to $500 million. By the end of the month, CAH was on the phone to LumiraDx to discuss the terms of the merger agreement, leading to a reduction in the merger valuation of 40%. 

CAH sought to revise the agreement after reconsidering the likelihood of its least optimistic financial projections coming to pass. The reconsideration was underpinned by the forecast decline in sales of COVID-19 rapid antigen testing. CAH quoted BTIG analyst Sung Ji Nam and Abbott CEO Robert Ford to make its case about the prospects of the COVID-19 testing market.

The SPAC also spoke to more than 40 institutional investors and diagnostics industry analysts, and considered the "significant decreases" in the share prices of companies exposed to the COVID-19 testing market. Shares in Quidel are now up on their price on the day the LumiraDx merger was disclosed, but they have been down by as much as 20%. 

While many of the drivers of the reduced valuation are outside of the control of LumiraDx, the company's failure to hit a market access target was also a factor.

LumiraDx had expected to introduce its Amira disposable COVID-19 test in the summer. However, the target has now slipped to the fall, potentially limiting the impact of a test LumiraDx plans to sell for $2 to $4. Abbott's test costs upwards of $5. 

Under its three original scenarios, CAH forecast LumiraDx 2021 revenues ranging from $638 million to $1.2 billion. CAH now expects LumiraDx to generate $367 million this year. Sales are forecast to fall in 2022, earlier than in the original projections, before rising to reach $819 million by 2026.

The 2026 forecast is below CAH's previously least optimistic projection of $1.1 billion. 

LumiraDx shared its latest financial results alongside news of the revised merger terms. Over the first half of the year, it generated revenues of around $194 million. That's well up on the largely pre-pandemic first half of 2020, but also points to why LumiraDx lowered its full-year outlook. In the second quarter, LumiraDx shipped around 2,000 instruments, bringing the total to over 15,000.