The diagnostics industry is attracting several established and emerging healthcare players due to its emergence as a lucrative market with free cash flows, attractive return ratios, and expansion potential. The interest is evident in the influx of new entrants into the sector, including pharmaceutical companies, hospitals, start-ups, and even large conglomerates.
The Adani Group, which is unbeatable in power, energy, and edible oil segments, also ventured into diagnostics with Adani Enterprises in May 2022 and announced a subsidiary for healthcare services. The Adani Health Ventures subsidiary would set up, operate and manage medical and diagnostic facilities, medical devices, health technology-based facilities, research centers, and related activities.
Among conglomerates, Reliance Industries, backed by billionaire Mukesh Ambani, acquired a majority stake in Netmeds for Rs 620 crore in August 2020 (Reliance Retail). There is more action happening in this segment. In July 2022, pharmaceutical company Lupine launched its diagnostic laboratory called Lupine Diagnostics, and Ahmedabad-based Torrent Pharma entered the diagnostics sector.
Inclining Interests Of Giant Companies Towards Diagnostics Industry
In June 2021, PharmEasy, an e-pharmacy acquired the diagnostics chain Thyrocare based in Navi Mumbai for Rs 4,546 crore. Pharmacy retailer Medplus also entered diagnostics in March 2022 with the launch of its diagnostic center in Hyderabad.
Based in Gurgaon, Max Hospitals is continuously expanding its diagnostic segments. Bengaluru-based healthcare company Aster DM is also one of the new entrants in this sector. Aster DM operates hospitals, medical centers, diagnostic centers, etc.
“These new entrants have resorted to aggressive discounting to gain volume,” said diagnostics industry analysts Monish Shah and Pranav Chawla of Antique. “Aggressive pricing is hurting the big players in their most lucrative high-margin business, that is wellness.”A recent Credit Suisse report said competition is mainly from large conglomerates that would raise more investment over a longer period.
Digital scanning technology allows pathologists to review specimens remotely without sending them to a reference laboratory, as digital conversion can occur on-site. The Indian diagnostic sector was not an exception to the harsh effects of the COVID-19 pandemic. The industry witnessed a decline in sales in its Q1FY21 as testing for COVID-19 could not match declining non-covid hospital visits.
However, as the lockdown situation eased, Q2FY21 gave decent reassurance to the big players as revenue saw an increase not only on a quarter-on-quarter basis but also on a year-on-year basis. These diagnostic laboratories have not only gained the loss due to the pandemic but have also developed.
However, the way forward for diagnostics is through point-of-care testing, self-testing kits, genomic testing, and the implementation of artificial intelligence (AI)-based analytics solutions to deal with the expected increase in overall testing volume in the future in the wake of a possible third wave and its aftermath.
It encompasses the majority of its business – producing everything from routine blood tests to complex, genetic, or molecular testing, etc. Diagnostic tests play a key role in every step of disease management – diagnosis, monitoring, screening, and prognosis. Diagnostics help to determine whether the patient is suffering from a specific disease. A diagnostic test will reveal a possible condition or confirm its absence.
Reasons Behind Increased Popularity Of the Diagnostics Industry
1) Expanded COVID-19 Testing: On average, COVID-related testing contributed about 25% of diagnostic firms’ revenue in Q2 and is expected to continue to provide a substantial portion of earnings for several quarters to come.
The heightened lockdown across the country has led to a shift to on-demand COVID-19 testing, with the customer base shifting away from government-driven B2G revenue to more private and individuals. A higher volume of COVID tests, increase in realization/revenue per patient & realization/revenue per test due to high-value tests for COVID-19 and specialized non-COVID tests led to increase in revenue.
2) Increased Capacities: Diagnostic laboratories have increased their capacities to take advantage of the growing COVID opportunity. For example, Thyrocare has boosted its capacity to perform 400 RT-PCR tests per hour and has also received approval from NABL for a new facility in Gurugram with a similar capacity.
COVID PCR and COVID antibody testing have been key growth drivers for the company. The laboratories of Dr. Lal Path conducted tests for COVID-19 in 9 laboratories. SRL also reported a significant increase in covid testing from 5.2 lakh tests in Q2FY21 to 1.25 lakh in Q1FY21 by increasing capacity at 10 centers across India.
3) Business outside of COVID: When travel restrictions on people were lifted, businesses continued to grow much faster than expected as people adjusted to the new normal, leading to an increase in normality and faster traction in business outside of COVID. For Metropolis, the total number of patient visits increased by approximately 75%, and the total number of tests increased by approximately 65%.
4) Diagnostic Inflation: Due to the expected demand for COVID testing, companies are building additional capacity to take advantage of testing opportunities. These capacity investments are being explored as long-term infrastructure builds that can later be used for more specialized testing when the volume of testing for COVID-19 dries up. For example, Thyrocare is setting up COVID testing facilities in Bangalore and Kolkata and SRL has commissioned new testing centers in Chennai, Bengaluru, Kolkata, and Deogarh.
Dr. Lal Path Labs signed binding terms to acquire a 100% stake in Bindish Diagnostic Laboratory, Jamnagar, and a 70% stake in Change Diagnostics Laboratory; with revenues of Rs 3.2 cr and Rs 11.5 cr respectively for FY20
However, the performance of COVID sales also remains unpredictable and will likely depend on external factors. As the number of COVID cases is mitigated, coupled with increased public awareness of home quarantine along with reduced prices, COVID revenues may witness a dip.
edited and proofread by nikita sharma