NEW YORK – The COVID-19 pandemic drove massive amounts of public and private investment into the diagnostics industry as the US and world saw unprecedented demand for testing.
That investment accelerated the development and commercialization of a number of emerging technologies including new molecular techniques and point-of-care and home testing products.
Now, however, almost three years after the start of the pandemic, the world is slowly returning to something resembling pre-COVID-19 normalcy, and test uptake is waning, raising the question to what extent will the investment boom that drove diagnostics innovation during the COVID-19-era continue.
Prior to the pandemic, "diagnostics, generally, was not as attractive an investment opportunity," particularly for venture capital funds, said Sid Shenai, CEO and cofounder of Cambridge, Massachusetts-based Proof Diagnostics, which launched in 2020 to commercialize CRISPR technology developed by cofounders Feng Zhang, a researcher at Broad Institute of MIT and Harvard, and Omar Abudayyeh and Jonathan Gootenberg, both McGovern Institute fellows at MIT. Shenai is also a venture partner at Seattle-based Madrona Venture Group.
Traditionally, venture funds have been more focused on therapeutics, Shenai said. "The return profile of potential therapeutics investments are just more attractive to those investor bases," he said.
"When COVID hit, it changed the game," he added, noting that governments around the world poured money into the development and deployment of tests for SARS-CoV-2, followed by large investments from the private sector.
The question, which Shenai said is open to argument, is whether private investment in diagnostics during the pandemic was driven by the influx of public money, by the short-term opportunities presented by the need for COVID-19 testing, or by an enduring shift in the return profile, signaling a sustained investor interest in diagnostics.
The likeliest answer, of course, is some mix of all three. The role of public investment and an enormous market opportunity for COVID-19 testing can't be denied, but there has also been a longer-term shift in investors' view of the diagnostics business, said Donna Hochberg, a partner with Newton, Massachusetts-based healthcare consulting firm Health Advances.
"Our thinking is that there has been somewhat of a material, hopefully permanent, shift in the thinking and recognition that diagnostics brings to the table broadly," she said. "There's a little more appetite generally to invest in these technologies."
Hochberg said one key change in investor thinking she and her colleagues have observed is a greater "willingness to understand the timeline," for diagnostics development.
"The timeline for diagnostics can be longer than for some other medical products, and the return on investment wasn't always as secure, and so people have been hesitant," she said. "And I think some of that hesitancy has gone away."
Hochberg said that while she has seen the level of investment in diagnostics fall off as the broader markets have slumped for much of this year, it remains well above pre-pandemic levels, with companies both seeking outside money and reinvesting their COVID-19 test revenues.
But while the pandemic provided both funding and consumer demand that helped accelerate the commercialization of novel diagnostic technologies like CRISPR and home-based nucleic acid amplification platforms, uptake of products based on these newer technologies for COVID-19 testing was, by and large, limited. Proof Dx, for instance, submitted an application for Emergency Use Authorization to the US Food and Drug Administration for a CRISPR-based point-of-care COVID-19 test in April but has yet to receive EUA. Brisbane, California-based Mammoth Biosciences secured EUA from the FDA for its SARS-CoV-2 DETECTR Reagent Kit in September 2020 and for a high-throughput version of the kit in January 2022, but, even so, most COVID-19 molecular testing was done using established PCR platforms from major vendors.
Likewise with home testing. Companies like Cue Health and Lucira were able to commercialize molecular home tests while firms like Ellume brought new detection technologies to lateral flow antigen testing, but, ultimately, the home test market was dominated by cheap lateral flow tests using essentially the same approach home pregnancy tests have employed for decades. Since going public at $16 a share in September 2021, Cue's stock price has declined steadily and has for most of the last month traded at between $3 and $4 a share.
In June, the company announced it would be laying off 170 people due to a decline in government funding for COVID-19 testing and broader economic challenges. Ellume, meanwhile, has put its Australian arm into voluntary administration — similar to Chapter 11 bankruptcy in the US — though its US arm has continued normal operations.
The pandemic, in other words, provided conditions that allowed some cutting-edge diagnostics companies to push their tests to market, but their place at the table still isn't secure. With our response to COVID-19 shifting, what might continue to drive development and commercialization of these new technologies going forward?
The pandemic "created a massive demand for at-home tests that was subsidized by governments around the world," said Shenai. "I think that a lot of small companies are kind of looking for what is going to replace COVID in home [testing]. And the answer is, I don't think you're going to find anything right now."
"It's hard to see something that replaces COVID in the at-home market. You just aren't going to get those types of volumes," he said. He noted, though, that longer term the ongoing move of healthcare delivery closer to home will open up substantial markets for companies able to provide testing at home and at point-of-care locations like pharmacies and physician offices.
"It would be naïve to think, well, funding will be there because COVID will be around," said Adriana Dantas Lemberg, VP of product management at Mammoth. "I don't think it’s the strategy for most companies right now that [they] are basing their strategies on COVID."
She cited multiplexed tests — for influenza A/B and COVID-19, for instance — along with sexual health testing as potential areas of opportunity.
Cue this month announced that it made a de novo submission to the FDA for clearance of its Flu Molecular Test for home and point-of-care use. During the company's Q2 2022 earnings call in August, CEO Ayub Khattak said it plans in Q3 to submit for EUA for its multiplexed flu/COVID-19 test. The company is also planning clinical trials for a respiratory syncytial virus test and a multiplexed chlamydia and gonorrhea test for home and point-of-care.
Mara Aspinall, professor of practice at the Arizona State University College of Health Solutions and adviser to the Rockefeller Foundation on COVID-19, said that near term she saw home-based COVID-19-flu combo tests as potentially big sellers.
"There is going to be a market for that," she said. "Will it be a huge market that investors put money into? I think the answer is a solid 'Maybe.'"
Compared to conventional home and point-of-care technologies, the advantage of molecular tests from firms like Cue, Lucira, Mammoth, and Proof Dx is performance, with such tests typically offering sensitivity and specificity comparable to that of lab-based PCR testing and well above that of antigen tests.
The downside is cost. A Cue Reader, for instance, runs around $200, with tests costing $65 each when purchased in a pack of three. That compares to around $10 for a typical lateral flow COVID-19 assay.
To "crack the home market" new technologies will need to "provide molecular quality performance but at rapid antigen-type prices," Shenai said. "Otherwise I think you will be limited to these rapid antigen type tests that we have used that I think have been shown to be challenged in many ways from a sensitivity perspective."
He said that Proof Dx believes that "with additional capital so that we can scale our process and scale our manufacturing … we could be well in the single-digit cost perspective where we could get down to prices that are close to what you see with rapid antigen testing."
One encouraging sign for developers of home tests using molecular and other advanced technologies is that the federal government appears to be prioritizing test performance as it looks forward. This month the National Institutes of Health's Rapid Acceleration of Diagnostics Tech (RADx Tech) announced a pair of new programs that will provide up to $300 million in funds for the development and commercialization of home and point-of-care COVID-19 tests. One of the programs will be focused on development of high performance tests that can be effective when used at a single time point. Throughout the pandemic, the FDA has recommended most home antigen tests be used serially to compensate for their lower sensitivity compared to molecular tests.
"This is our chance to really try to stimulate that next-gen transformation of these technologies so that they are permanent," said Bruce Tromberg, director of the National Institute of Biomedical Imaging and Bioengineering (NIBIB) and leader of the RADx Tech program. "What we can do is help stimulate in some small way the improvement in performance of these technologies to see if they can get a toehold."
Whether such technologies will find a measure of commercial success will depend on "a complex convolution of regulatory response and then the scale of the demand," he said. "That's sort of where we are. It's a bit of an inflection point."
"Could we get along fine with just lateral flow assays? Sure. Do you want your kids to be doing lateral flow assays in 20 years built on designs from already 40 years ago? I don't think so," he said. "We can do a lot better."