High-end diagnostics changing the face of medical testing industry

Bigger players in space are getting into sophisticated high end testing, oncology testing, reproductive genetics and other specialised fields, while maintaining basic testing as a revenue safety net

Last month, Strand Life Sciences, a Bengaluru-based specialty diagnostic company, bought the India operations of US-based medical diagnostic company, Quest Diagnostic. The takeover created ripples in the medical diagnostic industry in India. 

Quest had set shop some ten years ago and has an established routine testing business with many corporate clients. Strand is actually a spinoff from IISc Bangalore as a bioinformatics company. It bought out HCG’s diagnostic business in January, with a focus on oncology testing and now with Quest, it is emerging as a sophisticated end-to-end operator. The Quest acquisition offers a new service line, of routine testing, which is 80-90 per cent of the diagnostic market. The deal could make Strand a leader in the testing business. 

“Quest's corporate wellness testing and women health segments are stronger than ours. Our oncology, advanced diagnostics and genomics are stronger. Quest was stronger in the north, we are strong in the south. We have a distributed presence in small towns in India, especially in the south and west. Their presence in Delhi and Ghaziabad will be complementary,” Says Ramesh Hariharan, CEO and Founder, Strand Life Science.  

Arguably, diagnostics is a significant part of the healthcare growth story, with the vertical growing at 17 per cent consistently for over a decade. It was worth an estimated $5 billion in 2017, with 30 per cent of the market in radiology (X-rays, MRIs, CT Scans and such like) and the rest in sample testing. While Dr Lal’s, Metropolis, Thyrocare, SRL and Apollo Diagnostics have been around for a while, the sector has seen the entry of numerous players since 2010. 

While the business is still unregulated, you still need to be registered under the Shops and Establishments Act to set up a pathology lab. But apart from that, you don't need any specific registration with any regulatory body and there are no  prescribed minimum quality standards to be met. Quality accreditation with NABL (National Accreditation Board for Testing and Calibration Laboratories) is purely voluntary. Currently only one per cent of the laboratories are so accredited. While the big labs operating at the national level do go for such accreditation, those looking for international work may take the more stringent and expensive College of American Pathologists (CAP) accreditation as well.

MedGenome, another Bengaluru-based high-end diagnostic facility that offers testing through three verticals -- Cancer genetics, reproductive genetics and medical genetics. While its diagnostics, like Strand's, is focused on the Indian market, its research business is focused on the developed markets of America, Europe and Japan. It is not in the routine testing business at all.

Hariharan says his company's goal is to rewrite the script in the pathology lab business in India. There  is so much research happening in life sciences -- expertise has increased phenomenally and new tests are being added rapidly. Traditional path labs, on the other hand, focus on offering routine testing such as annual check-ups for the corporate sector and emergency response testing for ailments. Labs like Strand offer high-end tests that constitute only 10 per cent of the total market by volume as of now. Based on this testing, the company has developed assays and markers that are sold in the international market. A model followed by MedGenome as well.

“Based on innovation done in India, we are able to offer technology-driven tools and assays to diagnostic labs in the US. We have to be able to offer calibrated quality,” says Hariharan. A model followed by MedGenome as well.

Not only does it have CAP accreditation, it also routinely publishes data in indexed journals for diagnostics and its results are peer reviewed. Strand runs clinical retrospective studies for 3-4 years, blinded trials and publishes constantly to build debate, discussion, momentum and introspection to make diagnostics a transparent process.  “It is not simply a black box where someone is taking samples and fishing out reports,” Hariharan explains.

A significant revenue stream for the company is the assays and data analytics technology that it uses in genetic testing, and which it licenses out. A long-term relationship with Agilent Technologies was forged two years ago and Strand is building a number of Bioinformatics products with them. “We build tools for labs that generate data from high-throughput life science experiments. Our tool are used to analyse that data. In the US, the labs are good at building assays but the skills to build tools are in short supply and expensive so we supply the bioinformatics tools for data analytics,” says Hariharan. With three centres of its own and three of Quest, it will have 27 labs across the country. Quest also has about forty collection centres, giving Strand a bigger consumer interface in the routine test segment.

A multiple-revenue stream that generates profits from developed market gives Strand and MedGenomes the edge over pure play diagnostic labs. 

Super-specialist Star

CORE Diagnostics began offering focused oncological testing six years ago. With as many as 1,100 tests, it is a leader in cancer diagnostics in the country with procedures ranging from simple blood tests to the most complex genetic tests costing a few hundred-thousand rupees. “We wanted to bridge the gap between what was available in leaps in diagnosis,” says Zoya Brar, Managing Director, CORE Diagnostics. The company started with 40 tests, each of which had to be unique, in order to grab market share from Oncquest, a Dabur company. With both College of American Pathology (CAP)- and NABL-accredited laboratories, Oncquest is known for its excellence in molecular and clinical diagnostics. With a central laboratory, 36 satellite laboratories, 250 collection centres and 1,400 business associates across the country and South Asia, Oncquest, has now moved to become an end-to-end player.

For CORE, in order to become a significant player in the pathology space, a diagnostic chain has to come out with an offering that is unique and of higher value. The Indian pathology space is rampant with referral kickbacks to doctors and with over 100,000 diagnostic centres, it isn't an easy space to operate in. CORE offers over 600 tests to identify various subtypes of cancer. Breast cancer alone has six subtypes.  It has a total test menu of 1100 tests. The most recent one is liquid biopsy- advanced testing for cancer.

Once a battery of tests identifies the exact cancer and stage, tests are done to understand the patient's genes and identify the best response to treatment, such as radiation, chemotherapy, surgery or a combination of them all. Prognostics are also done routinely to understand the progress of the disease. So, if it is an aggressive strain, then the treatment has to be aggressive as well. Diagnostics are as much part of the treatment in Cancer.

CORE has a reputation for speed and efficiency with over 300 hospitals as partners who get their samples tested at its lab in Gurugram. The company returns some reports in three hours though others may take up to three weeks. From next-generation sequencing (NGS) to normal histopathology, the lab offers testing of all bodily fluids as well as biopsies. It has liquid biopsies and highly sensitive blood tests for cancer that are non-intrusive and may be used for hard-to-access brain tumours.

To hedge its bets, CORE has entered the infectious diseases diagnostics segment with 45,000 tests to be done for Hepatitis C in Punjab, though it does not work with Clinical Research Organisation.

The regional play

IGenetic Diagnostics entered the market in 2015 and chose Mumbai as its headquarters for its educated and discerning population, and a huge market need, says Arunima Patel, the company's founder and managing director. The company has two key verticals -- one offering specialised testing in oncology and infectious diseases and the other in women’s health and gynaecology. The high-end test market has limited players and the company offers these tests through its collection centres in Delhi, Mumbai, Bengaluru, Kochi and Hyderabad. “In infectious diseases, we offer testing on 100-plus pathogens and a variety of fungi with our own R&D,” says Patel. The lab, which started with Rs 100 million capital investment, has a war chest of Rs 1.3 billion and funding by Manipal hospitals to accelerate its growth inorganically. 

IGenetic operates in limited geographies around Maharashtra, Chhattisgarh and Madhya Pradesh for its routine testing business, with a centre opened recently in Kohlapur and another in Indore. “Since the genetic make-up of the Indian population is different, understanding how an individual body will respond to medicine is becoming an increasingly significant part of treatment,” Says Patel. IGenetics focuses on pre-medication testing for pharma companies as well, though it has stayed away from government tenders. 

The hospital-led chain

Three years ago, Max Healthcare decided to spin its laboratory division into a separate business unit. Max has been running a focused diagnostic business since 2000 for its 14 hospitals at different geographical locations through its 10 NABL-accredited labs. Now Max Lab is being spun off into a separate vertical, wherein it is following three different models. It is establishing collection centres under a default growth model to take external samples , mostly basic but it has a test menu of 1800 tests. It has 80 such centres in the NCR. The second is the hospital laboratory management (HLM) and the third a shop-in-shop model, in which a doctor offers space to a phlebotomist to sit for sample collection.

In addition to the 10 labs within Max hospitals, the SBU also runs another six that are external. “We have been growing at 10 per cent month-on-month, and are more than doubling every year,” says Himanshu Tyagi, vice-president of pathology operations. Tyagi, who heads Max Lab, feels that eventually the business may be a separate spinoff like SRL. But while SRL is a separate company, Max has hived its diagnostics unit into a different vertical within its operations, and not as a different company yet. 

The division has two parts to it. The internal Max division is a team of 550 people that includes 80 doctors, pathologists, microbiologists and histo-pathologists. With an in-house test menu of 1,800, very few tests are outsourced to super-specialised lab like CORE. For managing the external coordination, HLM and collection centres, 250 people are employed by Max.

“Technology and equipment are huge investments. Since we have such huge volumes, we do  not buy equipment, but take it on rent," Says Tyagi. The benefit of this is that as soon as the new version of a high-end equipment is available in the market, the manufacturer upgrades it for the hospital. The group has, instead, invested heavily in its state-of-the-art IT platform, technology and training of people. It is using artificial intelligence and technology in pathology as a decision-support system. 

Like SRL and Apollo hospitals, Max Lab is betting big on the future, incorporating both routine testing, which makes up 70-80 per cent of all diagnostics and needs a 12-24-hour turnaround time, and specialised high-end tests like cancer markers. In the latter model, samples are collected from different places and the diagnosis is delivered within a few days to a few weeks depending on the level of sophistication.

The healthcare partner

Healthians is a diagnostic lab with a simple approach. It offers routine tests covering the broader market. 

“We did not want to do just screening, and thought we should look at prevention too and become partners for extending care. Our target age group is 29-36 though we also look at 69-year-olds,” Says founder and CEO, Deepak Sahni. The idea is not only to do yearly health check-ups, but also to offer call-centre services of a doctor who can interpret the report for the patient and a nutritionist's advice in case the patient wants it. Continuous monitoring is done to ensure better outcomes, and health parameters are plotted to help patients take on the onus of looking after their health on their own. As many as 500,000 patients have signed up in the last four years. Healthians does not offer histo-pathology but all routine testing with cancer markers and neo-natal markers are covered.

It runs a total of nine labs in Delhi, Jalandhar, Lucknow, Kanpur, Jaipur and Chandigarh. Six more are expected to come up soon. The choice of location is driven by TAT, or turnaround time. It is an asset-light model where labs are identified and upgraded to received NABH accreditation and managed by Healthians. “It brings down my cost by 40 per cent. The choice of location is based on logistics. We must be able to reach the sample to the lab within four hours,” says Sahni. The collection kit keeps the blood samples at 8 degrees, all monitored from a command centre in its corporate office in Gurgaon. 

The company is intensely technology-driven with every phlebotomist being tracked as he moves with the samples. On an average, each of its 400 phlebotomists picks up five samples daily. “We have 50 quality checks, including screening for infections. We also use advanced tech tools like the vein finder, since we do not allow more than a single needle prick,” says Sahni.

Sixty-two per cent of patient monitored by Healthians for diabetes and who complied with the advice given have brought down their diabetic values by 1.2 per cent.

The skilling issue

“I often say our industry isn't limited by capital -- there is enough investment available -- but by skills,” says Brar. The speed at which the diagnostic space is evolving is not matched by the increase in the number of people with special skills to validate tests, recommend an appropriate diagnostic suite for diseases like cancer, or deal with very rare cases. 

Sixty per cent of the industry consists of phlebotomists who have worked with a doctor, learnt how to draw blood and are generally experienced, but with no special qualification. The minimum requirement is a diploma in medical lab technology. 

Can the pure play focused lab exist?

Not really, because even highly specialised labs like CORE, which is a force to reckon with in oncological diagnostics, are looking for opportunities in other segments which have a huge market in India. In fact CORE, which recently won an order from the Punjab government for Hepatitis C testing of 45,000 patients a year, is entering the infectious disease category in a big way. It is also reviewing some specific testing techniques in reproductive testing. Brar however, steers clear of ‘recreational testing’ -- the kind that involves finding out whether a three-year-old has the genes to be a sportsperson.

Conclusion

Brar likes to reiterate that though testing makes up only three per cent of all medical expenditure, its impact is 70 per cent, because if the diagnosis is right at first shot, the course of treatment could be altered significantly. Specialised diagnostics is the play of the future, as medicine and delivery become more complex and pharma companies increasingly look for specific markers to ascertain the suitability of a drug or treatment regime for a particular patient.