Beyond well-known brands such as Abbott Laboratories and Becton Dickinson, a group of lesser-known companies are selling COVID-19 tests to schools, hospitals, and businesses. The demand brought by the pandemic once multiplied the revenue of these small companies and startups, but as large institutions gradually terminate large-scale testing programs, many of these companies have had to quickly adjust their operations to survive.

Public health experts believe that the demand for over-the-counter antigen tests is unlikely to significantly weaken in the short term. In this context, some companies are partnering with pharmacy chains and distributors to shift their focus to individual consumers; others are beginning to focus on diagnostic businesses for other diseases. At the same time, all related companies are assessing: once the public health emergency ends, what will happen to the Emergency Use Authorizations (EUAs) granted by the U.S. Food and Drug Administration (FDA) for most tests.

Testing responsibility accelerates shift to home settings

"The testing model has now most clearly shifted to the home setting," said Bala Raja, CEO of testing company Clip Health. The company, founded in 2014, has been funded by Y Combinator and the National Institutes of Health (NIH). "Demand in all segments is slowing down—not disappearing entirely, but over the past few months, demand in traditional medical settings has been gradually weakening, whether it involves queuing, drive-through sampling, or waiting for results," Raja added.

The Silicon Valley-based company's testing products are used in doctors' offices, urgent care facilities, and some pharmacies, and it also licenses to companies authorized to provide testing for events and employers. Now, seeing demand shift to home testing, Clip Health plans to seek authorization for its home antigen test with a reusable reader. "Despite the shift, we still believe COVID-19 testing will be a significant part of our business for at least the next two years," Raja said.

Nate Hafer, assistant professor of molecular medicine at UMass Chan Medical School, noted that at least in Massachusetts, most testing programs run by schools and employers have ended. "With over-the-counter tests now more widely available, I think people are shifting (testing responsibility) to individuals," Hafer said, adding that classic market forces seem to play a dominant role when people choose testing products. "Tests that can be obtained for free are obviously very attractive," he added, but when free tests are not available, "the best-priced tests in supermarkets or pharmacies... often become the ones people rush to buy."

Reduced government funding intensifies industry pressure

Companies also face reduced U.S. government funding for expanding testing capacity. Previously, Congress was deadlocked last month over a COVID-19 funding agreement. The Biden administration said it would reallocate about $10 billion from testing funds to purchase more COVID-19 vaccines and therapeutics. White House COVID-19 response coordinator Ashish Jha said at a press conference in June that as a result, domestic testing companies are laying off workers, shutting down production lines, and may even sell equipment.

Small companies face particularly prominent challenges because many large government and corporate testing contracts have already been signed. Tinglong Dai, professor of operations management and business analytics at Johns Hopkins Carey Business School, said that since rapid tests became more widely available in February, small companies need to offer some kind of niche product or adopt differentiated positioning.

Is it time to pivot?

"They can pivot to other tests—such as flu tests—and other multiple tests," Dai said. "The idea that people can test for diseases at home is amazing in itself. Before the pandemic, this was almost unimaginable."

London-based startup LumiraDx, founded in 2014, produces its tests in the U.S. and the U.K., and its COVID-19 antigen test customers include pharmacies and U.S. health systems. Chief Product Officer Pooja Pathak said that while demand for event and travel screening is shrinking, orders from healthcare customers remain stable. The company lists CVS as its largest customer, which does not sell over-the-counter tests but offers rapid testing services operated by pharmacy technicians.

"As COVID-19 testing demand rises and falls, we are also affected by fluctuations in case rates, but perhaps to a lesser extent (than other companies)," Pathak said, adding that partnerships with health systems and pharmacies provide stability. LumiraDx is also developing a home testing system but has not yet received FDA authorization. The company disclosed in a prospectus in June that it is also addressing changes in EU diagnostic regulations, but it does not break down sales by country.

Balancing demand and costs

Some smaller testing companies saw a surge in home testing demand during previous waves of the pandemic and seized the opportunity to go public. San Diego-based Cue Health, which produces home molecular tests, went public in September 2021. South Korea-based SD Biosensor, which produces home antigen tests, began trading on the Korean exchange in July last year and recently reached an agreement to acquire diagnostics company Meridian Bioscience for $1.53 billion.

Cue Health's revenue soared from $23 million in 2020 to $618 million in 2021, but recently laid off 170 employees, citing economic challenges and reduced U.S. government funding for COVID-19 testing. The company was awarded a $480.9 million contract by the U.S. Department of Defense in 2020, though it later had to request an extension to produce enough test cartridges and readers. Now, most of its business has shifted to private sector customers. In the first quarter of 2022, Cue generated revenue of $179.4 million, with less than 1% coming from the public sector. The company expects slower growth in the second quarter, forecasting sales of $50 million to $55 million. Under an agreement with grocery chain Albertsons, Cue CEO and co-founder Ayub Khattak said on a May earnings call that the company has placed its COVID-19 tests in more than 1,000 Albertsons pharmacies.

Cue Health's only product currently on the market is a molecular test, which is priced significantly higher than antigen test alternatives. When purchased as a standalone product, its test reader costs $249, and a three-pack of test cartridges costs $195. Cue and other home molecular test manufacturers say the higher accuracy of molecular tests justifies the higher pricing.

Seeking formal FDA approval

Most COVID-19 tests currently on the market only have Emergency Use Authorization, which means they will no longer be able to be marketed once the public health emergency ends. This process is not immediate—the FDA has said it plans to provide 180 days' notice before terminating EUAs—but the agency recently encouraged companies to begin pursuing formal regulatory approval for their tests.

"At some point, the switch will flip, and that will become the expectation," Hafer of UMass said. New tests will go through the de novo approval pathway, which includes controls to ensure device safety and effectiveness. If a similar FDA-approved test already exists, diagnostics companies can use the 510(k) pathway, which only requires demonstrating "substantial equivalence" to an approved device. BioFire Diagnostics' PCR test received de novo approval earlier this year, but no rapid antigen test has yet completed full FDA review.

Cue submitted a de novo approval application to the FDA in May for its home molecular test. Some other testing companies are taking a wait-and-see approach. Raja of Clip Health said the company is waiting for FDA guidance on the specific requirements for 510(k) submissions and when the 180-day period begins. The FDA said at a meeting earlier this year that companies that have received COVID-19 test EUAs should submit transition plans while seeking formal approval in order to continue selling their products.

The future of multiplex tests

One favorable factor for these startups: public health experts say consumers do not seem to care much about who the manufacturer is when buying tests in stores. "I think this is largely about accessibility. Most people don't differentiate between brands," said Amesh Adalja, senior scholar at the Johns Hopkins Bloomberg School of Public Health's Center for Health Security. "I just grab whatever is on the shelf."

Looking ahead, Adalja expects demand for home antigen tests to remain stable. He and Hafer of UMass both believe the future direction for test manufacturers is likely to be developing home test kits known as "multiplex tests" that can detect multiple respiratory viruses simultaneously. Cue is developing a combined flu and COVID-19 test. Another startup with a home molecular test, Lucira Health, has begun producing a combined flu and COVID-19 test. CEO Erik Engelson said the company plans to first apply for an EUA and begin distribution this fall.

"Before COVID, people could only test for HIV at home, and that approval took 10 years," Adalja said. "This is the next phase—leveraging the momentum of home testing and applying it to a broader range of problems and a broader range of pathogens."