Beyond well-known brands such as Abbott Laboratories and Becton Dickinson, a group of lesser-known companies supply COVID-19 testing products to schools, hospitals, and businesses. The pandemic once brought opportunities for these small companies and startups to double their revenue, but as large institutions gradually scale back mass testing programs, many of these companies are being forced to rapidly adjust their business models to survive.

Public health experts say demand for over-the-counter antigen tests is unlikely to fade in the near term. Some companies are partnering with chain pharmacies and distributors to shift their focus to individual consumers; others are intensifying efforts in diagnostics for other diseases. Meanwhile, all parties are watching a common issue: once the public health emergency ends, how will the U.S. Food and Drug Administration (FDA) terminate the Emergency Use Authorizations (EUAs) it granted for most testing products?

"The testing paradigm has now most clearly shifted to the home setting," said Bala Raja, CEO of testing company Clip Health. Founded in 2014, the company has received funding from Y Combinator and the National Institutes of Health (NIH). "Demand across all segments is slowing—not disappearing entirely, but over the past few months, demand in traditional medical settings or for tests requiring queues, drive-through sampling, and waiting for results has been gradually weakening." The Silicon Valley-based company's testing products are used in doctor's offices, urgent care facilities, and some pharmacies, while also providing event and employee testing services for qualified businesses. Now, seeing demand shift toward home use, Clip Health plans to seek authorization for its home antigen test with a reusable reader. Raja said, "Although the direction is changing, we still believe COVID-19 testing will be an important part of the business for at least the next two years."

Testing responsibility shifts to households

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 becoming increasingly available, I think people are shifting that responsibility to individuals," he added, saying that classic market forces seem to be driving people's testing choices. "Tests that are available for free are obviously very attractive." But when free channels are no longer available, "the best-priced products in supermarkets or pharmacies... often become people's choice."

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

Small businesses face particular challenges because many large government and corporate testing contracts were signed long ago. Tinglong Dai, professor of operations management and business analytics at Johns Hopkins Carey Business School, said that since rapid tests have become increasingly available since February, small businesses need to offer some kind of niche product or adopt a differentiated positioning.

A time of transition?

"They can pivot to other tests—like flu tests—and many other types," Dai said. "The idea that people can test for diseases at home is remarkable in itself. Before the pandemic, this was unimaginable."

LumiraDx, a London-based startup founded in 2014, manufactures its testing products in the U.S. and the U.K., and its COVID-19 antigen test customers include pharmacies and U.S. healthcare systems. Chief Product Officer Pooja Pathak said that while demand for event and travel screening is shrinking, orders from medical customers remain stable. The company lists CVS as its largest customer—CVS does not sell over-the-counter tests but offers rapid tests administered by pharmacy technicians. "As COVID-19 testing demand fluctuates, we are also affected by swings in case rates, but perhaps less than other companies," Pathak said, noting that partnerships with healthcare systems and pharmacies provide stability. LumiraDx is also developing a home testing system, but it has not yet received FDA authorization. The company disclosed in a June prospectus that it also faces challenges from changing EU diagnostic regulations, but it did not break down sales by country.

Balancing demand and cost

Some smaller testing companies saw a surge in home testing demand during earlier waves of the pandemic and seized the opportunity to go public. San Diego-based Cue Health, which makes home molecular testing products, went public in September 2021. South Korea's SD Biosensor, which makes home antigen tests, began trading on the Korean exchange last July and recently struck a deal 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 it recently laid off 170 workers, citing economic challenges and reduced U.S. government funding for COVID-19 testing. The company signed a $480.9 million contract with the U.S. Department of Defense in 2020 but 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 $179.4 million in revenue, with less than 1% coming from the public sector. The company expects slower growth in the second quarter, with sales forecast at $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 COVID-19 testing products in more than 1,000 Albertsons pharmacies.

Cue Health's only product currently on the market is a molecular test, which is priced much higher than antigen test alternatives. When purchased separately, the 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 price.

Seeking full FDA approval

Most COVID-19 tests currently on the market only hold Emergency Use Authorization, meaning they will not be able to continue selling once the public health emergency ends. This process is not immediate—the FDA has said it plans to give manufacturers 180 days' notice before terminating EUAs—but the agency has recently encouraged companies to proactively seek full regulatory approval for their tests. "At some point, the switch will flip, and that will become people's expectation," said Hafer of UMass.

New products will go through the de novo approval pathway, which includes controls to ensure device safety and effectiveness. If a similar product has already been FDA-approved, diagnostics companies can use the 510(k) pathway, which only requires demonstrating "substantial equivalence" to an existing 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 application for its home molecular test in May. Other testing companies are taking a wait-and-see approach.

Clip Health's Raja said the company is waiting for FDA guidance on 510(k) submission requirements and when the 180-day countdown will begin. The FDA said at a meeting earlier this year that companies already holding COVID-19 test EUAs should submit transition plans to continue selling their products while seeking full approval.

The future of multiplex tests

One advantage for startups: public health experts note that consumers buying tests in stores don't seem to care much about who the manufacturer is. "I think it largely comes down to accessibility. Most people don't distinguish between brands," said Amesh Adalja, senior scholar at the Johns Hopkins Bloomberg School of Public Health's Center for Health Security. "I would 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 for test manufacturers may lie in developing home multiplex kits that can detect multiple respiratory viruses at once. Cue is developing a combined flu and COVID-19 test. Lucira Health, another startup with a home molecular test, is beginning production of 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, the only home test you could do was for HIV, 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."