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The COVID crisis creates opportunities for diagnostic sector

The Indian diagnostic market has been doing well with COVID-19 as a major growth driver and Medical Buyer has been reporting this regularly. Indian healthcare unicorn startup PharmEasy has now acquired Thyrocare, the No. 4 player in the diagnostic space and the promoter, A Velumani has been opportunistic in timing the transaction well, at a time when Thyrocare stock trades at a 65-70 multiple to trailing earnings.

32-year old IIMA alumni and co-founder & CEO, PharmEasy Siddharth Shah has also been opportunistic, guiding the flow of abundant venture capital funding into this acquisition. Only time will tell who came out better in this transaction, but A Velumini has hedged his bet by buying 5 percent in API Holdings, the parent company of PharmEasy.

The synergies between PharmEasy and Thyrocare are unclear, and it appears to be an unrelated acquisition. Stock markets are normally circumspect about acquisitions and this may hurt valuation for the Pharmeasy IPO that is in the pipeline.

The other two major diagnostic players, Dr Lal Pathlabs and Metropolis are trading at 80-85 multiple to trailing earnings and the stock market appears to be assuming that the COVID-assisted 15 percent plus annual growth rates will continue in future as well. Stock markets reward growth but can be equally punishing when growth lags behind market expectations.

A disruptor waiting to happen is self-testing kits. While Abbott’s US FDA-approved, Panbio COVID self-testing kit has a sensitivity of 95 percent, ICMR-approved MyLab’s CoviSelf and Meril’s CoviFind documents on the kits are silent on this aspect. MyLab Discovery Solutions is having a good run, its sales turnover of Rs. 8.2 crore in FY20 is poised to grow to Rs. 850 crore in FY21 (Meril Diagnostics’ revenue projections are not available). Abbott, planning for a July launch in India is struggling to match the Rs. 250 per unit price. And, Lucira USA too is exploring the feasibility of bringing its, at the moment uncompetitively priced USD 50, one-time-use home testing kit to India. The anticipated third wave can only bear good news.

On the COVID-19 vaccines front, a string of nations across Africa and Asia, just months after receiving first shipments from Covax, the global program meant to equitably distribute the lifesaving shots have run out of the vaccines or are on the brink of doing do. Of 80 lower-income countries across the globe that have received vaccines through the effort, about 40 are out of doses and it’s unsure when donations from wealthy countries will arrive. This has serious implications, the emergence of a risk of new problematic variants could reignite infections and of course, of prolonging the pandemic.

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