8 June 2020

COVID-19: Opportunities in the Asian diagnostics sector

Andrew Huntley

While there has been broad discussion on how businesses and markets have responded to the coronavirus outbreak and how they will adapt to a post COVID-19 world, arguably, no industry has received as much attention as clinical diagnostics. With the heightened focus on testing, terms such as antibody test and nasopharyngeal swap have jumped from medical journals to the front pages of newspapers the world over.

Thanks to previous experience with SARS, Asian IVD companies in many cases have led innovation in combating SARS-CoV-2. Regulators worldwide are closely studying the rapid response and mobilization of testing resources seen in China and Korea at the outset of the pandemic. However, even with the situation stabilizing in East Asia, companies in the region continue to innovate – developing more rapid point-of-care tests and antibody testing platforms, not to mention the urgent research into a possible vaccine being led by companies like CanSino and Shenzhen Geno-immune in China, Bharat Biotech in India, SK Biopharma in South Korea, and Takeda in Japan, to name only a few examples.

While the response to the pandemic has lifted the valuations of diagnostic tools and technologies companies globally, Asian companies have been trading, on average, at over 30x trailing EBITDA, led primarily by premium valuations achieved by Chinese diagnostic tools companies. We expect the spike in valuations will create opportunities in the space and accelerate consolidation efforts in the region, especially in China where the IVD market is less concentrated and the rise of import substitution in the diagnostic products space has attracted increased investment from both healthcare companies and firms in other industries looking to capitalize on the trend.

While year-to-date M&A activity has been muted across all industries, BDA and our partners William Blair continue to participate in deal activity in the diagnostics space, including the recently announced sale of FountainVest’s stake in Chinese IVD business Shanghai Kehua Bio-engineering in China and the sales of Stratos Genomics to Roche and of Exalenz to Meridian Biosciences in the US and Israel, respectively. We have also seen significant capital markets activity in the diagnostic tools and technology space so far this year.

In many ways, the coronavirus pandemic has accelerated a growth trend already taking place in Asia. Thanks to a focus on preventative care to reduce healthcare costs and the increasing prevalence of diagnostic testing, the Asian IVD industry had been poised to achieve double-digit growth over the next five years, even before the first cases of COVID-19 were reported.

While it could be argued that the impact from COVID-19 on the diagnostics space will be short-term, BDA has seen an interesting dynamic emerge where demand for more routine test kits, such as flu tests, have fallen due to COVID-19. We expect this will be temporary and not dampen mid-term demand. If anything, the pandemic has triggered increased spending on development that will spur further innovation for years to come.

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Contact BDA healthcare team

  • Andrew Huntley, Senior Managing Director, Asia/Europe: ahuntley@bdapartners.com
  • Lei Gong, Managing Director, Shanghai: lgong@bdapartners.com
  • Kumar Mahtani, Managing Director, Mumbai: kmahtani@bdapartners.com
  • Peter Moreno, Vice President, New York: pmoreno@bdapartners.com

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