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by EOS Intelligence EOS Intelligence No Comments

Chip Shortage Puts a Brake on Automotive Production

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The world is currently witnessing a semiconductor shortage and one of the worst-hit sectors is the automotive industry. A new vehicle uses an average of 1000-1500 microchips, making semiconductors an integral part of automobile manufacturing. Thus, the current shortage has resulted in a slowdown (and in some cases a halt) in production by several car manufacturers, especially of high-feature vehicles that require more chips. This has had a severe impact on auto manufacturers’ revenues in 2021, expecting to cost them close to US$200 billion this year. With no sight of recovery in the near future, the automobile sector must get creative with its supply chains and make some long-term changes in order to sustain production.

The automobile sector globally has been hit by the shortage of semiconductor chips, which are a key component in automobile manufacturing and are used for numerous features, such as fuel-pressure sensors, digital speedometers, and navigation displays.

The shortage stems from the increased demand for chips in the consumer electronics segment (such as laptops, phones, TV sets), which witnessed a spike in demand and sales during the early onset of the COVID-19 pandemic. This was coupled with a subdued demand for chips from the automobile segment during the same time as the environment was less favorable for new vehicle purchase.

Although the demand for automobiles quickly recovered in the second half of 2020, auto manufacturers had already withheld large chip orders due to sales uncertainty, and hence they could not secure a steady supply of chips to fulfill the recovered demand, as most foundries had already adjusted their production and increased their focus on catering to alternative industries.

Moreover, the nature of order contracts largely differs between the automobile and the consumer electronics sectors. The auto sector follows primarily the just-in-time manufacturing principle with focus on short-term orders and purchase commitments for chips. On the other hand, other sectors such as consumer electronics work with long-term orders, which in turn bind the suppliers that have switched production from auto sector chips to other chips. Furthermore, semiconductor players are happier with long-term binding contacts as such contracts provide them with more stability and facilitate better planning of their own supply chain.

The shortage was further aggravated by a storm in Texas in February 2021 that halted production in two of the world’s largest semiconductor factories and a subsequent fire in one of the largest semiconductor factories in Tokyo in March 2021.

Chip Shortage Puts a Brake on Auto Production by EOS Intelligence

Chip Shortage Puts a Brake on Auto Production by EOS Intelligence

Given these factors, the supply has tightened, forcing several automotive companies to curtail their production levels, which in turn has significantly affected their revenue. To give just a few examples, General Motors saw a 30% dip in sales in 2021 while Ford expected its 2021 earnings to be affected to the tune of US$2.5 billion.

Moreover, there is no short-term sight of respite. On an average, the lead time for chip production is anywhere between four to six months, with setting up new production lines or switching foundries taking even longer (six to twelve months). Further, switching to a new manufacturer may even take longer than 12 months in case new design or licensing requirements need to be met.

To counter this problem in the short run, auto manufacturers are reducing the number of features they offer and are focusing on fewer high-feature models. For instance, Japan-based Nissan is now omitting the navigation system in several of its models. Similarly, Renault has stopped adding a large digital screen behind the steering wheel, while BMW announced that it will remove touchscreen functionality from the Central Information Display in several models. However, these are short-term measures and not ideal for premium car segment as they may impact brand reputation.

Thus, given the circumstances, auto companies have to be innovative with their supply chains to solve this problem in the long run. They also need to ensure that they do not land in a similar situation in the future.

Traditionally, most auto manufacturers deal with only one key supplier (known as tier 1 supplier), who in turn sources all parts from specific component suppliers, including semiconductors from foundries. While this was convenient for the auto manufacturers, this resulted in lack of transparency across the supply chain. Moreover, this meant that the manufacturers did not have direct relations with foundries to ensure smooth supply.

However, in the face of the unfolding shortage, several leading players, such as BMW, Mercedes, and Volkswagen, started building strategic relations with chip manufacturers to get better and direct access to supply lines for semiconductors. In December 2021, BMW signed an agreement with German-based Inova Semiconductors and US-based GlobalFoundries to lock in a steady chip supply for their cars. Similarly, Ford also entered into a strategic collaboration with GlobalFoundries to purchase directly from the chipmaker. Furthermore, in November 2021, General Motors entered into an agreement with Foxconn Technology Group to co-develop chips that can be used in its vehicles.

Additionally, the auto sector is also moving away from the widely followed just-in-time model that facilitated lean inventory and pushed up profits. Companies are now keener to secure long-term non-disrupted supply of chips and are willing to enter into long-term contracts ranging 2 to 3 years.

Apart from this, car manufacturers are also looking at altering designs to limit the number of chips needed. Currently, most chips needed by the auto sector are large and outdated compared with those used for smart phones and other gadgets. Most foundries are now producing new generation microchips for these devices and do not want to switch back to old chips used in cars as investing in old technology is much less lucrative for them.

For this reason, auto manufacturers are considering revamping their chip designs, however, this comes with its own set of limitations. Automobiles need to undergo a host of certifications and safety testing to ensure road readiness. Any changes in designs regarding features such as cruise control, navigation, etc., would require the vehicles to get re-certified and clear safety testing again across all geographic markets, which has significant cost and lead time attached to it. Moreover, a complete overhaul in the chip board would require large amount of investment as it would impact the overall mechanical design of the vehicle.

However, several companies have already started working on this. In late 2021, General Motors announced that it is working with chip suppliers, Qualcomm, STM, TSMC, Renesas, NXP, Infineon, and ON Semi to develop a new set of microcontrollers that will consolidate many functions handled by individual chips and reduce the number of chips required by 95% for all future vehicles.

In the long run, it is expected that several auto companies will work on updating their chips as foundries refuse to downgrade the chips they produce. Moreover, while it will be costly and cumbersome in the beginning, it will be beneficial in the long run as companies will be less dependent on a number of chips, and instead work with a single chip overseeing multiple functions.

EOS Perspective

Chip shortage has significantly crippled the automotive sector stalling production in an unprecedented manner. It has also cost auto companies billions of dollars, while creating an inconvenience for users as car prices have risen significantly and customers have to wait for months, if not more, for their new cars.

But this shortage has also been a learning opportunity for the automobile sector, which is now working on restructuring its supply chain to reduce reliance on one key supplier. The industry is also placing more emphasis on supply chain visibility to ensure that a similar shortage does not occur in the future. This will mean a real-time insight not just into the key suppliers, but also further into their vendors, i.e. individual part suppliers. This is likely to bring the use of technologies such as IoT and AI to automotive supply chain monitoring in a more prominent manner.

The chip shortage is also likely to result in vehicle design upgradation by several leading manufacturers, so that the new upgraded chips can be used. This upgradation in design to incorporate new chips has been long due, however, auto manufacturers were stalling it because of costs and cumbersome re-certification processes.

The current pressures resulting from the semiconductor and chip shortage, are likely to bring a deep overhaul in the automotive sector, with companies and suppliers willing to invest in supply chain and design-based creative solutions, striving to gain a long-term competitive edge amid the new and challenging environment.

by EOS Intelligence EOS Intelligence No Comments

China’s BRI Hits a Road Bump as Global Economies Partner to Challenge It

In 2013, China launched its infamous Belt and Road Initiative (BRI), which has gone about developing several infrastructure projects across developing and underdeveloped countries across the globe. However, BRI has faced significant criticism as it brought heavy debt for several countries that are unable to pay the loans. Moreover, it is believed that China exercises significant political influence on these countries, thereby building a sort of dominance across the globe. To counter this, several developed economies have come together to launch alternative projects and partnerships that facilitate the development of infrastructure across developing/underdeveloped countries without exerting significant financial and political bindings on them. However, the main aim of these deals seems to be to keep a check on China’s growing might across the Asian and African continent.

Read our previous related Perspectives: OBOR – What’s in Store for Multinational Companies? and China’s Investments in Africa Pave Way for Its Dominance

China’s BRI program has signed and undertaken several projects since its inception in 2013. As per a 2020 database by Refinitiv (a global provider of market data and infrastructure), the BRI has signed agreements with about 100 countries on projects ranging from railways, ports, highways, to other infrastructure projects and has about 2,600 projects under its belt with an estimated value of US$3.7 billion. This highlights the vast reach and influence of China under this project and its growing financial and political power across the globe.

China’s BRI – looked as a debt trap

Over the years, BRI initiative has been criticized for being a debt-trap for developing and underdeveloped nations, by imposing heavy debt through expansive projects over the host countries, the non-payment of which may lead to significant economic and political burden on them. While the USA, the EU, India, and Japan have been some of the most vocal critics of the BRI program, several participating countries now voice a similar message as they have enveloped in high debt under these projects.

In one such example, the Sri Lankan Hambantota Port was built under the BRI scheme by China Harbor Engineering Company on a loan of nearly US$1.26 billion taken by Sri Lanka from China. The project was questioned for its commercial viability from the very beginning, however, given China’s close relationship with the Sri Lankan government, the project pushed through. As expected, the project was commercially unsuccessful, which along with unfavorable re-payment plan resulted in default by Sri Lanka. Thus, in 2017, the Chinese government eventually took charge of the port and its neighboring 15,000 acres region under a 99-year lease. This transfer has given China an intelligence, commercial, and strategic foothold in a critical water route.

In a similar case, Montenegro is also facing a difficult time repaying its debt to China for a highway project under BRI. In 2014, Montenegro contracted with China Road and Bridge Corporation (CRBC) for the construction of a highway to offer a better connection between Montenegro and Serbia. However, the feasibility of the project was questionable. The Montenegro government took a loan of US$1.59 billion (85% of the first phase of the project) from China Exim Bank at a 2% interest rate over the next 20 years. However, the project, which is being undertaken by Chinese companies and workers using Chinese materials, has faced unplanned difficulties in completion, has put significant financial pressure on the Montenegro government. This is likely to further degrade the country’s economy, delay its integration with the EU, and leave it vulnerable to Chinese political influence. While the EU has refused to finance the loan altogether, it is offering special grants and preferential loans to the country from the European Investment Bank to facilitate the completion of the highway.

Moreover, as per a 2018 report by Center for Global Development, eight BRI recipient countries – Djibouti, Kyrgyzstan, Laos, the Maldives, Mongolia, Montenegro, Pakistan, and Tajikistan – were at a high risk of debt distress due to BRI loans. These countries are likely to face rising debt-to-GDP ratios of more than 50%, of which at least 40% of external debt owed to China in association to BRI related projects.

Owing to the growing concern over increasing Chinese investment debt, several countries are now looking to reduce their exposure to Chinese investments and financing. In 2018, the Myanmar government, in an attempt to avoid falling deep into China’s debt-trap and becoming over-reliant on the country, scaled down China-Myanmar Kyaukpyu port project size from US$7.5 billion to US$1.3 billion.

Similarly, in 2018, the Malaysian government cancelled three BRI projects – the East Coast Rail Link (ECRL) and two gas pipelines, the Multi-Product Pipeline (MPP), and Trans-Sabah Gas Pipeline (TSGP) as these projects significantly inclined towards increasing the Malaysian debt to China to complete these projects.

China’s long-term ally, Pakistan, also opted out from China’s BRI in 2019, exposing some serious flaws with the project. In 2015, the two countries unveiled a US$62 billion flagship project under BRI, called the China-Pakistan Economic Corridor (CPEC). While it was started with an ambition to improve Pakistan’s infrastructure (especially with regards to energy), this deal resulted in severe debt woes for Pakistan as the nation started to face a balance-of-payment crisis. This in turn resulted in Pakistan turning to International Monetary Fund (IMF) for a three-year US$6.3 billion bailout package. Pakistani officials have even claimed that the CPEC project is equally (if not more) beneficial for China in terms of gaining a strategic advantage over India and by extension the USA. Thus, given its partial failure and increasing financial pressure on Pakistan, many ongoing projects under CPEC have been stalled or being rebooted in a slimmed-down manner.

Similarly, more recently, in April 2021, Australia scrapped off its deal it had with China under BRI, stating the deal to be over ambitious and inconsistent with Australia’s foreign policy.

Developed nations come together to offer alternatives

Given the push against BRI, several developed nations have come out with alternative infrastructure plans, either individually or in partnership with each other. The key purpose of this is to not only offer more viable options to developing and underdeveloped nations but also to keep a check on China’s growing global influence.

In one such move, in May 2015, Japan launched a ‘Partnership for Quality Infrastructure’ (PQI) plan, which came out as a direct competitor to China’s BRI. The PQI Japan (in collaboration with Asian Development Bank (ADB) and other organizations and countries) aimed at providing nearly US$110 billion for ‘quality infrastructure investment in Asia from 2016 to 2020. Although, on one side, this initiative is intended to secure new markets for Japanese businesses and strength export competitiveness to further bolster its economic growth, on the other side, politically PQI is a keen measure to counter China’s influence over its neighboring countries.

Just like Japan, India has also been a staunch critic of China’s BRI as it feels that the latter uses the BRI to expand its unilateral power in the Indo-Pacific region. Thus, to counter it, India, formed an alliance with Japan in November 2016, called ‘Asia-Africa Growth Corridor’ (AAGC).

The alliance aims at improving infrastructure and digital connectivity in Africa and connecting the continent with India and other Oceanic and South-East Asian countries through a sea passageway. This is expected to boost economic collaborations of India and Japan with African countries by enhancing the growth and interconnectedness between Asia and Africa.

The alliance claims to focus on providing a more affordable alternative to China’s BRI with a smaller carbon footprint, which has been another major concern in BRI project execution across Indo-Pacific region. The emphasis has been put on providing quality infrastructure while taking into account economic efficiency and durability, inclusiveness, safety and disaster-resilience, and sustainability. The countries do not have an obligation of hiring only Japanese/Indian companies for the infrastructure development projects and are open to the bids from the global infrastructure companies.

In more recent times, in May 2021, the EU and India have joined hands for a comprehensive infrastructure deal, called the ‘Connectivity Partnership’. This deal aims at strengthening cooperation on transport, energy, digital, and people-to-people contacts between India and the EU and developing countries in regions across Africa, Central Asia, and the Indo-Pacific region. Moreover, it aims at improving connectivity between the EU and India by undertaking infrastructure development projects across Europe, Asia, and Africa. It also focuses on providing a more reliable platform to the already ongoing projects between the EU and India’s private and public sectors.

While the two partners claim otherwise, the deal seems to be their collective answer to China’s BRI and its growing influence in the Asian, African, and European belt. Unlike BRI, the EU-India Connectivity Partnership aims to follow a clear rule-based approach to have greater involvement from the private sector with backend support from the public sector of both sides. This protects the host country against heavy debt and in turn restricts the level of political influence that both sides may have on the host country. This advantage over China’s infrastructure deal makes this project a serious competitor to the BRI in this region as host countries are most vary of falling into a debt-trap with China.

Another recent initiative to dethrone the BRI has been the ‘Build Back Better World’ (B3W), which has been undertaken by the Group of Seven (G7) countries in June 2021. This project, led by the USA, is focused on infrastructure development in low- and medium-income countries, and aims to accomplish infrastructure projects worth US$40 trillion in these countries by 2035. Further, the project is intended to mobilize private-sector capital in areas such as climate, health, digital technology along with gender equity and equality involving investments from financial institutions of the countries involved.

This project claims to be based on the principles of ‘transparency and inclusion’ and intends to cease China’s rising global influence (through BRI) as it aims to make B3W comparatively more value-driven, market-led, and a higher-standard infrastructure partnership for the host country. To ensure inclusivity and success of the project, the USA invited other countries such as India, Australia, South Korea, and South Africa to join the project. However, considering the nascent stage of the B3W development, the proceedings and details of the project are not explicitly clear, however, given that its intention is to help the USA compete with the BRI, it is expected to be well-funded, robust, and inclusive.

EOS Perspective

China’s BRI started on a very high note, garnering multi-billion-dollar infrastructure projects across a host of Asia, African, and European countries. However, over the last couple of years, increasing number of countries have become wary of its inherent problems, such as looming debt, increasing Chinese influence, and incompletion of projects. This has helped shift the momentum towards other developed countries that have for long wanted to counter China’s growing global influence. Using this opportunity, Japan, India, the EU, and the USA have come up with alternative infrastructure deals to compete with the BRI.

That being said, BRI will not be easy to shove aside as China has been in this game for several years now and has a significant time advantage. While countries such as India can try to compete, they do not have the financial might to take up projects that are strategically important and commercially viable.

Further, several of the alternative projects, such as India-EU Connectivity Partnership and G7 B3W aim to significantly involve the private sector for investments. While this is good news for the host countries where the project will be undertaken, private players will definitely be more concerned about financial viability of their investment and may not be able to match the BRI investment values, debt rates, etc. Moreover, geographic location puts China in an advantage for projects in the Asian region (when compared with the USA and the EU).

Therefore, while the attempt to dethrone China’s BRI has gained significant momentum and found proper backing, it is something that cannot happen in the short term. However, given the growing anti-China sentiment, it can be expected that with the right partnerships and project terms, BRI may start facing some serious competition from global powers across the globe.

by EOS Intelligence EOS Intelligence No Comments

Diagnostics Gain Spotlight amid Coronavirus Outbreak

It took 60 days for global COVID-19 infections to reach 100,000, but this figure doubled in the following 12-14 days, and the addition of next 100,000 cases took only 3 more days. Because of highly contagious nature of the novel coronavirus, testing became essential to keep the epidemic under control. As a result, there was a spike in global demand for coronavirus testing kits. As per McKinsey’s estimates, in May 2020, global demand for coronavirus testing was 14 million to 16 million per week, but less than 10 million tests were being conducted.

Industry was quick to respond to the rise in demand

The widespread outbreak of coronavirus required the manufacturers to develop and launch new testing kits in large volumes in a short duration of time. Diagnostics kit suppliers responded promptly to this spike in demand by developing new coronavirus testing kits. Roche Diagnostics, for instance, developed coronavirus test in about six weeks – such diagnostic tests generally take 18 months or more to reach regulatory review stage. In 2020, Roche developed a total of 15 solutions for coronavirus diagnosis.

Governments across the world eased up regulatory procedures for manufacturers in order to allow rapid development and commercialization of the coronavirus testing kits. This paved way for many companies to quickly launch new products to the market. For instance, a Korean firm, Seegene, developed coronavirus testing kit in two weeks and got approval from Korea Centers for Disease Control and Prevention (KCDC) in another two weeks’ time. Such approvals generally take more than six months in Korea.

Furthermore, standard regulatory process for approval of diagnostic kits in the USA typically take several months, but considering the public health emergency in the event of pandemic, the FDA issued emergency use authorizations to expedite the process of bringing coronavirus test kits to the market. Emergency use authorizations are like interim approvals provided on the basis of sufficient evidence to suggest a diagnostics test is effective and the benefits outweighs potential risks.

By the end of 2020, the FDA granted emergency use authorization to 225 diagnostic tests for coronavirus detection, including test kits developed by Abbott Laboratories, Roche, Cepheid, Clinomics, Princeton BioMeditech, UPenn, Inno Diagnostics, Ipsum Diagnostics, Co-Diagnostics, QIAGEN, DiaSorin, BioMérieux, and Humanigen.

Leading companies with adequate resources quickly ramped up their production capacity by multifold in line with the rising demand. For instance, a US-based firm, Thermo Fisher Scientific, increased the global production of coronavirus test kits from 50,000 per week in January 2020 to 10 million per week by June 2020. In 2020, Roche spent CHF 137 million (~US$149 million) to ramp up production capacity and supply chain for all COVID-19-related testing products.

Some companies also received government grants and private investment to scale up their production capacity. For instance, in July 2020, BD (Becton, Dickinson and Company) received a US$24 million investment from the US government to scale up production of coronavirus test kits by 50%, thereby, enabling the company to produce 12 million test kits per month by the end of February 2021.

The pandemic encouraged the shift towards decentralizing diagnostics

While the test kit manufacturers were trying to achieve round the clock production to meet the demand, they struggled with global supply chain disruptions which were also induced by the pandemic.

Coronavirus testing requires several components including specialized chemicals and laboratory testing equipment. Roche, for example, manufactures coronavirus tests in the USA but procures components of the test kit from different countries. One of the important components of test kits is reagent, a specialized liquid used for the identification of coronavirus. Roche produces these reagents mainly in Germany and few other production sites located across the world.

Further, the test kits are often compatible only with company’s own testing equipment and systems. For instance, the Roche cobas SARS-CoV-2 test kit runs on the cobas 6800 or 8800 systems. The cobas 8800 system includes approximately 23,000 components which are procured from different parts of the world. In addition to this, the production involves 101 sub-assemblies and accumulated assembly time of about 450 hours each. Final production of these instruments from Roche takes place in Switzerland.

Manufacturing of a coronavirus testing kit involves complex supply chain. Spread of coronavirus forced countries to implement extreme measures including lockdowns and trade restrictions which impacted the supply chain of test kit manufacturers. Producing all the testing components and equipment at one place is near to impossible. For instance, the production of reagents involves highly sophisticated and sensitive processes, and thus, setting up a new production site to manufacture reagents on a large scale would take several months. Setting up a new production site and streamlining the procurement for such testing equipment and systems would take several years. Hence, the diagnostics firms upped their R&D activities in an effort to develop tests that could be conducted without sophisticated laboratory systems and equipment.

Moreover, the high demand for testing compelled the diagnostics practices to evolve far beyond the traditional laboratory-based business model. The need for community testing during the pandemic that challenged the operational capabilities of hospitals and diagnostics labs dictated the importance of decentralizing diagnostics for improved patient care. This gave rise to increased demand for point-of-care testing.

The two most widely used diagnostic tests for coronavirus detection are Reverse Transcription Polymerase Chain Reaction (RT-PCR) and Antigen tests. RT-PCR test detect viral RNA in samples from the upper and lower respiratory tract, while antigen test is used to detect viral proteins in samples.

RT-PCR test is considered gold standard for coronavirus detection since the accuracy and reliability is high compared to Antigen test. However, RT-PCR test needs to be processed in a laboratory-setting and had turnaround time of several hours. Hence, there was a need for development of RT-PCR tests that could give faster results without the support of laboratory equipment.

On March 18, 2020, Abbott announced the launch of their first coronavirus test kit that was compatible with their system ‘m2000 RealTime’ which processed 470 tests in 24 hours and another ‘Alinity m’ system with capacity to run 1,080 tests in a 24-hour period. Since there was demand for more portable and fast testing solution, on March 30, 2020, Abbott launched a RT-PCR point-of-care test that ran on ID NOW system, which is the size of a small toaster. The test delivers results in 13 minutes or less. The test price is in the range of ~US$100.

Further, despite the limitations of accuracy and reliability, in some cases antigen test is preferred because there is no requirement of a lab specialist to conduct this test, thus making it less expensive, and the result is available in a few minutes. The industry saw an opportunity here and quickly developed rapid antigen tests that can be conducted at home without any assistance. For instance, in December 2020, the US FDA granted emergency use authorization to an Australia-based firm Ellume’s antigen test (priced at ~US$30) as first over-the-counter at-home diagnostic test for coronavirus detection. Soon after, Abbott also received emergency use authorization from FDA for its at-home rapid antigen test (priced at US$25) giving results in 15 minutes.

Other countries around the world also followed the suit by extending official authorization to the home-based tests for coronavirus detection. For instance, in February 2021, Germany’s Federal Institute for Drugs and Medical Devices (BfArM) granted special approval for the first time to antigen home-test kits developed by US-based Healgen Scientific as well as China-based firms Xiamen Boson Biotech and Hangzhou Laihe Biotech.

Diagnostics Gain Spotlight amidst Coronavirus Outbreak by EOS Intelligence

Coronavirus crisis accelerated innovation in the field of diagnostics

In a united fight against the pandemic, governments, private sector, as well as NGOs and philanthropists across the world stepped forward to raise funds to bolster R&D efforts in coronavirus diagnostics. As per data compiled by Policy Cures Research (an Australian firm engaged in global health R&D data collection and analysis), from January 2020 to September 2020, funds worth over US$800 million were committed for coronavirus diagnostics R&D. The firm also indicated that 450+ coronavirus diagnostics products were in R&D pipeline since January 2020 to December 2020.

With firms looking to capitalize on exponentially rising demand for coronavirus testing, the development of new diagnostics technologies beyond conventionally used tests (i.e., RT-PCR and antigen tests) picked up significantly.

For instance, in May 2020, the FDA granted an emergency use authorization to first ever CRISPR-based rapid test kit developed by Sherlock Biosciences. CRISPR, an acronym for Clustered Regularly Interspaced Short Palindromic Repeats, is a gene editing technology which allows to alter the DNA. Sherlock’s rapid test is a paper-strip test (like a pregnancy test) which can be conducted at point-of-care and does not require any additional equipment for processing of the test. The test works by programming a CRISPR enzyme to release a detectable signal in presence of genetic signature for coronavirus.

In March 2020, US-based Surgisphere launched a smartphone app using Artificial Intelligence algorithms to detect coronavirus infection. This app confirms diagnosis by integrating the findings of chest CT scan and laboratory tests with clinical symptoms and exposure history. Preliminary studies found that the tool can detect coronavirus infection with 95.5% accuracy.

Further, application of nanotechnology for diagnosis of coronavirus infection is also underway. Canada-based Sona Nanotech developed a rapid antigen test using gold nanoparticles. This is a strip test that can be conducted at point-of-care and gives result in 15 minutes. Research is in progress to develop wearable sensors using nanoparticles for detection of coronavirus. In January 2021, University of California San Diego received US$1.3 million from the National Institutes of Health to develop a test strip containing nanoparticle that change color in presence of coronavirus. This test strip can be attached on a mask and used to detect coronavirus in a user’s breath or saliva.

Innovation wave was not limited to development of different types of tests but also expanded to consumables. For instance, in March 2020, HP (a company manufacturing 3D printers) teamed up with Beth Israel Deaconess Medical Center (a teaching hospital of Harvard Medical School) to develop 3D printed nasopharyngeal swab (typically used to collect sample for coronavirus testing) and within 35 days the clinically validated swab was ready for use. By May 2020, these swabs were commercially available for the US market following the FDA approval. In June 2020, a Belgium-based 3D printing service provider, ZiggZagg, began to plan large-scale production of swabs on their fleet of HP 3D printers. By October 2020, the company had 3D-printed over 700,000 swabs for the Belgian market.

EOS Perspective

A market research firm, The Business Research Company, estimated that the global COVID-19 rapid test kits market was expected to reach a value of US$14.94 billion in 2020. Due to worldwide vaccination drive, the market is expected to decline at a rate of -54.9%, to reach US$1.37 billion in 2023.

Though the demand for coronavirus tests is expected to diminish eventually, it has supported rapid development of diagnostics infrastructure which will remain. In India, for example, only one laboratory was performing molecular assays for COVID-19 in January 2020. The COVID-19 pandemic has shifted that balance. By May 2020, some 600 Indian RT-PCR laboratories had been set up in an effort to help manage the pandemic, thousand-fold increasing testing capacity. The additional capacity will likely remain in place as the pandemic subsides, leaving the RT-PCR assay as the dominant method for diagnosing most viral infections in India in the future.

Furthermore, with surge in demand for the coronavirus testing, the provision of diagnostic services expanded beyond the purview of hospitals and laboratories. Mobile testing facilities and drive-through testing sites propped up with development of point-of-care diagnostics. For instance, Walgreens, one of the largest pharmacy chains in the USA, offer coronavirus drive-thru testing at 6,000+ locations across the country. Further, there is high-demand for home-based testing.

Diagnostics firms riding high on the COVID-19 gains have been actively scouting opportunities to strengthen their positioning in the market and prepare for the post-pandemic world. High demand for COVID-19 test kits boosted the revenues of diagnostic companies, with Roche, Thermo Fisher, PerkinElmer, Hologic, and DiaSorin among the companies benefiting. With strong balance sheet, these companies went on with M&A flurry to advance their diagnostic portfolio and other core business verticals.

As the virus originated in China, the country was better prepared and first to develop relevant detection mechanisms. By the time the virus spread to the other parts of the world, Chinese companies were ready to export detection kits globally. Coronavirus outbreak helped China to penetrate major markets such as EU and the USA in which the indigenous diagnostics companies traditionally had a stronger hold. China was a net importer of diagnostic reagents and test kits in 2019. But in 2020, after the outbreak of coronavirus, China ramped up its production capacity of diagnostic reagents and test kits, and as a result its export growth increased by more than 500% and the country became a net exporter of diagnostic reagents and test kits by the end of 2020.

This indicates that the outbreak of the pandemic has shifted the market dynamics on many fronts. As the pandemic slowly subsides, some of these shifts might partially revert, however, the way testing is performed is likely to remain.

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