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Broke even in Q2, but recovery of non-COVID portfolios has been rapid in Q3: Anand K

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Anand K, CEO, SRL Diagnostics narrates how COVID-19 impacted revenues but he is optimistic that their FY 20-21 revenues will be similar to last year. In an interaction with Viveka Roychowdhury, he makes the case for a more reasonable price for RT-PCT test kits, given the associated costs and suggests that the government should look at making some of the inputs like kits and reagents tax-free, as currently these inputs have tax components that are very high (as high as 18 per cent)

Expanding on his strategy for market share improvement, he believes competition from hospitals entering the diagnostics segment is good as it will increase the pie of the organised diagnostics segment and more people will start valuing quality over price. 

Looking at future trends, he highlights digital pathology, the increasing use of AI especially in fields like tissue diagnostics, genetic testing and increased home testing, with the ‘Diagnostics of the Future’ to be built on smarter, safer and sustainable lab setups, driven by design thinking and smart technology. 

Anand opines that the COVID-19 pandemic has taught all diagnostics players that for future laboratories to deliver on quality care, genuine collaboration is key. They will thus have to join forces in healthcare networks and collaborate with other healthcare providers in order to fulfil their role as a care partner in a patient’s health journey.  And to do this, labs will have to also focus on their healthcare workers’ well-being and investments on training and development of human capital.

How has the COVID-19 pandemic impacted the revenues of diagnostic companies like SRL Diagnostics? Some players have reported a recovery in non-COVID portfolios which will set off the lower margins on the COVID-19 tests? Is this true for SRL Diagnostics? What is the estimated impact on FY21?

A lot has happened in the diagnostic industry ever since the lockdown started in the country in mid-March. There has been a massive decline in the B2C business with a significantly lower footfall of walk-ins during the lockdown. This was only aggravated further with the restriction on the interstate and intrastate movement, giving rise to logistical challenges to move samples around. Restrictions on OPD services and elective surgeries at hospitals and clinic, majorly affected our B2B business in Q1.

But, in Q2 we were able to breakeven and regain momentum with the unlocking of the economy. 90 per cent of our business has been recovered from the severe blow dealt by the coronavirus pandemic and with our current strategy focused on expansion, we plan to recover our growth – that was lost in Q1 – in the coming quarters. With that said, the recovery of non-COVID portfolios has been rapid in Q3 though not enough to cover for the higher costs of COVID testing.

There is a rising challenge of keeping our healthcare workers on the forefront safe from falling victim to this virus. Besides in COVID testing, there are other associated costs like the cost of sample collection, logistics, biomedical waste management, staffing costs, sample archival and storage cost, quality controls, equipment CAPEX and maintenance, backup systems to maintain TAT requirements, data entry and 24X7 operational cost which are usually not factored in when the government decides to bring down the test cost.

With government regulations and directives changing constantly it is difficult to predict the impact on FY 21. Yet, we are optimistic that our FY 20-21 revenues will be similar to last year, and FY 21-22 will not be impacted by the COVID crisis.

What are your comments and expectations from the government in terms of policies on price caps on COVID-19 tests, etc?

We understand the government’s prerogative to make test cost affordable for all so that there are no excess or unreasonable profit made by anyone in the whole value chain. In fact, with that in mind, ICMR did fix the initial price for RT PCR test across the country, and this was done after government labs including NIV had a few weeks of experience of conducting these tests themselves.

However, as the availability of kits improved and PPE and mask costs came down, the state governments revised the price and brought it down considerably. However, the prices were revised multiple times and sometimes without realising that there are associated costs like the cost of sample collection, logistics, biomedical waste management, staffing costs, sample archival and storage cost, quality controls, equipment CAPEX and maintenance, backup systems to maintain TAT requirements, data entry and 24X7 operational cost. So, in summary, a new and lower price should be fixed by the government which has to be reasonable.

Additionally, the government should look at making some of the inputs like kits and reagents tax-free, currently, these inputs have tax components that are very high (as high as 18 per cent).

You have recently joined SRL Diagnostics. What changes will you bring to the strategy of the company, given the disruptions that the pandemic has created?

Healthcare industry is going through a sea of changes due to the pandemic, across the world. As the crisis has unfolded, we have seen health care being delivered in locations that were previously reserved for other uses. Schools, hotels and dormitories have become hospitals. Parking lots have become diagnostic testing centres. And then there are mobile fever clinics that are being launched for door-to-door surveillance.

While schools, parking lots, and hotels will undoubtedly return to their prior uses after this crisis passes, there are several changes that have the potential to alter the ongoing and routine practice of medicine. Across the world, lockdown brought cancellations of elective surgeries, replacement of face-to-face visits to healthcare professionals with remote consultations, as a result, there was a trend moving drastically toward digital, and with that, we are also seeing a trend where online bookings are increasing and thereby bringing diagnostics to home. There has been a steady growth in this segment as home collection has become the preferred mode for tier 1 cities, post the pandemic, and will foresee this to continue even post-COVID. We will continue to invest in digital technologies to make sure that the customer experience is not compromised.

The recent pandemic has also increased both the awareness and capacity of RT-PCR technology across the country. We have expanded our capacity for COVID testing manifold, with RT-PCR labs and centres opening across Delhi, Mumbai, Kolkata, Bengaluru, Chennai and Hyderabad.

While routine blood tests will remain the mainstay of the overall industry, there is a definitive trend towards genetic testing. At SRL, we have strong capabilities in Next Generation Diagnostics and along with that, we are also focusing on new technologies such as AI and data analytics to help us improve testing. We are currently working with Microsoft on artificial intelligence to develop algorithms for two fields namely histopathology and cytogenetics. This would assist pathologists to reduce subjectivity in their results and increase the speed of response.

Additionally, in the coming months, we will continue our journey towards market share improvement in the geographies that we operate through the consolidation of organic growth and also evaluate inorganic growth opportunities as they arise.

Many hospital chains are entering the diagnostics /path lab space to diversify their revenue streams, expand reach as well as offer more service touchpoints to patients. How will this impact pure-play diagnostics players like SRL Diagnostics?

With key healthcare brands entering the diagnostics industry, it only affirms our belief in the opportunities that lie ahead of us. No doubt that these companies are able to see the diagnostics segment as a lucrative segment with health insurance coverage projected to grow coupled with an increase in India’s ageing population and a prevalence of lifestyle disorders.

With the entrance of these players, we see the pie of organised sector going up. Currently, the organised sector contributes to barely 17-18 per cent of the overall revenue for the industry. This will be definitely good for the industry as more and more people will start valuing quality over price. The lack of awareness regarding accreditations and quality consciousness within the industry is presently a serious concern.

How is SRL Diagnostics training its staff to follow standardised testing protocols and procedures, especially during the pandemic?

Our testing labs in Gurgaon and Mumbai are NABL and CAP-accredited and run by highly professional, qualified and experienced doctors. We are undertaking continuous training of our staff relating to the use of personal protective equipment, sample collection, disposal and ensure accurate testing, the safety of patients and employees.

We’ve implemented safety precautions to induce confidence and provide comfort to our patients. Our phlebotomists are trained on how to collect a nasopharyngeal sample and transport the sample without compromising on the sample integrity. They are trained on how to pack samples in triple layer packing and carry these samples in VTM under temperature-controlled conditions, ensuring no chance of spreading infection. Besides this, there are also soft skill trainings provide to our front office staff and customer service staff on how to handle patient queries.

How has the company supported its frontline staff and their families as they collect and test samples which could also infect them?

As the pandemic started to expand its tentacles in India, we began to prepare ourselves both from an operational readiness standpoint as well as to ensure the safety and well-being of our employees. There was a general wave of fear and anxiety amongst most of them and as a first reaction to the situation, a few of them even decided to quit. This was a natural response and we understood that unprecedented times like these can induce anxiety and raise the stress levels of a person.

As an employer, the onus was on us to channel these emotions to keep our employees safe, motivated, and at the same time productive. We counselled them about their role and initiated open dialogues on how we could support them. Taking into consideration the various risks associated with the collection, we took measures to provide accommodations, food facility, pick and drop facility, increased insurance cover to on-ground teams and their families, cash incentives along with rigorous training to ensure safety and precautions while collecting samples.

We also do frequent health checks of our employees and through constant communication and seminars, we make sure that our frontline staff stays motivated throughout. While there was a panic situation, in the beginning, today our people stand confident in the face of the pandemic.

What are the data protection protocols that are being followed as there have been recent cases where patient test reports were found to have been stored in an unsecured manner? 

People, Process and Technology are together the key to achieve data protection. While the technical controls consist of applications, infrastructure and security, but to ensure that it’s all done logically, and in the right way – the first step is to understand all the categories of data you hold and all the sensitivities associated with them. Being in healthcare our people understand the importance and sensitivities associated with our data, hence we have developed policies and processes keeping those in mind. Our employees are regularly trained and updated on new technologies.

At SRL, security is one of our cultural aspects. There are various mailers and communication sent periodically to employees to educate them on security aspects. We are ISO-27001:2020 certified which is the leading ISO standard in information security. This means we have strict policy and procedures in place to ensure data protection.

As a part of our ISO certification, we also undertake frequent vulnerability assessments to keep track of our systems and updates. Our organisation maintains patient records, and we make them accessible to our patients through our website and mobile app. At any given point, our patients can access their reports through a secured login. The mediums are protected by a password with a higher degree of complexity to secure patient-data and information. We use encryption technology to secure the patient data From the time a patient’s appointment is booked to the time, he finally receives his report – the entire value chain is connected through a seamless digital experience – across all stages pre-analytical, analytical and post-analytical. Our system does not just work well in our own lab, but even in a hospital setup works in the background (back office) to support the hospital’s front-end system.

To achieve that balance of people, policies and processes, and then achieve the right level of sophistication at the application, an infrastructure and security level takes work. For us like any other organisation Information security is a continuous process and we keep adopting new technology as we move forward, ensuring complete protection for our patients.

How has the role of the diagnostics sector evolved over your many years as a veteran of this space? Looking ahead, which are the segments that have promise?  

With the pandemic, the segment is coming out of the shadows and is becoming more prominent amongst the overall healthcare industry. The market has been growing over the past five years and is witnessing various trends at the testing level, market level, and at the consumer level.

Currently, there is a trend moving drastically toward digital, and with that, we are also seeing a trend where online bookings are increasing and thereby bringing diagnostics to home. As a result, our home collection is growing at a rapid rate. There has been a 70 per cent growth in this segment as home collection has become the preferred mode for tier 1 cities, post the pandemic, and we foresee this to continue even post-COVID.

All this shows that slowly but surely, diagnostics is going digital. Digitalisation in diagnostics is also transforming the job of pathologists into a more creative and data-driven one while it is allowing patients to receive diagnoses faster and with higher accuracy. Many of the recent innovations in diagnostics, from pre-analytical automation to automated modular systems in the analytical phase to use of cloud and smart reports in the post-analytical phase, are aimed at reducing turnaround times and laboratory errors.

In the tissue diagnostics space, digital pathology is the biggest revolution in the making. And we at SRL can truly make a difference in this segment. We are constantly evolving and investing in technology and AI. An AI system can reduce the subjectivity to screening digital pathology slides and can also link up to a Big Data system to find out references to similar cases reported in any part of the world. Therefore, in continuation with our transformative efforts in the field of Artificial Intelligence in pathology, we launched the second phase of our AI solution development engagement with Microsoft Global.

While the phase 1 focused on AI models in cytology and yielded an algorithm for screening of liquid-based cytology slides for cervical cancer, the second phase will delve into AI models in histopathology, majorly focusing on breast, colorectal, and prostate cancers. As a part of this engagement, our senior histopathologists will not only lead and set processes for the AI algorithm development but will also provide research insights required for the digitalisation of pathology in India. This is truly one the ‘firsts’ in our industry and SRL is the pioneer in the category. Digital pathology is set to become the key tool to address healthcare challenges.

At SRL, we will utilise our people and technological resources to sustain our leadership in the reference laboratory segment with a focus on Next Generation Diagnostics. Genomic testing has ushered in a new period in medicine triggering a medical revolution that is evidence-based whereby medicine is personalised, predictive, preventive, and participatory, which is rooted in the human genome project thus impacting current clinical practice. SRL has always been having strong Molecular Diagnostics capabilities, yet, for the last few years, our pie in the overall Genomics market is not proportional to our capacity and repute. We will continue our journey towards market share improvement in the geographies that we operate through the consolidation of organic growth and also evaluate inorganic growth opportunities as they arise.

How can diagnostics players future proof their business strategies against disruptions like pandemics, increasing competition, a commoditisation of the diagnostics space as well as the shifting regulatory landscape? 

Crisis comes un-announced, and COVID-19 crisis in particular is the one that medical fraternity had never experienced before and hence lacked the resources and skills especially in the first few months of the pandemic. Many diagnostics players suffered from shrinkage of manpower as healthcare workers were affected, quarantined or terrified to attend work and essential supply chains were disrupted due to the lockdown. Protocols on process, testing strategy, and pricing kept changing which further complicated on how to handle a COVID-19 patient. The diagnostics players of the future will take all the learning from the ClOVID-19 as they move forward.

The ‘Diagnostics of the Future’ is envisioned to be built on smarter, safer and sustainable lab setups which will be driven by design thinking and smart technology to meet the most pressing challenges. The laboratories of future will have to adopt smart integration technologies, find new ways to meet the changing demand for healthcare services, use data science and analytics to provide trends and longitudinal reports, focus on quality and provide personalised care. The pandemic has fuelled Clinical Lab 2.0 model that is set to redefine the role of lab in the care continuum, aligning with the future of value-based healthcare. Even though the pandemic took us by surprise, many business leaders have seen first-hand the possibilities presented by digital transformation through technology and business process re-engineering. Those diagnostics players that will thrive will have balanced their short-term needs with longer-term planning consideration and will be building the acquired resilience early.

The pandemic has taught all diagnostics players that for future laboratories to deliver on quality care, genuine collaboration is key. Hence, diagnostics players of future will have to join forces in healthcare networks and collaborate with other healthcare providers in order to fulfil their role as a care partner in a patient’s health journey. For laboratories to take on their future role, another essential aspect will be to focus on their healthcare workers’ well-being and investments on training and development of human capital.

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