China’s medical testing sector scales down with pandemic peak in rear-view

In the last year, Henry Zhu has had to say goodbye to dozens of colleagues.

His employer, an independent clinical laboratory in Shanghai, has drastically scaled down its workforce as a Covid-induced boom has waned and demand for testing services has plummeted.

The lab's current team is just a third of what it was in the pandemic peak, and pay for certain diagnostics – particularly the polymerase chain reaction tests which became an inescapable part of life for Chinese people during the pandemic – has shrunk by the same level.

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“[We had] one product that was selling like hot cakes, and now it’s all passed,” said Zhu, a senior sales manager who has been less affected than his former coworkers.

While similar ups and downs could be observed in the global diagnostics market, the past few years have been a much more tumultuous affair for players in China – a country which devoted more resources than any other to near-universal testing protocols as part of its zero-Covid policy.

China’s diagnostics companies – mostly small in size and controlling only half the share of the domestic market – thrived in recent years but are now reporting huge declines in revenue and profit, according to annual reports released in the last month.

KingMed Diagnostics, a major clinical laboratory, reported a drop of 76 per cent in net profit and 45 per cent in revenue last year from 2022, while its employee headcount was reduced by 20 per cent.

Over the same period, industry leader Dian Diagnostic saw its net profit plunge by 78 per cent and revenue drop by about a third, with the size of staff shrinking by about 17 per cent.

More specialised firms have seen even steeper declines, with nucleic acid detection reagent providers such as Daan Gene and Sansure reporting precipitous drops in both revenue and profit, over 90 per cent for the former and over 80 per cent for the latter.

Zhu, the Shanghai sales manager, said his company is faring better than many others in the trade as it provides services not so deeply intertwined with the pandemic economy, such as genetic testing and disease pathology.

“It was a big shock to many smaller firms. I know some that are even having difficulty paying their staff,” he said.

There were over 1,200 independent clinical laboratories in China in 2018, and the number had surged to 2,100 by last year according to a report by Shenzhen-based market research consultancy Forward Industry Research Institute.

There were eight people working in our lab a couple of years ago, and now there are just four
Li Na

Along with stand-alone laboratories, smaller hospitals have also had to deal with significant contractions in the past year, according to Li Na, who works in the laboratory of a community hospital in Shanghai’s Xuhui district.

“There were eight people working in our lab a couple of years ago, and now there are just four,” she said.

But resources are going underutilised as patient numbers drop, she added.

“We purchased a lot of equipment during the pandemic, such as computed tomography scanners, when demand was high,” she said. “They are all good quality, and now lay idle.”

A March report on China’s in vitro diagnostics industry estimated a size of 120 billion yuan (US$16.6 billion) last year, down 30 per cent from 2022.

Though multinational giants like Roche hold the lion’s share of the market, according to the report about half of all the sector’s products were provided by domestic firms in 2023. The document was co-authored by the National Association of Health Industry and Enterprise Management, a health trade organisation.

Despite its slump from a baseline kept high by the pandemic, China’s diagnostics market is still expected to beat the global industry in growth, as it plays an important role in disease prevention and treatment for a large and rapidly ageing population.

“In 2023, the industry gradually returned to normal development, and the demand for conventional tests that had been previously affected is set to grow rapidly,” said Zhu Yaoyi, a professor and secretary general of the association’s medical laboratory sciences branch, at an event commemorating the report’s release.

With chronic disease burdens on the rise in the nation of 1.4 billion people, the diagnostics market will exhibit an annual growth rate of 10 per cent in the coming years, leading to a market volume of 190 billion yuan by 2028, report authors projected.

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