Why MBA Entrepreneurs Should Launch Covid-19 Rapid Test Startups

A New Testing Philosophy Prompts a Market Opportunity

Covid-19 testing across America has turned into a disaster. Six months into the epidemic, testing is still relatively scarce and expensive, in part because it’s so resource-intensive, requiring laboratories and technicians. It’s also time-consuming, with a typical lab test often requiring three or more days to report results.

The Food and Drug Administration wanted things that way. When the FDA granted its first emergency authorizations for SARS-CoV-2 testing in February 2020, the FDA regulators sought highly sensitive lab tests that reliably detect even small numbers of virus particles. That policy continued the agency’s tradition of approving sensitive lab tests developed to diagnose other illnesses.

For clinical diagnostic purposes (where a doctor’s objective is to arrive at the correct diagnosis for a sick patient), highly sensitive lab tests are appropriate and can be life-saving. Doctors need reliable tests they can depend upon—tests sensitive enough to consistently detect the SARS-CoV-2 virus in quantities above thresholds that indicate COVID-19 illness. Moreover, clinicians value sensitivity and dependability more than factors like reporting speed or low cost.

But since that time, an alternative diagnostic philosophy has emerged among public health advocates. One first needs to appreciate how their paradigm differs from that of clinicians to understand the market opportunity for rapid SARS-CoV-2 tests.

Public Health vs. Clinical Objectives

The objectives involved in public health screening differ dramatically from clinical diagnostic objectives. For public health screening purposes, the objective is to immediately prevent SARS-CoV-2 transmission not only by symptomatic carriers but especially by the 40 percent of carriers who are asymptomatic. For this purpose, a high level of sensitivity isn’t necessary, and some argue that high sensitivity may even be counterproductive. In the public health screening paradigm, all the test needs to do is rapidly detect when someone is shedding so many millions or billions of virus particles that they can infect others.

For example, an at-home test might only need to be as little as 50 percent as sensitive as a lab test to identify these cases. If only half of all the positive carriers immediately isolate themselves, a tremendous slowing of virus transmission would result that will never be possible through current lab testing methods.

But what happens if an at-home test returns a “false negative” error, where an infected individual might be shedding virus particles, yet a single rapid test mistakenly reports they’re not contagious? It’s known that rapid tests aren’t as accurate when disclosing negative results. However, proponents of this approach argue that inexpensive testing at home each morning would be sensitive enough to likely detect a climbing viral load upon a retest within 24 to 36 hours of a false negative result. That would still leave enough time to block several days worth of virus transmission that would have otherwise occurred without the positive retest.

Speed is More Important Than Sensitivity

What’s more important than sensitivity in these cases is that the test detects those large numbers of virus particles in a matter of minutes, which current lab tests cannot do. As of mid-August, lab testing delays across America show few signs of stopping, and NBC News reported that 41 percent of U.S. SARS-CoV-2 tests take three days or longer. In the five or more days it often takes for a highly sensitive lab test to report results, many individuals who are contagious at the time of their sample collection will no longer be infectious by the time they receive their positive results days later.

But what’s alarming is that during the time between sampling and reporting, an individual could infect hundreds of people if they’re a “superspreader,” which is the term used for the roughly 10 percent of SARS-CoV-2-infected individuals that spread 80 percent of all cases. A patient’s knowledge that they were positive when they provided their sample can guide their treatment plan if they later develop Covid-19.

But in terms of the public health objective of stoping transmission, the delayed lab test result is useless and arguably a waste of time and resources. The delayed lab test also requires resources spent on contact tracking and tracing by public health agencies which would be obviated by timely rapid test results that prevent transmission in the first place.

By contrast, an at-home test that returns results in about 45 minutes could stop someone who is contagious from going to school buildings or workplaces and infecting others. A result that keeps that individual isolated at home would effectively break the virus transmission chain. And that’s the result about which public health advocates care the most.

At the time of this writing, the best the United States can do is test about 900,000 individuals each day, with an average waiting time of several days for lab results, at about $150 to $350 per test. By contrast, public health advocates would ideally like to see 100 million cheaply mass-produced at-home tests in use each day across America at a per-test cost of only about 99 cents. Those advocates argue that such an at-home testing initiative, along with universal use of masks, eye protection, and hand hygiene, would completely change the course of the pandemic.

Moreover, the public health community argues that dollar-a-day testing underwritten by the government would make U.S. workplaces and schools safe again at a cost far less than the protracted economic devastation from the raging epidemic. They argue that such government subsidies would cost only a tiny fraction of the $2 trillion worth of emergency funding Congress spent on the federal CARES Act in late March 2020, along with related state and local transfer payments for costs like unemployment insurance and eviction moratoriums.

The FDA Ignites Controversy

As of August 2020, the FDA still has not yet approved any tests for at-home use. And controversy ensues because an increasing chorus of critics complain that the FDA has erected regulatory obstacles that prevent households from obtaining the at-home tests even after 177,000 Americans died from Covid-19.

Ostensibly, the agency for months professed support for inexpensive home testing. But then, on July 29 the FDA suddenly mandated that in-home testing meet a minimum standard of 90 percent of the sensitivity of lab tests. The agency also required that vendors distribute in-home tests with an electronic capability that would send reports of all home testing results to public health authorities.

Critics assail the new requirements. They argue that the FDA fails to appreciate the public health benefits of rapid tests, perceiving them instead as clinical diagnostic tools for use at home.

The 90 percent sensitivity requirement amounts to the primary reason that the few existing rapid tests which have won emergency FDA authorization all require expensive electronic “reader” devices. These devices perform various functions that raise their tests’ sensitivity above the 90 percent threshold, as well as record results and transmit reports. These devices render the testing systems too expensive and cumbersome for home use, so the vendors instead market them as “point-of-care” tests designed for facilities like doctors’ offices, clinics, quarantine centers, and nursing homes.

The approved device-based rapid tests include systems by Becton Dickinson and Quidel. They also include newer systems approved by the FDA in mid-August that many BSchools readers have probably heard about by now because they debuted to considerable media fanfare. One of the newer systems was developed by the University of Illinois, and the second was developed by Yale University with support from the NBA, the National Basketball Association.

The Illinois and Yale systems provide an advance over older alternatives because they measure the virus in saliva samples. All the older systems required sample collection using nasal pharyngeal swabs. The swabs make sample collection painful, discourage frequent testing, and can expose test center technicians to the virus.

Both the Illinois and Yale solutions also come with non-proprietary, “open source” licenses for testing centers. That means facilities can shop around and choose from a variety of off-the-shelf supplies, like reagent chemicals. That feature helps prevent supply chain interruptions due to shortages, promotes scaling up to high test volumes, and lowers the cost to less than $10 per sample.

But the Illinois and Yale systems still can’t be used at home. At the same time, firms that developed lower sensitivity, non-device solutions that still lack FDA approval remain frustrated.

One of the first players in this space, Cambridge, Massachusetts startup E25Bio,claims to have developed as early as February a non-device, paper strip-only at-home test, similar to a pregnancy test. One of the firm’s founders, Dr. Bobby Brooke Herrera, reports in this YouTube video that the original version was 70 percent as sensitive as lab tests, and enhancements boosted the sensitivity of its test to about 80 percent by August.

But the firm complains that it can’t distribute that solution for home use because it still falls short of the FDA’s 90 percent minimum sensitivity threshold (editor’s note: e25bio had to recall their test because it was not authorized, cleared, or approved by the FDA). Moreover, E25Bio claims their product could have helped save tens of thousands of American lives during the five months of additional refinements. Sherlock Biosciences—also in Cambridge—and South San Francisco-based Mammoth Biosciences are two other Covid-19 rapid test developers that find themselves in similar predicaments.

What Strategies Might A Rapid Test Startup Select?

It isn’t apparent how soon the industry can persuade the FDA’s leadership to reduce test sensitivity standards and modify or dispense with the reporting requirement for at-home Covid-19 tests. Doing so would obviate the necessity for a reader device, much like at-home paper strip pregnancy tests. And although that possibility might seem more likely should a new administration take control of the FDA after the November election, there’s still no guarantee that the career professionals at the agency would swiftly implement such a policy change.

The FDA’s reluctance to grant authorization for low-sensitivity, non-device tests—even while the U.S. epidemic rages out of control—renders no clear federal regulatory approval path for at-home testing. Moreover, no legislation appears to exist that would grant any alternative administrative law authority to agencies like the National Institutes of Health or the Centers for Disease Control to approve such products. By statute, the CDC had to win FDA approval in late January after it developed one of the first SARS-CoV-2 tests—one that soon turned out to be faulty.

It’s possible that state governors could try to circumvent the FDA. Seven state governors have already banded their states together with the Rockefeller Foundation to secure more Covid-19 testing for their citizens. But their initiative appears to cover point-of-care testing systems, not at-home testing.

Given the FDA’s resistance, what strategies might optimize the chances of success for an American rapid test startup?

Two-Step SARS-CoV-2 Testing

One strategy might involve requesting emergency FDA authorization for a two-step solution that combines low-sensitivity rapid tests with lab testing. Commentators like Dr. William Haseltine, who for almost twenty years served as a professor and department chair at the Harvard Medical School and the Harvard School of Public Health, advocate this option. Reportedly, this approach is already operating in some areas of India. Here’s a brief summary of how this arrangement would work:

1. All test subjects provide a sample for a low-sensitivity rapid test. Those individuals who test positive are presumed to have a sufficient SARS-CoV-2 viral load that would pose an infection threat to others, and are instructed to immediately self-quarantine.
2. Those who test negative on the rapid test provide a second sample, this time for a lab test. Results returned by the lab test indicate whether the individual can be presumed to have Covid-19.

This combined low-sensitivity/high-sensitivity arrangement wouldn’t permit home testing per se. But it would go a long way towards increasing testing availability and throughput by accelerating the disclosure of positive results. And the approach would immediately isolate highly contagious individuals without their needing to wait several days for lab results, satisfying the public health objective.

Assuming FDA approval, this scheme would permit low sensitivity, non-device tests to be sold for the first time within the United States. A startup would also need a strategic partnership with a U.S. lab test vendor.

A Testing Target Market Outside the United States

Most other nations care more about public health than the United States. This is one reason why almost every other nation in the world has dramatically lower Covid-19 case and fatality counts than America. Even in the Philippines—a third-world country—92 percent of the population consistently wears masks, in contrast with slightly more than half of Americans who do. Moreover, Philippines citizens caught without masks receive significant fines.

That other countries value public health more than America was emphasized during a question-and-answer session following a Grand Rounds presentation for the University of California at San Francisco by Michael Mina, MD, PhD. Dr. Mina is an assistant professor of epidemiology at the Harvard T.H. Chan School of Public Health and one of the driving forces behind the rapid home testing movement.

Even without regulatory approval in the United States, a startup would likely find ready markets for its rapid testing product in other nations. Nothing is stopping a startup headed by U.S. MBAs from selling to markets outside America. Indeed, as this BSchools investigation disclosed, a clear precedent exists where many unicorn startups launched by students at American universities sell primarily to non-U.S. markets.

Additional Sources

• “A Cheap, Simple Way to Control the Coronavirus,” a July New York Times op-ed by Boston University economics professor Laurence Kotlikoff and Dr. Mina
• Journal article preprint: Test Sensitivity is Secondary to Frequency and Turnaround Time for COVID-19 Surveillance
• The Rapid Tests website at https://www.rapidtests.org
• Harvard Magazine’s brief August 3rd article on Dr. Mina
• MedCram’s August 6th video interview with Dr. Mina