As the leader in medical diagnostics, Roche (RHHB.F -3.77%) acted quickly to deliver valuable COVID-19 screening tests to the marketplace. Assisted by COVID-related sales, its diagnostics division is now delivering stronger growth than its larger pharmaceuticals division. But with the pandemic winding down, Roche must align its diagnostics pipeline with new trends in healthcare to keep that growth going.

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Medical doctor on remote meeting with patient.

Home is where the medical tests are

Roche's medical diagnostics division saw strong growth throughout 2021 and into the begining of 2022. First-quarter sales increased by 24% year over year, but the largest growth by far came from the 84% sales increase in point-of-care diagnostics solutions. These services develop diagnostic tests that support emergency rooms and clinics, as opposed to centralized labs.

While Roche offers point-of-care tests to monitor blood glucose for diabetes, identify blood coagulation for heart disease, evaluate blood gas concentrations, and test infectious diseases, its COVID-19 tests were the main growth driver. These include rapid antigen screens for at-home testing and the more sensitive PCR tests for clinics. 

Going forward, sales for COVID testing are expected to markedly decline. Growth from the base diagnostics business was respectable, with Roche's core lab, molecular lab, and pathology lab segments variously increasing sales between 8% and 21% over the previous year. Only diabetes care saw a decline in sales, as more patients switched from one-time finger-stick blood sugar tests to systems that continuously monitor those levels. These numbers allowed management to guide for growth this year in the base diagnostics business, despite declining COVID sales.

Yet, in addition to the financial windfall from COVID-related diagnostics, the pandemic may also have accelerated a transition toward telemedicine. Patients have become more accustomed to remotely meeting with their doctor, and receiving rapid results from clinic or at-home COVID screening tests. Following the trend toward more home-centered healthcare, diagnostics are also likely to follow suit, allowing patients to mail samples for testing or even test themselves from the comfort of home.

Lab-based testing still looking strong

Despite the large contribution from COVID tests, Roche's core lab still generates the dominant share of sales, accounting for 36% of the Diagnostics Division sales in the first quarter. Reflecting this, the company's near-term pipeline is geared toward laboratory-based equipment and tests. New core lab tests will detect hepatitis C and amyloid disease for Alzheimer's. Cardiac testing is also expected to remain a key contributor to the segment. 

Roche also has a long-standing pharmaceutical focus on targeted cancer therapies, and uses its understanding of patient biomarkers to detect the presence of cancer through either molecular testing to find genetic mutations, or by looking carefully at tissue biopsies. On the oncology front, Roche plans to launch new detection tests for breast and skin cancer, as well as a self-sample collection kit for cervical cancer.

Roche is also exploring the use of data analytic techniques to streamline and standardize detection in image-based diagnostic tests. Its digital pathology group in March announced a collaboration with Bristol Myers Squibb (BMY 0.48%) to develop AI algorithms that will assess clinical images. This will help pathologists evaluate tissue biopsies for cancer using computer technology to cut down the risk of errors and catch more illness earlier in its progression.

While this pipeline does deliver important diagnostic needs in widely prevalent heart disease and cancer, it does little to address broader trends toward home-based care. Certain diagnostic techniques will always require specialized lab equipment, but in some cases, elderly or immunocompromised patients may be willing to trade some accuracy for greater convenience.

More nasty viruses, more need for tests

As COVID illustrates, the rising prevalence of infectious disease among the global population opens opportunities for in vitro diagnostics. Roche's rapid antigen tests this year remain focused toward respiratory viruses, and include a test to distinguish between Omicron variants, as well as between Covid and different strains of flu virus. However, as demand slows, Roche should have more resources to devote to other diseases.

Roche recently announced a collaboration with the Global Fund to build diagnostics capabilities for AIDS and tuberculosis in low- and middle-income countries. These demographics could greatly benefit from point-of-care testing, and could open up opportunities outside of the company's diagnostics market stronghold in North America. 

It remains to be seen whether Roche will shift more focus toward point-of-care solutions. Rapid, easy-to-use screening tests could be invaluable for treating chronic and infectious diseases. COVID-19 has provided a push in that direction, and Roche may miss out if it does not respond. Shareholders and interested life sciences stock investors should monitor whether its pipeline starts to include even more point-of-care services in the future.