Ro scooped up a home testing co, but may have missed the home diagnostics boat

The news: Direct-to-consumer virtual care provider Ro acquired 17-month old at-home diagnostics startup Kit, which offers home testing like blood pressure tests and finger prick blood assays.

How we got here: This is Ro’s third acquisition within the past year as it enters hyper-growth mode expanding into various niche pockets of care delivery.

• In December 2020, it snapped up home care company Workpath to deploy nearby clinicians to patient’s homes for blood draws, etc.
• And in May, it spent $225 million to buy reproductive health company Modern Fertility, which offers an app-based platform to track patients’ fertility data.
• We think we could see Ro dive into a space like diabetes management next, considering the massive addressable market (34.2 million patients) and consumers’ growing interest in digitally monitoring the condition.

Trendspotting: As telehealth adoption declines this year, vendors are realizing they need to diversify to hold onto their new customers’ attention for the long haul—many are turning to at-home testing to do so.

• Although telehealth adoption rates are much higher than pre-pandemic leves, usage levels are dropping off compared with adoption rates seen in March and April 2020.
• Part of the reason we’re seeing dropoffs is because some patients are leaning more on hybrid care that combines in-person elements to address some of virtual care’s limitations. For example, while virtual visits are convenient, patients don’t have the tools to conduct lab tests at home.
• As a result, virtual care vendors like Ro, Truepill, and Nurx are adding at-home testing into their toolkits—a move that makes sense, since consumers say they’re more comfortable than ever using at-home diagnostics due to the pandemic.

The bigger picture: While diving into the home testing space can help telehealth companies retain consumer interest, there two major roadblocks deeming at-home diagnostics a risky diversification play:

1. Small vendors will face stiff competition from Amazon, which is expanding its at-home diagnostics footprint with more affordable price points. The e-commerce giant recently made its COVID-19 kits available online for $39.99 per kit, while large home-testing vendors like Everlywell sell the same D2C kits for $109. Beyond low prices and rapid convenience, Amazon comes with a massive loyal customer base that makes it the vendor of choice for many consumers—especially since it’ll likely bundle its testing kits with its virtual care services sometime soon.
2. There’s no guarantee the FDA will authorize at-home testing for long-term use. The FDA greenlit 389 COVID-19 tests under Emergency Use Authorization (EUA) since the pandemic began—but this authorization could very well be lifted once enough US individuals are vaccinated. As such, it would be a wise bet for telehealth vendors to unveil home testing kits beyond COVID-19 testing: Most of Everlywell’s tests are laboratory-developed tests, which means they’re not subject to FDA review, for instance.