The standard story in precision oncology goes like this: genomic sequencing identifies actionable mutations in tumor tissue, targeted therapies exist that inhibit the protein products of those mutations, and patients with the right mutations get the right drug and do better than they would have on standard chemotherapy. That story is true and represents genuine progress.
The part that gets less attention is the diagnostic infrastructure underneath it. That infrastructure is less developed, less standardized, and less well-reimbursed than the therapeutic side of the equation. The result is that precision oncology in clinical practice often underperforms what the clinical trial data predicts — not because the drugs do not work, but because the diagnostics required to select the right patients for them are not deployed consistently or accurately enough.
The Co-Development Gap
Companion diagnostics — tests specifically developed and validated to select patients for a specific therapeutic — are required by FDA when the drug's clinical benefit is restricted to patients with a specific biomarker. The requirement is clear in principle. The execution is complicated in practice.
Drug companies and diagnostic companies have historically moved on different timelines and with different business models. A pharmaceutical company developing a targeted oncology program has a strong incentive to move quickly to a broad approval indication if possible — adding a companion diagnostic requirement narrows the indicated patient population and adds regulatory complexity. The incentive to invest in rigorous companion diagnostic development has historically been lower than the clinical logic would suggest.
The diagnostic companies, in turn, have limited ability to drive companion diagnostic development without a committed pharmaceutical partner. They cannot run the drug trial. They cannot demonstrate the clinical utility of a test that selects patients for a drug that has not yet been approved. The co-development timeline requires both parties to commit early and coordinate through clinical development in ways that have been structurally difficult.
We have seen drug programs reach Phase 3 without a validated companion diagnostic for the biomarker the entire development rationale depends on. That is a late-stage risk that gets mispriced because it is technical rather than clinical in character — but regulatory holds over diagnostic co-development are real and expensive.
Why the Regulatory Environment Is Changing
FDA has been increasingly clear about companion diagnostic expectations in oncology. The 2023 guidance on in vitro companion diagnostics formalized requirements that had previously been applied inconsistently. The requirement for prospective analytical validation of the companion diagnostic in the clinical trial context, using the actual clinical assay format rather than a research-grade test, has forced more thorough co-development than previous practice allowed.
The consequence is that drug developers who did not invest in diagnostic co-development early enough are now facing situations where the drug data is ready and the diagnostic data is not. That is forcing pharmaceutical companies to prioritize companion diagnostic development in a way they were not doing previously — either by internalizing the diagnostic capability or by committing earlier to diagnostic partners with clear milestones and shared clinical development timelines.
The Technical Complexity Problem
Beyond the co-development dynamics, there is a real technical problem: many of the most relevant biomarkers for precision oncology are not cleanly assayable with existing clinical diagnostic platforms.
Tumor mutational burden is a good example. TMB has demonstrated utility as a predictor of immunotherapy response in multiple solid tumor types. But measuring TMB requires whole exome or broad panel sequencing of tumor tissue, which requires adequate tissue biopsy, adequate tumor fraction, and bioinformatics analysis that is not standardized across platforms. Different platforms produce different TMB measurements for the same tumor sample. That lack of standardization creates real clinical problems when a drug is approved based on a specific TMB threshold measured with a specific assay but oncologists are using different assays in practice.
The same problem applies to complex genomic rearrangements, splice variants, and multi-analyte biomarker signatures. These are not trivially measurable with standard IHC or simple PCR-based assays. They require next-generation sequencing platforms with specific panel designs, bioinformatics pipelines, and quality control standards that must be rigorously validated and then deployed consistently across clinical laboratory networks.
Where the Investment Opportunity Is
The gap between therapeutic sophistication and diagnostic capability in precision oncology is a durable investment theme. We are interested in several specific areas.
Platform diagnostics companies building next-generation sequencing panels specifically designed for companion diagnostic co-development — with the analytical validation infrastructure, regulatory expertise, and laboratory network capacity to move from research assay to FDA-cleared test on a timeline compatible with drug development — are addressing a real need. These companies have a business model that does not require them to take clinical trial risk; they are service providers to the therapeutic development ecosystem.
Companies developing biomarker discovery and validation platforms that can identify novel companion diagnostic candidates earlier in drug development — before Phase 3, when the timeline for diagnostic co-development still exists — are also interesting. The ability to run rapid biomarker discovery in clinical trial samples and translate the output into a validated clinical assay within the drug development timeline is a technical capability that has significant value to pharmaceutical partners.
The liquid biopsy angle is relevant here too. Tissue-based companion diagnostics require surgical biopsy, which is not always feasible — particularly for re-biopsy at progression or for monitoring response during therapy. Liquid biopsy-based companion diagnostics for specific mutations or fusion events have strong clinical logic and a regulatory pathway that is increasingly clear. Several approved companion diagnostics are now blood-based, establishing the precedent.
The companion diagnostic space is not glamorous. It does not generate the same headlines as a novel drug mechanism. But it is a necessary part of precision medicine that has been systematically underfunded relative to its clinical importance. That is exactly the kind of gap we look for.
