This article is republished from the WeChat public account VBData.
Introduction
In recent years, with the rise of targeted therapy and immunotherapy, precision medicine has steadily entered the public imagination. Targeted drugs and immunotherapies have produced anticancer success stories with unprecedented precision. Precise drugs require precise diagnostics: only once a subtype has been determined can treatment be matched to it. This is how companion diagnostics came into being.
Today, companion diagnostics have become an indispensable testing step before medication is prescribed. A core segment of in vitro diagnostics, the field has entered its commercialization stage. Policies governing companion diagnostics are being standardized, technologies are flourishing, and business models are differentiating: the market structure for companion diagnostics has taken shape.
New momentum comes from innovation in technology and business models. On the technology side, established approaches—PCR, IHC, FISH and NGS—have each been upgraded to varying degrees, while emerging technologies such as single-cell analysis, mass spectrometry and multi-omics are showing fresh energy, and AI is closing the loop. What "gold standard" must a technology meet before it can be successfully applied in the clinic?
On the business model side, LDT pilots are being implemented in hospitals, overseas expansion is growing visibly, grassroots deployment has barely been attempted, co-built laboratories remain controversial, and joint development with pharmaceutical companies is gaining ground. What is the logic behind each model, and where will each go next?
With these questions in mind, we spoke with more than 15 companies and nearly 30 experts. Focusing on the application of companion diagnostics in oncology, the 2022 Companion Diagnostics Industry Research Report addresses the questions above. On technology, business models and payment, we reach the following conclusions:
On technology, established and emerging approaches advance together. PCR and gene sequencing have been upgraded to the third generation, mIHC enables multiplex labeling, and rapid FISH delivers faster hybridization. Single-cell technology interprets and analyzes biology at the level of the individual cell, while mass spectrometry is an important analytical technology in the study of biological macromolecules. Going forward, multiple technologies and multi-omics platforms will jointly drive the industry forward, with AI closing the loop. For a technology to be successfully applied in the clinic, it must meet basic requirements such as sensitivity and stability; beyond that, its application potential can be measured along five dimensions: standardization, simplicity, throughput, technology cost and talent cost.
On business models, hospital access through LDT is itself a threshold, and recognition varies. China may build its threshold through LDT access to hospitals rather than by creating an approval pathway. Whether through co-built laboratories or cooperation with pilot hospitals, entering the hospital is a barrier; beneath that barrier, product recognition necessarily differs, and obtaining approval for an LDT piloted at a large tertiary Grade A hospital will inevitably be easier than for one piloted at a secondary hospital or a third-party testing institution. At the same time, where an LDT product lands will become a new yardstick: in terms of regulatory difficulty, LDT pilot hospitals at this stage are more readily established in large public tertiary Grade A hospitals.
On payment, insurance coverage is accelerating and PCR may be the first to face centralized procurement. Considering the historical trajectory of tumor genetic testing items and the response given by the National Healthcare Security Administration on October 12, 2022 regarding their inclusion in medical insurance and volume-based procurement, we believe that in the long term, bringing tumor genetic testing into medical insurance will support the use of companion diagnostics in hospitals. In the short term, NGS is unlikely to be covered, given its high cost and the heavy investment required to develop large panels. Meanwhile, PCR—widely used, relatively mature and lower in cost—may be the first to encounter volume-based procurement.
Policies are gradually being standardized,
revealing a blue-ocean market worth over ten billion yuan
1. Policy: China enters a period of adjustment that will bring continuous standardization
Companion diagnostics originated from precision medicine and have been widely adopted worldwide in recent years. The United States was the first to establish the industry and has the most mature market; its regulatory policy rests on the underlying logic of joint development of drugs and test kits. Today, the companion diagnostics industry in the United States has reached maturity.
Development stages of companion diagnostics policy in the United States (image source: Eggshell Research Institute)
The new rules introduced in 2021 and 2022 show that China has also begun to encourage the joint development of drugs and companion diagnostics. Overall, China's companion diagnostics policy has entered a period of adjustment, while the market is in a phase of rapid growth.
Development stages of companion diagnostics policy in China (image source: Eggshell Research Institute)
2. Financing: 53 companies funded in the past three years, Series B most common
Based on incomplete statistics on financing among companies active in companion diagnostics, 53 such companies have raised funding since 2020. Among them, Series B was the most common latest round, accounting for 32.7%.
Beyond that, financing over the past three years has varied considerably in technology and model. Most funded companies are working on new technologies such as single-cell analysis and multi-omics, or on breakthroughs in established technologies; in terms of model, the funded companies mostly pursue diversified businesses rather than companion diagnostics alone. At present, three companies in the companion diagnostics field have reached sufficient scale to complete a listing.
Overall, companion diagnostics are relatively mature commercially, with leading companies holding first-mover advantage. New technologies and new models are eager to make their mark, large platforms coexist with small but excellent players, and the market structure has taken shape.
3. Market: a late start, rapid growth and enormous potential
According to Zhiyan Consulting, the global companion diagnostics market has expanded year by year, reaching USD 3.76 billion in 2019, with a compound annual growth rate of 25.5% from 2016 to 2019. In terms of growth rate, the track remains in a phase of rapid development. At 25.5% growth, the global companion diagnostics market would reach USD 7.43 billion in 2022 and USD 14.69 billion in 2025.
China's companion diagnostics market reached RMB 2.72 billion in 2019, with its growth rate climbing year by year and a compound annual growth rate of 33.3% from 2016 to 2019. At 33.3% growth, the Chinese market would reach RMB 6.44 billion in 2022 and RMB 15.26 billion in 2025.
Global and Chinese companion diagnostics market size (data source: Zhiyan Consulting, Eggshell Research Institute)
Four established technologies are being upgraded,
and three new technologies are accelerating into application
1. Established technologies are being upgraded, with PCR and NGS as the mainstays
At present, the most widely used technologies in companion diagnostics are PCR and gene sequencing, both of which have undergone two rounds of upgrading.
PCR has been upgraded to second-generation quantitative fluorescence PCR (qPCR) and third-generation digital PCR (dPCR). Although dPCR offers improvements over qPCR in quantitative analysis, the technology is not yet mature, and qPCR remains the most widely used.
Gene sequencing has been upgraded to NGS and third-generation single-molecule sequencing. Although third-generation single-molecule sequencing produces longer reads, it is still at an early stage of application, and NGS remains the most widely used.
IHC examines relatively single indicators, whereas multiplex fluorescent immunohistochemistry (mIHC) can now stain 7–9 markers. FISH testing takes a long time, whereas rapid FISH technology has cut hybridization time from a minimum of 8 hours to 2 hours. Each of these technologies has its own characteristics and they complement one another in application. We have summarized their features below:
Comparison of established technologies before and after upgrading (image source: Eggshell Research Institute)
● A review of approved products based on established technologies
Judging by the technologies used in approved companion diagnostics products to date, PCR-based reagents account for the largest number of approvals. As of October 14, 2022, 55 PCR reagents, 16 NGS reagents, 6 IHC reagents and 27 FISH reagents had been approved for companion diagnostics; we have compiled statistics for each category.
Among approved PCR reagents, some are intended not only for companion diagnostics but also for pharmacogenomics, adjunctive tumor diagnosis and pathogen detection. We counted only those products used for companion diagnostics, as follows:
Statistics of approved PCR reagents for companion diagnostics (data source: National Medical Products Administration)
All currently approved NGS products are small panels; the complexity of clinical trials for large panels limits their approval. Specifically, the approval status of NGS in China is as follows:
Statistics of approved NGS reagents for companion diagnostics (data source: National Medical Products Administration)
IHC products were also approved relatively early, the first in 2014. Among approved products, some are used for applications such as hormone receptor antibody testing in addition to companion diagnostics. As immunotherapy has taken off in China, two PD-L1 detection reagents have already been approved this year.
Statistics of approved IHC reagents for companion diagnostics (data source: National Medical Products Administration)
FISH products were approved at an early stage, and some approved products are also used for applications such as prenatal diagnosis. Among the reagents below, clear corresponding drugs exist for PML/RARA, BCR/ABL, HER2 and ALK gene mutations; for others, no specific drug has been established.
Statistics of approved FISH reagents for companion diagnostics (data source: National Medical Products Administration)
Compared with companion diagnostics products approved by the FDA, China has no approved reagents based on CISH or ISH technologies, and few companies are working in this area. In addition, the top three technologies approved by the FDA are PCR, IHC and NGS, whereas China's top three are PCR, FISH and NGS, with IHC ranking fourth—a notable difference from the United States. The proportion of approvals by technology is detailed below:
Technology composition of reagents approved by the FDA and the NMPA (data source: National Medical Products Administration)
● PCR, IHC and FISH have all been upgraded
Digital PCR enables direct quantitative analysis. Digital PCR is an emerging nucleic acid detection technology. By partitioning each nucleic acid molecule into an independent space, it avoids interference from selective amplification and can deliver absolute quantification of nucleic acid templates, rare mutation detection, copy number variation analysis, DNA methylation analysis and gene rearrangement detection.
Because digital PCR allows direct quantitative analysis, it is called third-generation PCR. Its advantages include absolute quantification, high detection sensitivity, the ability to detect low-abundance targets against a high-abundance background, and strong resistance to interference.
Frozen-section immunohistochemistry extends the IHC scenario, and multiplex fluorescent immunohistochemistry (mIHC) upgrades conventional IHC. Intraoperative frozen-section pathological diagnosis is a common form of emergency intraoperative consultation and an important basis for surgeons when deciding on the surgical plan; testing time can be shortened from 3–4 hours to 15 minutes.
Frozen-section immunohistochemistry is used mainly to: (1) determine whether a lesion is a tumor and whether that tumor is benign or malignant; (2) judge whether surgical margins are negative; (3) determine whether the tumor has metastasized to adjacent lymph nodes or organs; and (4) help identify certain unexpected and uncertain small tissue fragments during surgery.
Multiplex fluorescent immunohistochemistry compensates for the shortcomings of gene expression profiling, flow cytometry and conventional immunohistochemistry. The technology achieves three breakthroughs: it resolves antibody source conflicts in the staining step, enabling staining of 7–9 markers; it resolves color crossover in the scanning and imaging step, improving the signal-to-noise ratio; and it standardizes quantitative analysis in the image analysis step.
Rapid FISH effectively shortens hybridization time. The current standard hybridization time for FISH probes is 16 hours, and never less than 8 hours. Rapid FISH products have the following features: (1) hybridization time can be reduced to 2 hours—a substantial reduction compared with the 16–24 hours required by marketed fluorescence in situ hybridization probe kits; (2) non-specific signals are significantly reduced, improving probe specificity, sensitivity and accuracy.
We analyzed the above technologies in terms of maturity, duration of development in China and current market size in companion diagnostics, as follows:
Analysis of maturity and market size of established technologies (image source: Eggshell Research Institute)
2. New technologies are emerging, and multi-omics is taking shape
● Single-cell technology: an innovative way to read cellular heterogeneity
High-throughput single-cell technologies fall into two categories: single-cell sequencing for analysis at the gene level, and mass cytometry for analysis at the protein level. Single-cell technology enables pharmaceutical companies to conduct high-throughput drug target screening, pharmacokinetic analysis and efficacy evaluation at the single-cell level, greatly shortening drug discovery cycles, reducing R&D costs and optimizing development pipelines.
Single-cell sequencing supports tumor treatment guidance, targeted drug development and tumor microenvironment analysis. Using single-cell sequencing to track the characteristics of cancer cells during treatment helps address questions around tumorigenic pathways and the evolution of drug resistance, with important implications for clinical decision-making and the rational design of treatment strategies.
In addition, single-cell sequencing can help identify biomarkers for different cancer types, providing an important basis for diagnosing cancers of unknown primary origin.
Mass cytometry supports tumor treatment guidance, immunotherapy drug development and tumor microenvironment analysis. In tumor immunotherapy, mass cytometry detects combinations of multiple markers to characterize the immune microenvironment of peripheral blood and tumor tissue in patients receiving immune response drugs, enabling in-depth analysis of biomarkers—proteins in particular—so as to better assess the effects of treatment on the immune system, search for prognostic biomarkers, and provide important guidance for clinical medication.
At the same time, for key differential cell subsets, single-cell sequencing and mass cytometry can be combined to conduct joint analysis at the gene and protein levels, enabling proteomic analysis of individual subsets including differential protein analysis, expression pattern analysis, GO enrichment analysis, pathway analysis and protein interaction analysis.
Combined analysis using single-cell sequencing and mass cytometry (image source: Eggshell Research Institute)
● Mass spectrometry: a powerful tool for analyzing proteins
Mass spectrometry supports biomarker development in clinical proteomics. Compared with conventional immunoassays, mass spectrometry can analyze a disease holistically and comprehensively at the proteome level, including protein post-translational modifications and variants arising from genomic aberrations.
Mass spectrometry combined with chromatography provides important guidance for tumor diagnosis and treatment. In metabolomics research, coupling mass spectrometry with chromatography improves separation power and sensitivity. Metabolic differences between tumor cells and normal cells manifest as proliferation, invasion and metastasis. In addition, nucleic acid mass spectrometry can support tumor genetic testing: when nucleic acid mass spectrometry and RT-PCR were used to detect EGFR mutations in patients with non-small cell lung cancer, the results were consistent, while nucleic acid mass spectrometry offered lower cost, high throughput, high sensitivity and full automation.
● Multi-omics technology: systematic thinking for greater precision
Multi-omics technology embodies the systematic approach of modern biology. Omics research explores the interactions among multiple substances in a biological system, including genomics, epigenomics, transcriptomics, proteomics, metabolomics and microbiomics; together, these substances shape the phenotypes and traits of living systems.
As omics research deepens, integrating data across the different omics layers allows a comprehensive and systematic understanding of the relationships among multiple substances in basic research, clinical diagnosis and drug development.
Multi-omics technology improves diagnostic and therapeutic precision. A common approach to multi-omics integration is to screen candidate biomolecules, then analyze their functions according to the functional hierarchy of systems biology, integrating transcriptomic, proteomic and metabolomic data based on synergistic networks and co-regulation logic.
Through integrated data analysis—mutual verification and complementation—researchers ultimately gain a comprehensive understanding of the broad trends and direction of biological change, propose mechanistic models of molecular change, and select key metabolic pathways or proteins, genes and metabolites for deeper experimental analysis and application, identifying the most precise biomarkers and thereby enabling more precise diagnosis and treatment.
3. Technology application must meet a "gold standard"
To be successfully applied in the clinic, a technology must satisfy certain characteristics. First come the basic attributes of clinical relevance, sensitivity and stability; beyond these, additional attributes are needed before it can be widely adopted clinically. Through expert surveys, we selected five indicators: standardization, simplicity, throughput, technology cost and talent cost. Standardization refers to how well developed the rules for technology registration and approval are; simplicity refers to how easy the technology is to operate.
Overall, among established technologies and their upgraded versions, PCR scores highest on standardization and simplicity, NGS offers the greatest throughput, and IHC has the lowest cost. Emerging technologies generally score lower on standardization and higher on cost, leaving some distance still to cover before they can be successfully applied in the clinic—though this is characteristic of most new technologies entering application. The detailed scoring is shown below:
Feature analysis of established technologies and their upgrades (image source: Eggshell Research Institute)
Feature analysis of emerging technologies (image source: Eggshell Research Institute)
4. AI empowers pathological interpretation and bioinformatics analysis
AI interpretation of pathology offers advantages in speed, accuracy and multiplex analysis. AI-based bioinformatics analysis to support companion diagnostics product development is the direction of the future. On the one hand, AI-based medical devices differ from conventional devices in that they can continuously learn and improve in the real world, thereby improving performance; real-world studies can also provide supporting evidence at the time a drug is launched.
On the other hand, the human genome contains more than 20,000 genes. Using AI to analyze genomic, proteomic and other omics data in a coordinated way, and thereby match each patient precisely with the right companion diagnostics product, represents a longer-term vision for AI in companion diagnostics.
Going overseas at the right moment,
and co-development with pharma is just beginning
1. Mainstream models: in-hospital and out-of-hospital models complement each other under differing regulation
Companion diagnostics products reach the clinical end through two models: an in-hospital model and an out-of-hospital model. Generally speaking, the difference lies in whether the product has been approved. Approved products can enter hospitals as IVD reagents, while unapproved ones can only be delivered as LDT services outside the hospital. The specific models are as follows:
Features of the in-hospital and out-of-hospital models (image source: Burning Rock Biotech and Genetron Health prospectuses)
In 2017, CMS—the "healthcare security administration" of the United States—issued a policy requiring reimbursable tumor NGS tests to be FDA-approved. Laboratories therefore apply to the FDA for approval of the relevant testing services, which means LDTs also face regulation and the LDT model now carries a higher bar.
China's first LDT regulation arrived with implementation gradually beginning for in-hospital LDTs. On March 18, 2021, the National Medical Products Administration published the revised Regulations on the Supervision and Administration of Medical Devices, in which Article 53 sets out explicit requirements for LDT use scenarios—the first time policy has specified requirements for how and where LDTs may be used.
On July 15, 2021, Article 4 of the Opinions of the CPC Central Committee and the State Council on Supporting Pudong New Area in Building a Leading Area for Socialist Modernization through High-Level Reform and Opening Up explicitly stated that, within Pudong New Area, qualified medical institutions are permitted to carry out pilot programs for self-developed in vitro diagnostic reagents in accordance with relevant requirements.
On October 9, 2022, the Office of the Leading Group for Deepening the Reform of the Medical and Health System in Shanghai issued the Notice on Launching the Pilot Program for High-Quality Development of Shanghai Public Hospitals. Relevant departments selected 40 public medical institutions as pilot units and designated 20 public hospitals as guidance-category pilot units for reference, with the pilot running for five years. The notice moved LDT pilots in hospitals a step further forward: although it does not specify which hospitals may conduct LDT pilots, this is the first time units have been selected and the list made public. The industry generally believes that LDT pilots are more likely to be carried out in public tertiary Grade A hospitals.
On the one hand, conducting LDT pilots in public tertiary Grade A hospitals makes LDT oversight more controllable; on the other hand, LDT products carry inherent risks, and tertiary Grade A hospitals are better able to bear them. Although no stricter LDT regulatory policy has yet appeared, companies whose LDT products enter tertiary Grade A hospitals necessarily have advantages in R&D capability and overall strength.
In other words, entering a pilot hospital is itself a threshold—which suggests LDT regulation may be entering a new phase.
2. Channels: overseas expansion has grown markedly, while penetration to lower-tier markets remains early
In recent years, the COVID-19 pandemic has made IVD reagents a representative example of domestic substitution in medical devices, with exports steadily accounting for a growing share and continuously optimizing the product mix of China's medical device exports. Their share of exports rose from 1.3% in 2019 to 23% in the first half of 2022—the most pronounced growth of any category.
China's medical device exports by category, 2019 to H1 2022 (image source: Eggshell Research Institute)
When choosing overseas destinations, companies mainly weigh registration difficulty and product maturity, which are positively correlated. For the markets of the United States, Japan, Europe, the Middle East, Southeast Asia and Africa, we analyzed product maturity and registration difficulty as follows:
Distribution of registration difficulty and maturity of companion diagnostics products across regional markets (image source: Eggshell Research Institute)
Going overseas involves two major issues: regulation and partner selection. First, regulation: long-term development abroad inevitably requires registration. Policy environments and regulatory intensity differ across countries, so companies need a thorough understanding of overseas registration rules. The registration process resembles that of China, but differs in detail—for instance, whether production can be located in China, or whether registration must be handled by the company itself.
Finding a mutually beneficial, long-term partner is half the battle when going overseas. There are generally three overseas strategies: distributors, subsidiaries plus distributors, and subsidiaries alone. Overall, Chinese companies' overseas expansion has emerged in recent years largely as a result of COVID-19, and remains at an early stage, relying mainly on distributors.
Overseas partners broadly include dealers, agents, pharmaceutical companies and registration partners. Co-developing companion diagnostics products with multinational pharmaceutical companies is the optimal strategy, although it places high demands on a company's own capabilities; when selecting dealers and agents, attention should focus on their channel strength. Partners can help resolve difficulties in distribution and registration, making it essential to find partners who offer mutual benefit and continuity.
Combining internal strength with external support is the sustainable path overseas. Returning to the companies themselves, what do successful overseas players have in common? According to the overseas expansion index published by VBData, five dimensions are used to assess a company's overseas capability: overseas registration, patents and software copyrights, clinical strength, R&D capability and revenue performance. These are the internal strengths a company must cultivate.
At the same time, we can expect that as companies strengthen themselves, more will pursue overseas mergers and acquisitions, or harness capital to support overseas markets—choosing, for example, technology-oriented, channel-oriented, or hybrid companies. Since technology-based companies are more numerous in Europe and the United States, they make the best acquisition targets for companies expanding abroad.
It must also be said that regulation overseas is growing stricter. The EU's new IVDR regulation for in vitro diagnostic reagents, for example, took effect on May 26, 2022. IVDR reclassifies in vitro diagnostic products, making market entry considerably more difficult after implementation.
Equipment, drugs and physicians are the key barriers to reaching lower-tier markets, where supply and demand are hard to balance. On the demand side, cancer patients at the grassroots level are numerous, geographically dispersed and have low awareness of cancer prevention. On the supply side, oncologists are unevenly distributed with a strong siphoning effect, and equipment and drugs present further problems. Cancer screening and treatment require precision instruments; the investment required for monitoring and chemotherapy equipment deters secondary hospitals, not to mention the supply of targeted drugs at the grassroots level.
As companion diagnostics products move down from tertiary to secondary hospitals, we believe the process can be divided into three stages, distinguished mainly by the extent to which equipment, drugs and physicians have reached lower-tier facilities.
Three stages in bringing companion diagnostics down to the grassroots level (image source: Eggshell Research Institute)
3. Extensions: co-built hospital laboratories and joint development with pharmaceutical companies
● Co-built hospital laboratories are an intermediate form between the LDT and IVD models
Overall, co-built hospital laboratories mainly target the clinical application of innovative technologies, aiming to advance and popularize them. Complementing third-party medical laboratories, they represent a transitional form between the LDT and IVD models.
Among technologies used in companion diagnostics, NGS-based co-built laboratories are currently the mainstream, and the participating companies are mostly industry leaders; moreover, the relationship between companies and hospitals is not one-to-one but many-to-many.
Co-built hospital laboratories are a double-edged sword for companies. They solve the problem of landing new technologies in hospitals, helping hospitals establish standardized testing laboratories in terms of equipment, technical training, quality control and other hardware and software, thereby achieving fast, accurate and compliant genetic testing. This benefits hospitals, while enabling companies to place their products in hospitals and secure first-mover advantage.
Current practice, however, shows that because NGS participation requires heavy investment, companies mostly operate at a loss in the short term.
In the long run, as physicians at large tertiary Grade A hospitals become more familiar with NGS through company training, the barriers to hospitals building their own laboratories will decrease and their dependence on companies will decline. At the same time, products admitted into hospitals are highly sensitive to policy: once NGS products mature, in an environment of centralized procurement and cost control, companies and hospitals may find themselves unbound.
For secondary hospitals at the present stage, because NGS involves high investment and oncology companion diagnostics products struggle to reach lower-tier markets, co-built laboratories are better suited to general testing projects. Overall, co-built laboratories suit the initial deployment of capital-intensive new technologies in large tertiary Grade A hospitals, attempted by leading companies; on the other hand, they also suit the deployment of lower-investment technologies in secondary hospitals.
● Joint development of companion diagnostics with pharmaceutical companies is gaining momentum
On June 28, 2022, the Guiding Principles for Clinical Trial Registration Review of Original Companion Diagnostic Reagents Developed in Parallel with Antitumor Drugs was officially released. It aims to promote the coordinated development of drugs and companion diagnostics products, encouraging pharmaceutical companies and companion diagnostics developers to collaborate from an earlier clinical stage. There are three main models of companion diagnostics development: concurrent, bridging and follow-on.
Three models of companion diagnostics product development (image source: Eggshell Research Institute)
More innovative targets are the focus of collaboration between pharmaceutical companies and companion diagnostics companies. Drugs have many potential targets, and the corresponding companion diagnostics kits are equally diverse: each drug targeting a different target must be used together with its own companion diagnostics kit to truly achieve precision treatment.
Some well-developed biomarkers—EGFR, ALK, PD-L1 and others—already have several companion diagnostics products on the market, and these segments are shifting from blue ocean to red ocean. More innovative targets, still entirely blue ocean, are where collaboration between pharmaceutical companies and companion diagnostics companies centers.
Companion diagnostics collaborations involving pharmaceutical companies are moving steadily earlier along the drug development timeline. In practice, many drugs in the clinical stage have begun developing companion products that are incorporated into trials concurrently. Combining companion diagnostics with new drug development not only improves the efficiency of reagent development, but also reduces the risk of new drug clinical trials to some extent.
In new drug clinical trials, companion diagnostics can precisely identify target populations and indications by stratifying or enriching patients, helping the drug achieve better clinical outcomes—thereby shortening development cycles, controlling trial scale and improving success rates.
Earlier involvement of companion diagnostics also brings greater challenges. Simultaneously optimizing companion diagnostics development and new drug trial efficiency amid the complexity of drug development is no easy task. Three key points stand out.
First, companion diagnostics products with sufficiently high sensitivity and specificity must be selected. For companion diagnostics kit development, performance verification is the core step and must consider four aspects: accuracy, limit of detection, precision and specificity.
Second, the testing company developing the companion diagnostics product must demonstrate strong technical reliability and stability. Over the past decade, companion diagnostics technologies have diversified. In biomarker selection, single targets are giving way to composite ones; sample types continue to expand from tissue-dominated to diverse options including liquid biopsy; and detection technologies have iterated from qPCR, IHC and FISH aimed at single targets to various NGS panels characterized by biomarker enrichment.
Third, the testing company developing the companion diagnostics product needs extensive registration experience and a capable registration team. Incorporating companion diagnostics development into new drug clinical trials requires close cooperation between the pharmaceutical company and the testing company; each team is responsible for registering and approving its own product, ensuring that both complete the launch process synchronously and as early as possible.
Overall, the companion diagnostics industry focused on precisely matching drugs is taking off in China. This wave is a product of the intersection between China's innovative drug industry and its flourishing genetic testing sector, and it reflects the broader trend toward precision medicine.
LDTs land first in tertiary hospitals,
and insurance coverage for companion diagnostics expands
1. Technology: established and emerging technologies advance together
PCR and gene sequencing have reached the third generation, mIHC enables multiplex labeling, and FISH is faster. Reviewing established companion diagnostics technologies in recent years, both PCR and gene sequencing have been upgraded to the third generation; IHC has gained both an intraoperative frozen-section immunohistochemistry solution and a breakthrough in mIHC multiplex labeling, from single markers to 7–9 markers; and traditional FISH, whose hybridization is slow, has been relieved of this pain point by rapid FISH.
Single-cell technology and mass spectrometry are injecting new vitality into companion diagnostics. Alongside breakthroughs in core technologies, new technologies have gradually entered the field's view, with single-cell analysis and mass spectrometry attracting particular attention.
Single-cell technology interprets and analyzes change at the level of the cell; single-cell sequencing at the gene layer and mass cytometry at the protein layer are the two core directions of high-throughput single-cell technology, combined with joint gene–protein analysis. Meanwhile, mass spectrometry is the most important analytical technology in protein research and in the study of biological macromolecules, and has drawn considerable attention in recent years.
Multiple technologies and multiple omics will jointly drive the industry forward. On one hand, technologies differ in their characteristics, and they complement and reinforce one another as they develop together; at the same time, closed-loop AI applications will empower them.
On the other hand, the systematic thinking of multi-omics may carry biology to the next level. Today, the combined analysis of genomics, proteomics, metabolomics and other omics may deliver more precise answers. In the future, multi-technology and multi-omics platforms will jointly advance the companion diagnostics industry and help it move toward personalized medicine.
2. Regulation: hospital access through LDT is the threshold, and recognition varies
China may set its threshold through LDT access to hospitals rather than by creating an approval pathway. LDTs carry the burden of landing innovative products, while also being prone to a mix of good and bad products of uneven quality. Regarding NGS-based LDT products, the United States has an approval pathway while China does not—raising the question of whether China will establish a corresponding approval pathway to tighten the regulation of LDTs.
We believe that against the backdrop of LDT pilots being steadily implemented in hospitals this year, China is likely to build its threshold through LDT access to hospitals rather than through an approval pathway.
Hospital access is itself the threshold, and recognition may differ depending on the partner. Whether through co-built laboratories or cooperation with pilot hospitals, entering the hospital is a barrier for LDTs. Beneath that barrier, product recognition necessarily differs: based on differences among pilot hospitals, the recognition accorded to pilot LDT products varies, and thus the difficulty of product registration differs.
Looking ahead, we believe that obtaining approval for an LDT product piloted at a large tertiary Grade A hospital will be easier than for one piloted at a secondary hospital or third-party testing institution.
Competition among companies may come to center on the hospitals partnering with LDT products. Where an LDT product is run will become a new yardstick, and competition for access to large tertiary Grade A pilot hospitals will begin. Those that endure will still be companies combining R&D capability with market capability. Besides large public tertiary Grade A hospitals, secondary hospitals and third-party testing institutions may also conduct LDT pilots.
In terms of regulatory difficulty, however, we believe that at this stage LDT pilots are more readily implemented in large public tertiary Grade A hospitals, and that the probability of secondary hospitals or third-party testing institutions becoming pilot sites is low in the short term.
3. Payment: insurance coverage expands faster, and PCR may be the first to face centralized procurement
Inclusion of tumor genetic testing items in medical insurance will accelerate further. On the payment front, companion diagnostics products are currently covered by medical insurance only in Beijing; where commercial insurance is involved, coverage is mostly tied to technologies such as NGS testing rather than to companion diagnostics items per se.
Yet companion diagnostics are a rigid need. It is reported that the current national medical insurance catalog includes more than 30 targeted drugs, and under the requirements governing the restricted payment scope of medical insurance, genetic testing is required before certain targeted drugs may be used.
On October 12, 2022, the National Healthcare Security Administration gave an official response regarding the inclusion of tumor genetic testing in medical insurance and its volume-based procurement: some regions have already brought certain genetic testing items within the scope of medical insurance payment; beyond that, genetic testing items that are "safe and effective, reasonably priced and governed by clear fee standards" are also expected to be included.
In the short term, coverage for NGS is likely to be difficult. In the long run, including tumor genetic testing in medical insurance will support the use of companion diagnostics in hospitals; in the short term, however, NGS is unlikely to be covered. Technically speaking, PCR and IHC are currently in the insurance catalog while NGS is not. NGS products are well known to be expensive, typically ranging from several thousand to over ten thousand yuan.
Moreover, NGS requires heavy upfront investment and a long approval process, generally three to five years; large-panel products are still under development. Should NGS be included in medical insurance in the near term, profit margins would shrink and R&D investment could not be guaranteed. We therefore believe NGS will not be included in medical insurance in the short term, and that implementation will likely wait until costs fall further.
Centralized procurement will come eventually, and PCR may be first in line. Against the backdrop of volume-based procurement, whether tumor genetic testing will also be procured in bulk was addressed further by the National Healthcare Security Administration: "Tumor genetic testing falls under medical service items. Under current policy, basic medical services provided by public medical institutions follow government-guided pricing. At present, we are guiding local authorities to explore centralized procurement of diagnostic reagents on the principle of separating technical services from consumables, so as to bring reagent prices back to reasonable levels and drive down the prices of related medical service items."
On the other hand, in September this year the healthcare security administration stated for the first time that innovative medical devices will not be included in centralized procurement for the time being, noting that "because clinical use of innovative medical devices is not yet mature and usage volumes are difficult to estimate, implementing a volume-based approach remains impractical. In the process of centralized volume-based procurement, the National Healthcare Security Administration will reasonably determine the volume ratio based on factors such as clinical use characteristics, market competition patterns and the number of selected enterprises, leaving a portion of the market outside centralized procurement so as to leave room for innovative products to expand."
As a result, PCR may be the first to encounter centralized procurement. PCR is already covered by medical insurance, is widely used, relatively mature, and lower in cost, and PCR equipment has already reached lower-tier facilities. PCR is therefore the best candidate for centralized procurement.
The above is an extract of the report's main content. The complete framework of the report is as follows:
Chapter 1 Overview: policies are gradually being standardized, revealing a blue-ocean market worth over ten billion yuan
1.1 Policy: China enters a period of adjustment that will bring continuous standardization
1.2 Financing: 53 companies funded in the past three years, Series B most common
1.3 Market: a late start, rapid growth and enormous potential
Chapter 2 Technology: four established technologies are being upgraded, and three new technologies are accelerating into application
2.1 Established technologies are being upgraded, with PCR and NGS as the mainstays
2.2 New technologies are emerging, and multi-omics is taking shape
2.3 AI empowers pathological interpretation and bioinformatics analysis
Chapter 3 Commercialization: going overseas at the right moment, and co-development with pharma is just beginning
3.1 Mainstream models: in-hospital and out-of-hospital models complement each other under differing regulation
3.2 Channels: overseas expansion has grown markedly, while penetration to lower-tier markets remains early
3.3 Extensions: co-built hospital laboratories and joint development with pharmaceutical companies
Chapter 4 Trends: LDTs land first in tertiary hospitals, and insurance coverage for companion diagnostics expands
4.1 Technology: established and emerging technologies advance together
4.2 Regulation: hospital access through LDT is the threshold, and recognition varies
4.3 Payment: insurance coverage expands faster, and PCR may be first to face centralized procurement
Chapter 5 Company cases
5.1 MediFar—building a complete companion diagnostics solution
5.2 Huishan Gene—laying out AI plus precision diagnosis and treatment, offering comprehensive solutions
5.3 ProteinT—Gene–Protein–Metabolism "trinity" multi-omics analysis
5.4 Korean Bio—laying out NGP plus NGS, offering one-stop solutions
5.5 Kanglu Bio—advancing FISH and PCR together to build precision diagnosis
5.6 Immune Medical—providing immune-driven medicine solutions
5.7 Sainuo Bio—focusing on tumor diagnosis, providing complete pathology solutions
