Diagnostic Start-Ups' Post-COVID Reality: Impressive Innovation Versus Regulatory Shifts, Tight Financing

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ARTICLE SUMMARY:

While new technologies are flourishing in the diagnostics industry, and pharma is finally realizing the importance of diagnostics to the success of its drugs, at the R&D and commercial levels, financing start-ups fueling that innovation is getting tougher.

Innovation in the diagnostics industry is by far outpacing investment in it, as investors retreat from the boom years of the COVID-19 pandemic to return to a more normalized, much lower profile status.

An onslaught of technological innovation highlights the foundational role diagnostic testing has in advancing clinical care and improving patient’s lives. Insights gained from the COVID era, a more open-minded approach to home testing, and advances in spatial biology, single-cell analysis, digital pathology, multiomics, artificial intelligence, and machine learning are major contributors. New tests that integrate multiple modalities to accelerate precision medicine by identifying which patients are most likely to benefit from specific treatments and the prognosis of those patients have been especially impactful. In some cases, reimbursement has been attractive. Those achievements are hardly translating into greater interest in financing start-ups, where so much of the innovation occurs.

Two perspectives on these contradictory claims are evident from a recent report on venture investing in healthcare by HSBC, and from a summit on diagnostic testing held at Arizona State University (ASU). The former showed how financing levels for R&D tools and diagnostic testing companies have dropped from 2023 through the first half of 2024, since peaking during COVID, although they remain higher than their pre-pandemic levels. The bank hasn’t published numbers yet for the third half of 2024, but those should be similar to amounts for the first two quarters of this year, says Jonathan Norris, managing director at HSBC’s Innovation Banking.

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