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BFD Expert Voices - Health Tech Deals

BFD Expert Voices

Diagnostic testing companies are set for "a coming leap forward," per a recent PitchBook report.

Why it matters: Investors who can afford to wait — several years to a decade, per the report — could cash out big on cancer diagnostics, precision medicine and rapid point-of-care and home tests as these tools mature and commercialize.

Zoom in: As mid- to late-stage testing companies remain in building period, the near-term deal horizon may be quiet, but expect some M&A activity as existing players consolidate.

The big picture: COVID showed the public the futility of tests that can only be conducted in a lab or doctor's office.

Successful companies in the sector seized upon that lesson in health care decentralization.

Friction point: Cancer diagnostics in particular are on on the cusp of transformation — think non-invasive and early detection methods — but variations in reimbursement models, haziness around cost benefits and the threat of false positives could hinder the field's evolution.

Early existing screenings often require further testing, an expensive and time-consuming endeavor for patients and the health system.

Whole-body screening is one area of controversy. The process was once reserved for high-risk people, but several startups have made the scans more accessible to those who can afford them. (One startup, Prenuvo, offers whole-body scans for $1,000–$2,500. The company does not accept insurance.)

As imaging equipment becomes increasingly portable and affordable, such scans could become more accessible and even offered as an employee benefit, per the report.

Follow the money: Despite the overall doldrums chilling the health tech market, several M&A deals in oncology diagnostics have warmed the sector.

In October, diagnostics and diabetes management company Trinity Biotech (Nasdaq: TRIB) acquired EpiCapture Limited, which is developing a non-invasive risk monitoring test for aggressive prostate cancer.

Quest Diagnostics (NYSE: DGX) last year bought cancer detection startup Haystack Oncology for $450 million.

State of play: Innovation bright spots include point-of-care testing, liquid biopsies (a potentially non-invasive alternative to a traditional biopsy) and precision medicine (personalized treatment based on genomic testing).

Clinicians want the ability to diagnose faster and more accurately, and to spot conditions that aren't currently identifiable, per a recent Deloitte survey.

By the numbers: VC deal activity in the testing sector has declined slightly in the past few years, amassing $3.1 billion in 2023 and $3 billion YTD, compared to $7.1 billion and $5.8 billion in 2021 and 2022, respectively.

That slowdown likely reflects COVID's aftermath, which has seen a decline in demand for rapid and accessible tests, per the report.

Reality check: The regulatory landscape for home and point-of-care tests has grown cloudy in recent months, with the FDA swinging from not regulating them at all to scrutinizing their sale and marketing.

In April, the agency cited such tests' potential risks and ruled to add more regulatory scrutiny to the development and marketing of lab-developed tests (LDTs): tests designed, made and analyzed by a single lab.

What they're saying: "Investors should still be paying attention to the space," writes senior PitchBook health care analyst Aaron DeGagne in the report.

"Despite a down period for funding, now is a good time to revisit the sector," he adds.

Diagnostics' looming leap

Cancer diagnostics in particular are on on the cusp of transformation.

Illustration of an arrow made out of cotton swabs. 

Diagnostic <a class="gtmContentClick" data-vars-link-text="testing companies" data-vars-click-url="https://link.axios.com/click/37864166.510/aHR0cHM6Ly93d3cuYXhpb3MuY29tLzIwMjQvMDEvMDkvZGlhZ25vc3RpYy1lcnJvci1ob3NwaXRhbHMtZGVhdGhzLWljdS1zdHVkeS1yZXBvcnQ_dXRtX3NvdXJjZT1uZXdzbGV0dGVyJnV0bV9tZWRpdW09ZW1haWwmdXRtX2NhbXBhaWduPXByb19kZWFsc19oZWFsdGh0ZWNoX3N1YnMmc3RyZWFtPXRvcA/61b8a591584bc520355bcf4fB73527f1d" data-vars-content-id="83426d3f-7771-49ef-8915-e81fab95578a" data-vars-headline="Diagnostics&#x27; looming leap" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://link.axios.com/click/37864166.510/aHR0cHM6Ly93d3cuYXhpb3MuY29tLzIwMjQvMDEvMDkvZGlhZ25vc3RpYy1lcnJvci1ob3NwaXRhbHMtZGVhdGhzLWljdS1zdHVkeS1yZXBvcnQ_dXRtX3NvdXJjZT1uZXdzbGV0dGVyJnV0bV9tZWRpdW09ZW1haWwmdXRtX2NhbXBhaWduPXByb19kZWFsc19oZWFsdGh0ZWNoX3N1YnMmc3RyZWFtPXRvcA/61b8a591584bc520355bcf4fB73527f1d" target="_self">testing companies</a> are set for &quot;a coming leap forward,&quot; per a recent PitchBook report.Why it matters: Investors who can afford to wait — several years to a decade, per the <a class="gtmContentClick" data-vars-link-text="report" data-vars-click-url="https://link.axios.com/click/37864166.510/aHR0cHM6Ly9maWxlcy5waXRjaGJvb2suY29tL3dlYnNpdGUvZmlsZXMvcGRmL1E0XzIwMjRfUGl0Y2hCb29rX0FuYWx5c3RfTm90ZV9EaWFnbm9zdGljc19pbl90aGVfTmV4dF9EZWNhZGUucGRmP3V0bV9zb3VyY2U9bmV3c2xldHRlciZ1dG1fbWVkaXVtPWVtYWlsJnV0bV9jYW1wYWlnbj1wcm9fZGVhbHNfaGVhbHRodGVjaF9zdWJzJnN0cmVhbT10b3A/61b8a591584bc520355bcf4fB786907c1" data-vars-content-id="83426d3f-7771-49ef-8915-e81fab95578a" data-vars-headline="Diagnostics&#x27; looming leap" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://link.axios.com/click/37864166.510/aHR0cHM6Ly9maWxlcy5waXRjaGJvb2suY29tL3dlYnNpdGUvZmlsZXMvcGRmL1E0XzIwMjRfUGl0Y2hCb29rX0FuYWx5c3RfTm90ZV9EaWFnbm9zdGljc19pbl90aGVfTmV4dF9EZWNhZGUucGRmP3V0bV9zb3VyY2U9bmV3c2xldHRlciZ1dG1fbWVkaXVtPWVtYWlsJnV0bV9jYW1wYWlnbj1wcm9fZGVhbHNfaGVhbHRodGVjaF9zdWJzJnN0cmVhbT10b3A/61b8a591584bc520355bcf4fB786907c1" target="_self">report</a> — could cash out big on cancer diagnostics, precision medicine and rapid point-of-care and home tests as these tools mature and commercialize.

Diagnostics' looming leap

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