Pathogen Genomics Startups Exit Prematurely: Is the tNGS Boom Stuck Before Hospital Adoption?

In the field of infectious disease diagnosis and treatment, tNGS is a phenomenal product.

In early 2023, industry media reported that targeted next-generation sequencing (tNGS) technology, which had entered clinical application just six months prior, had completed testing on over 100,000 samples, marking a peak performance immediately upon its market launch. The clear clinical demand for tNGS, along with its ready acceptance by physicians and patients, has driven continuous growth in sample volumes. Underlying this trend is the increasing emphasis on precision diagnosis and treatment of infections in clinical practice, which has objectively spurred the robust development of the pathogen detection industry. Taking respiratory disease testing, a primary focus area for tNGS, as an example, the market size in China grew from RMB 7.821 billion in 2019 to RMB 12.096 billion in 2023, representing a compound annual growth rate (CAGR) of 11.52%. The market size for respiratory disease testing is projected to increase from RMB 14.869 billion in 2024 to RMB 40.481 billion in 2028, with a CAGR as high as 28.45%.

On the other side of the coin, tNGS companies now find themselves in a dilemma. As a new diagnostic technology with high entry barriers, tNGS requires a substantial sample volume to reach break-even. Most companies offering tNGS services struggle to achieve profitability.

Losses from the Very First Run. Recently, industry practitioners shared their calculations with VCBeat: at an average terminal price of RMB 800 per test, if fewer than one hundred samples are processed in a single run, the revenue generated by tNGS testing fails to cover costs under the heavy burden of pathogen gene extraction, library preparation, sequencing, and labor. VCBeat has learned that since late 2023, in-hospital tNGS services have significantly retreated, with a large number of pathogen gene testing companies shutting down more than half of their tNGS service centers. Only a few clinical laboratories that can still barely break even continue to operate.

“In a sense, we are reluctant to perform tNGS, yet we have no choice but to do so,” lamented the practitioner.

tNGS, or targeted next-generation sequencing for pathogens, bypasses traditional microbial culture by directly enriching dozens to hundreds of known pathogenic microorganisms and their virulence and/or resistance genes from clinical samples. This is followed by high-throughput sequencing and comparative analysis against databases to identify the pathogenic microorganisms present in the sample, thereby enabling a definitive diagnosis and providing an effective new tool for the precise diagnosis of clinical infections.

Around 2020, the development of metagenomic next-generation sequencing (mNGS) technology was in full swing. There was growing confidence that mNGS could serve as the ultimate clinical tool for pathogen identification. A series of expert consensus statements issued at the time also supported this view. However, the fact that none of the mNGS testing reagents on the market held medical device registration certificates hung like a Damocles’ sword over the industry. Early star enterprises in the mNGS field, such as Weiyuan Genomics, Jinshi Medicine, and Weiyan Medicine, promptly initiated product compliance efforts. The regulatory compliance of mNGS required that gene extractors, sample library preparation instruments, sequencing analyzers, and diagnostic reagents all obtain product registration certificates. Soon after, product registration certificates for hardware equipment were approved one after another. With these certifications in hand, mNGS companies were able to conduct compliant operations within hospitals and secure a stable volume of samples.

However, the compliance process for metagenomic next-generation sequencing (mNGS) has stalled at the reagent stage. Unlike hardware devices, which require only simple performance validation for product registration, the approval logic for reagents is more complex. It requires clear definitions of samples, targets, organs, and diseases, along with established correlations among them. This principle inherently conflicts with the underlying mechanism of mNGS. mNGS sequences the entire genome present in diverse samples such as bronchoalveolar lavage fluid, cerebrospinal fluid, and saliva, identifying the patient’s infectious pathogens by comparing complete gene sequences against a pathogen gene database. In other words, under current regulatory frameworks, the clinical value of mNGS is difficult to definitively demonstrate.

Subsequently, mNGS companies boldly innovated by attempting to adapt the framework of large-panel tumor NGS products for mNGS product registration. Specifically, they identified gene loci associated with high-incidence pathogens to form a relatively small-scale panel for regulatory submission. If a patient’s infecting pathogen fell outside this panel, supplementary testing was conducted using research-use-only (RUO) reagents. This approach represented the nascent stage of targeted next-generation sequencing (tNGS). Unfortunately, despite several adjustments to the product portfolio, applications for large-panel mNGS products were consistently rejected. At an industry conference in early 2022, regulators explicitly stated that they would not encourage IVD registrations for innovative products that attempted to exploit regulatory loopholes, signaling that this pathway was not viable.

In the second half of 2022, the commercial clinical application of tNGS suddenly surged.

In its early years, a subsidiary of KingMed Diagnostics acquired a genetic testing company with the aim of expanding its product portfolio to include multiplex library preparation methods. However, this initiative was shelved as certain NIPT markets rapidly approached saturation. In late 2022, amid setbacks in the commercialization of mNGS products, KingMed Diagnostics revived its genetic testing program, upgrading it to a commercially available tNGS assay.

In clinical practice, tNGS technology has demonstrated remarkable competitiveness. The rapid increase in the volume of clinical samples processed by tNGS, as mentioned at the beginning of this article, is one aspect of this trend. Meanwhile, tNGS is capturing market share from other leading products in similar scenarios. According to previous media reports, the volume of mNGS tests submitted by intensive care units (ICUs) in large tertiary hospitals in certain provinces has declined for two consecutive months, with a portion of these samples being redirected to tNGS due to its significantly lower cost compared to mNGS. Additionally, multiplex respiratory pathogen detection tests previously ordered in general wards are also seeing some diversion to tNGS. This shift is driven by the fact that tNGS pricing is comparable to that of respiratory multiplex panels, yet it offers broader pathogen coverage and the ability to detect antimicrobial resistance genes.

The unexpected surge in popularity of tNGS has attracted numerous genetic testing companies to enter the field, instantly invigorating the industry. Needless to say, companies originally engaged in mNGS testing services have all launched tNGS offerings, while some clinical routine testing enterprises are also attempting to leverage tNGS to hop on the fast-growing bandwagon of genetic testing.

However, only a very small number of companies have successfully shared in the prosperity of the tNGS business.

Notably, despite its widespread clinical adoption, tNGS technology has failed to achieve regulatory compliance for commercial products.

Similar to mNGS technology, tNGS also faces the dilemma of demonstrating clinical value, albeit with different manifestations of this challenge. Theoretically, tNGS could follow the registration pathway used for respiratory multiplex testing products; however, securing a sufficient number of positive samples remains a major hurdle for tNGS companies. Product registration imposes clear requirements on the number of patients enrolled in clinical trials and their disease profiles. In addition to a large number of negative samples, tNGS reagent applications must provide positive samples for each target, disease, and sample type combination, with 3,000–5,000 samples required per combination. The magnitude of this challenge is self-evident.

tNGS tests lacking product certification have failed to establish a unified commercial closed-loop model. Overall, there are two primary pathways for tNGS adoption in hospitals. One is the conventional IVD model, which involves selling equipment and using reagents as consumables; the other is the service model based on outsourcing samples. Under the service model, some tNGS companies register with hospitals and issue prescriptions through the hospital’s internal information system, while many others rely on collaborations with physicians and nurses to obtain sporadic outsourced samples.

Among these, selling equipment and consumables is undoubtedly the most efficient model, with relatively lower channel costs yet higher stability in sample acquisition. However, this model has not yet become mainstream. “Currently, hospitals are gradually introducing the equipment. For instance, Beijing You’an Hospital, Xiangya Hospital, and the Jiangxi Provincial Maternal and Child Health Hospital, which is about to issue a tender,” pointed out an industry practitioner. “But basically, they are not conducting the tests independently; tNGS has not really taken off. Manufacturers will arrange to send personnel to provide support.”

At present, the largest-scale model is the outsourced tNGS testing service based on hospital filings, which represents KingMed Diagnostics’ commercialization strategy for tNGS. This approach features an exceptionally high barrier to entry, making it nearly impossible for other players to replicate. As a leading provider of routine clinical laboratory services in China, KingMed Diagnostics boasts a robust nationwide channel network and has established deep collaborations with numerous hospitals, providing them with outsourcing services for thousands of clinical tests over the long term. By adding tNGS testing as an additional item to its service menu, the company can rapidly establish a stable pipeline for collecting large volumes of samples. “Leveraging its vast pool of clinical resources, KingMed Diagnostics can generate substantial business volume even with a low conversion rate,” noted an industry analyst.

Neither routine clinical testing companies nor specialized testing enterprises typically possess such resource capabilities. For targeted next-generation sequencing (tNGS) services, sample volume holds particular significance. Taking the comparison between tNGS and metagenomic next-generation sequencing (mNGS) as an example, while the former is currently unprofitable and the latter is profitable, mNGS generates significantly higher sequencing data volumes than tNGS. If a company can secure a sufficiently large number of samples to amortize the substantial costs incurred in the gene sequencing process, tNGS’s profitability could potentially surpass that of mNGS, making it a lucrative business. However, some industry practitioners have pointed out that many clinical laboratories fail to obtain sufficient sample volumes to even cover average daily costs of 5,000 yuan.

Consequently, while KingMed Diagnostics continues to operate its tNGS services at full capacity across various regions, new market entrants have been scaling back their operations. It is hardly surprising that companies specializing in routine clinical testing have struggled significantly with tNGS, given the substantial barriers between different sectors. Meanwhile, firms focused on specialized clinical testing, despite their aggressive strategies, have also encountered repeated setbacks.

Since 2019, many pathogen genetic testing companies have established in-hospital operations amid a period of rapid market expansion. However, starting in 2023, these companies have successively terminated their in-hospital collaborations for mNGS, with only a few in-hospital teams handling substantial sample volumes continuing to sustain such partnerships. Consequently, the pathogen NGS businesses of most pathogen genetic testing companies have been forced to contract into a precarious position where they rely solely on collecting and sequencing decentralized samples across China.

The underlying logic here is that the business model pioneered by KingMed Diagnostics, which drives growth through routine clinical testing, differs significantly from the strategies familiar to mNGS companies. Most founding teams come from the genetic testing industry, and domestic mNGS enterprises are accustomed to pursuing the route of specialized clinical testing, negotiating collaborations with hospitals on a case-by-case basis. “Negotiating specialized testing partnerships is a slow process, taking anywhere from 1–2 years at the shortest to 2–3 years at the longest,” pointed out Li Hang, founder of Fanglue Biology. “Hospitals bear compliance risks when introducing specialized testing items.” Even if collaborations are finalized, there remains uncertainty as to whether mNGS providers can secure a sufficient volume of samples, given that such agreements typically lack exclusivity.

Clearly, companies specializing in pathogen gene detection need to think beyond tNGS technology.

“After more than a decade of attempts, the industry has come to realize that it is difficult to achieve profitability by relying solely on NGS technology to support the entire industrial chain,” said Li Hang. “As a result, many companies have disappeared, unable to sustain their operations in the mNGS and tNGS sectors. This reflects an objective reality: challenging financing conditions, exhausted capital, delayed product regulatory approvals, and low sample volumes from hospital admissions.”

Although it is lamentable that some peers have dropped out midway, more companies are reluctant to leave the burgeoning field of infection prevention and control. “tNGS and mNGS represent the future of pathogen genetic testing,” said more than one industry practitioner, “but for now, the priority is to find ways to survive.”

In the past, it was relatively easy for biotech innovation startups to survive; in a relatively lenient external environment, even technologies with modest promise could secure sufficient funding to support corporate and product development. Currently, however, many NGS companies facing difficulties have begun to adopt a dual-pronged strategy.

On one hand, the company is broadening its path in pathogen genetic testing and seeking to generate cash flow in the short term. Moving upstream involves genes and sequencing; moving downstream focuses on PCR and nucleic acids. Some tNGS (targeted next-generation sequencing) players are attempting to extend their product lines toward respiratory panel tests with higher diagnostic certainty. “In genetic testing, we have always faced high barriers that require long-term cultivation. Even after obtaining regulatory approval in the future, we would still need to increase sample volumes. Therefore, we were compelled to move into more accessible market segments,” Li Hang told VCBeat.

Interestingly, this forced business strategy of pivoting has objectively established a tiered diagnosis and treatment framework for pathogen infections. Theoretically, there are subtle differences in the clinical scenarios suitable for multiplex respiratory panels, tNGS, and mNGS. Their combined use can pinpoint the infectious pathogen while minimizing patient wait times and controlling nosocomial disease transmission.

Specifically, by leveraging multiplex respiratory pathogen panels, patients can undergo basic screening for infectious pathogens at primary healthcare institutions. For instance, the six-plex respiratory pathogen panel offered by Sansure Biotech covers the common pathogens associated with upper respiratory tract infections, as indicated by epidemiological surveys. If a patient’s infecting pathogen falls outside this scope, targeted next-generation sequencing (tNGS) is employed for further screening, covering 100–200 common pathogens. Only a very small minority of patients infected with rare pathogens ultimately require metagenomic next-generation sequencing (mNGS) for definitive diagnosis. In this sense, within the extensive landscape of pathogen genetic testing, multiplex respiratory panels, tNGS, and mNGS each hold distinct value, outlining the fundamental framework for product portfolio development among companies in the pathogen genetic testing sector.

On the other hand, product commercialization is the fundamental basis and future of tNGS. Another focus for most tNGS companies remains technological innovation in tNGS. After two years of iteration, the product logic of tNGS is becoming clearer. Unlike large-panel tumor NGS, which provides greater benefits to patients, tNGS panels should continue to be streamlined, selecting pathogen gene combinations that are more precise and better aligned with clinical needs. “Of course, not all tNGS companies will ultimately succeed. I am more optimistic about companies with substantial clinical and technical expertise, such as BGI Genomics, Jinshi Medicine, and Weiyuan Biology,” said Li Hang. “Once they obtain regulatory approval, they will rapidly capture the market.”

Regarding the market landscape following the commercialization of tNGS products, several industry practitioners have expressed strong confidence. In addition to the first-tier companies that were the earliest to obtain regulatory approval becoming leading brands, opportunities within the supply chain remain promising for second-tier tNGS enterprises. Leveraging their laboratory coverage capabilities through nationwide delivery networks, these companies may serve as channel partners for leading brands, providing support for hospital-based testing services in specific regions, or even be acquired to form regional teams. “Based on past experience, general testing companies are incapable of fulfilling the supply chain requirements for clinical specialized testing,” stated one practitioner.

In reality, the ups and downs and twists and turns experienced by mNGS and tNGS are precisely the inevitable path for innovative biotechnologies to reach clinical application. In this phase of the pathogen genetic testing race, some have departed while others have remained steadfast; yet we firmly believe that clear clinical value will guide this innovative technology toward a definitive future.