3D Medicines Founder Xiong Lei: 'Bodhisattvas Fear Causes, Sentient Beings Fear Consequences' — Navigating the Maturation of China’s Tumor NGS Diagnostics Industry

As one of the once hottest niche sectors, the tumor NGS testing industry has experienced a growth slowdown in recent years.

Initially, the tumor gene testing industry, dominated by qPCR, grew at an annual rate of 50%. Around 2015, NGS propelled the industry into a phase of even higher growth, sustaining ultra-rapid expansion rates of up to 100% for several years. A shift occurred around 2020, when growth stagnated and, more recently, even contracted in certain segments. For many, the NGS-based tumor gene testing industry has entered a prolonged “darkest hour.”

 Dr. Xiong Lei, Founder of 3D Medicines | Image source: Provided by the interviewee

After years of “wild” growth, tumor NGS genetic testing, with companion diagnostics as its primary application scenario, remains a business that is not easy to profit from. However, in Xiong Lei’s view, the current lack of profitability in tumor genetic testing is fundamentally different from what it was four or five years ago.

During the industry’s peak years from 2016 to 2018, single-round financing records for tumor NGS genetic testing projects were broken every month, and new tumor NGS genetic testing companies were registered and established across China on a monthly basis. In that phase, when product standards, industry regulations, and market awareness had yet to be established, the “barriers to entry” for tumor NGS genetic testing appeared low. Coupled with enthusiastic capital investment, the emerging market was highly active. However, it is also a fact that the industry’s penetration rate (adoption rate) did not increase rapidly.

“Currently, multiple elements of the oncology genetic testing industry, including regulatory attitudes, product technologies, and industrial infrastructure, are maturing,” pointed out Xiong Lei. This relatively mature industrial ecosystem has created the prerequisites for market prosperity and for companies to realize commercial value.

In 2015, the United States vigorously advanced precision medicine, and China quickly followed suit, triggering the first wave of capital investment enthusiasm in oncology precision medicine. By 2018, the first batch of domestic next-generation sequencing (NGS)-based genetic testing products for cancer had successively received regulatory approval and entered the market, sparking a new surge of capital interest in the oncology NGS genetic testing industry.

At that time, regulators had begun to embrace this innovative technology. However, on one hand, the early-approved oncology genetic testing kits covered a very limited number of gene loci and mutations, meaning that only a small fraction of patients could benefit, which resulted in limited market acceptance in clinical settings. On the other hand, tumor next-generation sequencing (NGS) technology was highly complex to operate, requiring substantial investment in upstream and downstream equipment, thereby keeping marketing and promotion costs persistently high.

Technological Iteration The primary challenge encountered is that the vast majority of currently approved products have relatively limited capacity to meet clinical needs. Most next-generation sequencing (NGS) test kits approved in the early stages primarily targeted hotspot gene mutations, paying insufficient attention to more complex yet critically important information such as gene fusions. This is because the mutational patterns of fusion genes and the technical challenges associated with their detection are far greater than those for point mutations; consequently, these kits exhibit significant performance limitations, ranging from their design principles to clinical application. Meanwhile, more than a dozen tumor-targeted therapies, which require specific gene fusions as a prerequisite for treatment, have been successively approved and launched on the market, constituting an important component of novel oncology drugs.

In this sense, although many NGS genetic testing kits are “available,” there is a lack of truly high-performance patient screening tools. This has led to difficulties in enrolling patients in clinical trials of innovative drugs targeting novel fusion genes, and even for marketed drugs that have been rapidly included in the national medical insurance coverage, there is a widespread dilemma of being unable to identify eligible patients.

Sample ComplexityExperience with the clinical application of next-generation sequencing (NGS) testing has revealed that this technology imposes relatively high requirements on sample quality. Early approved NGS technologies generally exhibited limited capacity for processing suboptimal samples, necessitating very high DNA/RNA content (typically exceeding 50 ng). However, many biopsy samples obtained from patients with advanced-stage cancer in clinical practice fail to meet the requirements of these earlier-generation NGS assays, resulting in failed quality control and inability to perform the testing.

Particularly in the detection of fusion genes, RNA must serve as the analytical target. However, the currently prevalent next-generation sequencing (NGS) methods on the market exhibit limited capability in processing RNA samples, resulting in both a high rate of missed fusion gene detections and a high rate of RNA sample non-compliance, thereby precluding testing.

“Previously approved products did not achieve optimal performance; product iteration is necessary as technology continues to advance,” stated Xiong Lei. Clinical and pathology experts in China have also proactively recognized this issue. Over the past few years, various consensus statements have been issued sequentially. Notably, professional societies under the China Primary Health Care Foundation and the China Anti-Cancer Association are currently promoting the forthcoming release of the “Chinese Expert Consensus on Clinical Practice for RNA-Based NGS Detection of Fusion Genes in Non-Small Cell Lung Cancer.” This consensus further clarifies the adoption of next-generation “DNA+RNA” NGS testing technologies to overcome the longstanding challenge where fusion gene detection traditionally required RNA testing, yet low-quality samples often precluded efficient RNA analysis.

In fact, the latest testing technologies from Chinese and U.S. companies—such as the new-generation NGS “DNA+RNA” single-tube co-detection technology developed by companies including 3D Medicines and Archer—have effectively resolved these issues, with regulatory approvals for market launch expected to roll out over the next two to three years. Moreover, regulatory authorities are increasingly open to tumor NGS genetic testing, introducing numerous policies to facilitate the clinical implementation of innovative technologies, including those capable of detecting a broader range of mutation types and better addressing challenges associated with trace-amount and low-quality samples.

PaymentAnother critical factor is payment. For a long time in the past, the benefits derived from tumor genetic testing itself were minimal. At the early stage of the commercialization of tumor next-generation sequencing (NGS) testing, many new targeted and immunotherapy drugs had not yet been included in the national medical insurance scheme, resulting in poor accessibility to oncology medications. Consequently, the number of patients willing to undergo genetic testing was relatively low.

However, compared to four or five years ago, an increasing number of innovative oncology drugs have received clinical approval, with multiple targeted therapies often available for the same molecular target. More importantly, state reimbursement support for major diseases has increased substantially. Previously unaffordable, high-cost drugs are now rapidly included in the national medical insurance scheme shortly after their domestic launch, creating the fundamental prerequisites for the widespread adoption of tumor genetic testing. Meanwhile, in recent years, relevant clinical guidelines have increasingly incorporated tumor genetic testing into their recommendations, leading more physicians and patients to accept it as a prerequisite step in standard oncology care.

AutomationIndustrial infrastructure is another key element driving industry-wide adoption and increased penetration rates. Globally, for any diagnostic technology, only through the comprehensive application of automation can IVD-based testing outside central laboratories become feasible. This enables a rapid increase in the volume of tests conducted within hospitals and at lower-tier medical institutions, thereby facilitating widespread adoption across thousands of hospitals in China.

Tumor NGS genetic testing is no exception to this rule. It can be said that NGS is not only a far more complex detection method than qPCR, with high requirements for technical platforms and operators, but also arguably the most complex technology currently applied in clinical testing. Many cancer patients in China are treated at hospitals in prefecture-level and county-level cities, where very few institutions possess the expertise to proficiently perform NGS testing. Even large Grade 3A hospitals face similar challenges.

Therefore, without the widespread adoption of automation, it is impossible to significantly drive the penetration of tumor NGS genetic testing across the majority of hospital markets, even if issues related to detection technology and payment are resolved. Currently, multiple automated NGS test kits are undergoing regulatory registration and approval. These include offerings from foreign companies such as Roche and Agilent, as well as from Chinese companies such as 3D Medicines and BGI, all of which are promoting NGS automation. It is foreseeable that this barrier will be completely resolved within the next two to three years.

CapitalIn contrast, the attitude of capital remains relatively pessimistic. “Some investors are deeply entrenched and unable to exit, others have distanced themselves from the precision medicine market, and still others remain in a state of uncertainty and watchful waiting,” Xiong Lei told VCBeat. “In fact, many investors fail to recognize that the key elements of the tumor gene companion diagnostics industry, centered on next-generation sequencing (NGS), are on the verge of maturity, and the industry is poised for an imminent boom.” Xiong Lei believes that by understanding the essential factors required for the industry’s mature development, one can remain clear-headed when others are acting irrationally and make the right choices when others are fearful.

Xiong Lei predicts that by around 2025–2026, all the essential elements required for the prosperity of the tumor genetic testing industry—including products, technologies, and market conditions—will be fully integrated, driving endogenous growth. Therefore, current external capital involvement presents an opportune moment to capitalize on this trend. In Xiong Lei’s view, the current “freeze” or “cooling-off” period in the relationship between the industry and capital is primarily driven by volatility in the secondary capital markets transmitting to the primary market, rather than by fluctuations within the industry itself. The industry’s mature explosion was always destined to occur naturally once the aforementioned factors matured around 2025–2026. Thus, the premature expectations of an earlier boom held by most investors and industry peers were inherently unreasonable.

“I often tell investors that without the maturation of the aforementioned elements, the industry will not experience rapid explosive growth. Whether regulatory approval is obtained a few years earlier or later will not fundamentally alter the competitive landscape. At present, although market sentiment has cooled significantly compared to the fervor seen among most investors in previous years, this is actually the most opportune time for investment,” pointed out Xiong Lei. He noted that the success factors required for an industry boom are the “causes” that must be sown; if these “causes” are not planted, one can only reap the “bitter fruit.”

Over the next two to three years, the “seeds” sown by certain enterprises—technologies addressing unmet clinical needs—and the “seeds” planted by the broader environment—regulatory frameworks for payment and open innovation—will both enter their harvest phase, naturally propelling the industry into a period of rapid growth. Therefore, while short-term adjustments in the macro environment and strategic shifts by some companies within the sector may have significant immediate impacts on industrial development, their long-term effects will be limited. Capital that chooses to invest in these “seed-sowing” enterprises at this juncture will naturally reap the rewards of future “good fruit.”

In the early stages of commercialization, tumor genetic testing was primarily concentrated in large hospitals in first-tier cities with advanced medical infrastructure. In the absence of qualified and compliant products, samples were sent out for external testing. The transition from innovation to regulatory compliance is an inevitable path for biotechnology to become a clinical tool.

In the wave of personalized cancer therapy, this model of sending out samples for companion diagnostics has played a pivotal role. Even though product performance has not yet reached a score of 90 or higher, molecular testing based on gene mutations has already helped many patients promptly access effective medications.

However, the market capacity for outsourcing samples from top-tier hospitals is limited, and competition among vendors is fierce. Patients often need to choose from tumor genetic testing products of multiple brands, and among homogeneous products, pricing is almost the only differentiator. Concerns about the sample outsourcing model for tumor genetic testing reached a peak when news broke that a large gene technology company had laid off its LDT team on a large scale.

In fact, as the clinical value of tumor genetic testing continues to be recognized, regulatory approval support has been increasing. The market for compliant tumor genetic testing products has emerged from scratch, and well-equipped large hospitals have been improving their infrastructure to incorporate tumor genetic testing into their in-house medical services. Consequently, the volume of outsourced tests in this early-stage market is itself decreasing.

“The volume of samples outsourced from core markets should align with that of second-, third-, and fourth-tier cities,” pointed out Xiong Lei. Compared to outsourced testing, in-hospital tumor genetic testing offers higher efficiency. The reduced demand in the outsourcing market has led to job transitions for many professionals, exacerbating anxiety. However, the maturation of an industry is invariably accompanied by improved workforce efficiency and increased per-capita contribution.

More importantly, the model of outsourcing samples will not disappear but will move towards new standardization. Because in third- and fourth-tier cities, the technical ecosystem and infrastructure cannot mature overnight, sample outsourcing is gradually becoming compliant, shifting from a situation where hospitals were completely unaware, unsupportive, and uninvolved to one where hospitals are aware, supportive, and willing to participate. “We see that many provinces are regulating outsourcing, not banning it, but having professionals manage it, requiring contracts with hospitals and filing records, which is an inevitable trend driven by patient demand,” said Xiong Lei.

Compared with the saturated market of top-tier hospitals, lower-tier markets undoubtedly offer greater potential. “Future cancer treatment, at least in terms of targeted therapy, will increasingly penetrate down to these lower tiers,” judges Xiong Lei. So-called “market penetration” refers to leveraging mature genetic testing capabilities to enable eligible patients to receive standard targeted therapy at primary care facilities, while patients with complex conditions or those requiring innovative regimens beyond clinical guidelines are treated by more experienced physicians at higher-level hospitals. The state has also introduced numerous policies to help hospitals in China’s vast prefecture-level and county-level cities establish essential medical infrastructure and capabilities for cancer treatment, including pathology and molecular diagnostics, imaging, and anesthesia and pain management.

Based on historical diagnosis and treatment data, 70%–80% of cancer patients are eligible to receive standardized care at primary healthcare institutions. At the grassroots level, both hospitals and physicians are incentivized to retain patients by utilizing genetic testing and targeted therapies. Meanwhile, tertiary hospitals and clinical experts do not wish to be overwhelmed by an influx of all patients; their primary focus is on addressing complex and refractory cases—specifically those requiring intricate drug combinations and sophisticated management of adverse effects beyond standard clinical guidelines—thereby continuously expanding the frontiers of oncology practice.

“Standardized cancer treatment at the primary care level may be realized within the next three to five years,” Xiong Lei told VCBeat. He noted that, in addition to efforts by hospitals and physicians, pharmaceutical companies are also promoting a tiered diagnosis and treatment system for cancer, enabling patients to receive therapy at grassroots healthcare institutions at the earliest opportunity.

After years of market education, clinicians in first-tier cities have largely developed an awareness of tumor genetic testing, and relevant clinical guidelines and expert consensus systems have gradually taken shape. If the previous phase of market education involved manufacturers educating physicians, then in lower-tier markets, senior physicians can influence primary-care physicians, significantly reducing the difficulty of education. Nevertheless, even so, the commercialization of tumor genetic testing in lower-tier markets cannot simply replicate the experience of first-tier cities.

On the one hand, the structure of lower-tier markets differs from that of core markets in first- and second-tier cities; it is highly fragmented and sparse. In first- and second-tier cities, the market for oncology genetic testing may be concentrated in 200–300 large hospitals, whereas in lower-tier markets, it is typically distributed across 2,000–3,000 hospitals. To adapt to these distinct market characteristics, oncology genetic testing companies must proactively adjust their organizational capabilities.

On the other hand, patient samples collected by lower-tier hospitals are often of inferior quality compared to those from core hospitals, necessitating that tumor genetic testing manufacturers further optimize product performance and process management. In many lower-tier market hospitals, infrastructure for tumor genetic testing is less developed, requiring various forms of compliant external referral services for a considerable period. As part of industry growth trends, tumor genetic testing manufacturers must also assist hospitals interested in building independent testing capabilities by establishing internal tumor genetic testing systems.

“At present, 90% of tumor genetic testing companies are not profitable.”

Regarding the current state and near-term future of China’s oncology genetic testing industry, Xiong Lei has offered his own assessment. In his view, as key factors such as the regulatory ecosystem, product technologies, and market awareness in oncology genetic testing mature, and as capital enthusiasm cools, the industry will return to its most fundamental logic: developing products that meet clinical needs, with cost-effectiveness being an unavoidable consideration.

In the initial phase of commercialization, a subset of clinicians and patients began utilizing tumor genetic testing products. The current and future imperative is to minimize the omission of users with a demonstrated need for such testing. In China, there are over 4 million newly diagnosed cancer patients annually. Approximately 80%–90% of cancer types are covered by targeted therapies (with a significant portion achieving targeted treatment through pan-cancer genomic mutation profiling), and these targeted therapies require genetic testing to guide drug selection. Considering only genetic testing for first-line treatment, the annual demand for tumor sample testing approaches 4 million cases. “The current market penetration rate for tumor NGS testing in China is only 10%,” pointed out Xiong Lei.

In fact, the domestic tumor genetic testing market in China has always been a relatively free market. The regulatory authorities’ tolerance for this innovative technology, coupled with the optimism of practitioners and capital, has fostered robust competition. Only through sufficient market competition can high-quality enterprises emerge. Admittedly, in such a market environment, homogeneous price competition is inevitable during the early stages. However, compared to price levels widely accepted by the market, existing tumor genetic testing products with guaranteed performance are still priced relatively high.

In Xiong Lei’s view, NGS-based tumor genetic testing will surely capture the market if it becomes affordable for more than 80% of patients. At present, the average price of NGS tumor genetic testing products in China is around RMB 10,000. In the vast majority of cases, this expense must be borne out-of-pocket by patients. Given that only one-sixth to one-seventh of patients stand to benefit from targeted therapies or immunotherapies after genetic mutation screening, most patients are likely to forgo tumor genetic testing when faced with this price tag.

“It is entirely feasible to offer tumor genetic testing products that comply with standardized treatment protocols at a price point of around $1,000,” Xiong Lei told VCBeat. He noted that pricing for such products must fully account for the distinct characteristics of core markets in first-tier cities and lower-tier markets. By providing more cost-effective solutions, companies can meet the needs of lower-tier markets and serve over 90% of patients.

“For patients with more complex conditions who require treatment options beyond clinical guidelines or need to enroll in clinical trials, higher-priced products with more complex gene loci and algorithms can be adopted. ‘Of course, even with such testing solutions available, the number of patients who can truly benefit remains very limited at present. After all, by the time tumors reach late-line treatment, the number of effective therapeutic options becomes increasingly scarce,’ mentioned Xiong Lei. ‘China’s NGS-based tumor genetic testing should prioritize addressing the needs of over 90% of patients, ensuring that this innovative testing technology is affordable for the vast majority of Chinese patients.’”

VCBeat has noted that multiple provinces have already issued guidance pricing for tumor NGS testing, with prices hovering around $1,000, consistent with Xiong Lei’s assessment. Of course, the prerequisite for lowering product pricing is to ensure that product performance fully meets clinical needs and complies with regulatory requirements for clinical products. This requires leveraging technological advancements—not only to reduce costs and enhance performance through innovative technologies, but also to improve testing efficiency and lower labor service costs through automation.

“Once these key points are addressed, profitability for tumor genetic testing companies will follow naturally.” Xiong Lei predicted to VCBeat that over the next two to three years, some companies will gradually achieve profitability, but the majority may exit the industry. “As the industry matures, consolidation will occur; this trend is even more pronounced in technology-driven and product-driven sectors.”