The FDA Just Made It Way Easier to Compete in Cancer Diagnostics
The FDA is reclassifying key oncology diagnostics from Class III to Class II, lowering the barriers that kept competition out of bladder cancer imaging and companion diagnostics. Incumbents like Photocure and Abbott's Vysis brand may soon face a wave of new entrants.
Imagine you've been running a restaurant for years, and the only way anyone else can open one nearby is to pass a Michelin-star inspection first. That's roughly what it's been like in certain corners of cancer diagnostics. A handful of companies have enjoyed cozy, competition-light markets because the FDA required the toughest possible approval pathway for their devices.
That just changed. And it could reshape how bladder cancer gets detected and how precision oncology tests reach patients.
Two Big Moves, One Clear Signal
The FDA dropped a pair of regulatory actions this month that, together, send an unmistakable message: the agency thinks some oncology diagnostics don't need the most rigorous approval process anymore.
First, the agency issued a final order reclassifying certain in situ hybridization (ISH) companion diagnostic tests from Class III to Class II. ISH tests are lab tools that help pathologists match a patient's tumor to a specific targeted therapy. Think of them as the "lock and key" verification step before a doctor prescribes a precision cancer drug. That reclassification takes effect September 16, 2026.
Second, on August 17, the FDA proposed doing the same thing for blue-light cystoscopy systems. These are specialized camera setups that help urologists spot bladder tumors (including hard-to-see flat cancers called carcinoma in situ) by illuminating them under blue light after a patient receives an optical imaging agent. Right now, getting one of these systems to market requires a PMA, the FDA's most demanding approval pathway. The proposal would knock that down to a 510(k), which is faster, cheaper, and less burdensome.
One move is already final. The other is a proposal. But the direction is crystal clear.
Why Class III vs. Class II Matters More Than You Think
For non-regulatory nerds, here's the quick translation. The FDA sorts medical devices into three classes based on risk:
Class I: Low risk. Think tongue depressors. Minimal oversight.
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Class II: Moderate risk. You need to show your device is substantially similar to something already on the market (a 510(k) submission). Still regulated, but the bar is lower.
Class III: High risk. You need a premarket approval (PMA), which is essentially the device equivalent of a full drug approval. Clinical trials, mountains of data, years of work, and filing fees that can run into the hundreds of thousands.
When a device category sits in Class III, it acts like a moat around whoever got there first. The cost and complexity of PMA keep competitors out. Reclassifying to Class II doesn't eliminate oversight; the FDA still requires "special controls" (specific testing standards, labeling requirements, performance benchmarks). But it dramatically lowers the cost and time to enter the market.
Historically, when the FDA has made this kind of move, new competitors show up, prices face downward pressure, and incremental innovation speeds up. The agency reclassified six cardiovascular devices from Class III to Class II back in 2001, and since 2013, it has executed numerous additional downclassifications across device categories.
The Bladder Cancer Angle
Let's zoom in on blue-light cystoscopy, because the competitive dynamics here are fascinating.
The market today is tiny and concentrated. Photocure, a Norwegian company, makes Cysview (also sold as Hexvix outside the U.S.), the imaging agent that makes blue-light cystoscopy work. The company pulled in over NOK 500 million in global revenue in 2025. On the equipment side, Karl Storz is one of the dominant system manufacturers.
Because these systems have sat in Class III, there hasn't been much incentive for new entrants to challenge the incumbents. The PMA barrier was simply too expensive relative to the niche market size. If the FDA finalizes this proposed reclassification, though, that calculus flips. Suddenly, a 510(k) pathway makes it economically viable for additional device makers to bring competing blue-light systems to market.
For patients and urologists, more competition could mean lower equipment costs and faster adoption at hospitals that haven't yet invested in the technology. For Photocure and Karl Storz, it means the comfortable duopoly might have an expiration date.
The Companion Diagnostics Shakeup
The ISH companion diagnostic reclassification is arguably the bigger deal for precision oncology as a whole, even if it's less dramatic as a headline.
Companion diagnostics are tests that determine whether a patient's tumor has a specific biomarker, which then guides the choice of targeted therapy. Companies like Abbott (through its Vysis brand) and Roche (through its Ventana franchise) have long dominated the ISH/FISH segment of this market. Roche recently notched an FDA clearance for its VENTANA MET (SP44) RxDx Assay in May 2025, showing it's actively expanding its menu.
Growth rates in the companion diagnostics market hover in the 9% to 13% range annually. ISH/FISH remains a recognized technology segment alongside PCR, next-generation sequencing, and immunohistochemistry.
By moving ISH companion diagnostics to Class II, the FDA is essentially lowering the drawbridge. Companies that want to develop follow-on tests for approved oncology drugs can now pursue a 510(k) instead of a PMA. That's a meaningful reduction in both time and cost.
The catch: labeling constraints remain strict. Any companion diagnostic still needs to align its claims precisely with the corresponding approved therapy's label. So this isn't a free-for-all. It's more like switching from a sit-down restaurant permit to a food truck license; you still have to follow health codes, but you can get cooking a lot faster.
Winners and Losers
Who benefits? Companies with paired drug-diagnostic strategies. Smaller firms that couldn't justify PMA costs. Labs looking for more test options at competitive prices. And, ultimately, patients who need these diagnostics to access the right targeted therapies.
Who sweats? Incumbents who've enjoyed limited competition. If you've been the only ISH companion diagnostic on the block for a particular therapy, your pricing power just got a little less secure.
The bigger picture is that the FDA appears to be systematically reassessing whether certain diagnostics really warrant the highest level of regulatory scrutiny. The agency isn't lowering safety standards; it's matching the regulatory burden to the actual risk profile. When a device category has enough real-world evidence and well-understood technology, keeping it in Class III starts to look less like patient protection and more like an accidental barrier to competition.
For the companion diagnostics final order, mark your calendar: September 16 is when the new rules kick in. For blue-light cystoscopy, there's still a public comment period before anything is finalized. But the trajectory is set.
Precision oncology just got a little more accessible. And the companies that have been sitting comfortably behind regulatory moats? They'd better start paddling.
Clinical & Regulatory
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