Deal activity in diagnostics has been way down in 1999 and while a few strategically sound deals are getting done, the scale has been very small. With financing and M&A options drying up, smaller diagnostics companies are more squeezed than ever. A plucky few have snared good deals. Here's how.

While diagnostics start-ups have delivered good returns to private investors, they've performed miserably for the public, with a few significant exceptions. In this statistical review, we segment the industry, showing the trends that have won with investors (automation, drug-focused diagnostics) and those that have lost big (point-of-care testing).

The diagnostics industry has been a tarpit for start-ups. Entrepreneurs rarely overcome the field's serious and often unseen challenges, but a handful are thriving thanks to their realistic assessments of just how complex the industry is and their ability to adapt when products hit brick walls. Accessible market niches are a key to success, so is exploiting drug firms--as customers, marketing channels, or as sources of differentiating technology.

The CEOs that took diagnostics companies public in the 1990s came from firms big and small, with much experience or none at all. The energy they bring to these jobs may matter more than particular skill sets.