Remarkable advances in the understanding of molecular mechanisms influencing neoplastic development and progression have spurred interest in molecular diagnostics and targeted cancer therapeutics. Approximately one in five original novel drugs approved by the US FDA since 2010 is considered a “targeted” therapy. Diagnostic tests that are essential to the safe and efficacious use of a drug are called “companion diagnostics”. Co-development and co-approval of therapeutics and companion diagnostics have provided significant benefits to cancer patients. However, the current co-development and co-approval paradigm has also brought many scientific, economical and regulatory challenges that pharmaceutical companies, device manufacturers, clinical labs and regulatory agencies will have to work together to overcome. With the advent and rapid adoption of next generation sequencing (NGS) technology for biomarker identification and clinical testing, it is conceivable that NGS may soon become the platform of choice to be used for genetic testing of a large array of genes for guiding patients to different targeted therapies. This presentation is intended to provide an overview of FDA regulation of companion diagnostics and discuss some regulatory challenges and opportunities for development of targeted therapeutics by pharmaceutical companies and device manufacturers.