NEW YORK -(Dow Jones)- As scientists continue to find key genes and molecules to help determine the success of certain medical treatments, more focus is falling on companies that identify those so-called biomarkers.

Most of the publicly traded companies that specialize in this area of personalized medicine - among them are Bio-Reference Laboratories Inc. (NASDAQ-NMS:BRLI) (BRLI), Sequenom Inc. (NASDAQ-NMS:SQNM) (SQNM), Genoptix Inc. (NASDAQ-NMS:GXDX) (GXDX) and Helicos BioSciences Corp. (NASDAQ-NMS:HLCS) (HLCS) - are small operations with less than $300 million in annual revenue and $700 million market caps that have strong regional ties or unique technology.

Those stocks, though, aren't for risk-averse investors, as they have been volatile - reflecting the industry's promise as well as its infancy. Nonetheless, optimism abounds as this type of personalized medicine is expected to become more popular.

"I think these are companies with good margins that have higher growth prospects," said Lehman Brothers analyst Anthony Butler, who is bullish on the diagnostic sector's outlook in comparison to other parts of health care.

The industry's growth prospects underlie Invitrogen Corp.'s (NASDAQ-NMS:IVGN) (IVGN) agreement to pay $6.7 billion for Applera Corp.'s Applied Biosystems Group (ABI), two companies involved with genetic research, and could lead to more acquisitions, such as by larger diagnostic companies or pharmaceutical giants.

"There is a lot of competition for deals; it is going to increase," Jefferies & Co. analyst Arthur Henderson said. "The sky is the limit in terms of opportunity."

Biomarkers are a sliver of the U.S. clinical laboratory market, estimated at $ 52 billion and led by Quest Diagnostics Inc. (NYSE:DGX) (DGX) and Laboratory Corp. of America Holdings (NYSE:LH) (LH). However, the two only had about 20% of the overall market, two-thirds of it coming from low-margin, highly competitive blood tests. The remainder of their business is in higher-profit specialty testing, which is more complex and tends to require input from a pathologist.

"The bigger guys are focusing on this more, because this is the wave of the future," Henderson said.

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Physicians are already using biomarker detection in deciding to use a number of drugs, making treatment more efficient and cost-effective.

The latest example of this new focus arrived Tuesday with data from an experimental Alzheimer's disease treatment from Wyeth (WYE) and Elan Corp.