As diagnostic tests become increasingly important for optimizing the use of drugs to treat cancers, the co-development of a targeted therapy and its companion diagnostic test is becoming more prevalent and necessary. In July 2011, the US Food and Drug Administration released a draft guidance that gave the agency's formal definition of companion diagnostics and introduced a drug-diagnostic co-development process for gaining regulatory approval. Here, we identify areas of drug-diagnostic co-development that were either not covered by the guidance or that would benefit from increased granularity, including how to determine when clinical studies should be limited to biomarker-positive patients, defining the diagnostically selected patient population in which to use a companion diagnostic, and defining and clinically validating a biomarker signature for assays that use more than one biomarker. We propose potential approaches that sponsors could use to deal with these challenges and provide strategies to help guide the future co-development of drugs and diagnostics.