"Lab Industry Briefs"

AccuMed, AutoCyte, Cytyc, MorphoMetrix, Neuromedical, NeoPath

Automated Cytology Update

As predicted by THE DARK REPORT, the field of automated cytology has become a boiling pot, filled with controversy and change. Profits are meager. As we expected, the major issue revolves around the cost of this enhanced technology versus the measurable clinical benefits it delivers over traditional Pap smear procedures. Here’s a quick round-up of developments.

ACCUMED IS RELISTED AND NOW PLACING UNITS

As of July 24, 1998, AccuMed International, Inc. shares again trade on the Nasdaq market. In March the company was delisted because it failed to meet Nasdaq’s qualifications. Meanwhile, new president Paul F. Lavallee has been busy. AccuMed’s AcCell™ Systems are being installed in a Chicago teaching hospital and an integrated healthcare provider in the Seattle area. AcCell is an automated cytology workstation which combines the microscope with computer-enhanced features to improve productivity and accuracy of the cytologist.

AUTOCYTE SIGNS DISTRIBUTOR AGREEMENTS, LABCORP ORDER

AutoCyte, Inc. continues to await FDA action on its premarket approval (PMA) applications for the PREP™ and SCREEN™Systems. It is building its distribution system during the interim.

The company announced distribution agreements with Medical & Biological Laboratories Co., LTD (MBL) of Nagoya, Japan. In one agreement, MBL acquired exclusive worldwide rights to distribute AutoCyte’s ImageTiter®, a proprietary system which enables the quantitative assessment of anti-nuclear antibodies in a patient’s blood specimen. The other agreement gives MBL exclusive distribution rights to the AutoCyte Pathology workstation for Japan, Korea, and Taiwan. MBL made initial payments of $1.3 million to AutoCyte as part of these agreements.

Laboratory Corporation of America placed a $600,000 order with AutoCyte for ImageTiter Systems and system upgrades. AutoCyte is using the ImageTiter Systems as a revenue source while awaiting FDA approval for its automated cytology products.

CYTYC CORP BESIEGED BY MEDIA ATTENTION

During 1997, Neuromedical Systems, Inc. and its PapNet™ product was the whipping boy among automated cytology companies. This year, Cytyc Corp. seems to have assumed that role.

Since the end of 1997, Cytyc’s revenues and operating profits have disappointed financial analysts and stockholders. These revenue numbers indicate that market acceptance of Cytyc’s ThinPrep® monolayer Pap smear technology has been underwhelming.

Despite this fact, Cytyc’s public releases continue to tout the fact that “over 6,000 gynecologists and 400 cytology laboratories across the country have begun to use the ThinPrep Test as a replacement for the conventional Pap smear.”

For those with detailed knowledge of cytology and clinical laboratory practices, Cytyc’s comments seem to borrow from spinmeisters. Cytyc’s revenues fail to meet targets because clinical use of ThinPrep Pap smears has never grown as rapidly as the company projected.

Further, The Wall Street Journal ran a cover story about Cytyc’s ThinPrep test and the controversy surrounding it last Friday, August 13. Clients of THE DARK REPORT are advised that it makes thoughtful reading.

Headlined “A New Pap Test Costs More, but Is It Worth It? Some Think Not,” the story talked about how health insurers believe the additional cost of the ThinPrep Pap smear is not justified by the incremental improvement in early detection of cervical cancer.

According to The Wall Street Journal, on the same day that the American College of Obstetricians and Gynecologists (ACOG) decided not to endorse ThinPrep as a standard of care, Cytyc released news that CIGNA Healthcare would offer coverage for ThinPrep testing.

Cytyc responded to the ACOG’s negative decision on ThinPrep with a press release worthy of the White House spinmeisters. Cytyc stated that “the company believes that the ACOG Opinion on new Pap test screening techniques released this week is a fair and balanced technology assessment that confirms the positive results of extensive clinical studies of Cytyc’s ThinPrep Pap Test.”

As discussed in previous issues of THE DARK REPORT, the battleground for automated cytology technology is cost versus clinical efficacy. Cytyc’s $40,000 instrument and $9.75 charge per Pap smear slide makes it an expensive option when compared to traditional Pap smear procedures, especially when measured against specific improvements documented in clinical trials of the ThinPrep System.

The Wall Street Journal story also touched upon Cytyc’s struggles with the Food and Drug Administration (FDA). In July, 1997, the FDA received seven petitions from individuals with links to competing cytology companies. These petitions seek to have the FDA review its decision to approve ThinPrep. The FDA has yet to act upon these petitions.

There are more details to this story involving Cytyc. To gain a better appreciation of the debate, clients should access ACOG’s report, The Wall Street Journal article, as well as press releases and company material on these issues.

Regardless of what happens to Cytyc, the issues now in public debate between
physicians, insurers, and automated cytology companies provide laboratory executives with a perfect example of how new laboratory technology must demonstrate clear and unequivocal cost and clinical efficacy before it will be adopted on a widespread basis.

MORPHOMETRIX TO USE “INTUITION” IN CYTOLOGY

Most laboratorians are gradually becoming aware of a cytology start-up company called Morphometrix Technologies, based in Toronto, Canada.

Morphometrix is working to develop its version of an automated cytology screener. To aid its development of the necessary software algorithms, Morphometrix is working with a company called Klein Associates.

Here’s where it gets interesting. Klein Associates is developing methods that allow them to identify and “map” the techniques used intuitively by physicians and other professionals. Klein’s work demonstrates that “subjective” rules can be identified scientifically and converted to objective, rule-based, decision making formulas.

Morphometrix is working with Klein Associates to identify what techniques cytologists use to identify irregular cells. The goal is to convert “I know it when I see it” into a definable, step-by-step process. “This is a huge area, and I think we’re going to get some startling results,” says Morphometrix executive Dan Maclean. Morphometrix wants to use the results of Klein’s work to develop sophisticated software algorithms that improve the speed and accuracy of its automated cytology system.

CANADA APPROVES NEUROMEDICAL’S PAPNET FOR PRIMARY SCREENING

It was a long-awaited event for Neuromedical Systems, Inc. of Suffern, New York. The company has approval to use its PapNet® System as a primary screener in Canada.

The Therapeutic Products Program Medical Devices Bureau of Canada notified Neuromedical that “the PapNet Testing System meets the Canadian Regulatory Requirements For Notification as per Part II of the Medical Devices Regulations.”

In the United States, the FDA granted approval for PapNet to be used as a supplemental Pap smear test. Several European countries have approved PapNet for primary screening. Canada’s approval increases PapNet’s credibility with prospective buyers.

Neuromedical now has clearance to market its PapNet System as a primary Pap smear screener in Canada. The company intends to market the product in the form of a self-contained system which is operated on the premises of each lab customer.

This is a change from its centralized processing strategy of 1996. Under that
arrangement, participating labs sent their Pap smears to Neuromedical’s central laboratory in Suffern. Here the Pap smear was scanned. The file and the slide were then returned to the referring lab for diagnosis.

Because cost of healthcare is a big issue in Canada right now, Neuromedical
faces the challenge of demonstrating both cost and clinical efficacy of its PapNet technology before it can expect widespread sales success.

NEOPATH UNDERGOING MANAGEMENT CHANGES

Recent developments at NeoPath, Inc. may indicate a shift of strategy. Current President and CEO Alan Nelson, Ph.D. is moving to Chairman and the company announced that it is searching for a new president.

Knowledgeable observers believe that NeoPath in now positioned for growth. Earlier this year the FDA approved its PMA supplement for the AutoPap System to be used as a primary screener. With each month, the company accumulates an increased amount of clinical data from Pap smears screened by its customers.

If the experience of current users demonstrates favorable economics while delivering acceptable improvement in clinical outcomes, NeoPath should be able to make a strong case when selling its AutoPap Primary Screening System.

Assuming that to be true, then switching Alan Nelson to Chairman permits the company to bring in a new president. This individual would have a demonstrated track record in creating accelerated growth. Just as importantly, this new executive should have strong skills and sales and marketing.

Dr. Nelson is a savvy executive who has given NeoPath probably the smoothest development curve of any automated cytology company now operating. But a new set of executive skills is needed because NeoPath’s venture capitalists and shareholders are ready to see a return on their investment.

It is THE DARK REPORT’S prediction that, when NeoPath’s executive search ends, its new president will not have a clinical laboratory or diagnostics background. Rather, this individual will have proven experience at building the sales and profits of technology companies. If NeoPath succeeds in this quest, it will become a tougher competitor in the marketplace.

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