CEO SUMMARY: Cytyc Corporation will pay more than one half billion dollars to purchase Digene, Inc., and its DNA Capture HPV test. For Cytyc, this may prove to be a strategic masterstroke. In the short term, it alters the competitive balance in the market for liquid preparation Pap testing products, where Cytyc already holds more than half of the market share for Pap testing in the United States.
COMPETITION IN PRODUCTS to screen for cervical cancer remains intense. The latest salvo in the Pap testing war is Cytyc Corporation’s acquisition of Digene Corporation.
On February 19, Cytyc announced a definitive agreement to acquire Digene for a combination of cash and Cytyc stock. Market value of the transaction at the time of the announcement was $553.7 million.
The merger will put two products which have a close relationship under the same owner. Cytyc’s ThinPrep® Pap Test and Digene’s Hybrid Capture II® HPV test can both be performed from the same liquid specimen.
Growing Use Of HPV Test
In fact, Digene’s efforts to expand HPV testing have been helped by the growing adoption of liquid preparation Pap smear testing in recent years. There is growing clinical use of HPV assays as an appropriate follow-up test for specific Pap smear diagnoses.
Cytyc gets one immediate competitive benefit from its acquisition of Digene. It will deny rival TriPath Imaging, Inc. the ability to piggy-back Digene’s HPV test on the TriPath liquid preparation Pap smear test, called PREP-STAIN™ (formerly called PREP).
Cytyc To Block TriPath
TriPath has wanted Digene to perform the clinical studies that would support FDA approval for Digene’s Hybrid Capture II HPV to be performed from the same liquid preparation specimen collected for TriPath’s PREPSTAIN Pap test. However, once Cytyc takes ownership of Digene, that is unlikely to happen.
Cytyc and Digene already have a close relationship. A co-marketing agreement has existed between the two companies in recent years. Both companies have a mutual interest in building a portfolio of products involving screening for women’s cancers and infectious diseases. As the acquirer, Cytyc gains access to the Hybrid Capture technology, patents, and the intellectual property developed by Digene.
Digene has been developing RNA and DNA probes. Its product portfolio includes gene-based tests for the detection of chlamydia, gonorrhea, hepatitis B virus, or HBV, and cytomegalovirus, or CMV. It also has FDA-approved tests for the simultaneous detection of chlamydia and gonorrhea infections, in addition to HPV, from a single patient sample.
Potential For Multiplexing
One simple way to view this merger is that it marries the specimen collection methodology developed by Cytyc with Digene’s probe-based assays. The potential exists to combine these two product lines and create a series of multiplex tests for STDs, women’s cancers, and similar applications.
However, the dynamics of this acquisition are more complex. As THE DARK REPORT has noted in earlier intelligence briefings, the market for enhanced Pap smear testing technologies remains highly competitive. Efforts by these companies to introduce their products reveal changes in how clinicians adopt them for general usage. It also provides insights into the new types of analysis now used by payers to determine the economic and clinical benefits of these new diagnostic assays before establishing billing guidelines and reimbursement levels.
Need For More Products
Cytyc understands that it must develop complementary products to supplant its liquid preparation Pap test. Otherwise, Wall Street considers the company a “one-trick”? pony. Also, now that TriPath Imaging has FDA approval to market its integrated automated system for liquid prep and primary screening of Pap smear, it has begun to make inroads into a business line where Cytyc had formerly been the only choice for laboratories interested in offering liquid preparation Pap tests. (See TDR, December 17, 2001 and January 28, 2002.)
Laboratory executives and pathologists should keep a watchful eye on the market for Pap testing and HPV testing. The technology curve is moving rapidly. There are other players now offering HPV tests, such as Ventana Medical Systems’ INFORM® Human Papilloma virus (HPV) ASR High Risk and Low Risk Probes and Molecular Diagnostic, Inc.’s In-Cell™ HPV Probe. More diagnostic companies are expected to enter this market.
Lots of research is also directed at finding molecular markers for cervical cancer. When that happens, the Pap smear loses its pre-eminence as the gold standard in cervical cancer screening. Companies like Cytyc and TriPath Imaging understand this, which is why they want to diversify and avoid a reliance on products that
support Pap testing.
Digene Working To Promote HPV Use As Primary Screen
SHOULD HPV BE USED in primary screening for cervical cancer? Digene Corporation thinks it should. It recently filed an application with the Food and Drug Administration (FDA) to permit its Hybrid Capture IIHPV DNA test to be used “in conjunction with the Pap smear as a primary screen for cervical cancer and its precursors in women age 30 and over.”?
THE DARK REPORT predicts that Cytyc, once it owns Digene, will aggressively market HPV for screening. This campaign will be similar to the one it used to introduce ThinPrep as the “test of choice”? in Pap smear screening. To raise awareness of female consumers, this campaign will include advertisements and news stories in women’s magazines like Cosmopolitan, Redbook, and Ladies Home Journal. At the same time, it will press payers to authorize reimbursement for this test.