CEO SUMMARY: Because cervical cancer screening involves more than 55 million Pap tests per year in the United States, it is a high-profile segment of the lab testing industry. HPV testing is making steady inroads into the cervical cancer screening process. Digene Corporation is the direct beneficiary of this, but Cytyc Corporation and TriPath Imaging are also able to capitalize on emerging opportunities.
IT MAY BE THE MOST OVERLOOKED success story in the diagnostic industry during 2002. HPV testing is gaining rapid acceptance within the clinical community and growing numbers of payers are agreeing to reimburse for these tests.
Evidence of this success can easily be seen at Digene Corporation, based in Gaithersburg, Maryland. Digene’s fiscal 2004 first quarter revenues climbed to $19.6 million. This is a 55% increase over the $12.6 million Digene posted in fiscal 2003 first quarter. The company turned a modest profit for the quarter of $700,000. It is also the second quarter in a row where Digene has realized a 50% increase in revenues. Much of Digene’s revenue growth has come from its introduction of the hc2 High-Risk HPV DNA test™ earlier this year.
In April, the Food and Drug Administration (FDA) approved Digene’s Pre-Market Application (PMA) supplement for this test, which the company also calls “Digene’s DNAwithPAP™ test.” It is approved “for use with a Pap test to adjunctively screen women aged 30 and older to assess the presence of high risk HPV types.”
This fall, at least three major health insurers announced that they would cover this test. On September 23, Digene publicly confirmed that Aetna, Inc. would cover the DNAwithPap test. Last week Digene disclosed that both Cigna Corporation and Anthem Inc. will cover this test. These two health plans insure 24 million people.
As laboratory directors and pathologists know, payer reimbursement is a key factor in encouraging laboratories to pick up and offer new diagnostic test technology. Digene’s success in gaining reimbursement acceptance by Aetna, Anthem, and Cigna is a sign that other payers are likely to make favorable coverage decisions for this HPV test.
To encourage acceptance of this test among clinicians and the laboratory industry, Digene has mounted a substantial sales and marketing campaign. In conjunction with PDI, Inc., a company which provides “physician-detailing services,” Digene has a team of sales reps in the field visiting physicians’ offices to provide information and education about this test and the clinical studies which support its use.
“Based on more than 7,500 visits with physicians to date, about 30% indicate their intention to use the test,” stated Evan Jones, Digene’s Chairman and CEO. “Our efforts are to focus on these early adopters.” Lab directors and pathologists should take note of this fact. In tandem with growing payer acceptance, it indicates that a significant percentage of OB/Gyns and other physicians are willing to incorporate Digene’s HPV test into their medical practice.
Early Pricing Indications
To date, laboratories have seen a reasonable pricing/reimbursement relationship for Digene’s DNAwithPap test. “This test is sold to laboratories in the United States for around $23 to $24 each,” noted Charles M. Fleischman, Digene’s President. “We have done surveys of the reimbursement authorities that are reimbursing for the test. The weighted average price is approximately the CMS-reimbursement level of about $49. The payers for whom we have information have not discounted from that level in excess of 10% or 15%.”
To help encourage laboratories to set up and offer Digene’s HPV tests, the company is developing an automated instrument system it calls the Rapid Capture™ System. This system will allow one med tech to perform 350 DNAwithPap tests in an eight- hour shift. Digene filed its PMA with the FDA on November 6.
With two of the nation’s largest payers making favorable reimbursement decisions for these HPV assays, there is growing momentum for HPV testing in the clinical marketplace.
Cytyc and TriPath Imaging Continue Battling For Market Share in the Liquid Prep Wars
WITH THE LABORATORY INDUSTRY continuing to accept and implement liquid prep Pap smear testing, there’s plenty of revenue growth at both Cytyc Corporation and TriPath Imaging, Inc.
Cytyc continues to dominate this testing segment. It reported third quarter revenues of $75.5 million. In comparison, TriPath Imaging reported first quarter revenues of $14.1 million. However, for both companies, revenue growth was substantial. Cytyc’s revenues increased 29%, while TriPath’s increased 44%.
Because of Cytyc’s earlier start in bringing its liquid prep product to market, it commands greater market share and is profitable (net income of $18.6 million). TriPath’s market share is much smaller and the company still posts red ink (net income of minus $1.6 million).
In today’s laboratory marketplace, both companies are intense competitors. Each has a different strategy for expanding market share and building a more diverse revenue base by offering additional products.
At Cytyc, the company is working to market its ductal lavage test for breast cancer detection. It has also introduced the ThinPrep® Imaging System, which offers location-guided screening assistance to cytotechnologists. Cytyc says that it shipped ten of these systems during the past four months and has orders for seven more.
Relative to earlier years, TriPath has enjoyed a greater degree of sales success during the past 12 months. As a result, much of its revenue growth is attributable to improved sales of reagents and disposables. It announced that, during third quarter, it added 29 new customers in the United States.
Because of Cytyc’s dominance in the liquid prep market, one of TriPath’s marketing strategies has been to position itself as “Avis” (“We’re number two. We try harder.”) to Cytyc’s “Hertz.” Earlier this year it signed an agreement with Quest Diagnostics Incorporated, which had formerly offered Cytyc’s liquid prep Pap test on an exclusive basis. On October 29, TriPath signed a new three-year agreement with Laboratory Corporation of America. LabCorp has offered TriPath’s liquid prep Pap test since 1999.
United Kingdom Is Next
The new battleground for these two companies is the United Kingdom. Last month the National Health Service (NHS) issued guidance which recommends liquid-based cytology (LBC) for cervical cancer screening in both England and Wales. In March 2002, the Scottish Executive announced a major investment in the Scottish Cervical Screening Program to implement LBC. Cytyc won that round and became the exclusive LBC test technology. TriPath’s foothold in England is The Doctor’s Laboratory, which, in August 2003, announced it would offer TriPath’s liquid prep Pap smear.
Within the United States, a high proportion of physicians have converted to liquid prep Pap smear testing. That means both Cytyc and TriPath will increasingly be competing for a larger slice of the same size pie. For laboratory customers, this may lead to better pricing and terms over time as these two companies compete to take customers away from each other.