CEO SUMMARY: This is the year when automated cytology establishes itself. New companies will gain FDA approval and enter the marketplace during the next 18-24 months. Core technology will continue to evolve at a rapid rate. Pathologists and cytotechnologists will find themselves challenged to stay current with the pace of new product development. Because of this rapid-fire change, pathologists and laboratory executives must exercise caution when deciding how to invest in competing technology.
CYTOLOGY IS WIDELY RECOGNIZED by commercial laboratories as a money-losing segment of the business. In particular, reimbursement for Pap smears fails to recover the full cost of providing the service.
Cytology is also an area of laboratory operations which generates a disproportionate share of malpractice expenses and litigation. Many laboratory executives would be shocked if they understood how much money is spent annually on cytology malpractice premiums and legal expenses involved in defending malpractice suits involving cytology testing.
Because there are more than 50 million Pap smear tests performed annually in the United States, reimbursement and malpractice problems are significant to clinical laboratories. But given the current state of technology and clinical practices, there has been no effective and safe way for a clinical laboratory to solve these problems.
THE DARK REPORT believes that the arrival of automated cytology technology is about to revolutionize this segment of the laboratory business. During the course of this revolution, solutions to intractable problems in Pap smear reimbursement and litigation expenses will arise. Further, this same cytology technology will eventually transform anatomic pathology. But that is another story to be reported in the future.
Several key reasons lead THE DARK REPORT to believe that automated cytology technology is about to turn the cytology world upside down. In order to understand why this is true, it is necessary to look at the early entrants into the field. The analysis which follows is uniquely our opinion and insight. It is based on site visits to some of these vendors, as well as discussions with laboratorians using the technology, financial analysts, and other experts who track this industry.
In reviewing the players in the automated cytology marketplace, there is a fairly clean division between those companies offering improved preparation technology and those companies developing automated or enhanced diagnostic instruments.
In the preparation category, three companies are known to be addressing this market: Cytyc Corporation of Boxborough, Massachusetts; AutoCyte, Inc. of Burlington, North Carolina; and MonoGen of Herndon, Virginia.
Those companies offering instruments to improve Pap smear diagnoses are NeoPath, Inc. of Redmond, Washington; Neuromedical Systems, Inc. of Suffern, New York; AccuMed International, Inc. of Chicago, Illinois; AutoCyte, Inc.; and MorphoMetrix Technologies, Inc. of Toronto, Canada.
The first category to consider is Pap smear preparation. Basically, competitors in this market segment are advocating mono-layer technology. A physician preparing the Pap smear in the traditional way smears the collection brush on the slide, fixes it and sends it to the laboratory where the slide is stained, a cover slip is added and the finished slide is ready for review.
Mono-layer preparation is a simple concept. The physician takes the collection brush and puts it into a vial of transport liquid. The cells are diffused in the transport medium and the vial is shipped to the laboratory. This is one point of improvement claimed for mono-layer preparation. On a traditional Pap smear, only about 20% of the collected cells typically make it onto the slide. Swishing the collection brush into the transport liquid consistently captures upwards of 90% of the collected cells. Thus, the mono-layer preparation process starts with an enriched sample compared to a traditional Pap smear.
At the laboratory, technology is used to separate the target cervical cells from blood, mucous and other extraneous biological material. The resulting harvest of cervical cells is then deposited on the slide in a uniform “mono-layer,” stained, given a cover slip, and prepared for review. Proponents of mono-layer preparation point out that the mono- layer process consistently delivers 70,000 to 80,000 readable cells per slide.
This contrasts with a traditional Pap smear, where as few as 4,000 to as many as 300,000 readable cells may appear on a slide. Given that sometimes as few as three or four cells on a Pap smear may indicate a potential disease state, the consistent presentation of 70,000+ readable cells on a mono-layer is claimed to provide a improved ability to detect the finite number of abnormal cells crucial to early detection.
Cytyc, AutoCyte and MonoGen all offer technology to produce a mono-layer Pap smear slide. But they do it using different approaches.
Cytyc’s ThinPrep® Process gained FDA approval for its use in Pap smear preparation. It uses a filtration approach to separate the target cervical cells from blood and mucous. Laboratories using the ThinPrep System must buy or lease the instruments which separate the cells. These instruments retail in the range of $30,000. Consumables per processed slide cost $9.75 at Cytyc’s posted retail price.
AutoCyte is designing a combined instrument workstation. It will include a monolayer processing instrument, called PREP®, and an automated cytology reader, called “SCREEN.” AutoCyte has yet to gain FDA approval. It is preparing the clinical data to support its Pre-Market Application (PMA).
AutoCyte intends to sell individual components of its system. Autocyte’s technology uses centerfugation to separate the target cervical cells from blood and mucous. AutoCyte indicates that its consumables per slide will be priced significantly below those of Cytyc’s. Since AutoCyte does not need to supply filters, that is probably a major source of its cost advantage.
Assuming that AutoCyte’s mono-layer prep expenses are less than Cytyc’s, its eventual entry into the mono-layer marketplace will probably trigger a price war.
Manual Preparation System
MonoGen is a small company which offers a manual system for producing a monolayer slide. Given the huge numbers of Pap smears that flow through the high-volume laboratories which specialize in this business, MonoGen will probably end up as a niche player in the mono-layer market.
Moving to the diagnostic side of the Pap smear business, NeoPath would have to be considered the market leader in this category. Its AutoPap® 300 System was acquired and put into use by the three national laboratories and several national HMOs.
As reported in this issue, NeoPath is close to gaining final FDA approval which authorizes the AutoPap System as a primary screener. NeoPath’s business strategy is to design a machine which ultimately can read traditional Pap smear slides and provide a diagnosis of normal slides without intervention or review by humans.
Copies Coulter’s Strategy
In that respect, its strategy is similar to that of Coulter Corporation. Coulter’s blood counters eventually replaced hematechs, those laboratory specialists who put slides of blood smears under a microscope and counted cells. Just as Coulter and its eventual competitors transformed the way blood testing was performed in the laboratory, so also does NeoPath hope to eventually have the same impact on the way Pap smears are diagnosed.
NeoPath uses a software algorithm to evaluate video images and make an assessment of the risk of abnormality. This algorithm is undergoing constant improvement, based on actual clinical experience and new technology.
Next closest competitor in the race to automate Pap smear diagnostics is Neuromedical Systems. Its PapNet System currently is approved by the FDA for use as an adjunct test. Neuromedical is revamping its business plan, as described in this issue.
Neuromedical’s PapNet is built upon neural network technology. Each Pap smear is imaged and studied. The neural network crunches the data and produces images of 128 cells it believes are most likely to show signs of abnormality. These cell images are reviewed by a cytotech or pathologist who makes the final diagnosis.
Neuromedical believes it is 18 months away from obtaining FDA approval to use PapNet as a primary screener. The company is reengineering the instrument so that it can be sold directly to laboratories and run unattended. Neuromedical states that PapNet can read both traditional and mono-layer Pap smear slides.
AutoCyte expects to enter the market- place when its “SCREEN” instrument gains FDA approval. AutoCyte’s literature states that the instrument is designed “on the concept of close interaction between the machine and the cytologist. Its major advantage is to allow the rapid and reliable identification of normal samples (which represent 95% of all cases).” This system also is designed to only screen mono-layers.
The other known entrant in the race to create a diagnostic instrument for Pap smears is MorphoMetrix. Its product is called CYMET A40®. It will incorporate image analysis hardware and software. The company is preparing to launch its clinical trials this quarter. It hopes to obtain regulatory approval by mid-1999. This system also is designed to only screen mono-layers.
One sub-category of instruments exists. AccuMed International markets a
line of automated instruments which help a cytologist evaluate a Pap smear with greater speed and accuracy. AcCell™ is an interactive, computer-controlled slide-handling and precision microscopy workstation. It is linked with an integrated data management system. TracCell™ uses computer imaging to map slides and help the cytologist review relevant areas on the slide, as opposed to areas with no cells.
Neopath purchased a similar integrated cytology workstation product in June 1997 from Compucyte. The system is called Pathfinder® and gives NeoPath a microscopy workstation to offer clients interested in that kind of solution.
This run-down of the primary competitors currently in the automated cytology field demonstrates that a variety of products are entering the marketplace. Each company is investing substantial dollars in research, development, sales, and marketing. There will be many consequences from this competitive activity.
First, the core technology itself will undergo rapid improvement. Pathologists and laboratory managers who evaluate one vendor’s product today should expect to see dramatic differences in the product’s capability, price and productivity during the next 12 to 24 months.
This means that basic technology will be a moving target. Consider automated cytology technology to be on a continuous improvement curve. When looking to purchase or acquire this technology, do a careful assessment of how such technology may be outmoded by developments in the near future.
Second, the underlying economics of this technology will evolve in tandem with enhancements to the technology. What was cost-effective in early 1997 may be be inadequate at the end of 1998. Buyers are advised to do a careful analysis of the economics for this equipment.
Third, how will the clinical marketplace accept this technology? For laboratories, this question should not be overlooked. Physicians, patients and payers all have needs and expectations for cost, effectiveness and clinical relevance. These vested interests may resist the new Pap smear technology introduced by the innovative laboratory which wants to pioneer its use. However, a coming deluge of clinical studies involving all the major cytology products will provide a wealth of data on the issues of clinical and cost effectiveness.
Fourth, reimbursement remains a key component in the decision to acquire and use automated cytology systems. The arrival of new CPT codes for 1998 will encourage payers to properly reimburse for the procedures. However, at this stage in its market introduction, automated cytology systems tend to add more costs to the laboratory than the revenue it generates.
Fifth, automated cytology systems have a valued capability which has yet to gain widespread recognition. By incorporating video imaging and data storage, these systems become critical links in forming an integrated data base of clinical information.
Perceptive pathologists will recognize the value in this capability. If properly developed, these pathologists will gain the ability to provide necessary information to managed care plans. More importantly, such data bases provide these pathologists with access to clinical information that adds value to their consultations with individual physicians.
It is critical for pathologists and laboratory executives to recognize that the arrival of competing automated cytology systems will complicate the marketplace. But at the same time, these systems have the potential to solve problems involving inadequate cytology reimbursement and onerous cytology malpractice expenses. This has the potential to improve the financial performance of laboratories.
THE DARK REPORT is confident in its prediction that automated cytology technology will find rapid application within emerging, clinically integrated healthcare systems. That alone promises to transform the economics of Pap smears. We further predict that one of the big surprises of 1998-99 will be increased reimbursement for conventional Pap smears. More on that story in future issues!
Consequences of New Technology
As automated cytology technology hits the marketplace, expect these major consequences:
• Rapid improvement to core technology… making earlier generations obsolete.
• Underlying economics moves in tandem with technology…
changing the cost-effectiveness of each new generation of technology.
• Unpredictable acceptance by the market of new technology…
increasing the difficulty of choosing appropriate cytology systems as they reach the marketplace.
• Reimbursement arrangements affect economics of specific technology… as some payers embrace specific cytology technology, their reimbursement may be more generous than for competing systems.
• New cytology systems promise better integration of clinical data… enabling early innovators to create “value-added” information packages for managed care plans and clinicians.