Pap Smear Marketplace Shifting into High Gear

Cytyc and TriPath prepare for combat as only survivors in the Pap smear wars

CEO SUMMARY: It took just four years to shake out the weakest competitors in the emerging field of automated cytology. Now only TriPath Imaging, Inc. and Cytyc Corporation remain in competition. Indications are that this will be a nasty battle. Pathologists and lab executives contemplating the purchase of either company’s Pap smear products can expect the sales process to be intense.

EXPECT THE NEXT PHASE of the Pap smear wars to be a battle royale between Cytyc Corporation and TriPath Imaging, Inc. of Burlington, North Carolina.

TriPath Imaging is the new name of the just-merged AutoCyte, Inc. and NeoPath, Inc., finalized on September 30, 1999. TriPath Imaging promises to be a tough competitor for Cytyc.

THE DARK REPORT has several reasons to predict that there will be nasty competition between Cytyc and TriPath. For better or worse, it will be laboratory administrators and pathologists who find themselves caught in the middle of this marketing war, because they make the buying decisions.

Marketing War

The first sign that it will be a no-holds-barred marketing war was Cytyc’s decision to file a patent infringement lawsuit against AutoCyte on September 13. Cytyc Corporation claims that Auto-Cyte’s CytoRich® preservative fluid infringes its patent for PreservCyt®.

A variety of sources tell THE DARK REPORT that the lawsuit seems to lack enough substance to prevail, and the timing of its filing coincided with proxy communications issued to Neopath stockholders prior to their vote to approve the merger with AutoCyte.

Patent Infringement Suit

It should be pointed out that the last automated cytology company to file a patent infringement lawsuit later found itself in bankruptcy. That was Neuromedical Systems, Inc., maker of the PapNet system. It sued NeoPath for patent infringement in July 1996. That suit went nowhere, as did Neuromedical, which filed for bankruptcy in February of this year.

Both Cytyc and TriPath start the next round of battles with some interesting customer alignments. Recent events create the opportunity for these alignments to shift.

For example, Quest Diagnostics Incorporated has shown its preference for Cytyc’s ThinPrep even as SmithKline Beecham Clinical Laboratories (SBCL) was adopting TriPath’s (NeoPath’s) AutoPap® System for primary Pap smear screening. These decisions were made before TriPath’s (AutoCyte’s) automated monolayer PREP® System got FDA approval to hit the market.

Now that Quest has bought SBCL, it can be considered open season for Cytyc and TriPath to try and dislodge the other’s products from the combined Quest laboratory company.

Another interesting aspect to this impending marketing struggle is the recent announcement that the Johns Hopkins Outpatient Center Clinics will use TriPath’s PREP System for cervical cancer screening.

Alert readers will recall that Quest Diagnostics (which prefers ThinPrep), has a strategic alliance with Johns Hopkins (where the outpatient clinics will use PREP). So here is another clinical decision point that will require different medical directorships to sort out their preferences for competing cytology products.

Combined Pap System

For laboratory executives and pathologists, this cytology marketing battle becomes even more fascinating to watch because TriPath is working to deliver a combined system which will automate Pap smear preparation with monolayer technology, then do an automated screen.

TriPath believes it can offer this combined automated prep/screen system at a price per Pap smear which is under the $9.75 retail price per ThinPrep offered by Cytyc. If this occurs, TriPath Imaging offers the clinical laboratory industry a value proposition which up to now has been unavailable in the marketplace.

Because THE DARK REPORT expects the marketing wars between Cytyc and TriPath to be intense on the upside, and possibly nasty on the downside, we recommend that potential buyers of these cytology systems do rigorous analysis of both the clinical and economic performance of these systems. It seems a sure bet that lots of sales horse puckey will be slung at potential buyers during the next 12 months!

Was Aetna’s Decision Actually Meaningful?

MANY LABORATORIANS CONSIDERED it big news when Aetna/U.S. Healthcare announced last month that it would reimburse for both monolayer Pap smear technology (ThinPrep and PREP) and automated Pap smear screening (AutoPap).

However, this may not be a major benefit. Laboratorians and even Wall Street financial analysts have overlooked one fact about Aetna’s decision. Since Aetna has a very restricted panel of laboratory providers, it probably doesn’t expect to see a lot of Pap smear tests that involve mono-layer preparation or automated screening.

For one thing, SmithKline Beecham Clinical Laboratories (SBCL) is the sole source lab provider for Aetna/U.S. Healthcare in nine key states, and SBCL is not big on ThinPrep. Of course, now Quest holds that Aetna contract, but Quest is certainly bound by the existing terms–and pricing–of that contract. Plus, Quest will continue to provide testing to Aetna using the SBCL lab infrastructure for some time into the future.

Thus, the fact that Aetna/U.S. Healthcare has a restricted panel of laboratory providers means that its decision to reimburse for these cytology procedures gives it a good public relations boost with physicians, patients, and employers. But the reality of its lab testing contracts means it probably doesn’t expect many of these tests to actually be submitted for reimbursement.

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