Cytyc's Breakout Year

Cytyc Corp., which makes the ThinPrep test for cervical cancer screening, has had a breakout year. A new deal with Quest Diagnostics Inc., reimbursement from a key managed care organization, Aetna, and weaker than expected competition is driving sales and the company's stock price.

Events in the second half of 1999 put to rest any doubts people might have had about the commercialization of Cytyc Corp. 's ThinPreptest for cervical cancer screening. According to Al Kildani, an analyst with Pacific Growth Equity, people following the market were concerned about reimbursement and competition, notably from TriPath Imaging Inc. , the only other company to receive FDA approval for a liquid-based cervical cancer test (see "Smear Campaign," IN VIVO, June 1996 [A#1996800138). But TriPath's labeling for its product, which got approval in June of last year, isn't as strong as Cytyc's; moreover, it was second to market, coming out more than two years after the ThinPrep. And, in 1999, Aetna agreed to reimburse for the ThinPrep at reasonable rates, making it the last of the major insurance carriers to support the product, Kildani notes.

But Cytyc's deal with Quest Diagnostics Inc. [See Deal], doing 10 million Pap smears a year. It has agreed to market Cytyc's ThinPrep Pap Test for cervical cancer screening exclusively—that is, it will sell traditional Pap smear tests, which make up the bulk of its cervical cancer screening programs, but not other liquid-based cervical cancer screening methods. The deal effectively locks out TriPath from about 20% of the cervical screening market (TriPath and Laboratory Corp. of America , the second largest reference laboratory in the US, recently announced a preferred provider alliance but it wasn't exclusive.). "This is a tremendous opportunity for us to drive this market," says Patrick Sullivan, Cytyc's CEO and president. Investors seem to agree—Cytyc's stock has shot up to the mid sixties since trading in the $40-50 range in November.

Since receiving FDA approval in 1996, ThinPrepsales have grown steadily, based partly on the test's enviable labeling as superior to the traditional Pap smear. Analysts are pegging Cytyc's 1999 revenues at $80 million, up from $44.3 million in 1998. Kildani believes 2000 revenues will be $128 million.

Quest has been offering ThinPreptesting as an alternative to traditional Pap smears since 1997, but the new agreement expands the relationship. Quest's decision to make the deal exclusive came after independent internal studies showed the benefits of the ThinPrep. The laboratory will be co-promoting the test, putting its considerable national clout behind a product that Cytyc, with a sales force of 150, could until now sell only regionally. Both companies will develop a program of cooperative sales directed towards payers, physicians, and patients. In exchange for getting an exclusive arrangement for three years, Cytyc has also granted Quest a warrant to purchase 150,000 shares of common stock at $61 a share.

With all big plans currently covering the test, some 13,000 doctors use it, out of a total of 30,000 ob/gyns nationwide, says Sullivan. Of those, 7,000 use it on more than 50% of their patients. The company's chief goal now is to motivate doctors to order the test; typically they've been using it on high-risk patients.

Cytyc has also announced new or expanded relationships with other lab groups: notably Dianon Systems Inc. , American Medical Laboratories Inc. , and Associated Pathologists Laboratories . The company now has relationships in place with labs that process roughly 80% of the 50 million Pap tests performed annually in the US.