Cytyc Corporation - Company Profile, Information, Business Description, History, Background Information on Cytyc Corporation

250 Campus Drive
Marlborough, Massachusetts 01752

Company Perspectives:

We place significant emphasis on providing quality products and services to our customers. A major portion of our quality systems relate to the design and development, manufacturing, packaging, sterilization, handling, distribution and labeling of our products. These quality systems, including control procedures that are developed and implemented by technically trained professionals, result in rigid specifications for products design, raw materials, components, packaging materials, labels, sterilization procedures and overall manufacturing process control.

History of Cytyc Corporation

Cytyc Corporation designs, develops, manufactures, and markets innovative products that focus primarily on women's health applications, including cervical cancer screening, breast cancer risk assessment, and treatment of excessive menstrual bleeding. The company developed the ThinPrep System, an automated method for preparing microscope slides of cell specimens, which has become the most widely used method for cervical cancer screening in the United States. ThinPrep, which also relies on computer imaging technology to examine slides, can be used to perform cancer analysis on tissues from the breast, liver, lung, thyroid, and other organs.

1987 to Early 1990s: Developing Better Screening for Cervical Cancer

Entrepreneur Stanley Lapidus founded Cytyc in 1987 to develop an improved alternative to the conventional Pap smear. The original Pap test, which was developed by Dr. George Papanicolaou in the late 1940s, could detect cervical cancer in its earliest stages and thus led to a 70 percent decrease in mortality from cervical cancer following its recommended adoption as an annual test for women by gynecologists. In fact, physicians credit the test with virtually eliminating death from cervical cancer among women who are screened yearly. Cervical cancer, when detected early, can be treated effectively and inexpensively.

In the classic Pap test, a doctor uses a swab to collect cervical cells and smears them onto a glass microscope slide for examination by a technician. This method invariably stacks cells one on top of the other. As a result, the traditional Pap test delivers a substantial number of inconclusive results and false negatives--in part because a technician who views scores of slides a day inspects each slide individually and in part because that technician has to hunt for as few as ten abnormal cells among the thousands in the smear. "The conventional test is like looking at a coin on the bottom of a swimming pool and trying to determine whether it's a nickel or a quarter or a dime," explained one doctor in a 1997 Modern Healthcare article.

Cytyc's alternative system aimed to reduce the Pap test's margin of error by introducing computer image analysis of Pap smear slides. However, the poor quality of Pap smear slides made computer imaging impossible; so, Cytyc's staff focused instead on developing a better way to prepare slides. The resulting ThinPrep technology puts the cervical cell sample that the doctor collects in liquid suspension. This solution is filtered in the lab, and a thin film of the sample is applied to a glass microscope slide. The technique results in a slide specimen that is one-cell layer thick and free of debris.

In 1990, Cytyc raised $8 million through a round of venture capital financing that it used to expand clinical trials of its technology at New England Medical Center, Brigham and Women's Hospital, and Salem Hospital, among others. It began marketing its ThinPrep Processor to cytology labs across the United States for use in examining non-gynecological cell samples in 1991. At the time, many other small companies were also banking on new medical technologies. Cytyc's product looked promising, but it had yet to receive Food and Drug Administration (FDA) approval, and insurers and doctors alike questioned its purported advances over the traditional Pap smear.

1994-2000: Increased Acceptance Among Healthcare Executives and Payers

In 1994, the year in which Patrick J. Sullivan became president and chief executive of Cytyc, the Food and Drug Administration granted its approval to market the ThinPrep System for cervical cancer screening. Later that same year, the FDA allowed Cytyc to label its product with the claim that it was "significantly more effective" in detecting low-grade and more severe cancer lesions than the conventional Pap in a variety of patient populations. United HealthCare Corporation, a Minneapolis-based managed-care company, began reimbursing for the ThinPrep test in November.

Cytyc completed trials of the ThinPrep System for gynecological testing in 1995. These tests proved the ThinPrep System to be five times more accurate than humans, lowering the need for repeat tests and more costly clinical examination. However, the cost of a conventional Pap smear ranged from $20 to $40, while the ThinPrep test cost about $60. More than 50 million women underwent Pap smears annually in the United States in the second half of the 1990s, and healthcare executives and payers remained unconvinced that Cytyc's new technology was worth the additional cost.

In 1996, Cytyc held an initial public offering of three million shares and used the proceeds from the sale to expand its marketing and sales efforts, to increase manufacturing capacity, and to fund additional research and development. Digene Corp., maker of gene-based medical tests that focused primarily on women's cancers and infectious diseases, asked for FDA approval in 1996 to test for the human papilloma virus--the virus that causes nearly all cervical cancer--using the residual solution left over from ThinPrep. Still Cytyc had yet to turn a profit, losing $11.9 million on revenues of $8.2 million in 1996.

Cytyc began a full-scale commercial launch of the ThinPrep System for cervical cancer screening in 1997. Early that year, Laboratory Corporation became the first national laboratory to offer the ThinPrep test to its physician clients. By mid-year, more than 400 laboratories used the ThinPrep System, and, by late 1997, about 500 systems were installed in labs worldwide. Also in 1997, Mead Johnson & Co., a division of Bristol-Myers Squibb, agreed to promote the ThinPrep test through its nationwide sales force. The company set up a subsidiary in Switzerland to launch the ThinPrep system in Europe.

Then, in 1998, the health insurance trade association delivered a blow to Cytyc's growth, issuing a report that questioned the benefits of ThinPrep's technology. In addition, a new insurance reimbursement code for the test which led to delay in payments to labs contributed to slowing demand for the test. By late 1998, only about 12 percent of the insurance companies in the United States were willing to pay for the ThinPrep pap test.

The situation began to reverse in 1999, when Aetna agreed to cover ThinPrep tests after independent studies showed it was better than the standard Pap exam in detecting cervical cancer. Aetna's decision increased Cytyc's market share from somewhere around 15 percent of the more than 50 million Pap tests performed annually in the United States to 19 or 20 percent. In a horizontal move, the company acquired Acu-pak, Inc., a contract packager specializing in the liquid reagent filling used in collecting ThinPrep samples in 2000.

2000-04: A Steadily Increasing Percentage of the Worldwide Market for Pap Tests

The year 2000 proved to be a watershed year for Cytyc. The company signed a renewed agreement with Quest Diagnostics, the nation's leading diagnostic testing company, which processed up to 40 million or 80 percent of the Pap tests performed each year in the United States. Also in 2000, the United Kingdom National Institute for Clinical Excellence recommended initiating a pilot implementation program for liquid-based cytology in its country. Cytyc's share of the domestic market for cervical cancer screening increased to 25 percent by midyear and reached 36 percent by year's end. More than 100 companies joined the ranks of insurers to cover the test throughout 2000. Revenues increased accordingly, from $81 million in 1999 to a little more than $140 million in 2000. In another boon for the company, Roche Diagnostics signed an agreement with Cytyc to couple ThinPrep cervical cancer testing with Roche's test for chlamydia.

By the end of 2001, ThinPrep had 57 percent of the domestic market for Pap tests and revenue had increased to $221 million. Digene Corp. and Cytyc agreed to promote each other's product in the United States, selling the medical community on the advantages of testing for human papilloma virus directly from the ThinPrep Pap test collection vial. In a move to expand its presence in the women's healthcare and cancer diagnostics markets, Cytyc, named to Deloitte & Touche's elite "Fast 50" high-tech growth list, started a venture capital firm, Cytyc Healthcare Ventures. The company's first acquisition along these lines was Pro-Duct Health, Inc., a company that developed a ductal lavage device that evaluated a woman's risk of breast cancer by detecting atypical cells lining her milk ducts. Cytyc began to market the test under the name FirstCyte.

In 2002, after Blue Cross Blue Shield agreed to cover ductal lavage and the FDA approved using combining Roche's tests for gonorrhea and chlamydia with ThinPrep's Pap test, Cytyc's revenue reached around $240 million. Cytyc began plans to acquire Digene Corp., a move that would bring with it tests for papilloma virus, chlamydia, gonorrhea, and blood viruses. However, federal regulators blocked the proposed merger on the grounds that it would eliminate competition, since Cytyc by then controlled 93 percent of the market for liquid Pap tests and 55 percent of the

The year 2003 proved to be a mixed one for the company. On the positive side, Cytyc won a five-year contract to supply cervical screening tests for all screening centers in Scotland and signed an agreement with Nastech Pharmaceutical Company to acquire worldwide patent rights to products that make use of Nastech's FDA-approved Mammary Aspirate Specimen Cytology Test, a test that draws nipple aspirate fluid from the breast. However, the company's main competitor, TriPath Imaging, whose liquid-based Pap tests cost $2 to $3 less than Cytyc's, won a contract to supply Quest Diagnostics with cervical screening tests. TriPath also gained FDA approval to say its liquid Pap test more accurately detected signs of cervical cancer than the traditional Pap smear.

Cytyc, which ranked eighth in the Boston Globe's Globe 100 in 2004, spent much of the year vigorously marketing its new computerized imaging system, which the Food and Drug Administration had approved in 2003. By mid-year, it had provided equipment at no charge to 51 laboratories, each of which tested on average 50,000 per year and would now rely on ThinPrep slides. The company also joined with the University of Massachusetts Medical School to fund research to develop a test to predict whether precancerous cells will progress to become aggressive cancer. By year's end, ThinPrep accounted for about 37 million Pap tests a year, about 70 percent of the U.S. market. Tripath, Cytyc's closest competitor and the only other company to market a product similar to the ThinPrep, controlled only 10 to 12 percent of the market.

Several 2004 agreements with laboratories promised to help maintain Cytyc's number one market position: LabOne, the largest volume, single-site testing laboratory in the United States, and LabCorp both adopted the ThinPrep Imaging System. The Department of Defense awarded Cytyc a sole source contract as the platform for cervical cancer screening at armed forces screening centers worldwide. In addition, the London Region of the National Health Service and the Strategic Health Authority of the United Kingdom announced their intention to convert all cervical screening between 2004 and 2009 to the ThinPrep test.

However, the company began to look to other products to keep its competitive edge in the face of price erosions. In 2004, Cytyc increased its presence in the women's healthcare field by purchasing Novacept, the company that marketed NovaSure, a device that performed uterine ablation to treat excessive menstrual bleeding. It also invested in Valeo Medical, a private company focused on developing a serum-based test for endometriosis. Late in 2004, Cytyc moved its headquarters to Marlborough, Massachusetts, in order to expand its facilities. The company continued with plans to offer a ThinPrep breast test to scan for breast cancer.

Principal Subsidiaries: Cruiser, Inc.; Cytyc (Australia) PTY LTD; Cytyc

Canada, Limited; Cytyc Europe, S.A.; Cytyc S.a.r.l. (France); Cytyc Germany GmbH; Cytyc Health Corporation; Cytyc Healthcare Ventures, LLC; Cytyc Iberia S.L. (Spain); Cytyc Interim, Inc.; Cytyc International, Inc.; Cytyc Limited Liability Company; Cytyc Limited Partnership; Cytyc Securities Corporation; Cytyc (UK) Limited, Novacept, Inc.

Principal Competitors: ChromaVision Medical Systems, Inc.; Digene Corporation; Hemagen Diagnostics, Inc.; Molecular Diagnostics; Neoprobe Corporation; TriPath Imaging, Inc.


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