- The Washington Times - Monday, May 28, 2007

One of Digene Corp.’s patents on tests for the human papillomavirus (HPV) is due to expire this week, but company officials say they expect their business to emerge unscathed.

The Gaithersburg biotechnology company makes a kit that tests for 13 forms of the virus that leads to cervical cancer. The kit, called the Digene HPV Test, helped the company’s revenue rise 34 percent in the first quarter of 2007, while its stock has risen 73 percent in the past two years from just over $25 a share to more than $43 a share. It reached a six-month high of $53.31 on Jan. 24.

It is the only Food and Drug Administration-approved test for the detection of HPV.

Other biotechnology firms are developing their own HPV tests, leading Digene to sue them for patent infringement and causing some industry analysts to wonder whether Digene’s competitors could chip away at its lead in HPV testing.

“Any improvement in the Pap test or the development of competing HPV tests can negatively impact Digene revenues,” said Amit Hazan, a research analyst for financial firm CIBC World Markets. “Competition entering the market earlier than we have assumed will also detrimentally affect future revenues.”

Earlier this month, a federal judge in Delaware denied Digene’s request for a preliminary injunction against competitor Ventana Medical Systems.

The U.S. District Court’s decision allows Ventana to continue selling its products to test for HPV 35, one of the strains of the virus.

“Although we are disappointed with the court’s ruling, the denial of our preliminary injunction request was not unexpected given the pending expiration of the patents at issue in May and June,” said Daryl Faulkner, Digene’s chief executive officer.

The company owns about 170 patents, two set to expire this month and next. The term for others extends beyond 2020.

Digene plans to continue its lawsuit against Ventana, focusing the case on whether Ventana has a valid commercial license on the patents.

The company also has sued Wisconsin company Third Wave Technologies Inc. in another patent dispute that is pending.

Merck & Co. has developed a vaccine that can be administered to women younger than 26 that protects against two strains of HPV, but Digene says it represents no significant competitive threat. The two strains cause 70 percent of cervical cancer cases.

“Given that the vaccine protects against only two of the 13 cancer-causing HPV types, HPV screening and cervical cancer screening are expected to continue long term,” said Digene spokesman Albert Fleury.

In addition, cervical cancer affects primarily older women, not the teenagers and young women who can take Merck’s Gardasil vaccine, he said.

“It’s going to take a long time before the vaccine makes a measurable impact,” Mr. Fleury said.

Digene officials say they are trying to expand their product line to include more health tests. Seven months ago, the company hired Jim Godsey as vice president of research and development.

“He is someone who has a very robust track record of research and development success,” Mr. Fleury said.

Digene’s products include tests for detection of other sexually transmitted infections, such as chlamydia and gonorrhea. The tests are marketed in more than 40 countries worldwide. The company was founded in 1987 and has about 500 employees.

Despite disputes with competitors, Digene has plenty of room to grow, analysts said.

The company has penetrated only about 20 percent of its potential market for HPV testing, meaning “the current growth trajectory of the product has notable upside potential,” Sara Michelmore, an analyst for financial firm Cowen & Co, wrote in a research note.

Digene’s revenue rose to $52.5 million in the first quarter of 2007 from $39.1 million a year earlier. Its net income in the first quarter was $6.2 million (25 cents per diluted share) compared with $3.1 million (13 cents) in the first three months of 2006.

The company’s stock closed at $43.64 per share Friday, up 23 cents or just under 1 percent, from Thursday’s closing price. The stock markets were closed yesterday in observance of Memorial Day.

The company is scheduled to brief analysts on its long-term goals next Tuesday in New York City.

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