- The Washington Times - Tuesday, July 2, 2002

Shares in Gaithersburg-based medical-diagnostic firm Digene hit a 52-week low last week as the company's proposed merger with Cytyc hit the rocks when the Federal Trade Commission said it would try to block the deal.
Digene yesterday announced that it was backing out of the deal, and prices were down slightly in response to the announcement, analysts said.
Last week, shares in Digene and Boxborough, Mass.-based Cytyc, also a diagnostic firm, fell after the FTC announced on June 24 that it would take action to block the merger. Digene shares fell 2.9 percent last Tuesday to close at $9.78. Shares have fallen nearly 60 percent since the merger proposal was announced in February.
The FTC said the newly formed company would control too much of the market for testing for cervical cancer. Cytyc controls 93 percent of the market for liquid-based Pap tests used to screen for cervical cancer. Digene has the only Food and Drug Administration-approved test for the human papillomavirus (HPV), which is thought to cause most cases of cervical cancer.
"As a result of the proposed acquisition, it is likely that prices would increase, product innovation would suffer, and ultimately, patient care would be compromised," Joseph J. Simons, director of the FTC's Bureau of Competition, said last week.
Digene executives said yesterday the merger would have been beneficial to the company's customers, but it would be better to abandon the deal.
"We do not believe that it is in the best interest of our company and its stockholders at the present time to pursue a potentially protracted and uncertain dispute in the courts with the FTC," said Digene Chief Executive Officer Evan Jones.
Linda Varoli, an analyst for Merger Insight, said this did not come as a shock to the market.
Digene's prices were down a bit yesterday, "but it's not completely getting killed," she said.
Digene shares fell $2.50, or 21 percent, to close at $9.26 yesterday after news reached investors of Digene's termination of the agreement.
"I think the market kind of expected it," Miss Varoli said.
She said the companies would have been stronger together, but the cost of fighting the battle for the merger's approval would be too costly for Digene and its investors and employees.
"There's not this uncertainty," she said. "They can now focus on their own operation going forward."
Digene has been marketing its HPV test, which is considered secondary testing for cervical cancer as it detects the virus thought to cause the disease. However, analysts say the company has been trying to break into marketing primary-testing products.
Digene's focus has been on testing in women's health for cervical cancer and sexually transmitted diseases. Its goal is to "become a global leader in gene-based testing systems for infectious diseases and cancers," according to its Web site.
The uncertainty isn't gone for Digene. Some analysts have mentioned prospects of a bid for the company by Roche Diagnostics, a potential rival to Digene in testing products, in the not-so-distant future.
Roche in early June was assigned a portfolio of patents pertaining to HPV by Institut Pasteur, which puts the Swiss company in control of a huge range of the virus's subtypes.
This could mean Roche will become competition for Digene or will try to acquire it in order to expand into the HPV-testing market, Miss Varoli said.


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