Cytyc Down 13 Percent on Competition
Thursday March 6, 12:12 pm ET
By Bill Berkrot
NEW YORK (Reuters) - Shares of Cytyc Corp. (NasdaqNM:CYTC - News) fell more than 13 percent on Thursday after a rival provider of cancer screening tests won a contract with Quest Diagnostics Inc. (NYSE:DGX - News), introducing new competition that led some analysts to downgrade Cytyc's stock.
Cytyc's exclusive deal to supply its cervical cancer tests to Quest, the nation's leading diagnostic testing company, expired at the end of 2002, and analysts believe it is unlikely to be renewed as Quest seeks cost savings. That opened the door to competition and TriPath Imaging Inc. (NasdaqNM:TPTH - News) came knocking.
On Wednesday, TriPath, based in Burlington, North Carolina, announced an agreement under which Quest will begin using its cervical cancer screening products as well as Cytyc's.
Terms of the deal were not announced, but the news was enough to send TriPath shares up more than 25 percent to $3.45 in midday trade on Nasdaq.
Cytyc shares headed in the opposite direction. They were off $1.79, or 13.7 percent, at $11.21 on Nasdaq. Cytyc is based in Boxborough, Massachusetts.
H.C. Wainwright analyst Ronald Opel downgraded his rating on Cytyc stock to "underperform" from "market perform," saying he expected the company's gross and operating margins to erode over the next two years.
"TriPath getting their foot in the door means no ongoing exclusive supply agreement for Cytyc at Quest, and that means the beginning of what could be fairly significant price pressure on Cytyc," Opel said.
Opel, who maintained his "outperform" rating on TriPath, said in his research note that TriPath is expected to charge at least 15 percent less for its competing cervical cancer screening products, resulting in at least $15 million annual savings for Quest.
Ryan Rauch, an analyst for Adams, Harkness & Hill, also downgraded Cytyc, changing his rating on the stock to "market perform" from "buy." He called TriPath's agreement with Quest "a clear negative" for Cytyc.
Rauch said he still expected Cytyc to post strong results for the first quarter but added he may be forced to alter his Cytyc estimates for future quarters.
"This could put our current 2004 domestic ThinPrep estimate of $298 million, or 16 percent growth, in jeopardy," Rauch wrote, referring to U.S. sales of Cytyc's cervical cancer test.
Shares of Quest Diagnostics were largely unaffected, down 16 cents to $52.03 on the New York Stock Exchange (News - Websites).
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