The Federal Trade Commission announced yesterday that it would seek a court injunction to block Digene Corp.'s acquisition by fellow diagnostic testing company Cytyc Corp., dealing the proposed merger a possibly lethal blow.
The FTC, which is charged with ensuring fair competition, said in a statement that the combination would lead to reduced competition and increased prices for cervical cancer screening. The panel voted 5-0 to seek the court order.
"This merger as proposed raises serious competitive concerns within the highly concentrated market for this important diagnostic tool," said Joseph J. Simons, director of the Bureau of Competition, referring to cervical cancer tests. "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."
Digene shares fell 31 cents to $12.69 yesterday, while Cytyc shares fell 24 cents to $11.46. The FTC announced its challenge after the close of regular trading.
Gaithersburg-based Digene announced Feb. 19 that Cytyc, of Boxborough, Mass., had offered to acquire it for what then amounted to $537.6 million in cash and stock. The companies said that they expected the deal to close in the second quarter, combining the purveyor of one of the nation's most popular Pap tests - Cytyc's ThinPrep test for cervical cancer - with Digene, which sells a gene-based test for the disease.
Digene Chief Executive Officer Evan Jones said last night that he was in a meeting and unable to talk. Cytyc Corp. officials couldn't be reached.
Pacific Growth Equities analyst Albert S. Kildani said he had not spoken with executives from either company but guessed that the decision would end the merger. "I think there's clearly a recourse for Cytyc and Digene," he said. "But it seems to me that path is so onerous that the merger will be dropped."
The FTC said in its statement that Cytyc's cervical cancer test accounts for 93 percent of U.S. liquid-based Pap tests. TriPath Imaging, it said, is the only other company making and selling a liquid Pap test approved by the Food and Drug Administration in the United States.
Three other companies have developed similar tests but have not begun FDA-required human testing, the commission said.
Digene's HPV test is approved in the United States only as a secondary test to check or clarify the results of a Pap test.
"By purchasing Digene, Cytyc would be in a position to eliminate its only existing competitor (TriPath) by limiting access to Digene's HPV test, and, in a similar manner, could ... thwart the entry of other firms that have planned to begin selling liquid Pap tests in the United States in the near future," the FTC said.
Digene shares have fallen more than 60 percent since March, when the companies announced the FTC's first request for additional information. Cytyc shares have dropped 27 percent since April 25, when it lowered its sales forecast to as low as $270 million from between $295 million and $305 million.
The difference between Cytyc's offer and the trading price has widened to $5 a share, reflecting concern that the acquisition will not take place.
Bloomberg News contributed to this article.