They knew it was coming, but perhaps not quite so soon.
Investors ramped up trading of Digene Corp. shares yesterday on earlier-than-expected news that a major competitor has two HPV tests under review by the Food and Drug Administration. A diagnostics division of Swiss pharmaceutical giant Roche Holdings Ltd. announced the developments, which would compete with Digene's product - the only test currently approved by the FDA.
In response, Digene's stock sank $2.75, or 6.3 percent, to close at $41.04 on the Nasdaq, where it was listed among firms with the highest "unusual trading volume" for the day.
Nearly 3 million shares traded hands yesterday - more than seven times the average. Digene's stock, which has hovered in the high $40s to low $50s this year, took a minor beating with the rest of the market last week and has suffered slightly ever since, reaching a low point yesterday.
If accepted for commercialization, the Roche tests will be the first significant U.S. competition for Gaithersburg-based Digene, whose diagnostic test is used to identify strains of a sexually transmitted disease known as human papillomavirus, or HPV. The virus causes cervical cancer and is also linked to some oral and rectal cancers. The test had U.S. sales of $117 million last year.
"One of the major theses for Digene was that it was a monopoly," said biotech analyst Michelle Ha, who works in California for Ferris Baker Watts Inc. "So when Roche actually did file, earlier than some thought, some people went into a panic. I think it's an overreaction."
Digene executives agreed with the overreaction theory. They were joined by several analysts and investment houses, who also pointed out that any FDA approval for Roche is likely a year or more away.
But the Roche development isn't the only competition Digene is facing.
Multiple businesses and researchers are developing HPV-related screening mechanisms, including California's Gen-Probe Inc. and Wisconsin's Third Wave Technologies. Digene has sued Third Wave for alleged patent infringement. Third Wave has countersued, claiming that Digene is abusing "its monopoly power to thwart competition."
Digene already has competition from Roche and others abroad, particularly in developing countries where HPV is more rampant and likely to go undiagnosed.
Still, Digene is the player to beat, analysts said.
"Digene has considerably more clinical data than other tests," said biotech analyst William R. Quirk, who works for Piper Jaffray in Minneapolis. "We believe Digene's stock will rally as it continues to penetrate the market."
Digene paved the way in the HPV market, working for years to show a connection between the virus and certain cancers and develop a market for its lab-processed test. Still, the screening tool is used just one out of every five times it could be, the company has said, leading to beefed up consumer advertising, a bolstered sales staff and overtime efforts to educate the medical community about its test.
Future of tests
It's a task that has become easier as others, including Roche, have turned a spotlight on HPV by developing vaccines to thwart it and legislators have publicly debated the merits of requiring such a vaccination.
"As more and more players come to the market and more marketing dollars and education dollars are put out there, it will be harder and harder for clinicians to [ignore the test]," said Digene spokeswoman Shelley Ducker.
Dr. Paul Blumenthal, who left Johns Hopkins in December to become a professor of obstetrics and gynecology at Stanford University, predicts that such DNA diagnostic tests will eventually replace old-fashioned cytology tests like the pap smear.
"The burden of cervical cancer is not here in the United States, it's out there in developing countries where screening hasn't been available," Blumenthal said. "These kind of point-of-care tests would be useful."
Some have questioned Roche's ability to handle high volume and claimed its test may be oversensitive. But Roche's Molecular Diagnostics head, Daniel O'Day, says at least one of the diagnostics would be an improvement over Digene's. It can take positive HPV results and identify, or "genotype," whether they correlate to one of the two strains most likely to cause cervical cancer, which is still a relatively rare occurrence. Digene is developing something similar for FDA approval.
But analysts aren't yet sure if that's an improvement the world wants.
"The jury's out because there is no genotyping market today to speak of and no one really knows if there would be [insurance] reimbursement," said Bruce Cranna, an analyst for Leerink Swann in Boston who downgraded Digene's stock yesterday to "market perform" from "overperform."
Cranna said Digene would likely feel some pricing pressure on its test if Roche's are approved and it may try to lock in long-term contracts with its customers. But he said its best bet is to keep doing what it is doing and expedite new technologies.
The company has been developing ways to automate test analysis, making it easier for labs to use, and create technology platforms that can be used to search for HPV as well as a host of other conditions.
"It's not panic time," said C. Douglas White, who oversees Digene's commercial operations, including sales and marketing in the Americas and Asia Pacific. "It just validates what we've been working toward."