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Unsurprisingly, Cytyc Buys Digene

As a small company with a strong presence in its niche, Cytyc receives a high multiple for its revenues, which gives it the equity for M&A. And both it and Digene, another player in cervical cancer screening, knew they could realize strategic synergies by combining and leveraging product offerings and marketing and distribution channels. But whether or not Cytyc succeeds in driving the growth of Digene's test for HPV, the cause of cervical cancer, and uses Digene's Hybrid Capture platform technology to enable a broader play in women's health, Cytyc is demonstrating an ability to craft potentially transforming deals-the kind a larger diagnostics or medical device company can't easily make by acquiring line extensions in niche markets.

In many respects, Cytyc Corp. 's recently announced $553 million deal for Digene Corp. [See Deal] was a no-brainer, and expected. The companies have each developed a platform for cervical cancer screening—Cytyc with its ThinPrep liquid-based, automated Pap smear slide preparation system and Digene with its molecular test for human papilloma virus (HPV), now understood to cause cervical cancer in better than 99% of cases. The two have been working together for five years, when Digene began to test ThinPrep in conjunction with its HPV test. A year ago they inked a co-promotion agreement [See Deal]. Separately and together, their principal corporate objective has been trying to solidify their respective positions in cervical cancer, and more broadly, women's health testing.

The two have adopted different strategies, however, making them somewhat strange, if complementary, bedfellows. Cytyc aggressively charged onto the scene...

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