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Clinical Laboratories and Pathology Groups

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Clinical Laboratories and Pathology Groups

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Cytyc to be Acquired by Hologic

In a deal made public only Sunday, Cytyc Corporation has agreed to be acquired by Hologic. Hologic will pay $6.2 billion for Cytyc, which had revenues in 2006 of $608 million. The price paid represents a 33% premium for Cytyc shares, based on prices at the close of the market on Friday.

When the deal closes, probably sometime between July 1 and September 20, another in vitro diagnostics (IVD) manufacturer will have lost its independence. In this acquisition, Hologic’s prime interest is not Cytyc’s cervical cancer screening products. Instead, Hologic is particularly interested in Cytyc’s product lines for breast cancer, including its Mammosite radiation treatment. That’s because Hologic, with annual revenues of $462.7 million in 2006, has a line of breast cancer diagnostic devices, including an imaging system.

Three things are driving this deal. First, both companies serve the same primary market: ob-gyns. Not only will this help with recognition for the combined company, but it opens up opportunities to cross sell one company’s products to other company’s customers. In particular, since 90% of the nation’s ob-gyns currently use Cytyc’s ThinPrep Pap tests, Hologic believes it can benefit from selling to these physicians.

Second, there are certain economies of scale and other savings that will be realized by combining the two companies. However, layoffs are not planned, and both companies’ CEOs have emphasized that Hologic, post-acquisition, will have 1,200 sales people to promote its products.

Third, the two companies are located within 15 miles of each other, which will help make integration easier. Hologic is based in Bedford, Massachusetts and Cytyc’s corporate office is in Marlborough, Massachusetts. It also turns out that Hologic CEO Jack Cumming and Cytyc CEO Patrick Sullivan live in the same town. Maybe that’s why Cumming’s told analysts that the two companies were “kindred spirits” because of the way their core products complement each other and the fact that so many employees of both firms live in the same region.

Once the acquisition is completed, the company will be called Hologic and Cytyc will operate as a wholly-owned division of Hologic. Cytyc CEO Sullivan is slated to become Hologic’s Chairman and Cumming will be Chief Executive Officer.

Most laboratory managers and pathologists view Cytyc as a company that has a major presence in the market for cervical cancer screening products. That is true, but in recent years Cytyc Corporation has acquired a number of technologies and companies that provide services in other areas of women’s health. Several of these new business lines are growing rapidly. For example, during first quarter 2007, Cytyc’s domestic revenues from its diagnostic products, including cervical cancer screening products, totaled $89.2 million. That was a growth rate of 11% over first quarter, 2006. By contrast, revenues from domestic sales of its surgical products totaled $59.3 million, representing a growth rate of 33% over the revenues of $44.7 million in first quarter 2006.

For first quarter 2007, Cytyc failed to post a net profit. On sales of $169.9 million for the quarter, it showed a loss of $51.2 million, compared to a profit of $29.4 million during the same period a year prior.

Related Articles:

Hologic and Cytyc to Merge Creating a $10 Billion Global Leader in Women’s Healthcare

Hologic Agrees to Acquire Cytyc

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Cytyc Reports Record Revenue of $168.9 Million for First Quarter 2007