Merger watch - vertical challenge.(Brief Article)

Conventional wisdom predicts that Republican administrations are adverse to challenging vertical mergers in federal court. But on June 24, a unanimous FTC authorized its staff to seek a preliminary injunction to block Cytyc Corp.'s proposed $420 million acquisition of Digene Corp., alleging that the merger would lead to reduced competition and increased consumer prices within the highly concentrated market for primary cervical cancer screening tests, now and in the future.

As the FTC explains it, "Digene is the only company in the U.S. selling a DNA-based test for the human papillomavirus (HPV), and it appears likely that Digene will continue in the position for the foreseeable future. HPV viruses are believed to cause nearly all cervical cancer cases. Digene's HPV test is most commonly and efficiently conducted using a residual sample obtained from a liquid Pap test, but doing the test this way requires FDA approval. Thus, it is important that a company manufacturing liquid Pap tests have FDA approval to run the Digene HPV test off its sample medium. It is similarly important that a liquid Pap test supplier's customers have viable access to Digene's HPV 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 also thwart the entry of other firms that have planned to begin selling liquid Pap tests in the United States in the near future.

"The proposed acquisition also would eliminate future competition from Digene's HPV test itself, both in conjunction with Pap testing and later on a stand-alone basis to test for cervical cancer. Digene's HPV test is not currently used for primary cervical cancer screening in the United States, but rather as a follow-up test when Pap test results are unclear. However, it is anticipated that in the near future Digene's HPV test is likely to compete more directly with liquid Pap tests in the primary screening market. Digene has already applied for FDA approval for the use of the HPV test in conjunction with Pap testing as a primary cervical cancer screen, with final approval expected before the end of 2002. In addition, in the next four to five years, the FDA is expected to approve HPV testing as a stand-alone primary cervical cancer ...