TriPath Imaging, Inc.

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TriPath Imaging, Inc.

780 Plantation Drive
Burlington, North Carolina 27215
U.S.A.
Telephone: (336) 222-9707
Toll Free: (800) 426-2176
Fax: (336) 222-8819
Web site: http://www.tripathimaging.com

Public Company
Incorporated: 1999
Employees: 280
Sales: $68.5 million (2004)
Stock Exchanges: NASDAQ
Ticker Symbol: TPTH
NAIC: 334510 Electromedical and Electrotherapeutical Apparatus Manufacturing; 334517 Irradiation Apparatus Manufacturing; 339111 Laboratory Apparatus and Furniture Manufacturing; 339112 Surgical and Medical Instrument Manufacturing; 339113 Surgical Appliance and Supplies Manufacturing

TriPath Imaging, Inc. develops, manufactures, markets, and sells products for cancer screening. The company's SurePath Pap test and PrepStain slide processor, formerly known as the AutoCyte PREP system, form one of only two FDA-approved alternatives to the traditional Pap smear. Its FocalPoint slide profiler utilizes visual intelligence technology to increase accuracy in distinguishing between normal Pap smears and those that have the highest likelihood of abnormality. TriPath Oncology develops and manages the market introduction of molecular diagnostic and pharmaceutical products and services for treating cervical, breast, ovarian, and prostate cancer.

1999: A NEW SORT OF TECHNOLOGY FOR SLIDE PREPARATION AND ANALYSIS

In September 1999, AutoCyte, Inc. merged with NeoPath, Inc. to form TriPath Imaging, Inc. AutoCyte had its roots in the Burlington-based Laboratory Corporation of America (LabCorp), a medical testing company, from which it spun off in 1996. LabCorp, in turn, was created by the merger of the former Roche Biomedical Laboratories Inc. and National Health Laboratories Holdings Inc. in 1995. Dr. James B. Powell, of LabCorp, took the reins at AutoCyte at its inception.

The new company, TriPath Imaging, acquired the technology and intellectual property of Neuromedical Systems, Inc. in 1999 and focused on cervical cancer screening. Neuromedical Systems, along with AutoCyte and NeoPath, was a pioneer in applying computerized image processing and analysis to detect the often subtle cellular abnormalities associated with cancer and its precursor conditions. TriPath's goal, as James B. Powell, TriPath's new president and chief executive, announced in a press release, was to combine thin-layer slide preparation technology with computerized cell image analysis to lower screening costs and improve patient outcomes. The company began trading on the NASDAQ.

TriPath's first two products, the AutoCyte PREP and the AutoPap, aimed to improve upon the conventional Pap test, which delivered a substantial number of inconclusive results and false negatives. The reason for this inaccuracy lay in part on the Pap's collection method, which stacked cells one on top of the other on the slide. It was also the byproduct of human error since individual technicians visually scanned scores of slides for as few as ten abnormal cells among the thousands in each smear. TriPath's system, by contrast, was an automated liquid-based cytology sample preparation system, one of only two FDA-approved alternatives to the traditional Pap smear. It used a brush to collect cervical cells instead of the traditional Pap test's cotton swab. The brush with the harvested cells was inserted into a vial of ethanol-based preservative. Once the collected cells were disaggregated, mixed, and freed from the mucus and proteinaceous material, they were applied in a homogeneous, thin layer of cervical cells to a slide, and the automated AutoPap screening system reviewed the slide for abnormal cervical cells.

TriPath also hoped to move beyond cervical cancer screening. To this end, it joined with Bayer Diagnostics in 1999 in a research project to detect patients at risk of lung cancer. The joint project combined Bayer's proprietary molecular probes with TriPath's automated cell analysis technology. Also in 1999, TriPath acquired Cell Analysis Systems (CAS) from Becton Dickinson and Company, a company that had pioneered computerized microscopic image analysis beginning in the 1980s. CAS's method of analyzing the information on slides held a wide range of research-oriented applications, including DNA measurement and specific cell marker quantification. With the acquisition of CAS, TriPath became the holder of 100 issued U.S. patents and more than 30 U.S. patents pending. These patents pertained to every aspect of microscopic-based image analysis and increased the possibility that TriPath would be able to leverage its technological advantages for product applications beyond cervical cancer screening.

As one of only two FDA-approved alternatives to the traditional Pap smear, TriPath vied fiercely with its competitor, Cytyc Corporation, for market share. Cytyc marketed the ThinPrep System, which, like the AutoCyte PREP, was an automated method for preparing microscope slides of cervical cell specimens that relied on computer imaging technology to examine slides. In 1999, Cytyc sued TriPath for alleged patent infringement. TriPath responded to Cytyc's suit in 2000 with a number of counterclaims, among them illegal anticompetitive conduct. The two companies settled their dispute in 2001 without admission of liability by either party. Cytyc again sued TriPath in 2003, however, claiming that certain of TriPath's patents were invalid and not infringed upon by Cytyc's imaging system.

2000–01: GROWTH IN SALES AND PRODUCTS

Powell handed over the reins at TriPath to Paul Sohmer in mid-2000. Sohmer, a clinical pathologist, had been the president and chief executive of the former Neuromedical Systems. A native of New York, Sohmer was a graduate of Chicago School of Medicine and had begun his career at the largest trauma center in the United States in Baltimore. He next took a job in a research lab with the Army where he developed a way to extend the shelf life of blood to 46 days. While later teaching as an associate professor at Vanderbilt University, he completed a master's in business, then moved on to work with small biotechnology companies in California, among them the Pathology Institute in Berkeley, California, Chiron Reference Laboratory, Nichols Institute, and Genetrix. While in California, Sohmer met up with TriPath's investors.

Throughout 2000, an increasing number of labs began to use TriPath's products. To accommodate the company's growth, TriPath expanded its customer service, sales, and marketing activities. It entered into an agreement with Nelson Professional Sales to augment direct sales efforts focused on the physician's office—specifically, obstetricians, gynecologists, and primary care physicians—and boosted its sales and marketing staff by 70 positions. The company also instituted a regional structure for its technical services, laboratory sales, reimbursement management, and marketing teams.

Also in 2000, TriPath released the next-generation AutoPap Primary Screener for use outside the United States. This equipment incorporated a user interface and a motorized microscopic stage to direct the cytologist to fields of view determined by the AutoPap to be the most likely to contain abnormal cells. The company also concluded its early lung cancer detection development agreement with Bayer Diagnostics; the collaboration resulted in new analytical tools to more rigorously assess molecular probes and qualify them for commercialization.

COMPANY PERSPECTIVES

We create solutions that redefine the early detection and clinical management of cancer.

Further changes took place for the company in 2001. TriPath created TriPath Oncology to develop and manage the market introduction of its molecular diagnostic and pharmaceutical products and services for cancers of the cervix, breast, ovary, and prostate. In another major move, the FDA approved TriPath's PREPmate accessory, which automated several steps in preparing thin-layer slides for the Autocyte PREP system. The PREPmate mixed and removed specimen cells from the collection vial and layered them onto a proprietary reagent located in a test tube for automated slide preparation and staining. Soon afterward, TriPath received a Canadian Medical Device License to market the AutoCyte PREP and PREPmate accessory in Canada where approximately four to five million Pap tests were performed each year. By 2004, AutoCyte PREP tests (then called SurePath Pap tests) accounted for approximately 36 percent of all conventional and liquid-based Pap tests in Canada. By 2005, there were more than 1.6 million SurePath Pap tests per year, greater than 90 percent of all the liquid-based Pap tests in Canada.

2002–05: INCREASED MARKET SHARE

In 2002, TriPath renamed its products. The collection and preservative vials for gynecological applications were renamed SurePath. Together with the PrepStain slide processor, these two components took the place of the AutoCyte PREP and PREPmate accessory. The AutoPap Primary Screening System became the FocalPoint slide profiler.

Back in the United States in 2003, TriPath won regulatory approval from the U.S. Food and Drug Administration (FDA) to market its liquid Pap smear as more than 64 percent more accurate at detecting signs of cervical cancer than the traditional Pap test. The approval put TriPath, which held about 8 percent of the domestic Pap smear market at the end of 2002, in a stronger position to battle Cytyc for market share. With the approval came the possibility of analyzing the SurePath specimen using the only automated, slide-based human papilloma virus (HPV) detecting system on the market, manufactured by Ventana Medical Systems of Tucson, Arizona. HPV is a major contributor to cervical cancer and a possible contributor to cancers of the anus, vulva, vagina, and penis, and oropharynx as well. Cytyc, which had won approval from the FDA to announce its greater efficacy in 2001, had 64 percent of the market for Pap tests in the United States by 2003 and had been coupling its specimen collection system with equipment manufactured by Ventana to test for HPV for several years.

TriPath's share price soared 38 percent to close to $6 in response to the news of the FDA decision. In 2003, 150 new laboratory customers came on board, 88 of them in the United States, bringing the total number of SurePath customers worldwide to 600. Still, TriPath had yet to turn a profit and lost $8.5 million on revenues of $53.8 million in 2003. This loss notwithstanding, the company remained optimistic and laid plans to build an addition to its building.

TriPath continued to add new domestic and international customers and grossed $56 million in revenues in 2004, its first year to turn a profit. Its SurePath had about 14 percent of the domestic Pap test market and 36 percent of the Canadian market that year. The company signed an agreement with Ventana for the latter to market a brand of its interactive histology imaging system. Business Week announced late in 2004 that analysts were "upbeat" on the company, whose stock they considered undervalued. Also in 2004, TriPath Oncology released two new molecular tests to help research cervical and breast cancer. In 2005, it received FDA approval for a third test.

In the future, TriPath expected to expand its business by providing next-generation clinical solutions through soon-to-be developed novel molecular oncology products. It also intended to develop proprietary reagents to screen and assist in diagnosing the presence of disease, to assist doctors in patient prognosis and outcome more accurately, and to guide their choices in selecting therapies for managing cancers of the cervix, breast, ovary, and prostate, as well as melanomas. With one in three women in the United States at risk of developing cancer in her lifetime, according to the American Cancer Society, TriPath's market presence seemed assured.

KEY DATES

1999:: AutoCyte, Inc. and NeoPath, Inc. merge to form TriPath Imaging, Inc., which acquires the technology and intellectual property of Neuromedical Systems, Inc.
2000:: Paul Sohmer replaces James B. Powell as chief executive officer.
2001:: TriPath Imaging creates subsidiary TriPath Oncology.
2003:: The company receives FDA approval to advertise its SurePath Pap test as more accurate than the conventional Pap test.
2004:: The company turns its first profit.

PRINCIPAL SUBSIDIARIES

TriPath Oncology, Inc.

PRINCIPAL COMPETITORS

Applied Imaging Corp.; Bio-Reference Laboratories, Inc.; Clarient Inc.; Cytyc Corporation; Digene Corporation; Molecular Diagnostics, Inc.; Ortho-Clinical Diagnostics, Inc.; Quest Diagnostics Incorporated; Ventana Medical Systems, Inc.; Vysis, Inc.