CPTS Conceptus, Inc. (MM)

Hologic (HOLX), a leading player in the field of women’s health, has released its C-View synthesized 2D image reconstruction algorithm. This eliminates the requirement of a conventional 2D mammogram as a part of a 3D mammography (tomosynthesis breast cancer screening). The C-View software creates a 2D image from a single tomosynthesis, thus doing away with the need for additional 2D exposures.

Hologic will feature the new algorithm along with its Selenia Dimensions breast tomosynthesis system at the annual meeting of the Radiological Society of North America (RSNA), currently underway in Chicago.

Earlier this year, Hologic received approval from the US Food and Drug Administration (FDA) for its Selenia Dimensions 3D digital mammography tomosynthesis system. The device is capable of producing both 3D and conventional 2D images that can be used to screen and diagnose breast cancer. Clinical studies conducted by the company revealed that the image in the combined mode, 2D plus 3D, is superior to 2D mammography alone to rule out breast cancer. Besides, the patient need not be recalled for further study.

Sales of digital mammography products increased 8% year over year and 18% sequentially to $83.3 million in the most recent quarter, driven by significant increase in both units and revenues of Dimensions products. Dimensions accounted for 63% of digital mammography product revenue and 49% of units.

The company noted that 3D Dimensions sales, still in its initial stages, are yet to ramp up to its true potential despite showing sequential growth. Management does not expect significant contribution before fiscal 2012. Nevertheless, they are confident of being able to achieve the target of placing 500-700 3D systems in the US within the first two years. They also believe that all 2D Dimensions sold will be upgraded to the 3D platform over time.

Our Take

Brest Health is the largest segment at Hologic, accounting for 47% of total sales. We are impressed with the company’s continuous efforts to improve the usability of the Dimensions platform, which is expected to be an important growth driver for the Breast Health business.

This is all the more significant since economic uncertainty and high unemployment are adversely affecting physician office visits, thereby impacting volumes for NovaSure and Adiana products (in the Gyn Surgical segment), as seen in the most recent quarter. Hologic’s competitor in this area, Conceptus (CPTS), also witnessed similar challenges. We remain cautious as persisting headwinds might lead to lower revenues in the Diagnostics business, the second largest at Hologic. 

We maintain our Neutral recommendation on Hologic over the long term, corresponding to the Zacks #3 Rank (Hold) in the short term.

 
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