China Medical Expands In Vitro Lineup with Virus Diagnostic Test

China Medical Technologies (CMED), which produces in-vitro diagnostic products, will pay $345 million to purchase the rights for a human papillomavirus (HPV) test from Molecular Diagnostics Technologies Limited. China Medical will buy the HPV-DNA Biosensor Chip and Surface Plasmon Resonance-based Analysis System (the SPR System), which can detect the virus that causes cervical cancer and sexually transmitted disorders.

China Medical has profited by acquiring other in vitro technologies, most recently the FISH (Fluorescent in situ Hybridization) system. The SPR System will become part of the company’s FISH offerings. 

China Medical will pay for the acquisition in installments, which will be completed within one year. The company says it has enough cash to complete the purchase without outside financing.

HPV is a common virus. Of the over 100 types of HPV, most are relatively harmless, causing skin or genital warts, while others can cause cervical cancer. Presently available HPV tests can classify the virus only into the high-risk or the low-risk categories, and the tests have the additional drawback of providing high false positive or negative rates in identifying specific HPV genotypes.

The HPV-DNA Biosensor Chip is a label-free DNA chip for the diagnosis of HPV infection and genotyping of HPV. The HPV Chip can identify each of 24 distinctive common HPV genotypes, including 16 high-risk genotypes and 8 low-risk genotypes. It combines high sensitivity and specificity with a short detection time.

The SPR System utilizes Surface Plasmon Resonance ("SPR") technology, the leading biosensor technology in molecular biology. For the past 20 years, the technology has been used to analyze proteins, nucleic acids and viruses.

According to China Medical, there are 50 million cervical cancer gynecological tests performed in China every year. The company estimates that 400 million women in China are of the age in which they should receive regular checkups. The market for the test could reach as much as $700 million if these women become aware of the importance of testing as a preventative measure for cervical cancer.

China Medical will provide SFS systems to hospitals free of charge. Its revenues will come from sales of the HPV Chip, which it will bundle with its specific FISH probes that can detect both HPV infection and TERC gene amplification (which is caused by HPV infection). The company expects to begin sales in the second quarter of 2009, which is the first quarter of the company’s 2009 fiscal year. China Medical projects the HPV chips to contribute about $25 million in revenue in its 2009 fiscal year. Gross margin will be in the 80% range. That will result in an addition of between 16 cents and 21 cents in non-GAAP dilute earnings in 2009. Significantly higher earnings are expected for succeeding years.

In addition to its FISH line of products, China Med also offers ECLIA (Enhanced Chemiluminescence Immunoassay) in vitro diagnostic tests. A separate division manufactures and sells High-Intensity Focused Ultrasound (HIFU) machines that treat solid tumor cancers by raising the temperature in the tumors to 70 degrees Celsius. At one point, the HIFU machines were the company’s major source of revenue. But as revenues for the HIFU machines leveled off, sales of its IVD products have grown. China Medical is currently testing its HIFU machines in a US clinical trial.

Disclosure: none.