TriPath Imaging Blazes a New Trail

TriPath (TPTH - commentary - Cramer's Take) may still be small, but the news it has made lately is anything but that.

Just last week, for instance, the company said it had entered into an agreement with Ventana Medical Systems (VMSI - commentary - Cramer's Take), a supplier of pathology diagnostic laboratory instrument and systems to labs and hospitals across the globe. Under the agreement, Ventana obtained exclusive rights to sell and distribute, under its own label, a version of TriPath's interactive histology imaging system that will be used for both Ventana and TriPath assays, once they are approved. The latter's breast cancer assay, currently available in research-use-only format, is one such example.

The announcement was a major milestone for TriPath's oncology business. It is a validation of TriPath's technology, and it makes the potential for revenue and earnings from the business that much more credible and visible.

And while TriPath's stock has reacted favorably to the news -- shares are up more than 15% since I last highlighted the company on Aug. 16 -- the stock still looks reasonable. It's more than 20% lower than its 52-week high. TriPath is currently trading at a price-to-sales ratio of around 3 using the consensus estimate for 2005 revenue, compared with an average of 4 for its medical diagnostics peer group and a multiple of 5 for rival Cytyc (CYTC - commentary - Cramer's Take).

For most of this past year, the story with TriPath has been its increasing share of the cervical cytology market, where only it and Cytyc have FDA approval to market a liquid-based Pap test; TriPath's is called SurePath. When the company reports third-quarter results in early November, it's likely to show more success at carving out a bigger slice of the Pap test market, particularly with the largest labs like Quest Diagnostics (DGX - commentary - Cramer's Take), with which it penned an agreement in May.

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Odette Galli is a freelance columnist for RealMoney.com. She has been a writer at SmartMoney Magazine and a senior manager at Ark Asset Management, where she co-managed $3 billion in institutional assets. In addition, Galli was a senior vice president at J & W Seligman. At the time of publication, she had no positions in any of the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this commentary represent a recommendation to buy or sell stocks. She welcomes your feedback and invites you to send your comments to [e-mail].