BUY OR SELL-Hologic geared up for 3D breast cancer test

(changes Medicaid reference to Medicare in paragraphs 3, 20-21)

* FDA approval expected this year/early 2011

* Upgrades to 3D expected to generate $16 mln initial revs

* Clinics reluctant to invest in costlier device

* Concerns linger over U.S. insurance coverage

By Rajarshi Basu and Krishnakali Sengupta

Nov 16 (Reuters) - Medical device maker Hologic Inc may achieve for breast cancer screening what "Avatar" did for the movie business ... accelerate the age of 3D.

Some analysts say the firm's Selenia Dimensions 3D breast imaging device, awaiting U.S. regulatory approval, could be a blockbuster product -- one that generates $1 billion or more in annual revenue.

Others see a long road ahead, with rival products coming to market and question marks over how testing on the device will be treated by both U.S. Medicare and private insurance companies.

POTENTIAL BLOCKBUSTER?

While Hologic's 3D device is not expected to replace existing 2D technology, it will have 'first mover' advantage over rival products due from Siemens AG and GE, and will be a novel arrival in the U.S. breast cancer test market which is saturated with 2D machines.

"3D will be a clear differentiator in the market," said Sameer Harish, an analyst at Needham & Co.

Analysts reckon 3D Selenia will reduce patient recall and give a more "rounded" approach to mammography as a test for breast cancer -- the leading cancer killer of women globally, with more than half a million deaths each year.

"There is significant pent up demand for the product in academics ... the technology not only detects breast cancer, but also helps reduce recalls that will help support a rapid adoption of the technology," said Jefferies & Co analyst Joshua Jennings.

Jennings is confident Hologic is well positioned to accelerate earnings through reimbursements from the device.

Top-tier clinics, which can afford upgrades and have the budget for new technologies, are likely to drive demand.

Shares in Hologic, valued at $4.4 billion, have risen 13 percent so far this year, easily outperforming the sector sub-index, which is down 8.5 percent.

Bedford, Massachusetts-based Hologic, which also makes ThinPrep cervical cancer tests, generated more than 40 percent of its latest quarterly revenue from its core breast health business.

"Assuming they get full approval, I think they have a pretty big market for the product," forecast Harish.

NOT SO FAST

But Hologic will have to convince clinics, wary about spending in a still fragile economy, to part with $400,000 on the new appliance, about double the price of a basic 2D model.

"It's a good product that's unfortunately coming out at a difficult time," said Brigantine Advisors analyst Robert Gold, who expects the device to generate $16 million initial revenue in the U.S. from those 2D devices that can be upgraded.

Selenia Dimensions, which uses a new technology, tomosynthesis, to produce 3-D images, has already been launched in Europe, Latin America and Asia, but sales have not taken off as clinics are reluctant to invest in a costlier alternative.

How treatment will be covered by insurers in the United States will also be a key factor in how quickly the device takes off.

With many patients losing insurance coverage amid a patchy recovery, the market may wait for rivals to launch their versions of 3D mammography devices, which will pressure prices.

"GE is not that far behind with its 3D device, probably a year behind. Also Siemens and Fuji are expected to be the next players to enter the 3D market," Gold said.

Analysts cautioned it may take a few years before sales really kick off as patients seek more clarity on the products' government reimbursement and private insurance coverage.

"Uptake in the U.S. will be gradual until there's a permanent Medicare code, which will take at least 18 months following approval," said Gold.

Medicare is a federal health insurance program that pays for hospital and medical care for elderly and certain disabled Americans.

Among the six top-rated analysts by Thomson Reuters StarMine, there are two 'neutral' recommendations, two 'equalweights', a 'hold' and a 'market perform'.

Below that, analysts rate the stock mainly as a 'buy', with a price target range of $17-$22 per share versus Monday's close on Nasdaq of $16.71. (Reporting by Rajarshi Basu and Krishnakali Sengupta in Bangalore; Additional reporting by Viraj Nair, Editing by Ian Geoghegan)