(FORTUNE Magazine) – The pap smear test--a woman's primary means of detecting cervical cancer--celebrated its 50th birthday recently, and the years show. The false negative rate for the aging procedure is an unacceptable 20%. So doctors and patients alike were excited last November when the FDA approved a new pap test, calling it "significantly more effective." The stock of Cytyc, the test's inventor, soared 71% over the next three days. The future looked bright.

And yet now, almost a year later, the pap smear industry is at war. Other companies, including startups like Neuromedical and AutoCyte (both of which are using computer-based technology), have joined in the struggle for part of the almost $1 billion market, making competition fierce. "It's ugly," says Eva Snitkin, an analyst at Montgomery.

No war is as nasty as the one raging between Cytyc and Neuromedical. One of Neuromedical's distributors has filed a petition with the FDA, criticizing Cytyc's clinical methodology and asking the FDA to reconsider its approval of Cytyc's product as a replacement to the conventional pap smear. Cytyc is suing Neuromedical for, among other things, defamation.

The furor is a real waste of energy, because the two companies' technologies are complementary, not competitive. Cytyc's product, called ThinPrep, refines how a cell sample is prepared: Instead of a difficult-to-read glob of cells, you get one (thin) layer, making it easier for lab technicians to spot abnormalities. Neuromedical, on the other hand, has developed a computerized screening process called Papnet that supplements the diagnostic abilities of a lab technician with a microscope. Theoretically, the products would work well together--Cytyc's method of preparing the slide with Neuromedical's method of reading it.

There is a practical reason for the bitter battle. Labs already lose money on pap smear tests, so reimbursement is critical. Persuading most managed-care organizations to ante up for a more expensive, albeit better, product is not easy; imagine trying to get them to agree to two. So if one company wins anything, the others worry that they will in turn lose their chance at a piece of the market.

The struggle has created some high-stakes dynamics on Wall Street. This became apparent when, following the FDA's blessing of ThinPrep in early November, a major HMO, United HealthCare, agreed to reimburse for it. During that month Neuromedical's stock sank 19%.

Over the next few months, however, rumors began to circulate that ThinPrep didn't live up to Cytyc's FDA-backed claims--for one thing, that it could actually increase the chance that cancer escapes undetected because an abnormal cell may get tossed out in the preparation, thereby heightening the risk of costly malpractice suits. Cytyc points to Neuromedical as the source of what it says is false information. Neuromedical denies this. But it as well as others, including an Ohio medical insurer, say there are legitimate concerns about ThinPrep. The battle is just getting under way: The FDA petition was filed in late July; the lawsuit is in its earliest stages.

Neuromedical has other fights ahead: The company is also embroiled in a two-way patent infringement case with another industry player, Neopath. Neuromedical's stock has dwindled from $19 last October to $5 today; in June, CEO Mark Rutenberg resigned. Some observers view the FDA filing as a desperation gambit. Neuromedical denies involvement. But the company that filed the petition is a Neuromedical distributor, and its president, one Carl Genberg, owns Neuromedical stock, sits on the board, and happens to be former CEO Rutenberg's first cousin. And Cytyc is winning where it matters most. Cytyc's sales in the second quarter were more than twice those of Neuromedical.

Don't toss Neuromedical out yet, though. The outcomes of the lawsuits (and the FDA petition) are up in the air, and the company has its ardent defenders. Among them: investment bank Goldman Sachs, which owns more than 20% of the stock.

While these players duke it out in the courts, a new entrant may come along and steal the show. Though AutoCyte has yet to receive FDA approval, the company completed its IPO in September. And AutoCyte, unlike the others, can concentrate on business.

--Bethany McLean