Cytyc Corporation, the market leader in cervical cancer screening, has entered into a merger agreement with Novacept, a privately-held company that manufactures and markets the NovaSure System. NovaSure is an innovative endometrial ablation device to treat menorrhagia, or excessive menstrual bleeding. It is estimated that in the US, one in five women between the ages of 35-55 suffers from excessive menstrual bleeding.

Under the terms of the agreement, Cytyc will acquire all of the outstanding shares and options of Novacept in exchange for approximately $325 million in cash, or $311 million net of Novacept's cash balance. Morgan Stanley is acting as financial advisor to Cytyc and has provided a commitment for up to $250 million in senior bank financing. The balance of the purchase price will be paid with Cytyc's available cash. Cytyc is also exploring other financing options. Cytyc expects the acquisition to break-even in 2004 and to be accretive to Cytyc's 2005 earnings. In addition, the transaction is expected to result in a one-time charge of approximately $20 million, largely for in-process R&D. The transaction is expected to close by the end of the first quarter of 2004 and will be subject to the satisfaction of customary closing conditions and clearance under the Hart-Scott Rodino Antitrust Improvements Act.

Patrick Sullivan, Cytyc's chairman, said, "We believe this is a great strategic opportunity for Cytyc for several reasons: First, it builds on our reputation and leadership position in providing innovative medical devices for women's health. We believe Novacept is a rapidly growing company in this space with the "best in class" device for treating women for this condition. Second, this acquisition significantly increases our sales and marketing resources to OBGYN physicians. We have approximately 100 physician sales representatives currently calling on OBGYNs. As a result of this acquisition and our 2004 growth plans, our OBGYN salesforce will double to increase our competitive position for the ThinPrep Pap Test and ThinPrep Imaging System as well as to market and sell the Novacept product to our existing OBGYN customer base. This product will also leverage our international infrastructure. And third, we believe this acquisition will put us on a strong and diversified financial growth trajectory on both the top and bottom line and will position us to become a worldwide leader in providing innovative products for women's health."

Sullivan continued, "We are excited about the Novacept opportunity because we believe its patented, innovative technology for the treatment of menorrhagia offers a unique clinical solution to women who suffer from this condition. Novacept launched its NovaSure System in January 2002 and generated $38.4 million in annual sales in 2003, up from $8.3 million in sales in 2002. Reimbursement is well established nationwide. The company is cash flow positive and was profitable for the second half of 2003."

"We are very proud of our product and our accomplishments to date," said David Clapper, Novacept's president. "This merger represents an ideal fit. Our specialized expertise in this emerging market, combined with Cytyc's substantial resources and proven track record, will accelerate adoption of this important new technology, which will significantly benefit physicians and their patients. Our team is very excited to become part of Cytyc." Piper Jaffray acted as advisor to Novacept for this transaction.

It is estimated that as many as 7 million pre-menopausal women between the ages of 35-55 suffer from menorrhagia and 2.5 million women seek treatment for this condition each year. Current treatment options include hormone therapy, hysterectomy, and endometrial ablation. Published studies have demonstrated the clinical efficacy of the NovaSure System and the potential cost-effectiveness of endometrial ablation compared to hysterectomy.

Sullivan concluded, "We believe this is a great strategic opportunity for Cytyc to build on our OBGYN franchise. We will maintain the existing NovaSure sales force, which will be integrated into Cytyc's current sales organization. We plan to operate Novacept's Research and Development and Operations organizations as separate entities in Palo Alto and to continue to expand Novacept's manufacturing operation in Costa Rica. We look forward to working closely with the Novacept team to become the worldwide market leader in providing innovative products for women's health."