AutoCyte to Buy NSI’s Patents and Other Assets

FDA gives favorable review to firm’s data on its Pap smear PREP® system

CEO SUMMARY: When Neuromedical Systems entered Chapter 11 bankruptcy, AutoCyte moved rapidly to purchase Neuromedical’s patents and other intellectual property for automated cytology technology. Even as Neuromedical disappears from the marketplace, AutoCyte is preparing its entry. Laboratories will soon have a new brand of automated cytology technology to evaluate for purchase.

EXECUTIVES AT AUTOCYTE, INC. acted quickly when given the opportunity to purchase patents, intellectual property, and other assets of Neuromedical Systems, Inc.®, manufacturer of the PapNet system for Pap smear screening.

Subject to approval of the bankruptcy court, AutoCyte will pay $4 million in cash and 1.4 million shares of AutoCyte stock to acquire the crown jewels of Neuromedical Systems: its automated cytology patents. With AutoCyte stock currently at about $6 per share, total value for the deal is $12.4 million.

AutoCyte has developed automated systems for monolayer preparation of Pap Smears (called PREP®) and cytologist-assisted diagnosis of Pap smears (called SCREEN®). The company is awaiting FDA approval for its PMA applications covering both automated cytology systems.

AutoCyte was recently notified by the FDA that its clinical data for the PREP system had been successfully reviewed. Once final details about labeling and other issues are settled between the FDA and AutoCyte, it is expected that the FDA will issue an approval and AutoCyte’s PREP system can then be sold in the marketplace.

Meanwhile, Neuromedical’s bankruptcy triggered swift action by AutoCyte. “We are interested in building our patent estate,” said James Powell, M.D., President and CEO of AutoCyte. “Neuromedical developed a number of patented technologies in Pap smear screening. We believe these will complement our own research efforts.”

What sets AutoCyte apart from other automated cytology companies is its goal of developing an integrated suite of Pap smear preparation and screening instruments.

What sets AutoCyte apart from other automated cytology companies is its goal of developing an integrated suite of Pap smear preparation and screening instruments. AutoCyte’s PREP and SCREEN systems are designed to complement each other.

“Our original concept was that high volume cytology laboratories would benefit from automation,” explained Dr. Powell. “We started from the premise that a monolayer preparation would reduce variability when imaging the Pap smear, thus enhancing the productivity of automation.

“The monolayer preparation eliminates extraneous material on the Pap smear slide,” he continued. “This means that an automated screening device finds consistent information on the Pap smear slide which is of a better quality for diagnosis.”

Monolayer Pap smears

For this reason, AutoCyte designed its SCREEN system to handle monolayer Pap smears. AutoCyte would like to have the flexibility in the future of accommodating the wide variation of traditional Pap smear stains.

“This was a significant problem which Neuromedical Systems had to solve with its PapNet system,” said Dr. Powell. “It had three years experience in capturing data from conventional Pap smear slides prepared by a number of laboratories around the world. Acquiring its patents, including the neural net technology, gives us access to that experience and the technology refinements it built into its system.

PREP To Hit The Market

With final FDA approval on the PREP PMA expected within just a few months, AutoCyte is preparing to introduce its version of a monolayer Pap smear preparation system into the marketplace. As it comes to market, it will benefit from the new CPT codes for liquid Pap smear preparations that became effective on January 1, 1999.

“It is a positive sign that improved reimbursement for Pap smears is impending,” said Dr. Powell. “The new CPT codes will have a beneficial effect for laboratories that want to acquire and use automated cytology systems.”

AutoCyte’s PREP system will compete with Cytyc Corporation’s ThinPrep® system, while its SCREEN system will compete with NeoPath Inc.’s AutoPap® Primary Screening System.

Laboratory executives and pathologists should expect to see ongoing improvements in the diagnostic accuracy and the cost-effectiveness of automated cytology technology. Competition, technological advances, and clinical experience will generate steady gains in the performance and effectiveness of these automated cytology systems.

AutoCyte & NeoPath Seek FDA Supplement

AutoCyte and NeoPath announced on March 23 that the two companies will jointly develop clinical trials to demonstrate the effectiveness of AutoCyte’s PREP system with NeoPath’s AutoPap system for the primary screening of Pap smears.

“It has always been our goal to maintain AutoPap as an open system,” stated Alan Nelson, Chairman of Neopath. “Now that the FDA has successfully reviewed clinical data for AutoCyte’s PREP system, we expect approval of their PMA will be forthcoming. It is logical timing to now invest resources to demonstrate that both company’s systems work effectively together in the preparation and primary screening of Pap smears.”

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