DIGENE CORP, 424B4, 1996-05-22

DIGENE CORP
424B4, 1996-05-22
IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES

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<PAGE> 1

PROSPECTUS

3,000,000 Shares

[DIGENE LOGO]

Common Stock
---------------------------

All of the 3,000,000 shares of Common Stock offered hereby are being sold
by Digene Corporation ("Digene" or the "Company"). Prior to this Offering there
has been no public market for the Common Stock of the Company. See
"Underwriting" for a discussion of the factors considered in determining the
initial public offering price. The shares of Common Stock have been approved for
quotation on the Nasdaq National Market under the symbol "DIGE."

THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS," COMMENCING ON PAGE 6.

---------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................... $11.50 $0.805 $10.695
- ----------------------------------------------------------------------------------------------------------
Total(3)............................ $34,500,000 $2,415,000 $32,085,000
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>

(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting expenses of the Offering payable by the Company, estimated
at $800,000.
(3) The Company has granted the Underwriters an option, exercisable within 30
days from the date hereof, to purchase up to 450,000 additional shares of
Common Stock on the same terms and conditions set forth above, solely to
cover over-allotments, if any. If such option is exercised in full, the
total Price to Public will be $39,675,000, the Underwriting Discounts and
Commissions will be $2,777,250 and the Proceeds to Company will be
$36,897,750. See "Underwriting."
---------------------------

The shares of Common Stock offered by the Underwriters are subject to prior
sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that delivery of such shares will be made through the
offices of UBS Securities LLC, 299 Park Avenue, New York, New York, on or about
May 28, 1996.

---------------------------

UBS SECURITIES MONTGOMERY SECURITIES

May 22, 1996
<PAGE> 2
DIGENE'S HYBRID CAPTURE(TM) HPV DNA TEST

DIGENE'S HPV DNA TEST:
- -Identifies the presence of HPV, the primary cause of cervical cancer
- -Enables cost-effective follow-up of equivocal Pap smears
- -Provides accurate, easily interpreted results
- -Reduces likelihood of Pap smear results misinterpreted as normal (false
negative)
- -Predicts development of disease

EQUIVOCAL PAP SMEARS
The Company's HPV DNA test is approved by the FDA for the follow-up screening
of women with equivocal (inconclusive) Pap smears.

PRIMARY SCREENING - U.S.*
Primary cervical cancer screening using the Company's HPV DNA test in
conjunction with the Pap smear has the potential to reduce false negative Pap
smear results and improve the accuracy of cervical cancer diagnoses.

PRIMARY SCREENING - REST OF THE WORLD*
HPV DNA testing can be used as an effective primary cervical cancer screen in
many parts of the world where Pap smears are not widely used or are
unavailable.

* The Company's Hybrid Capture HPV DNA test has been approved by the FDA for
the follow-up screening of women with equivocal Pap smears. The Company intends
to submit a pre-market approval ("PMA") supplement for use of its HPV test as a
primary cervical cancer screening test in the United States, either in
conjunction with or separate from Pap smear testing. There can be no assurance
that the FDA will grant approval of such a PMA supplement in a timely manner,
if at all, or that the FDA will not require the submission of additional
information, data, or a PMA application. The Company also intends to market its
HPV test outside the United States as a primary screen for cervical cancer
either in conjunction with or separate from Pap smear testing. Such exports
will require FDA approval and will necessitate the submission of certain
information to the FDA. There can be no assurance that the FDA will grant
approval of such exports on a timely basis, if at all.

[SILHOUETTE OF A WOMAN]

------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

2
<PAGE> 3
CERVICAL CANCER SCREENING - PAP SMEAR

FOLLOW-UP TESTING AND TREATMENT OF WOMEN IS BASED ON THE CLASSIFICATION OF THE
PAP SMEAR RESULT. LIMITATIONS OF PAP SMEAR SCREENING INCLUDE:

- - Pap smears are difficult to interpret
- - Equivocal Pap smears lead to unnecessary, costly intervention
- - False negative diagnoses
- - Limited predictive value
- - Limited availability of Pap smear screening outside the United States

---------------------------
TOTAL PAP SMEARS
50 MILLION*
---------------------------
/ | \
/ | \
/ | \
90% 7% 3%
/ | \
/ | \
---------- ------------- ------------
Normal Pap Equivocal Pap Abnormal Pap
Smears Smears Smears
45 million 3.5 million 1.5 million
---------- ------------- ------------
| | |
| | |
---------------- --------------------------
Annual Pap Smear Colposcopy/Biopsy/Ablation
---------------- --------------------------

* Estimated annual Pap smear tests in the United States

Women with normal Pap smears typically require no follow-up beyond continuation
with annual Pap smear testing. In general, women with abnormal Pap smears and
many women with equivocal Pap smears are recommended to undergo colposcopy
(visual examination of the cervix with the aid of a colposcope), biopsy and, if
necessary, ablation (surgical removal of the suspected lesion).
<PAGE> 4
DIGENE'S SOLUTION: DETECT THE PRIMARY CAUSE OF CERVICAL CANCER

PATIENT MANAGEMENT OF EQUIVOCAL PAP SMEARS USING DIGENE'S HPV DNA TEST

Many women with equivocal Pap smears are treated as if they had abnormal Pap
smears even though only an estimated 25 - 35% of these women actually have
cervical disease. The Company's HPV test is a rapid and non-invasive method to
classify women with equivocal Pap smear results as normal or abnormal, thereby
reducing unnecessary and costly intervention.

--------------------------
Equivocal Pap Smears
--------------------------
|
|
--------------------------
Hybrid Capture
HPV DNA Test
--------------------------
/\
/ \
/ \
/ \
/ \
-------- --------
HPV HPV
Negative Positive
-------- --------
| |
| |
---------------------------- --------------------------
Repeat Pap Smear in 6 Months Colposcopy/Biopsy/Ablation
---------------------------- --------------------------

PRIMARY SCREENING WITH DIGENE'S HPV DNA TEST

The Company believes that, subject to regulatory approvals, Digene's HPV DNA
test could be used in conjunction with the Pap smear for primary cervical
cancer screening, resulting in more accurate diagnosis of cervical disease and
reducing the number of false negatives associated with Pap smears.

-------------------------
Combined HPV DNA/
Pap Smear Screening
-------------------------
/\
/ \
/ \
/ \
------------ ------------
HPV Negative HPV Positive
and Normal or
Pap Smear Pap Positive
------------ ------------
| |
| |
------------ ----------------
Routine Focus Healthcare
Follow-up Resources
------------ ----------------
<PAGE> 5

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and Notes thereto appearing elsewhere
in this Prospectus, including the information under "Risk Factors." This
Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed under "Risk
Factors."

THE COMPANY

Digene develops, manufactures and markets DNA testing systems for the
screening, monitoring and diagnosis of human diseases. The Company's products
are designed to help improve clinical outcomes and reduce the overall cost of
disease management. Digene's lead product, the Hybrid Capture HPV DNA test,
detects the presence of human papillomavirus ("HPV"), the primary cause of
cervical cancer, which is the second most common cancer among women worldwide.
The Company's HPV test for the follow-up screening of women with equivocal Pap
smears is the first HPV test to have been approved for marketing in the United
States by the U.S. Food and Drug Administration (the "FDA"). The Company's
objective is to establish its HPV test as the new standard of care for cervical
cancer screening.

Virtually all cervical cancer is preventable if detected in the
precancerous stage. To enable the early detection of cervical cancer,
gynecologists typically recommend annual Pap smear tests. More than 50 million
Pap smears are performed annually in the United States, and the Company believes
that an equivalent number are performed in the rest of the world. Although the
Pap smear has been successful in reducing deaths due to cervical cancer in the
United States, Pap smears have significant limitations. These limitations
include a substantial number of Pap smears which yield inconclusive results
("equivocal" Pap smears) or which are misinterpreted as normal ("false
negatives"). Many women with equivocal Pap smears are treated as if they have
abnormal Pap smears even though only an estimated 25% to 35% of these women
actually have cervical disease. As a result, many women with equivocal Pap
smears undergo unnecessary, invasive and expensive follow-up procedures. False
negative diagnoses may result in the failure to detect cervical cancer at an
early stage. The resultant delays in treatment may allow the disease to progress
further, thereby increasing the need for invasive and costly treatments,
reducing the efficacy of available therapies and reducing the likelihood of
patient survival.

The Company's HPV test is a rapid, accurate, objective and non-invasive
method to screen women for the presence of HPV. Clinical studies indicate that
Digene's HPV test is capable of detecting cervical disease in up to 92% of the
cases in which cervical disease is present. This represents a significant
improvement over the Pap smear's estimated sensitivity of 60% to 80%. In
addition, studies indicate that when used in conjunction with Pap smear testing,
the Company's HPV test can detect 95% to 100% of high grade lesions and
virtually all instances of cervical cancer. The Company believes that the
sensitivity of its HPV test has the potential to significantly reduce the number
of false negative diagnoses. In addition, the Company believes that testing for
HPV has considerable predictive value. In one study, approximately 80% of women
with a history of normal Pap smears who tested positive for cancer-causing types
of HPV developed clinically significant cervical lesions within four years. The
Company incorporates proprietary DNA sequences for certain HPV types into its
HPV test. The Company believes that for a competing HPV test to be commercially
viable, it must be able to detect the HPV types for which the Company has
non-exclusive proprietary rights covering the DNA sequences.

The Company has recently commenced marketing its HPV test for the follow-up
screening of the approximately 3.5 million women in the United States each year
with equivocal Pap smears. By testing these women for the presence of
cancer-causing types of HPV, clinicians will be able to identify those women who
are most at risk for having or developing cervical disease at a fraction of the
cost of most other follow-up procedures. Only those women who test positive for
cancer-causing types of HPV would go on to receive more costly and invasive
follow-up procedures. The Company intends to seek FDA approval in the future to
market its HPV test as a primary cervical cancer screen either in conjunction
with or separate from Pap smear testing.

The Company currently markets its HPV test through distributors in the
United Kingdom, Germany, France, Spain, Italy and Brazil. In many countries
outside the United States, Pap smears are not widely used or are unavailable.
The Company intends to seek regulatory approval to market its HPV test
internationally as a primary cervical cancer screening test either in
conjunction with or separate from Pap smear testing.

The Company is also developing a test to detect the presence of
cytomegalovirus ("CMV"). CMV infection is a serious and growing health care
problem. Active CMV infection causes blindness in many AIDS patients and is a
major cause of infection and mortality in organ transplant recipients. An
estimated $1 billion is spent annually in the United States on the prevention
and treatment of CMV-related diseases. All of the

3
<PAGE> 6

current methods available to detect the presence of CMV have significant
limitations. The Company's Hybrid Capture CMV DNA test provides clinicians with
an accurate and timely means of diagnosing and monitoring CMV infection. The
Company is currently conducting clinical trials of its CMV test at The Mayo
Clinic and The Cleveland Clinic. The Company expects to complete these trials in
the third quarter of 1996 and submit a 510(k) premarket notification to the FDA
by the end of 1996. There can be no assurance that the Company will receive such
clearance.

The key elements of the Company's business strategy include (i)
establishing HPV testing as the new standard of care for cervical cancer
screening by working closely with clinical reference laboratories, third-party
payors and health care providers; (ii) focusing the Company's initial marketing
efforts on the use of its HPV test for the follow-up screening of women with
equivocal Pap smears; (iii) expanding the Company's sales and marketing
capabilities; (iv) pursuing strategic alliances to increase market acceptance of
its products and to expand marketing efforts; and (v) capitalizing on its core
technology and expertise to develop a wide range of DNA diagnostic and
monitoring tests.

The basis for the Company's HPV and CMV tests is its proprietary Hybrid
Capture technology. The Company believes that its Hybrid Capture system is a
significant improvement over existing technologies because of its specificity,
shortened processing time, ease of use and greater accuracy. The Company is also
using its Hybrid Capture technology as a platform to develop a wide range of DNA
diagnostic and monitoring tests for blood viruses, sexually transmitted diseases
and opportunistic infections.

Digene was incorporated under Delaware law in 1987, succeeding to the
business of a partnership organized in 1985. The Company's principal executive
office is located at 2301-B Broadbirch Drive, Silver Spring, Maryland 20904, and
its telephone number is (301) 470-6500.

RISK FACTORS

An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Risk factors of this Offering include uncertainty of market
acceptance, dependence on a single product, limited sales and marketing
experience, dependence on third-party reimbursement, limited manufacturing
experience, the Company's limited relevant operating history, history of
operating losses and uncertain profitability, and competition. See "Risk
Factors."

THE OFFERING

Common Stock Offered................ 3,000,000 shares

Common Stock Outstanding after this
Offering............................ 11,276,408 shares(1)

Use of Proceeds..................... To expand sales and marketing, to fund
increased research and development
including clinical trials, to repay
certain indebtedness, to provide
working capital, and to fund other
general corporate purposes. See "Use of
Proceeds."

Nasdaq National Market Symbol....... DIGE
- ---------------
(1) Excludes 2,699,210 shares of Common Stock issuable upon exercise of stock
options outstanding at March 31, 1996, at a weighted average exercise price
of $4.10 per share. An additional 776,087 shares of Common Stock are
reserved for issuance under the Company's stock option plans. See
"Capitalization" and "Management -- Stock Option Plans."

4
<PAGE> 7

SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
JUNE 30, MARCH 31,
----------------------------- ------------------
1993 1994 1995 1995 1996
------- ------- ------- ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues................................. $ 4,765 $ 5,294 $ 6,162 $4,453 $ 4,757
Cost of product sales.......................... 2,698 2,464 2,652 1,842 2,132
Gross margin on product sales.................. 1,926 2,303 2,761 2,007 2,332
Total operating expenses....................... 3,752 3,957 4,806 3,369 4,308
Loss from operations........................... (1,685) (1,127) (1,296) (758) (1,683)
Net loss....................................... (1,917) (1,433) (1,514) (940) (1,707)
Pro forma net loss per share(1)(2)............. (.18) (.20)
Pro forma weighted average shares
outstanding(1)(2)............................ 8,217 8,477
</TABLE>

<TABLE>
<CAPTION>
AT MARCH 31, 1996
--------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(3)
-------- ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................................ $ 1,395 $ 2,333 $ 31,110
Long-term debt, less current maturities................ 2,666 2,666 158
Redeemable Convertible Preferred Stock................. 14,063 -- --
Accumulated deficit.................................... (18,404) (18,404) (18,404)
Total stockholders' equity (deficit)................... (14,697) 304 31,589
</TABLE>

- ------------------------------
(1) Pro forma to give effect to (i) the one-for-1.4 reverse stock split (the
"Recapitalization"), (ii) the issuance of 70,436 shares of Common Stock
pursuant to warrants exercised after March 31, 1996, and (iii) the automatic
conversion, upon the completion of this Offering, of all outstanding shares
of Redeemable Convertible Preferred Stock (including shares issued after
March 31, 1996 pursuant to a stock purchase agreement with an affiliate of
International Murex Technologies Corporation (together with its affiliates,
"Murex")) into 7,831,197 shares of Common Stock. See "Certain Transactions."

(2) Computed on the basis described in Note 2 of Notes to Financial Statements.

(3) Adjusted to give effect to reflect the sale of 3,000,000 shares of Common
Stock offered hereby at the initial public offering price and the
application of the estimated net proceeds therefrom. See "Use of Proceeds"
and "Capitalization."
------------------------------
Unless otherwise indicated, all information in this Prospectus (i) assumes
the Underwriters' over-allotment option is not exercised, (ii) reflects the
Recapitalization, (iii) reflects the conversion of all outstanding shares of
Redeemable Convertible Preferred Stock into 7,831,197 shares of Common Stock
upon the completion of this Offering, and (iv) reflects the filing of an Amended
and Restated Certificate of Incorporation of the Company which, among other
things, increases the number of authorized shares of Common Stock and authorizes
1,000,000 shares of undesignated Preferred Stock.

"Digene" is a registered trademark of the Company. The Company has applied
to register "Hybrid Capture" as a trademark. This Prospectus also includes
trademarks and trade names of companies other than the Company.

5
<PAGE> 8

RISK FACTORS

Prospective investors should consider carefully the following risk factors,
in addition to the other information presented in this Prospectus, before
purchasing the shares of Common Stock offered hereby.

HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT; UNCERTAINTY OF FUTURE
PROFITABILITY

The Company has incurred substantial operating losses since inception and,
at March 31, 1996, had an accumulated deficit of approximately $18.4 million.
Such losses have resulted principally from expenses associated with the
Company's research and development programs, the clinical trials conducted in
connection with the Company's HPV test for use in the follow-up screening of
women with equivocal Pap smears and the preparation of the related premarket
approval ("PMA") application for submission to the FDA. The Company expects such
operating losses to continue for the foreseeable future as it continues its
product development efforts, expands its marketing and sales activities and
scales up its manufacturing operations. The Company's ability to achieve
profitability is dependent upon its ability to successfully manufacture, market
and sell its HPV test for the follow-up screening of women with equivocal Pap
smears. There can be no assurance that the Company will ever be able to
successfully commercialize its HPV test or that profitability will ever be
achieved. The operating results of the Company have fluctuated significantly in
the past on an annual and quarterly basis. The Company expects that its
operating results will fluctuate significantly from quarter to quarter in the
future and will depend on a number of factors, many of which are outside the
Company's control. See "Selected Financial Data" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Overview."

UNCERTAINTY OF MARKET ACCEPTANCE

The Company's success depends upon the acceptance by the medical community,
including third-party payors, clinical laboratories, health care providers and
patients, of HPV testing as a clinically useful and cost-effective method of
detecting cervical disease. There can be no assurance that the medical community
will accept the use of HPV testing. Furthermore, the Company's growth and
success will depend upon market acceptance by the medical community of the
Company's HPV test for the follow-up screening of women with equivocal Pap
smears as a clinically useful and cost-effective alternative to well-established
follow-up procedures, such as Pap smear retesting, colposcopy and biopsy, which
are widely accepted and have a long history of use. There can be no assurance
that HPV testing, in general, or the Company's HPV test for the follow-up
screening of women with equivocal Pap smears, in particular, will achieve market
acceptance on a timely basis, or at all. Additionally, there can be no assurance
that the Company's HPV test will be accepted in any markets outside the United
States due to the influence of established medical practices, lack of education
about cervical cancer, and other social and economic factors beyond the
Company's control. Failure of the Company's HPV test to achieve market
acceptance would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Competition."

DEPENDENCE ON A SINGLE PRODUCT

The Company's HPV test is expected to account for substantially all of the
Company's revenues for the foreseeable future. The Company's long-term success
will depend, in significant part, on the market acceptance of HPV testing as a
clinically useful and cost-effective method of detecting cervical disease, the
successful commercialization of the Company's HPV test for the follow-up
screening of women with equivocal Pap smears, and the ability to obtain
regulatory approval for marketing the HPV test as a primary cervical cancer
screen either in conjunction with or separate from Pap smear testing. Failure to
gain market acceptance for the Company's HPV test for its approved indications
would have a material adverse effect on the Company's business, financial
condition and results of operations.

LIMITED RELEVANT OPERATING HISTORY

Although the Company's HPV test for the follow-up screening of women with
equivocal Pap smears was introduced for research purposes in Europe in fiscal
1992 and first shipped as an FDA-approved product in

6
<PAGE> 9

November 1995, most of the Company's historical revenues have been obtained from
sales of products or product lines, or other sources, that have been
discontinued or are not expected to produce material revenues in the future.
Consequently, the Company has a limited relevant operating history upon which an
evaluation of its prospects can be based. The Company's prospects, therefore,
must be considered in light of the risks, expenses and difficulties associated
with introducing a new product in the evolving, heavily regulated, medical
diagnostics and biotechnology industries, which are characterized by an
increasing number of entrants, intense competition and a high rate of failure.
See "Selected Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview."

LIMITED SALES AND MARKETING EXPERIENCE

In order to effectively market the Company's HPV test for the follow-up
screening of women with equivocal Pap smears in the United States and Canada,
the Company must substantially increase its direct sales force. The Company has
limited experience in selling its HPV test for its approved indications, and no
assurance can be given that such a marketing and sales organization can be
successfully established or that the Company's direct sales force will succeed
in promoting the Company's HPV test for the follow-up screening of women with
equivocal Pap smears to third-party payors, clinical laboratories and health
care providers. In addition, due to limited market awareness of the Company's
HPV test for its approved indications, the Company believes that the marketing
effort will be a lengthy process, requiring the Company to educate the medical
community regarding the clinical utility and cost-effectiveness of HPV testing,
in general, and the Company's HPV test, in particular. The Company intends to
use a network of distributors to market and sell its HPV test for its approved
indications abroad. The Company also intends to market its HPV test as a primary
cervical cancer screening test in international markets, either in conjunction
with or separate from Pap smear testing. Such exports may require regulatory
approvals from various countries, will require FDA approval and will necessitate
the submission of certain information and data to the FDA. In addition, the
Company intends to submit a PMA supplement for the use of its HPV test as a
primary cervical cancer screening test in the United States either in
conjunction with or separate from Pap smear testing. There can be no assurance
that the FDA will grant approval of such exports or grant approval of such PMA
supplement, if filed, in a timely manner, if at all, or that the FDA will not
require the submission of additional information, data or a PMA application.
There can be no assurance that the Company will be able to recruit and retain
skilled sales, marketing, service or support personnel, that agreements with
foreign distributors will be available on terms commercially reasonable to the
Company, or at all, or that the Company's marketing and sales efforts will be
successful. Failure to successfully establish a marketing and sales
organization, whether directly or through third parties, would have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company's marketing success in the United States and abroad also
will depend on whether it can gain required regulatory approvals, successfully
demonstrate the clinical utility and cost-effectiveness of HPV testing, in
general, and the Company's HPV test for the follow-up screening of women with
equivocal Pap smears, in particular, further develop a direct sales capability,
and establish arrangements with distributors and marketing partners. Failure by
the Company to successfully market its products would have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Marketing and Sales" and "-- Government Regulation."

DEPENDENCE ON THIRD-PARTY REIMBURSEMENT

Successful sales of the Company's HPV test for the follow-up screening of
women with equivocal Pap smears in the United States and other markets will
depend, in part, on the availability of adequate reimbursement from third-party
payors such as government entities, managed care organizations and private
insurance plans. There is significant uncertainty concerning third-party
reimbursement for the use of any medical test incorporating new technology.
Reimbursement by a third-party payor may depend on a number of factors,
including the payor's determination that the use of the Company's HPV test for
the follow-up screening of women with equivocal Pap smears is clinically useful
and cost-effective, not experimental or investigational, medically necessary and
appropriate for the specific patient. Since reimbursement approval is required
from each payor individually, seeking such approvals is a time consuming and
costly process which requires the Company to provide scientific and clinical
support for the use of the Company's HPV test for its

7
<PAGE> 10

approved indications to each payor separately. There can be no assurance that
third-party reimbursement will be consistently available for the Company's HPV
test for its approved indications or any of the Company's other products that
may be developed or that such third-party reimbursement will be adequate.
Federal and state governmental agencies are increasingly considering limiting
health care expenditures. For example, the United States Congress is currently
considering various proposals to significantly reduce Medicaid and Medicare
expenditures. Such proposals, if enacted, could have a material adverse effect
on the Company's business, financial condition and results of operations. In
addition, third-party payors are increasingly limiting reimbursement coverage
for medical diagnostic products and in many instances are exerting pressure on
medical suppliers to lower their prices. Outside the United States, the Company
relies on a network of distributors to establish reimbursement from third-party
payors in their respective territories. Accordingly, the establishment of
reimbursement from third party payors in such countries is outside the Company's
control. Health care reimbursement systems vary from country to country and,
accordingly, there can be no assurance that third-party reimbursement will be
available for the Company's products under any other reimbursement system. Lack
of or inadequate reimbursement by governmental and other third-party payors for
the Company's products would have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Third-Party Reimbursement."

COMPETITION

The medical diagnostics and biotechnology industries are subject to intense
competition. The Company's competitors in the United States and abroad are
numerous and include, among others, diagnostics, health care, pharmaceutical and
biotechnology companies. Among the Company's major competitors in the market for
DNA-probe diagnostics are Roche, Abbott Laboratories, Chiron and GenProbe. Other
companies, including large pharmaceutical and biotechnology companies, may enter
the market for DNA-probe diagnostics. In addition, Oncor, Inc. has recently
announced that it has received notification from the FDA that its HPV test is
approvable by the FDA, subject to certain conditions. Potential competitors may
be able to develop technologies that are as effective as, or more effective or
easier to interpret than those offered by the Company, which would render the
Company's products noncompetitive or obsolete. Moreover, many of the Company's
existing and potential competitors have substantially greater financial,
marketing, sales, distribution and technological resources than the Company.
Such existing and potential competitors may be in the process of seeking FDA
approval for their respective HPV tests or may also enjoy substantial advantages
over the Company in terms of research and development expertise, experience in
conducting clinical trials, experience in regulatory matters, manufacturing
efficiency, name recognition, sales and marketing expertise and distribution
channels. Many of these companies may have established third-party reimbursement
for their products. In marketing its HPV test for the follow-up screening of
women with equivocal Pap smears, the Company also will compete with
well-established follow-up procedures, such as Pap smear retesting, colposcopy
and biopsy, which are widely accepted and have a long history of use.
Additionally, in the event the Company is able to gain FDA and other applicable
regulatory approvals to market its HPV test as a primary cervical cancer
screening test, it will compete against the Pap smear, which is widely accepted
as an inexpensive and, with regular use, adequate screening test for cervical
cancer. There can be no assurance that the Company will be able to compete
successfully against current or future competitors or that competition will not
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Competition."

RISKS INHERENT IN INTERNATIONAL TRANSACTIONS

The Company plans to sell its HPV test for the follow-up screening of women
with equivocal Pap smears and any future products to customers both in the
United States and abroad, particularly in Germany. International sales and
operations may be limited or disrupted by the imposition of government controls,
export license requirements, economic and political instability, price controls,
trade restrictions, and changes in tariffs or difficulties with foreign
distributors. Foreign regulatory agencies often establish product standards
different from those in the United States and any inability to obtain or
maintain foreign regulatory approvals on a timely basis could have a material
adverse effect on the Company's international business operations. Additionally,
the Company's business, financial condition and results of operations may be
materially and

8
<PAGE> 11

adversely affected by fluctuations in currency exchange rates as well as
increases in duty rates and difficulties in obtaining required licenses and
permits. There can be no assurance that the Company will be able to successfully
commercialize its HPV test or any future products in any foreign market. In
addition, the laws of some countries do not protect the Company's proprietary
rights to the same extent as do the laws of the United States.

The Company intends to use a network of distributors to market and sell its
HPV test abroad. The Company's distributors are responsible for obtaining
regulatory approvals and establishing reimbursement from third-party payors in
their respective territories. Generally, the extent and complexity of regulation
of medical products is increasing worldwide, with regulation in some countries
already nearly as exhaustive as that in the United States. The Company
anticipates that this trend will continue, and that the cost and time required
to obtain approval to market in any given country will increase, with no
assurance that such approval will be obtained. The Company's inability to obtain
regulatory approval for its products in foreign countries would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Marketing and Sales -- International Markets" and
"-- Government Regulation."

The Company intends to market its HPV test outside the United States as a
primary cervical cancer screening test in conjunction with or separate from Pap
smear testing. Such exports may require regulatory approvals from various
countries, will require FDA approval and will necessitate the submission of
certain information and data to the FDA. There can be no assurance that the FDA
will grant approval of such exports in a timely manner, if at all, or that the
FDA will not require submission of additional information or data. See
"Business -- Government Regulation."

LIMITED MANUFACTURING EXPERIENCE

The Company has limited commercial-scale manufacturing experience and
capabilities and it is anticipated that the Company will be required to scale up
its manufacturing capabilities. There can be no assurance that the Company will
be able to recruit and retain skilled manufacturing personnel to establish
sufficient manufacturing capability and capacity or manufacture the Company's
HPV test for its approved indications in a timely manner, at a cost or in
quantities necessary to make them commercially viable, or in a manner which
ensures product quality.

DEPENDENCE ON SINGLE SOURCE SUPPLIERS

Certain key components of the Company's HPV test are currently provided to
the Company, on a purchase-order basis, by single sources. The Company does not
have long-term supply contracts with any of such suppliers. The Company has not
arranged alternative supply sources. In the event that the Company is unable to
obtain sufficient quantities of such components on commercially reasonable
terms, or in a timely manner, the Company would not be able to manufacture its
products on a timely and cost-competitive basis which would have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, if any of the components of the Company's HPV test are
no longer available in the marketplace, the Company may be forced to further
develop its technology to incorporate alternate components. The incorporation of
new components into the Company's HPV test may require the Company to file a PMA
supplement. There can be no assurance that such development would be successful
or that, if developed by the Company or licensed from third parties, such
alternative components would receive FDA approval on a timely basis, or at all.
See "Business -- Government Regulation."

DEPENDENCE ON A MAJOR CUSTOMER

For the fiscal year ended June 30, 1995, approximately 30.8% of the
Company's product sales were to Murex. Murex will beneficially own approximately
6.5% of the Company's outstanding shares of Common Stock after this Offering
(approximately 6.3% if the Underwriters' over-allotment option is exercised in
full). The Company has an exclusive distribution agreement with Murex for sales
of certain of the Company's products, including its HPV test, in certain
countries, and a co-exclusive distribution agreement with Murex for sales of its
CMV test worldwide. Consequently, the Company expects that sales to Murex will
continue to constitute a significant portion of total sales for the foreseeable
future. The loss of Murex as a customer, a significant decrease in product
shipments to or an inability to collect receivables from Murex or any other

9
<PAGE> 12

adverse change in the Company's relationship with Murex could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Certain Transactions."

UNCERTAINTY REGARDING PATENTS AND PROPRIETARY RIGHTS

The Company's success will depend in part on its ability to obtain and
maintain patent protection for its technologies, products and processes,
preserve its trade secrets, and operate without infringing the proprietary
rights of other parties. Because of the substantial length of time and expense
associated with bringing new products through development to the marketplace,
the biotechnology industry places considerable importance on obtaining and
maintaining patent and trade secret protection for new technologies, products
and processes. There can be no assurance that patent applications to which the
Company holds rights will result in the issuance of patents, that any patents
issued or licensed to the Company will not be challenged and held to be invalid,
or that present or future patents will provide commercially significant
protection to the Company's present or future technologies, products, or
processes. In addition, there can be no assurance that others will not
independently develop substantially equivalent proprietary information not
covered by patents to which the Company owns rights or obtain access to the
Company's know-how or that others will not be issued patents which may prevent
the sale of one or more of the Company's products, or require licensing and the
payment of significant fees or royalties by the Company to third parties in
order to enable the Company to conduct its business. There can be no assurance
that such licenses would be available or, if available, would be on terms
acceptable to the Company or that the Company would be successful in any attempt
to redesign its products or processes to avoid infringement. The Company's
failure to obtain these licenses or to redesign its products or processes would
have a material adverse effect on the Company's business, financial condition
and results of operations. Legal standards relating to the scope of claims and
the validity of patents in the biotechnology field are still evolving, and no
assurance can be given as to the degree of protection any patents issued to or
licensed by the Company will not be infringed by the products of others. The
Company has received inquiries regarding possible patent infringements relating
to, among other things, certain aspects of its Hybrid Capture technology. The
Company believes that the patents of others to which these inquiries relate are
either not infringed by the Company's Hybrid Capture technology or are invalid.
There can be no assurance that the Company will not be subject to further claims
that its technology, including its Hybrid Capture technology, or its products,
infringe the patents or proprietary rights of third parties. Defense and
prosecution of patent claims can be expensive and time consuming, regardless of
whether the outcome is favorable to the Company, and can result in the diversion
of substantial financial, management, and other resources from the Company's
other activities. An adverse outcome could subject the Company to significant
liability to third parties, require the Company to obtain licenses from third
parties, or require the Company to cease any related research and development
activities or product sales. In addition, the laws of certain countries may not
protect the Company's intellectual property. No assurance can be given that any
licenses required under any such third-party patents or proprietary rights would
be made available on commercially reasonable terms, if at all.

The Company's success is also dependent upon the skill, knowledge, and
experience of its scientific and technical personnel. To help protect its
rights, the Company requires all employees, consultants, advisors and
collaborators to enter into confidentiality agreements that prohibit the
disclosure of confidential information to anyone outside the Company and require
disclosure, and in most cases, assignment to the Company of their ideas,
developments, discoveries and inventions. There can be no assurance, however,
that these agreements will provide adequate protection for the Company's trade
secrets, know-how or other proprietary information in the event of any
unauthorized use or disclosure. See "Business -- Licenses, Patents and
Proprietary Rights."

GOVERNMENT REGULATION

The Company's current and any future products are and will be subject to
extensive regulation by the FDA and, in some instances, by foreign governments.
Pursuant to the Federal Food, Drug and Cosmetic Act, as amended, and the
regulations promulgated thereunder (the "FDC Act"), the FDA regulates the
clinical testing, manufacture, labeling, distribution and promotion of medical
devices. Noncompliance with applicable requirements can result in, among other
things, fines, injunctions, civil penalties, recalls or seizures of products,
total or partial suspension of production, failure of the government to grant
premarket clearance or

10
<PAGE> 13

premarket approval for devices, withdrawal of marketing approvals and criminal
prosecution. The FDA also has the authority to request repair, replacement or
refund of the cost of any device manufactured or distributed by the Company.

In April 1995, the Company obtained a PMA for its HPV test to detect the
presence of HPV in women with equivocal Pap smears. The Company intends to
submit a PMA supplement to obtain market approval for use of its HPV test as a
primary cervical cancer screening test either in conjunction with or separate
from Pap smear testing. The Company anticipates that a substantial amount of
clinical data will be required to support the PMA supplement. There can be no
assurance that the data the Company submits will be adequate to support the use
of the HPV test as a primary cervical cancer screening test. Moreover, there can
be no assurance that the FDA will grant approval of a PMA supplement for use of
the HPV test as a primary cervical cancer screening test in a timely manner, if
at all, or that the FDA will not require the submission of additional
information, data or a PMA application. Failure to obtain FDA approval for the
HPV test as a primary cervical cancer screening test would have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company intends to export its HPV test as a primary cervical
cancer screening test prior to obtaining FDA approval for this use in the United
States. Such exports may require regulatory approvals from various countries,
will require FDA approval and will necessitate the submission of certain
information and data to the FDA. There can be no assurance that the FDA will
grant approval of such exports, and failure on the part of the Company to obtain
such approvals could have a material adverse effect on the Company's business,
financial condition and results of operations.

The Company believes that its CMV test can be cleared to market through the
510(k) notification process. Nevertheless, the Company understands that the FDA
will likely subject the submission to a "Tier 3" level of review, which includes
close scrutiny of the clinical data in support of the submission. The Company
also understands that the FDA may seek an advisory committee review and
recommendation concerning the safety and efficacy of the product. There can be
no assurance that, once a 510(k) notification is submitted for the CMV test, the
FDA will grant clearance in a timely manner, if at all, or that the FDA will not
require the submission of additional clinical data or a PMA application.

The Company currently sells various viral and bacterial tests on a research
use only ("RUO") basis. Failure of the Company or recipients of the Company's
RUO devices to comply with the user certification requirements and other
regulatory limitations placed on the distribution and use of RUO devices could
result in enforcement action by the FDA that would adversely affect the
Company's ability to distribute the tests prior to obtaining FDA clearance or
approval for the products.

The FDA product clearance process is unpredictable and uncertain, and no
assurance can be given that the necessary approvals or clearances will be
granted on a timely basis, or at all. Delays in receipt of, or a failure to
receive, such approvals or clearances, or the loss of any previously received
approvals or clearances, could have a material adverse effect on the business,
financial condition and results of operations of the Company.

Any products manufactured or distributed by the Company pursuant to FDA
clearances or approvals are subject to pervasive and continuing regulation by
the FDA. Changes in existing requirements or adoption of new requirements or
policies could adversely affect the ability of the Company to comply with
regulatory requirements. Failure to comply with regulatory requirements could
have a material adverse effect on the Company's business, financial condition
and results of operations. There can be no assurance that the Company will not
be required to incur significant costs to comply with laws and regulations in
the future or that laws or regulations will not have a material adverse effect
upon the Company's business, financial condition and results of operations.

The FDC Act requires devices to be manufactured in accordance with good
manufacturing practices ("GMPs") which impose certain procedural and
documentation requirements upon the Company with respect to manufacturing and
quality assurance activities. Noncompliance with GMPs can result in, among other
things, fines, injunctions, civil penalties, recalls or seizures of products,
total or partial suspension of production, failure of the government to grant
premarket clearance or premarket approval for devices, withdrawal of marketing
approvals and criminal prosecution. The FDA also has proposed changes to the

11
<PAGE> 14

GMPs regulations which, if finalized, would likely increase the cost of
compliance with the requirements. Any failure by the Company to comply with GMP
requirements could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Government
Regulation."

IMPACT OF CHANGES IN HEALTH CARE INDUSTRY

The health care industry is undergoing fundamental change in the United
States as a result of economic, political and regulatory influences. There
exists a powerful trend toward managed care that is motivated by the desire to
reduce the overall costs of health care. Reform could conceivably result in a
reduction in the recommended frequency of the Pap smear test, for example, or
limitations on reimbursement based on test frequency, either of which could
inhibit demand for the Company's HPV test for the follow-up screening of women
with equivocal Pap smears and could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
anticipates that the health care industry, particularly insurance companies and
other third-party payors, will continue to promote cost containment measures and
alternative health care delivery systems, and that public and political debate
of these issues likely will continue. The Company cannot predict which reforms
will be proposed or adopted by the health care industry or government or the
effect that such proposals or adoption may have on the Company's business,
financial condition and results of operations. There can be no assurance that
health care reform initiatives will not have a material adverse effect on the
Company's business, financial condition and results of operations.

TECHNOLOGICAL OBSOLESCENCE; UNCERTAINTIES RELATING TO PRODUCT DEVELOPMENT

The medical diagnostics segment of the biotechnology industry is
characterized by rapid product development and technological advancement. The
Company's products, including its HPV test, could be rendered noncompetitive or
obsolete by competing products of, or technological advancement made by, the
Company's current or potential competitors, or otherwise. There can be no
assurance that the Company will be able to respond to such competing products or
technological advancements through the development and introduction of new
products, which would have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, product development
involves a high degree of risk. There can be no assurance that the Company's new
product development efforts will result in any commercially viable or successful
products. The Company has a number of product candidates in various early stages
of development. These product candidates will require substantial additional
investment, laboratory development, clinical testing and FDA approval prior to
their commercialization. The Company's inability to successfully develop these
product candidates, including development relating to the use of the Company's
HPV test as a primary cervical cancer screening test, or achieve market
acceptance of such products would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Research and Development."

ATTRACTION AND RETENTION OF KEY PERSONNEL

The Company is highly dependent on the principal members of its management
team, the loss of whose services might impede achievement of the Company's
strategic objectives. The Company's success will depend on its ability to retain
key employees and to attract additional qualified employees. Competition for
such personnel is intense, and there can be no assurance that the Company will
be able to retain existing personnel and to attract, assimilate or retain
additional highly qualified employees in the future. If the Company is unable to
hire and retain personnel in key positions, such inability would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Management."

POTENTIAL INADEQUACY OF PRODUCT LIABILITY INSURANCE

12
<PAGE> 15

$1,000,000 per occurrence, and $3,000,000 in the aggregate. There can be no
assurance, however, that this coverage will be adequate to protect the Company
against future product liability claims or that product liability insurance will
be available to the Company in the future on commercially reasonable terms, if
at all. Furthermore, there can be no assurance that the Company will be able to
avoid significant product liability claims and the attendant adverse publicity.
Consequently, a product liability claim or other claim with respect to uninsured
or underinsured liabilities could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Product Liability."

ENVIRONMENTAL REGULATION

The Company is subject to a variety of local, state and federal government
regulations relating to the storage, discharge, handling, emission, generation,
manufacture and disposal of toxic, infectious or other hazardous substances used
to manufacture the Company's products. Any failure by the Company to control the
use, disposal, removal or storage of hazardous chemicals or toxic substances
could subject the Company to significant liabilities, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.

NO PRIOR PUBLIC MARKET FOR COMMON STOCK

Prior to this Offering, there has been no public market for the Common
Stock and there can be no assurance that an active public market for the Common
Stock will develop or be sustained after this Offering. The initial public
offering price has been determined by negotiations between the Company and the
Underwriters and is not necessarily indicative of the market price at which the
Common Stock of the Company will trade after this Offering. See "Underwriting."

POSSIBLE VOLATILITY OF STOCK PRICE

The market price of the shares of Common Stock, like that of the common
stock of many other medical diagnostics and biotechnology companies, is likely
to be highly volatile. Factors such as announcements of technological
innovations or new products by the Company or its competitors, clinical trial
results relating to or regulatory approvals or disapprovals of the Company's or
competitors' product candidates, government regulation, health care legislation,
developments or disputes concerning patent or other proprietary rights of the
Company or its competitors, including litigation, fluctuations in the Company's
operating results and market conditions for health care stocks and biotechnology
stocks in general could have a significant impact on the future price of the
Common Stock. In addition, the stock market has experienced from time to time
extreme price and volume fluctuations that may be unrelated to the operating
performance of particular companies.

SHARES ELIGIBLE FOR FUTURE SALE

13
<PAGE> 16

201,482 shares of Common Stock that have been held for more than three years and
are not subject to Lock-up Agreements will be eligible for immediate sale in the
public market after this Offering under Rule 144(k) promulgated under the
Securities Act ("Rule 144(k)"), unless such shares are held by "affiliates" of
the Company. An additional 37,644 shares of Common Stock that have been held for
more than two years will be eligible for sale in the public market commencing 90
days after this Offering, subject to compliance with Rule 144. Commencing on the
expiration of the Lock-up Agreements, an additional 7,015,141 shares of Common
Stock will be eligible for sale in the public market subject to compliance with
Rule 144. In addition, an aggregate of 131,592 shares of Common Stock issuable
upon the exercise of outstanding stock options will be eligible for sale in the
public market under Rule 701 promulgated under the Securities Act ("Rule 701")
commencing 90 days after the date of this Prospectus, and the remaining
1,978,261 shares of Common Stock issuable upon the exercise of outstanding stock
options subject to Lock-up Agreements will be eligible for sale under Rule 701
commencing on the 181st day after the date of this Prospectus. In addition,
holders of 6,389,861 shares of Common Stock will be entitled to certain
registration rights with respect to such shares. If such holders, by exercising
their registration rights, cause a large number of shares to be registered and
sold in the public market, such sales could have a material adverse effect on
the market price of the Common Stock. In addition, any demand of such holders to
include such shares in Company-initiated registration statements could have an
adverse effect on the Company's ability to raise needed capital. See "Shares
Eligible for Future Sale."

FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FINANCING

The Company has incurred negative cash flows from operations since its
inception, and has expended, and expects to continue to expend in the future,
substantial funds to complete its planned product development efforts, expand
its sales and marketing activities and scale up its manufacturing. The Company
expects that its existing capital resources, together with the net proceeds of
this Offering and the interest earned thereon, will be adequate to fund the
Company's operations through 1998. No assurance can be given that there will be
no change in the Company that would consume a significant amount of its
available resources before that time. The Company's future capital requirements
and the adequacy of available funds will depend on numerous factors, including
the successful commercialization of its HPV test, progress in its product
development efforts, the magnitude and scope of such efforts, progress with
preclinical studies and clinical trials, the cost and timing of manufacturing
scale-up, the development of effective sales and marketing activities, the cost
of filing, prosecuting, defending and enforcing patent claims and other
intellectual property rights, competing technological and market developments,
and the development of strategic alliances for the marketing of its products. To
the extent that funds generated from the Company's operations, together with its
existing capital resources and the proceeds of this Offering and the interest
earned thereon, are insufficient to meet current or planned operating
requirements, the Company will be required to obtain additional funds through
equity or debt financing, strategic alliances with corporate partners and
others, or through other sources. The terms and prices of any equity or debt
financings may be significantly more favorable than those of the Common Stock
sold in this Offering. The Company does not have any committed sources of
additional financing, and there can be no assurance that additional funding, if
necessary, will be available on acceptable terms, if at all. If adequate funds
are not available, the Company may be required to delay, scale-back or eliminate
certain aspects of its operations or attempt to obtain funds through
arrangements with collaborative partners or others that may require the Company
to relinquish rights to certain of its technologies, product candidates,
products or potential markets. If adequate funds are not available, the
Company's business, financial condition and results of operations will be
materially and adversely effected. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

CONTROL BY MANAGEMENT

The Company's President and Executive Vice President will beneficially own
an aggregate of approximately 48.1% of the Company's outstanding shares of
Common Stock after this Offering (approximately 46.4% if the Underwriters'
over-allotment option is exercised in full). As a result, these officers, acting
together, will effectively control the election of directors and matters
requiring approval by the Company's

14
<PAGE> 17

stockholders. The current composition of the Board of Directors of the Company
is effectively determined under agreements between the Company and certain of
its existing stockholders. See "Certain Transactions" and "Principal
Stockholders."

ANTITAKEOVER CONSIDERATIONS

The Company's Board of Directors has the authority, without further action
by the stockholders, to issue from time to time, up to 1,000,000 shares of
Preferred Stock in one or more classes or series, and to fix the rights and
preferences of such Preferred Stock. The Company's Certificate of Incorporation
also provides for staggered terms for members of the Board of Directors. The
Company is subject to provisions of Delaware corporate law which, subject to
certain exceptions, will prohibit the Company from engaging in any "business
combination" with a person who, together with affiliates and associates, owns
15% or more of the Company's Common Stock (an "Interested Stockholder") for a
period of three years following the date that such person became an Interested
Stockholder, unless the business combination is approved in a prescribed manner.
Additionally, the Bylaws of the Company establish an advance notice procedure
for stockholder proposals and for nominating candidates for election as
directors. These provisions of Delaware law and of the Company's Certificate of
Incorporation and Bylaws may have the effect of delaying, deterring or
preventing a change in control of the Company, may discourage bids for the
Common Stock at a premium over market price and may adversely affect the market
price, and the voting and other rights of the holders, of the Common Stock. See
"Management -- Delaware Law and Certain Provisions of the Bylaws" and
"Description of Capital Stock."

DILUTION

Purchasers of the Common Stock offered hereby will suffer an immediate and
substantial dilution in the net tangible book value from the initial public
offering price. See "Dilution."

NO DIVIDENDS

The Company has not paid cash dividends since its inception and does not
intend to pay any dividends on its Common Stock in the foreseeable future. See
"Dividend Policy."

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<PAGE> 18

USE OF PROCEEDS

The net proceeds to the Company from the sale of the 3,000,000 shares of
Common Stock offered hereby are estimated to be $31,285,000 ($36,097,750
assuming the Underwriters' over-allotment option is exercised in full), after
deducting underwriting discounts and commissions and estimated offering expenses
payable by the Company.

The Company expects to use the net proceeds of this Offering to expand its
sales and marketing activities, to fund increased research and development,
including clinical trials, to provide working capital and to fund general
corporate purposes. The Company also expects to use approximately $2.6 million
of the net proceeds to repay the principal of and interest accrued on
indebtedness owed to Life Technologies, Inc. ("LTI"). The indebtedness, which
was incurred in connection with the purchase of a division of LTI by the Company
in 1990 and is secured by substantially all assets of the Company, including
patents, is payable in annual and semiannual installments through June 30, 2003,
and bears interest at the rate of 8.0% per annum. The Company may also use a
portion of the net proceeds for the acquisition of businesses, products and
technologies that are complementary to those of the Company, although no such
acquisitions are currently being negotiated and no portion of the net proceeds
has been allocated for any specific acquisition. The amounts and timing of
expenditures for each purpose will depend on a number of factors, including
market acceptance of HPV testing, in general, and the Company's HPV test, in
particular, the progress of the Company's research and development and
regulatory affairs activities, the results of clinical trials, the timing of
regulatory actions, the costs involved in preparing, filing, prosecuting,
maintaining and enforcing patent claims and other proprietary rights, the
success of manufacturing scale-up and the availability of third-party
reimbursement. Pending such uses, the Company intends to invest the net proceeds
in interest-bearing, investment grade securities.

DIVIDEND POLICY

The Company has never declared or paid cash dividends with respect to its
capital stock. The Company currently intends to retain any future earnings to
fund its operations and, therefore, does not anticipate paying any cash
dividends in the foreseeable future.

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<PAGE> 19

CAPITALIZATION

The following table sets forth, at March 31, 1996, (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the Company
after giving effect to the Recapitalization, the issuance of 70,436 shares of
Common Stock pursuant to warrants exercised after March 31, 1996 and the
conversion of all outstanding shares of Redeemable Convertible Preferred Stock
(including shares issued to Murex after March 31, 1996) into Common Stock upon
the completion of this Offering, as well as (iii) the pro forma capitalization
of the Company as adjusted to reflect the sale by the Company of 3,000,000
shares of Common Stock in this Offering and the application by the Company of
the estimated net proceeds therefrom. This table should be read in conjunction
with the Financial Statements and the related Notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
AT MARCH 31, 1996
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt, less current maturities...................... $ 2,666 $ 2,666 $ 158
Redeemable Convertible Preferred Stock....................... 14,063 -- --
Stockholders' equity (deficit):
Preferred stock, par value $0.10 per share; 1,000,000
shares authorized; no shares issued and outstanding on
an actual, pro forma or pro forma as adjusted basis... -- -- --
Common stock, par value $0.01 per share; 50,000,000
shares authorized; 374,775 shares issued and
outstanding on an actual basis; 8,276,408 shares
issued and outstanding on a pro forma basis; and
11,276,408 shares issued and outstanding on a pro
forma as adjusted basis(1)............................ 4 83 113
Additional paid-in capital................................... 3,703 18,625 49,880
Accumulated deficit.......................................... (18,404) (18,404) (18,404)
-------- --------- -----------
Total stockholders' equity (deficit).................... (14,697) 304 31,589
-------- --------- -----------
Total capitalization............................... $ 2,032 $ 2,970 $ 31,747
======== ======== =========
</TABLE>

- ---------------
(1) Excludes 2,699,210 shares of Common Stock reserved for issuance pursuant to
options outstanding at March 31, 1996 at a weighted average exercise price
of $4.10 per share. An additional 776,087 shares of Common Stock are
reserved for issuance under the Company's stock option plans. See
"Capitalization" and "Management -- Stock Option Plans."

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<PAGE> 20

DILUTION

The pro forma net tangible book value of the Company at March 31, 1996 was
$183,000, or $0.02 per share after giving effect to the Recapitalization, the
issuance of 70,436 shares of Common Stock pursuant to warrants exercised after
March 31, 1996, and the conversion of all outstanding shares of Redeemable
Convertible Preferred Stock (including shares issued to Murex after March 31,
1996) into Common Stock upon the completion of this Offering. After giving
effect to the receipt of $31,285,000, representing the estimated net proceeds to
be received by the Company in this Offering (after deducting underwriting
discounts and commissions and estimated offering expenses payable by the
Company), the pro forma net tangible book value of the Company at March 31, 1996
would have been $31,468,000, or $2.79 per share. This represents an immediate
increase in net tangible book value of $2.77 per share to existing stockholders
and an immediate dilution of $8.71 per share to purchasers in this Offering.
"Net tangible book value" represents the amount of tangible assets of the
Company less total liabilities. Dilution represents the difference between the
amount per share paid by investors in this Offering and the pro forma net
tangible book value per share upon completion of this Offering.

The following table illustrates this per share dilution:

<TABLE>
<S> <C> <C>
Initial public offering price per share.............................. $11.50
Pro forma net tangible book value per share at March 31, 1996... $0.02
Increase in book value per share attributable to new
investors...................................................... 2.77
-----
Pro forma net tangible book value per share after this Offering...... 2.79
------
Dilution per share to new investors (1).............................. $ 8.71
======
</TABLE>

- ---------------
(1) If the Underwriters' over-allotment option is exercised in full, then the
dilution to new investors will be $8.41 per share.

The following table sets forth at March 31, 1996, on a pro forma basis, the
differences between the existing stockholders and new investors in this Offering
with respect to the number of shares of such stock purchased from the Company,
the total consideration paid to the Company and the average price per share paid
by existing stockholders and by new investors, before deducting underwriting
discounts and commissions and estimated offering expenses.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ 8,276,408 73.4% $18,709,000 35.2% $ 2.26
New investors.................... 3,000,000 26.6 34,500,000 64.8 11.50
---------- ------- ----------- ------- -------------
Total.................. 11,276,408 100.0% $53,209,000 100.0% $ 4.72
========= ===== ========== ===== ==========
</TABLE>

The calculation of pro forma net tangible book value and the other
computations above assumes no exercise of outstanding options. At March 31,
1996, 2,699,210 shares of Common Stock were issuable upon exercise of
outstanding stock options at a weighted average exercise price of $4.10 per
share. To the extent the outstanding options are exercised, there will be
further dilution to new investors. See "Capitalization" and "Management -- Stock
Option Plans."

18
<PAGE> 21
SELECTED FINANCIAL DATA

The selected financial data set forth below with respect to the Company's
Statements of Operations for the fiscal years ended June 30, 1993, 1994 and 1995
and with respect to the Company's Balance Sheets at June 30, 1994 and 1995 are
derived from the audited Financial Statements of the Company which are included
elsewhere in this Prospectus and are qualified by reference to such Financial
Statements and the related Notes thereto. Statements of Operations data for the
fiscal years ended June 30, 1991 and 1992 and Balance Sheet data at June 30,
1991, 1992 and 1993 are derived from Financial Statements of the Company not
included herein. The selected financial data at March 31, 1996 and for the nine
months ended March 31, 1995 and 1996 are derived from unaudited Financial
Statements included elsewhere in this Prospectus. The unaudited Financial
Statements include all adjustments, consisting only of normal recurring
adjustments, that the Company considers necessary for the fair presentation of
its financial position and the results of its operations for those periods.
Operating results for the nine months ended March 31, 1996 are not necessarily
indicative of the results that may be expected for the fiscal year ending June
30, 1996. The selected financial data set forth below is qualified in its
entirety by, and should be read in conjunction with the Financial Statements,
the related Notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED MARCH
JUNE 30, 31,
----------------------------------------------- -------------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Product sales................................ $ 2,562 $ 4,665 $ 4,624 $ 4,767 $ 5,413 $ 3,849 $ 4,464
Research and development contracts........... -- -- 141 527 749 604 293
------- ------- ------- ------- ------- ----------- -----------
Total revenues............................. 2,562 4,665 4,765 5,294 6,162 4,453 4,757
Cost of product sales.......................... 1,332 2,552 2,698 2,464 2,652 1,842 2,132
------- ------- ------- ------- ------- ----------- -----------
Gross margin on product sales.................. 1,230 2,113 1,926 2,303 2,761 2,007 2,332
Other costs and expenses:
Research and development..................... 891 933 1,047 1,103 1,856 1,227 1,767
Selling and marketing........................ 694 1,288 1,194 1,398 1,375 918 1,263
General and administrative..................... 3,096 1,835 1,162 1,191 1,245 982 1,018
Amortization of intangible assets............ 524 772 349 265 330 242 260
------- ------- ------- ------- ------- ----------- -----------
Total operating expenses................... 5,205 4,828 3,752 3,957 4,806 3,369 4,308
------- ------- ------- ------- ------- ----------- -----------
Loss from operations........................... (3,975) (2,715) (1,685) (1,127) (1,296) (758) (1,683)
Other income (expense)......................... 139 104 67 (13) 14 13 115
Interest expense............................... (154) (311) (299) (293) (232) (195) (139)
------- ------- ------- ------- ------- ----------- -----------
Net loss....................................... $(3,990) $(2,922) $(1,917) $(1,433) $(1,514) $ (940) $(1,707)
======= ======= ======= ======= ======= =========== ===========
Net loss per share(1).......................... (2.35) (3.61) $ (2.34) $ (1.69) $ (1.78) $ (1.11) $ (2.00)
======= ======= ======= ======= ======= =========== ===========
Weighted average shares outstanding(1)......... 1,698 810 818 847 850 850 853
Pro forma net loss per share(1)(2)............. $ (.18) $ (.20)
====== ========
Pro forma weighted average shares
outstanding(1)(2)............................ 8,217 8,447
====== ========
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30,
---------------------------------------------------
AT MARCH 31,
1991 1992 1993 1994 1995 1996
------- -------- -------- -------- -------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital..................................... $ 1,598 $ 1,827 $ 1,854 $ 2,195 $ 2,107 $ 1,395
Total assets........................................ 4,937 4,935 4,308 4,307 4,485 3,921
Long-term debt, less current maturities............. 3,243 3,165 3,100 3,005 2,812 2,666
Redeemable Convertible Preferred Stock.............. 6,296 8,732 10,276 11,768 13,115 14,063
Accumulated deficit................................. (8,912) (11,834) (13,750) (15,184) (16,698) (18,404)
Total stockholders' equity (deficit)................ (5,227) (8,147) (10,058) (11,490) (13,004) (14,697)
</TABLE>

- ---------------

(1) Computed on the basis described in Note 2 of Notes to Financial Statements.
(2) Pro forma to give effect to (i) the Recapitalization, the issuance of 70,436
shares of Common Stock pursuant to warrants exercised after March 31, 1996,
and (ii) the automatic conversion, upon the completion of this Offering, of
all outstanding shares of Redeemable Convertible Preferred Stock (including
shares issued to Murex after March 31, 1996) into Common Stock.

19
<PAGE> 22

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Financial
Statements and the related Notes thereto included elsewhere in this Prospectus.
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."

OVERVIEW

The Company develops, manufactures and markets DNA testing systems for the
screening, monitoring and diagnosis of human disease. The Company was founded in
1985 and originally focused on the development of research diagnostic products.
In July 1990, the Company began the development of clinical diagnostic tests. In
December 1990, the Company acquired the molecular diagnostics division of LTI,
including its DNA tests which relied on the use of radioactive probes (the "LTI
Acquisition"). In the five years following the LTI Acquisition, the Company
continued to market radioactive DNA probe tests, including a radioactive HPV
test, but directed its primary research and development efforts towards its non-
radioactive Hybrid Capture DNA tests. The Company introduced its HPV test and
Hepatitis B virus ("HBV") DNA tests utilizing the chemiluminescent Hybrid
Capture system for research purposes in Europe in fiscal 1992. In 1995, the
Company obtained FDA approval for its Hybrid Capture HPV test for the follow-up
screening of women with equivocal Pap smears and commenced shipment of the test
in November 1995. The Company ceased production of its radioactive product line
in December 1995. The Company based its decision to discontinue its radioactive
product line on the perceived advantages of its non-radioactive Hybrid Capture
technology, particularly in terms of shelf life and ease of use. The Company
believes that its decision to discontinue production of its radioactive product
line will not have a material adverse effect on its results of operations. To
facilitate sales of its Hybrid Capture products, the Company also sells
luminometers and related equipment, which it purchases from third-party
manufacturers. The Company receives additional revenues for performing certain
research and development services under contract with third parties, primarily
Murex. Contract research and development activities are billed on a cost
reimbursable basis. See "Certain Transactions."

Since inception, the Company has incurred substantial operating losses,
principally from expenses associated with the Company's research and development
programs, the clinical trials conducted in connection with the Company's HPV
test for use in the follow-up screening of women with equivocal Pap smears and
the preparation of the related PMA application for submission to the FDA. The
Company expects such operating losses to continue for the foreseeable future as
it continues its product development efforts, expands its marketing and sales
activities and scales up its manufacturing operations. The Company's ability to
achieve profitability is dependent upon its ability to successfully manufacture,
market and sell its HPV test for the follow-up screening of women with equivocal
Pap smears. There can be no assurance that the Company will be able to
successfully commercialize its HPV test or that profitability will ever be
achieved. The operating results of the Company have fluctuated significantly in
the past on an annual and a quarterly basis. The Company expects that its
operating results will fluctuate significantly from quarter to quarter in the
future and will depend on a number of factors, many of which are outside the
Company's control.

RESULTS OF OPERATIONS

Comparison of Nine Months Ended March 31, 1996 to Nine Months Ended March 31,
1995

Product sales increased to $4,464,000 for the nine months ended March 31,
1996 from $3,849,000 for the same period in 1995. The increase was due,
primarily, to increased sales of its Hybrid Capture tests. Sales of the
Company's radioactive DNA tests, which were discontinued in December 1995,
remained relatively constant for the two periods. The Company anticipates that
sales of its HPV test will account for a substantial portion of its product
sales in the foreseeable future.

20
<PAGE> 23

Cost of product sales increased to $2,132,000 for the nine months ended
March 31, 1996 from $1,842,000 for the same period in 1995 due to increased
sales volume, but remained constant as a percentage of product sales. Gross
margins may vary between periods depending on product mix, primarily because
certain products, such as luminometers and related equipment, typically have
lower profit margins than the Company's diagnostic tests. The Company expects
gross margins to increase in the future due to improved overhead absorption and
manufacturing efficiencies.

Research and development contract revenue decreased to $293,000 for the
nine months ended March 31, 1996 from $604,000 for the same period in 1995 due
to a decrease in contract development services relating to its CMV test,
performed under the Company's development agreement with Murex. See "Certain
Transactions."

Research and development expense increased to $1,767,000 for the nine
months ended March 31, 1996 from $1,227,000 for the same period in 1995 due to
increased personnel costs associated with the development of new products
utilizing the Company's Hybrid Capture technology. The Company expects to
increase its expenditures for research and development to fund the development
of additional tests using the Hybrid Capture technology and to improve the
sensitivity and ease of use of the Company's Hybrid Capture technology. See
"Business -- Research and Development."

Selling and marketing expense increased to $1,263,000 for the nine months
ended March 31, 1996 from $918,000 for the same period in 1995 due to increased
personnel costs resulting from the addition of marketing personnel to support
the Hybrid Capture product line, and increased sales commissions as a result of
higher sales volume. Sales personnel receive a salary plus commissions based
upon the attainment of certain sales levels. The Company expects selling and
marketing expense to increase as it expands its advertising and promotional
activities and increases its marketing and sales force, principally for the
commercialization of its HPV test in the United States and Canada.

General and administrative expense increased to $1,018,000 for the nine
months ended March 31, 1996 from $982,000 for the same period in 1995, largely
due to cost of living increases in salaries. The Company also expects that its
general and administrative expense will increase as a result of increased
personnel costs and professional fees associated with being a publicly held
company.

Amortization of intangible assets increased to $260,000 for the nine months
ended March 31, 1996 from $242,000 for the same period in 1995, primarily due to
the amortization of capitalized costs related to the installation of the
Company's management information system.

Interest expense decreased to $139,000 for the nine months ended March 31,
1996 from $195,000 for the same period in 1995, due primarily to a reduction in
the interest rate on the note issued by the Company in connection with the LTI
Acquisition (the "LTI Note").

Comparison of Fiscal Year Ended June 30, 1995 to Fiscal Year Ended June 30,
1994

Product sales increased to $5,413,000 in fiscal 1995 from $4,767,000 in
fiscal 1994. The increase was due, primarily, to increased sales volume to
European distributors of the Company's Hybrid Capture tests and, to a lesser
extent, to increased sales of luminometers.

Cost of product sales increased to $2,652,000 in fiscal 1995 from
$2,464,000 in fiscal 1994 due to increased sales volume. Cost of product sales
decreased as a percentage of product sales due to improved overhead absorption
and manufacturing efficiencies, which improvement was offset, in part, by an
increase in lower margin sales of luminometers.

Research and development contract revenue increased to $749,000 in fiscal
1995 from $527,000 in fiscal 1994. The increase was due to contract services,
primarily relating to the development of the Company's CMV test, performed under
the Company's contract with Murex. See "Certain Transactions."

Research and development expense increased to $1,856,000 in fiscal 1995
from $1,103,000 in fiscal 1994. Most of the increase was due to internal
development efforts relating to the Company's core technologies as

21
<PAGE> 24

well as contract development services relating to the Company's CMV test,
performed under the Company's development agreement with Murex. See "Certain
Transactions."

Selling and marketing expense decreased slightly to $1,375,000 in fiscal
1995 from $1,398,000 in fiscal 1994.

General and administrative expense increased to $1,245,000 in fiscal 1995
from $1,191,000 in fiscal 1994 as a result of cost of living increases in
salaries.

Amortization of intangible assets increased to $330,000 in fiscal 1995 from
$265,000 in fiscal 1994 primarily as a result of the amortization of certain
capitalized costs related to the installation of the Company's management
information system.

Interest expense decreased to $232,000 in fiscal 1995 from $293,000 in
fiscal 1994 due to a negotiated reduction in interest on the LTI Note.

Comparison of Fiscal Year Ended June 30, 1994 to Fiscal Year Ended June 30,
1993

Product sales increased to $4,767,000 in fiscal 1994 from $4,624,000 in
fiscal 1993 due to an increase in European sales of Hybrid Capture tests, which
were partially offset by a decrease in luminometer and related equipment sales.

Cost of product sales decreased to $2,464,000 in fiscal 1994 from
$2,698,000 in fiscal 1993. As a percentage of product sales, such costs
decreased because of improved manufacturing efficiency and decreased sales of
lower margin products such as luminometers and related equipment.

Research and development contract revenue increased to $527,000 in fiscal
1994 from $141,000 in fiscal 1993 primarily due to services performed under a
laboratory testing and supply subcontract for the National Cancer Institute
("NCI").

Research and development expense increased to $1,103,000 in fiscal 1994
from $1,047,000 in fiscal 1993 as a result of cost of living increases in
salaries for research and development personnel.

Selling and marketing expense increased to $1,398,000 in fiscal 1994 from
$1,194,000 in fiscal 1993 due to the launch of a product designed solely for use
in laboratory research and a radioactive DNA probe test, which was subsequently
discontinued.

General and administrative expense increased to $1,191,000 in fiscal 1994
from $1,162,000, in fiscal 1993 as a result of cost of living increases in
salaries.

Amortization of intangible assets decreased to $265,000 in fiscal 1994 from
$349,000 in fiscal 1993 due to the expiration in 1993 of non-compete agreements
and other intangible assets related to the LTI Acquisition.

LIQUIDITY AND CAPITAL RESOURCES

Since inception, the Company's expenses have significantly exceeded its
revenues, resulting in an accumulated deficit of approximately $18.4 million at
March 31, 1996. The Company has funded its operations primarily through private
placements of equity securities. At March 31, 1996, the Company had cash, cash
equivalents and short-term investments aggregating approximately $479,000.
Short-term investments of $75,000 are restricted under a collateral agreement
related to leasehold improvements. Net cash used in the Company's operating
activities was $1,203,000 for the nine months ended March 31, 1996.

Capital expenditures for the fiscal year ended June 30, 1995 were $246,000.
The Company anticipates making total capital expenditures of $250,000 for the
fiscal year ending June 30, 1996, primarily for automation and manufacturing
scale-up. The Company anticipates making capital expenditures of $500,000, also
for automation and manufacturing scale-up, in the fiscal year ending June 30,
1997.

The Company does not have any bank financing arrangements. The Company's
indebtedness consists primarily of the LTI Note, which had an outstanding
principal amount of $2,569,000 at March 31, 1996. The LTI Note was issued in
connection with the LTI Acquisition. During fiscal 1995, the Company and LTI

22
<PAGE> 25

agreed to reduce the applicable interest rate on the LTI Note from 10% to 8%.
Principal on the LTI Note is payable in semiannual installments ranging from
$27,624 at June 30, 1995 to $36,352 at December 31, 1998, followed by five
annual installments of $474,093, beginning June 30, 1999. The note is secured by
certain assets of the Company. The Company intends to repay the LTI Note with
the net proceeds of this Offering. See "Use of Proceeds."

23
<PAGE> 26

BUSINESS

THE COMPANY

The Company develops, manufactures and markets DNA testing systems for the
screening, monitoring and diagnosis of human diseases. The Company's products
are designed to help improve clinical outcomes and reduce the overall cost of
disease management. The Company's lead product, the Hybrid Capture HPV DNA test,
detects the presence of HPV, the primary cause of cervical cancer which is the
second most common cancer among women worldwide. The Company's HPV test for the
follow-up screening of women with equivocal Pap smears is the first HPV test to
have been approved for marketing in the United States by the FDA. The Company's
objective is to establish its HPV test as the new standard of care for cervical
cancer screening.

The Company is also developing a test to detect the presence of CMV. The
basis for the Company's HPV and CMV tests is its proprietary Hybrid Capture
technology. The Company is also using its Hybrid Capture technology as a
platform to develop a wide range of DNA diagnostic and monitoring tests for
blood viruses, sexually transmitted diseases and opportunistic infections.

The key elements of the Company's business strategy include (i)
establishing HPV testing as the new standard of care for cervical cancer
screening by working closely with clinical reference laboratories, third-party
payors and health care providers; (ii) focusing the Company's initial marketing
efforts on the use of its HPV test for the follow-up screening of equivocal Pap
smears; (iii) expanding the Company's sales and marketing capabilities; (iv)
pursuing strategic alliances to increase market acceptance of its products and
to expand marketing efforts; and (v) capitalizing on its core technology and
expertise to develop a wide range of DNA diagnostic and monitoring tests.

CERVICAL CANCER

Cervical cancer is the second most common cancer among women worldwide,
with approximately 440,000 new cases reported annually. The American Cancer
Society estimates that approximately 15,800 new cases of invasive cervical
cancer and 65,000 cases of carcinoma in situ, a precancerous condition, were
diagnosed in the United States in 1995. If detected in the precancerous stage,
virtually all cervical cancer is preventable. The treatment of cervical cancer
after it reaches the invasive stage may require chemotherapy, radiation
treatment or surgery, including hysterectomy. These forms of treatment are
difficult and expensive, and are often unsuccessful.

HPV Infection and Cervical Cancer

HPV is the primary cause of cervical cancer. Recent studies have
demonstrated that at least 93% of cervical cancers and high-grade cervical
lesions contain one or more cancer-causing types of HPV. Moreover, it has been
shown that women without cervical disease who test positive for one or more of
the cancer-causing HPV types have a high probability of developing cervical
lesions over time. A recent prospective study conducted by NCI on 21,000 women
with a history of normal cervical cytologic examinations (Pap smears) found that
approximately 80% of those who tested positive for cancer-causing types of HPV
developed clinically significant cervical lesions within four years.

Pap Smear Testing

To enable the early detection of cervical cancer, gynecologists typically
recommend annual screening examinations. The standard screening method in the
United States and in other major industrialized countries is the Pap smear test,
in which a sample of cervical cells is examined under a microscope. Pap smears
have been the principal means of cervical cancer screening in the United States
since the 1940s. More than 50 million Pap smears are performed annually in the
United States, and the Company believes that an equivalent number are performed
in the rest of the world. Each Pap smear is classified according to the Bethesda
System for Reporting Cervical/Vaginal Cytologic Diagnoses into one of five
categories: (1) Negative, (2) Atypical Squamous Cells of Undetermined
Significance ("ASCUS"); (3) Low Grade Squamous

24
<PAGE> 27

Intraepithelial Lesions ("LSIL"); (4) High Grade Squamous Intraepithelial
Lesions ("HSIL"); and (5) Carcinoma. For purposes of this Prospectus, negative
Pap smear results are referred to as "normal;" ASCUS, as "equivocal;" and LSIL,
HSIL and Carcinoma, as "abnormal." An equivocal classification is given to Pap
smear results that cannot be definitely classified as either normal or abnormal.
The estimated percentage of Pap smears classified in each category annually is
set forth below.

CLASSIFICATION OF PAP SMEARS IN THE UNITED STATES

<TABLE>
<S> <C> <C>
TOTAL PAP SMEARS:
50 MILLION

NORMAL PAP SMEARS: EQUIVOCAL PAP SMEARS: ABNORMAL PAP SMEARS:
45 MILLION 3.5 MILLION 1.5 MILLION
90% 7% 3%
</TABLE>

Follow-up testing and treatment is based on the classification of the Pap
smear result. Women with normal Pap smears typically require no follow-up beyond
continuation with annual Pap smear testing. In general, women with abnormal Pap
smears undergo a colposcopic examination (visual examination of the cervix with
the aid of a colposcope). Most of these women also undergo biopsy at the time of
colposcopy, and many go on to have any suspected lesions ablated (physically
removed with a scalpel or cauterizing instrument). Many women with equivocal Pap
smears are treated as if they have abnormal Pap smears, even though only an
estimated 25% to 35% of these women actually have cervical disease.

Problems With the Pap Smear

Although the Pap smear has been successful in reducing deaths due to
cervical cancer in the United States, Pap smears have significant limitations,
including the following:

Equivocal Pap Smears Lead to Unnecessary, Costly Intervention. Each
year in the United States, approximately 3.5 million Pap smears are classified
as equivocal. It is estimated that 65% to 75% of the women with equivocal Pap
smears do not have cervical disease. However, women with equivocal Pap smears
often undergo colposcopy and biopsy and, in certain cases, ablation. These
invasive procedures cost approximately $300, $100 and $500, respectively, and
result in significant physical and emotional stress.

Pap Smears are Difficult to Interpret. Screening and interpreting Pap
smears is a highly subjective, complex and tedious task. The screening process
requires intense visual review through a microscope of a large volume of slides
containing cervical cells. A Pap smear may contain only a small number of
abnormal cells among 50,000 to 300,000 normal cells. The subjective nature of
this screening process often leads to equivocal test results. In addition, the
difficulty and tediousness of the screening process and the limitations of the
visual review result in a large number of Pap smears which are misinterpreted as
normal ("false negatives").

False Negative Diagnoses. Pap smears fail to identify cervical disease
in a significant number of women. The sensitivity of Pap smears is estimated to
be 60% to 80%, which means that 20% to 40% of cervical disease is not detected
by Pap smear testing. False negatives may result in delayed treatment for
cervical lesions and may result in the failure to detect cervical cancer at an
early stage. The resultant delays in treatment may allow the disease to progress
further, thereby increasing the need for invasive and costly treatments,
reducing the efficacy of available therapies and reducing the likelihood of
patient survival. False

25
<PAGE> 28
negative diagnoses present a particular health risk for women who do not
undergo routine Pap smear testing at recommended time intervals.

Pap Smears Have Limited Predictive Value. The Pap smear is not
designed, and is unable, to detect the presence of HPV, the primary cause of
cervical cancer. Consequently, Pap smears do not allow the clinician to identify
women with no overt signs of cervical disease but who are infected with
cancer-causing types of HPV and are therefore highly likely to develop cervical
cancer or advanced cervical lesions in the future.

Limited Availability of Pap Smear Screening. In many countries, Pap
smears are not widely used or are unavailable. Extensive cervical disease
screening programs using the Pap smear require large numbers of
cytotechnologists and sophisticated laboratory procedures. Properly trained
cytotechnologists and adequate laboratory facilities are often unavailable in
developing countries.

THE DIGENE SOLUTION

Digene manufactures and markets the first FDA-approved test to detect
cancer-causing types of HPV. The Company's HPV test allows physicians to
identify women who are most at risk of having or developing cervical disease and
cervical cancer. The Company's HPV test consists of biological reagents (RNA
probes, antibodies and detection reagents) and other components, consisting of
polystyrene tubes and packaging materials, and can be interpreted using standard
laboratory equipment. The Company believes that the key benefits provided by its
HPV test include the following:

Enables Cost-Effective Follow-up Screening of Equivocal Pap
Smears. Digene's HPV test enables clinicians to, in effect, classify equivocal
Pap smears as either normal or abnormal. The Company's test detects and measures
the presence of cancer-causing types of HPV, thereby allowing the clinician to
identify women who are most at risk of having or developing cervical disease and
cervical cancer, at a fraction of the cost of colposcopy, biopsy or ablation.
The Company believes that the use of its HPV test for the follow-up screening of
women with equivocal Pap smears will improve the ability to accurately screen
for cervical cancer, reduce the need for costly and invasive follow-up
procedures, and provide health care cost savings.

26
<PAGE> 29

Under Digene's recommended follow-up protocol, women with equivocal Pap
smears undergo the Company's HPV test to determine the presence of
cancer-causing HPV types. Only those patients testing positive for
cancer-causing types of HPV undergo colposcopy, biopsy and, when necessary,
ablation, while those testing negative return for a repeat Pap smear in six
months. The Company's test may be performed on clinical samples taken at the
same time as the Pap smear and stored until needed, thus eliminating the need
for a return visit to the physician's office. The following diagram outlines the
use of the Company's HPV test for the follow-up screening of women with
equivocal Pap smears.

FOLLOW-UP SCREENING OF EQUIVOCAL PAP SMEARS WITH HPV TESTING

<TABLE>
<S> <C> <C>
TOTAL PAP SMEARS:

NORMAL PAP SMEARS: EQUIVOCAL PAP SMEARS: ABNORMAL PAP SMEARS:
90% 7% 3%

HYBRID CAPTURE HPV
TEST

HPV NEGATIVE:REPEAT PAP HPV POSITIVE: PROCEED TO
SMEAR IN 6 MONTHS COLPOSCOPY/BIOPSY/ABLATION
</TABLE>

Provides Accurate, Easily Interpreted Results. Clinical studies conducted
by the Company indicate that the Company's HPV test is highly sensitive and
highly specific for the detection of cervical disease. Such clinical studies
indicated that Digene's HPV test is capable of detecting cervical disease in up
to 92% of the cases in which cervical disease is present. This represents a
significant improvement over the Pap smear's estimated sensitivity of 60% to
80%. The results generated by the Company's HPV test are objective, providing a
clear determination of the presence of cancer-causing types of HPV, and are easy
to interpret, reducing the need for highly trained cytotechnologists.

Reduces Likelihood of False Negatives. The high level of sensitivity of
the Company's HPV test should increase the possibility that precancerous
cervical lesions will be detected. Studies indicate that when used in
conjunction with Pap smear testing, the Company's HPV test can detect 95% to
100% of high grade lesions and virtually all instances of cervical cancer. The
Company believes that by reducing the number of false negatives, many cases of
precancerous cervical disease will be detected at earlier stages, when the
available therapies are more effective and the survival rates are higher.

Predicts Development of Disease. The Company believes that testing for the
presence of cancer-causing types of HPV has considerable predictive value. In
one study, approximately 80% of women with a history of normal Pap smears who
tested positive for cancer-causing types of HPV developed clinically significant
cervical lesions within four years. The Company's HPV test is the first
FDA-approved test for the detection of cancer-causing types of HPV.

27
<PAGE> 30

The Company holds issued patents relating to the detection of four HPV
types and has licenses to issued patents and patent applications covering five
additional HPV types. The Company's HPV test for the follow-up screening of
women with equivocal Pap smears utilizes DNA sequences for seven of these HPV
types. The Company believes that for a competing HPV test to be commercially
viable, it must be able to detect the HPV types for which the Company has
non-exclusive proprietary rights covering the DNA sequences. For a more detailed
discussion of the Company's intellectual property position and the risks
associated with it, see "Risk Factors -- Uncertainty Regarding Patents and
Proprietary Rights" and "Business -- Licenses, Patents and Proprietary
Information."

CYTOMEGALOVIRUS (CMV) TESTING

CMV infection is a serious and growing health care problem. Active CMV
infection causes blindness in many AIDS patients and is a major cause of
infection and mortality in organ transplant recipients. It is estimated that 95%
of AIDS patients will ultimately suffer from active CMV infection. In 20% to 40%
of AIDS patients, CMV infects the retina, causing blindness. Organ transplant
recipients, because they are deliberately immunosuppressed to lessen the
probability of organ rejection, are also susceptible to CMV infection.
Approximately 60% of organ transplant patients develop active CMV infection
during the first twelve weeks after transplantation.

An estimated $1 billion is spent annually in the United States on the
prevention and treatment of CMV-related diseases. The drugs available to treat
CMV infection are both toxic and expensive and, ideally, should be administered
only when active CMV infection has been definitively identified. Annual costs
for these drugs are estimated to be between $37,000 and $115,000 per patient per
year. Nevertheless, because of the difficulty in detecting the virus with
currently available technology and the serious consequences of CMV infection,
antiviral therapy is often prescribed as a prophylactic measure. Additionally,
because current testing methods do not allow quantification, and therefore
effective monitoring, of CMV infection, physicians often prescribe unnecessarily
large doses of anti-viral drugs.

Current CMV Tests

All of the current methods available to detect the presence of CMV have
significant limitations. Conventional tissue culture methods have a low level of
sensitivity, can take up to 28 days to produce a definitive answer, are labor
intensive and because of the time required, are not useful for patient
monitoring. Rapid culture methods can provide results within one or two days,
but have a low level of sensitivity. Antigen tests can detect active CMV
infection and are highly sensitive. They are, however, complex and labor
intensive and have limited reliability. Additionally, antibody tests, which are
commonly used to detect viruses such as HIV, are of limited utility in detecting
CMV, since most healthy adults have antibodies against CMV.

The Digene CMV Solution

The Company is developing its Hybrid Capture CMV DNA test to provide
clinicians with an accurate and timely means of diagnosing and monitoring CMV
infection. The Company's CMV test can quantify the amount of CMV present in a
serum or tissue sample. This information allows physicians to track therapeutic
efficacy. Studies have shown that the Company's CMV test is capable of detecting
CMV infection in 94% of the cases in which it is present. Digene's CMV test can
be performed by relatively unskilled laboratory technicians using standard
clinical laboratory equipment with same day results.

Digene is currently conducting clinical trials of its CMV test at The Mayo
Clinic and The Cleveland Clinic. The Company expects to complete these trials
during the third quarter of 1996 and submit a 510(k) premarket notification to
the FDA by the end of 1996. There can be no assurance that, once a 510(k)
notification is submitted for the Company's CMV test, the FDA will grant
clearance in a timely manner, if at all, or will not require the submission of
additional clinical data or a PMA application. See "-- Government Regulation."

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BUSINESS STRATEGY

The Company's principal objective is to successfully commercialize its HPV
test. The Company has achieved the following milestones:

- received FDA approval for its HPV test in 1995 for the follow-up
screening of women with equivocal Pap smears

- achieved acceptance by all major clinical reference laboratories
throughout the United States

- validated the clinical utility of the HPV test through peer reviewed
publications in prominent medical journals

- established reimbursement by many third-party payors

The Company intends to build on these accomplishments in order to commercialize
its HPV test. In addition, the Company intends to continue to develop its CMV
test and other Hybrid Capture tests. The key components of the Company's
strategy are as follows:

Establish HPV Testing as the New Standard of Care. The Company is focused
on establishing its HPV test as the new standard of care for cervical cancer
screening. In order to achieve this objective, the Company is working closely
with clinical reference laboratories, third-party payors, health care providers
and institutions, and their affiliated physicians who influence the introduction
and acceptance of new tests. The Company has supported and participated in more
than a dozen major multi-center trials, including an ongoing $21 million NCI
study designed to establish the clinical utility and the cost-effectiveness of
HPV screening of women with equivocal or low-grade Pap smears. The Company
believes that the adoption of the Company's HPV test by managed care
organizations is critical for establishing the Company's HPV test as the new
standard of care for cervical cancer screening. Accordingly, the Company is
working with a number of managed care organizations, including Kaiser Permanente
(the largest health maintenance organization in the United States) and Omnia, a
provider of gynecological services to managed care organizations, to demonstrate
the clinical utility and cost-effectiveness of the Company's HPV test.

Focus Initially on Equivocal Pap Smears. The Company believes that there
is a need for a rapid, accurate, objective and non-invasive method to screen
women with equivocal Pap smears and that the Company's FDA-approved HPV test
presents an immediate market opportunity. Women with equivocal Pap smears often
undergo colposcopy, biopsy and, in certain cases, ablation, which cost
approximately $300, $100 and $500, respectively. The Company believes that the
use of its HPV test for the follow-up screening of women with equivocal Pap
smears will improve the ability to accurately screen for cervical disease and
reduce the need for costly and invasive follow-up procedures. As a result, the
Company will initially focus its marketing and sales efforts on gaining market
acceptance for the Company's test for the follow-up screening of women with
equivocal Pap smears.

Establish HPV Test as a Primary Screen in Conjunction With Pap Smears. The
Company intends to submit a PMA supplement for use of its HPV test as a primary
cervical cancer screening test in the United States either in conjunction with
or separate from Pap smear testing. The Company believes that if used routinely
in conjunction with Pap smears, its HPV test could result in more accurate
diagnosis of precancerous cervical disease and reduce the number of false
negatives associated with Pap smears. There can be no assurance that the FDA
will grant approval of such a PMA supplement in a timely manner, if at all, or
that the FDA will not require the submission of additional information, data or
a PMA application. See "Risk Factors -- Government Regulation."

Expand Sales and Marketing. The Company has established a limited direct
sales force in the United States and Canada, and a network of distributors in
Europe, South America and Asia. The Company intends to expand its sales and
marketing efforts in its existing markets and to expand into additional markets
as opportunities arise. In addition, the Company intends to enter into joint
marketing arrangements with clinical reference laboratories having large sales
forces which have the ability to market the Company's products directly to
gynecologists and other primary care physicians. The Company believes these
marketing efforts, along with the Company's marketing efforts, will encourage
physicians to request the Company's HPV test as a regular part of their cervical
cancer screening protocol. The Company also believes that educating physicians

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on the benefits of the Company's HPV test will be an effective method to achieve
market penetration, and it intends to launch marketing and sales campaigns
designed to increase product awareness through educational and promotional
programs.

Pursue Strategic Alliances. The Company intends to pursue strategic
alliances with other manufacturers of medical diagnostic products,
pharmaceutical companies and clinical reference laboratories in order to
increase market acceptance of its products and to expand its marketing efforts.
The Company is pursuing co-marketing and distribution agreements with clinical
testing laboratories and large multinational diagnostic companies and is also
pursuing collaborations with clinical testing laboratories for the development
of new diagnostic tests. The Company may seek strategic alliances with
pharmaceutical companies for the co-promotion of the Company's viral diagnostic
tests that are under development with antiviral drugs as a complete therapeutic
package.

Capitalize on Core Technology and Expertise. The Company believes that its
proprietary Hybrid Capture technology is a significant improvement over current
DNA diagnostic testing methods. The Company intends to use its proprietary
technology platform to develop a wide range of DNA diagnostic tests for blood
viruses, sexually transmitted diseases and opportunistic infections. Research
and development programs include efforts to continuously improve the sensitivity
and reliability of its tests, further simplify assays, and apply the Hybrid
Capture technology to the development of products for the early detection and
management of other diseases. The Company is developing a next generation format
which is designed to allow simultaneous testing for multiple sexually
transmitted diseases from a single patient sample.

MARKETING AND SALES

The Company currently sells its products in the United States and Canada to
clinical reference and hospital laboratories through its direct sales force. In
Europe, South America and Asia, the Company's products are sold through a
network of distributors.

United States Market

The Company's HPV test for the follow-up screening of women with equivocal
Pap smears is offered by substantially all major clinical reference laboratories
throughout the United States. The Company expects to increase its four person
sales force to approximately 30 persons by 1998 to market its HPV test and its
other products, directly and indirectly, to (i) the more than 4,000 laboratories
in the United States, (ii) insurers, managed care organizations and other
third-party payors and (iii) the approximately 30,000 gynecologists and other
clinicians who perform Pap smears.

The Company has active marketing programs directed at the managed care
market and the fee-for-service market. In managed care, the Company is working
with Kaiser Permanente on a study involving 40,000 women which the Company
believes will demonstrate the clinical utility and cost effectiveness of the
Company's HPV test in a managed care setting. In the fee-for-service market, the
Company intends to create demand through joint marketing programs with clinical
reference laboratories. The Company also plans to market directly to physicians
by providing educational and promotional materials, and by making presentations
at continuing education programs and medical meetings. The Company also plans to
develop educational programs and advertising directed at women. Finally, the
Company intends to market directly to insurers and managed care organizations
with the goal of establishing uniform reimbursement for HPV testing.

International Markets

The Company currently sells its products outside the United States through
a network of distributors. The Company intends to enter into additional
marketing and distribution agreements with multinational corporate partners and
may establish direct sales forces in certain countries, if demand warrants. A
substantial portion of the Company's international marketing activities are
performed by, or in conjunction with, the Company's distribution partners. In
addition, distribution partners are responsible for obtaining regulatory
approvals and establishing reimbursement from third-party payors in their
respective territories. See "Risk Factors -- Risks Inherent in International
Transactions."

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The Company expects to tailor its marketing efforts to the circumstances of
each country to encourage local authorities and industry opinion leaders to
accept HPV testing as the standard of care for cervical cancer screening. The
Company is working closely with EUROGIN (the European Research Organization on
Genital Infection and Neoplasia), the Imperial Cancer Research Foundation of the
United Kingdom and other leading research groups to accelerate the
implementation of HPV testing by focusing opinion leaders, clinicians and public
health officials on the benefits of HPV testing.

The Company currently markets its DNA tests through distributors in, among
other countries, the United Kingdom, Germany, France, Spain, Italy and Brazil.
Revenues from export sales were $1,860,000, $2,286,000 and $3,295,000 in fiscal
1993, 1994 and 1995, respectively.

TECHNOLOGY

The Company's Hybrid Capture technology offers a rapid, accurate,
easy-to-use detection system that can be performed in any laboratory setting
with standard laboratory equipment. The following diagram illustrates the key
elements of the Hybrid Capture system:

[DIAGRAM IS DESCRIBED BELOW]

DIAGRAM 1

The Company's Hybrid Capture technology uses RNA probes to bind specific
DNA sequences, which creates DNA:RNA hybrids that can be detected with
chemiluminescent materials. To perform a test using the Hybrid Capture system,
the test sample is mixed with RNA probes. Complementary DNA sequences in the
sample(1) immediately bind to the RNA, creating DNA:RNA hybrids(2). The DNA:RNA
hybrids are then captured on the surface of a specially coated polystyrene
tube(3). All remaining DNA and specimen contaminants are removed by washing the
tube. Captured hybrids are then reacted with the Company's proprietary signal
amplification system, which uses antibodies to detect any DNA:RNA hybrids bound
to the tube(4). If DNA:RNA hybrids from the specimen are present on the surface
of the tube, light is emitted,

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<PAGE> 34

signaling a positive test result(5). The amount of DNA present in the sample can
be rapidly and accurately quantified using standard laboratory luminometers. The
entire test can be completed in four to six hours.

The Company believes that its Hybrid Capture system is a significant
improvement over other existing technologies because of its specificity,
shortened processing time, ease of use, greater accuracy, and ability to
quantify viral and bacterial load. The Company is also using its Hybrid Capture
technology as a platform to develop a wide range of DNA diagnostic and
monitoring tests for blood viruses, sexually transmitted diseases and
opportunistic infections.

RESEARCH AND DEVELOPMENT

The Company's research and development efforts are designed to (i) refine
and expand the Company's core technology and (ii) apply its core technology to
additional blood viruses, sexually transmitted diseases and opportunistic
infections.

The Company's principal research and development program relates to the
improvement of the sensitivity and ease of interpretation of its Hybrid Capture
technology. In an effort to automate its Hybrid Capture technology in order to
further simplify and shorten test processing, the Company is developing, among
other things, a microtiter plate which, subject to FDA approval, will replace
the polystyrene tubes as a standard component in its tests. In addition, the
Company is developing a proprietary target amplification system, designed to be
coupled with the Hybrid Capture technology, that may permit enhanced clinical
sensitivity for detecting particular viruses and bacteria.

Future intended applications of the Company's technology include the
detection of additional sexually transmitted diseases ("STDs") and blood
viruses. The Company is developing a test designed to detect, from a single
specimen, HPV and other STDs such as chlamydia, gonorrhea and herpes. Additional
blood virus tests that the Company is developing include quantitative DNA or RNA
measures for HIV and HBV. The Company also intends to begin a pilot program in
the area of genomics (the study of gene sequences) in an effort to develop
products, using its Hybrid Capture technology, for the early detection and
management of genetic disease and cancer.

At February 29, 1996, the Company had 30 employees engaged in research and
development. Company-sponsored research and development expenditures in fiscal
1993, 1994 and 1995 were approximately $906,000, $576,000 and $1,107,000,
respectively. In addition to Company-sponsored research and development, the
Company performs research and development through contracts with third parties,
such as Murex. See "Certain Transactions." For a discussion of certain risks
associated with product development, see "Risk Factors -- Technological
Obsolescence; Uncertainties Relating to Product Development" and "-- Government
Regulation."

COMPETITION

Oncor, Inc. has recently announced that it has received notification from
the FDA that its HPV test is approvable by the FDA, subject to certain
conditions. Although the Company believes its HPV test has commercial advantages
over the competing test, Oncor, Inc. and other competitors and potential
competitors may be able to develop technologies that are as effective as, or
more effective or easier to interpret than, those offered by the Company, which
would render the Company's products noncompetitive or obsolete. Moreover, many
of the Company's existing and potential competitors have substantially greater
financial, marketing, sales, distribution and technological resources than the
Company. Such existing and potential competitors may be in the process of
seeking FDA approval for their respective HPV tests or may also enjoy
substantial advantages over the Company in terms of research and development
expertise, experience in conducting clinical trials, experience in regulatory
matters, manufacturing efficiency, name recognition, sales and marketing
expertise and distribution channels. In addition, many of these companies have
established third-

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party reimbursement for their products. Accordingly, there can be no assurance
that the Company will be able to compete effectively against such potential
competitors.

In marketing its HPV test for the follow-up screening of women with
equivocal Pap smears, the Company will compete with well-established follow-up
procedures, such as Pap smear retesting, colposcopy and biopsy. These procedures
are widely accepted and have a long history of use, and there can be no
assurance that HPV testing, in general, or the Company's HPV test for the
follow-up screening of women with equivocal Pap smears, in particular, will be
able to gain market acceptance on a timely basis, or at all.

Subject to FDA and other applicable regulatory approvals, the Company plans
to market its HPV test as a primary cervical cancer screening test. In doing so,
the Company will compete against the Pap smear, which is the only widely used
primary cervical cancer screening test. Although the Company believes the Pap
smear has significant limitations, it has a long history of use and is widely
accepted as an inexpensive and, with regular screening, adequate screening test
for cervical cancer. Additionally, technological advancements designed to
improve quality control over sample collection and preservation, and to reduce
the Pap smear test's susceptibility to human error, may serve to increase
physician reliance on the Pap smear and solidify its market acceptance. Further,
if marketed as an adjunct to the Pap smear test for initial screening in the
United States and Canada, the Company's HPV test may be seen as adding
unnecessary expense to the accepted cervical cancer screening methodology.
Consequently, there is no assurance that the Company's HPV test will be able to
attain market acceptance as a screening test on a timely basis, or at all. See
"Risk Factors -- Competition" and "-- Government Regulation."

The Company believes the primary competitive factors in the market for
DNA-probe diagnostics are clinical performance and reliability, ease of use,
cost, proprietary position, regulatory approvals and availability of
reimbursement.

GOVERNMENT REGULATION

The medical devices to be marketed and manufactured by the Company are
subject to extensive regulation by the FDA, and, in some instances, by foreign
governments. Pursuant to the FDC Act, the FDA regulates the clinical testing,
manufacture, labeling, distribution and promotion of medical devices.
Noncompliance with applicable requirements can result in, among other things,
fines, injunctions, civil penalties, recalls or seizures of products, total or
partial suspension of production, failure of the government to grant premarket
clearance or premarket approval for devices, withdrawal of marketing approvals
and criminal prosecution. The FDA also has the authority to request repair,
replacement or refund of the cost of any device manufactured or distributed by
the Company.

In the United States, medical devices and diagnostics are classified into
one of three classes (class I, II or III), on the basis of the controls deemed
necessary by the FDA to reasonably assure their safety and effectiveness. Under
FDA regulations, class I devices are subject to general controls (for example,
labeling, premarket notification and adherence to GMPs), and class II devices
are subject to general and special controls (for example, performance standards,
postmarket surveillance, patient registries and FDA guidelines). Generally,
class III devices are those which must receive a PMA by the FDA to ensure their
safety and effectiveness (for example, life-sustaining, life-supporting and
implantable devices, or new devices which have not been found substantially
equivalent to legally marketed devices).

Before a new device can be introduced into the market, the manufacturer
generally must obtain marketing clearance through the filing of either a 510(k)
notification or a PMA application. A 510(k) clearance will be granted if the
submitted information establishes that the proposed device is "substantially
equivalent" to a legally marketed class I or II medical device or to a class III
medical device for which the FDA has not called for a PMA. It generally takes
from four to twelve months from submission to obtain a 510(k) clearance, but it
may take longer. The FDA may determine that a proposed device is not
substantially equivalent to a legally marketed device or that additional
information or data is needed before a substantial equivalence determination can
be made, either of which could delay market introduction of a new product. A
request for additional data may require that clinical studies of the device's
safety and efficacy be performed. Additionally, modifications or enhancements
that could significantly affect the safety or efficacy of

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<PAGE> 36

the device or that constitute a major change to the intended use of the device
will require new 510(k) submissions.

A PMA application must be filed if a proposed device is not substantially
equivalent to a legally marketed class I or class II device or if it is a class
III device for which the FDA has called for a PMA. A PMA application must be
supported by valid scientific evidence, including preclinical and clinical trial
data, to demonstrate the safety and effectiveness of the device. The PMA
application must also contain the results of all relevant bench tests,
laboratory and animal studies, a complete description of the device and its
components, a detailed description of the methods, facilities and controls used
to manufacture the device in addition to device labeling and advertising
literature.

If a PMA application is accepted for filing, the FDA begins an in-depth
review of the submission. FDA review of a PMA application generally takes one to
two years from the date the PMA application is accepted for filing, but may take
significantly longer. The PMA review process includes an inspection of the
manufacturer's facilities to ensure that the facilities are in compliance with
the applicable GMP requirements. In addition, an advisory committee made up of
clinicians and/or other appropriate experts is typically convened to evaluate
the application and make recommendations to the FDA as to whether the device
should be approved. The PMA process can be expensive, uncertain and lengthy, and
a number of devices for which FDA approval has been sought by other companies
have never been approved for marketing.

Modifications to a device that is the subject of an approved PMA, its
labeling or manufacturing process may require approval by the FDA of PMA
supplements or new PMAs. Supplements to a PMA often require the submission of
the same type of information required for an initial PMA to support the proposed
change.

Although clinical investigations of most devices are subject to the
investigational device exemption ("IDE") requirements, clinical investigations
of in vitro diagnostic ("IVDs") tests are exempt from the IDE requirements,
including FDA approval of investigations, provided the testing meets certain
exemption criteria. IVD manufacturers must also establish distribution controls
to assure that IVDs distributed for the purpose of conducting clinical
investigations are used only for that purpose. Pursuant to current FDA policy,
manufacturers of IVDs labeled for investigational use only ("IUO") or RUO are
encouraged by the FDA to establish a certification program under which
investigational IVDs are distributed to or utilized only by individuals,
laboratories, or health care facilities that have provided the manufacturer with
a written certification of compliance indicating that the IUO or RUO product
will be restricted in use and will, among other things, meet institutional
review board and informed consent requirements.

Export of products subject to the 510(k) notification requirements, but not
yet cleared to market, are permitted with FDA authorization provided certain
requirements are met. Unapproved products subject to the PMA requirements must
be approved by the FDA for export. To obtain FDA export approval certain
requirements must be met and information must be provided to the FDA, including,
with some exceptions, documentation demonstrating that the product is approved
for import into the country to which it is to be exported and, in some
instances, safety data for the devices. There can be no assurance that the FDA
will grant export approval when such approval is necessary or that countries to
which the devices are to be exported will approve the devices for import.
Failure on the part of the Company to obtain export approvals when required,
could significantly delay and impair the Company's ability to export its devices
and could have a material adverse effect on the Company.

In April 1995 the Company obtained a PMA for its HPV test to detect the
presence of HPV in women with equivocal Pap smears. The Company intends to
submit a PMA supplement to obtain market approval for use of its HPV test as a
primary cervical cancer screening test either in conjunction with or separate
from Pap smear testing. The Company anticipates that a substantial amount of
clinical data will be required to support the PMA supplement. There can be no
assurance that the data the Company submits will be adequate to support the use
of the HPV test as a primary cervical cancer screening test. Moreover, there can
be no assurance that the FDA will grant approval of a PMA supplement for use of
the HPV test as a primary cervical cancer screening test in a timely manner, if
at all, or that the FDA will not require the submission of additional
information, data or a PMA application. Failure to obtain FDA approval for the
HPV test as a

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primary cervical cancer screening test could have a material adverse effect on
the Company's business, financial condition and results of operations.

The Company intends to export its HPV test for use in primary cervical
cancer screening prior to obtaining FDA approval for this use in the United
States. Such exports may require regulatory approvals from various countries,
will require FDA approval and will necessitate the submission of certain
information and data to the FDA. There can be no assurance that the FDA will
grant approval of such exports, and failure on the part of the Company to obtain
such approvals could have a material adverse effect on the Company's business,
financial condition and results of operations.

The Company intends to submit a 510(k) notification for its Hybrid Capture
CMV DNA test by the end of 1996. The Company is currently collecting clinical
data on the test's safety and effectiveness to submit to the FDA in connection
with a 510(k) notification. Based on discussions to date with the FDA, the
Company believes that its CMV test can be cleared to market through the 510(k)
notification process; however, the Company understands that the FDA will likely
subject the submission to a "Tier 3" level of review, which includes close
scrutiny of the clinical data and product performance. The FDA will require
substantial clinical data in support of the submission and may seek an advisory
committee review and recommendation concerning the safety and effectiveness of
the test. There can be no assurance that, once a 510(k) notification is
submitted for the CMV test, the FDA will grant clearance in a timely manner, if
at all, or will not require the submission of additional clinical data or a PMA
application.

The Company has developed viral and bacterial tests that it distributes in
the United States on a RUO basis. Failure of the Company or recipients of the
Company's RUO devices to comply with the regulatory limitations on the
distribution and use of RUO devices could result in enforcement action by the
FDA that would adversely affect the Company's ability to distribute the tests
prior to obtaining FDA clearance or approval for them.

Any products manufactured or distributed by the Company pursuant to FDA
clearances or approvals are subject to pervasive and continuing regulation by
the FDA, including recordkeeping requirements and reporting of adverse
experiences with the use of the device. Device manufacturers are required to
register their establishments and list their devices with the FDA and are
subject to periodic inspections by the FDA and certain state agencies. The FDC
Act requires devices to be manufactured in accordance with GMP regulations,
which impose certain procedural and documentation requirements upon the Company
with respect to manufacturing and quality assurance activities.

The FDA actively enforces regulations prohibiting the promotion of devices
for unapproved uses and the promotion of devices for which premarket clearance
or approval has not been obtained. Failure to comply with these requirements can
result in regulatory enforcement action by the FDA and possible limitations on
the promotion of the Company's products.

The Company and its products are subject to a variety of state laws and
regulations in those states and localities where its products are or will be
marketed. Any applicable state or local regulations may hinder the Company's
ability to market its products in those states or localities. Manufacturers are
also subject to numerous federal, state and local laws relating to such matters
as safe working conditions, manufacturing practices, environmental protection,
fire hazard control and disposal of hazardous or potentially hazardous
substances. There can be no assurance that the Company will not be required to
incur significant costs to comply with such laws and regulations now or in the
future or that such laws or regulations will not have a material adverse effect
upon the Company.

The introduction of the Company's developmental stage test products in
foreign markets will also subject the Company to foreign regulatory clearances,
which may impose additional substantial costs and burdens. International sales
of medical devices are subject to the regulatory requirements of each country.
The regulatory review process varies from country to country and many countries
also impose product standards, packaging requirements, labeling requirements and
import restrictions on devices. In addition, each country has its own tariff
regulations, duties and tax requirements.

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The approval by the FDA and foreign government authorities is unpredictable
and uncertain, and no assurance can be given that the necessary approvals or
clearances will be granted on a timely basis or at all. Delays in receipt of, or
a failure to receive, such approvals or clearances could have a material adverse
effect on the business, financial condition and results of operations of the
Company.

Changes in existing requirements or adoption of new requirements or
policies could adversely affect the ability of the Company to comply with
regulatory requirements. Failure to comply with regulatory requirements could
have a material adverse effect on the Company's business, financial condition
and results of operations. There can be no assurance that the Company will not
be required to incur significant costs to comply with laws and regulations in
the future or that laws or regulations will not have a material adverse effect
upon the Company's business, financial condition and results of operations.

The FDC Act requires devices to be manufactured in accordance with GMPs
which impose certain procedural and documentation requirements upon the Company
with respect to manufacturing and quality assurance activities. Noncompliance
with GMPs can result in, among other things, fines, injunctions, civil
penalties, recalls or seizures of products, total or partial suspension of
production, failure of the government to grant premarket clearance or premarket
approval for devices, withdrawal of marketing approvals, and criminal
prosecutions. The FDA also has proposed changes to the GMPs regulations which,
if finalized, would likely increase the cost of compliance with the
requirements. Any failure by the Company to comply with GMP requirements could
have a material adverse effect on the Company's business, financial condition
and results of operations.

LICENSES, PATENTS AND PROPRIETARY INFORMATION

The Company holds four issued U.S. patents relating to HPV types 35, 43, 44
and 56. These patents expire in 2007. The Company has also filed corresponding
foreign patent applications in certain countries. The patents relating to HPV
types 35, 43 and 56 have been licensed to Institut Pasteur (see Cross License
discussion below). In addition, the Company is the exclusive, worldwide licensee
of (i) a U.S. patent application and certain corresponding foreign patents and
patent applications relating to HPV type 52 and a U.S. patent and certain
corresponding foreign patents relating to the use of the L1 gene sequence to
detect specific HPV types (see Georgetown License discussion below) as well as
(ii) certain trade secrets relating to HPV type 58 (see Kanebo License
discussion below).

Through a cross license with Institut Pasteur (the "Cross License"), the
Company has obtained a worldwide license to U.S. patents and patent applications
and corresponding foreign patent applications relating to HPV types 39 and 42
and foreign patents and applications relating to HPV type 33. In return, the
Company has granted to Institut Pasteur a worldwide license to its three U.S.
patents and corresponding foreign patents and applications relating to HPV types
35, 43 and 56. The Company has granted Institut Pasteur the right to extend the
scope of the Cross License to include the U.S. patent and corresponding patent
applications relating to HPV type 44 at such time as Institut Pasteur shall have
discovered and developed an additional HPV type which is equivalent in value to
HPV type 44. In return for such an extension, the Company will receive a license
to the new HPV type discovered and developed by Institut Pasteur. The Cross
License is co-exclusive, except that Institut Pasteur has sublicensed its rights
to Beckman Instruments, Diagnostic Pasteur, and their affiliates, and the
Company has sublicensed its rights on a non-exclusive basis to Toray Fuji
Bionics, and its affiliates, for use outside North America and certain countries
in Western Europe. Beckman Instruments currently manufactures products
incorporating HPV types 33 and 35, which it sells to

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<PAGE> 39

Oncor, Inc., for use in Oncor, Inc.'s HPV test. See "Business -- Competition."
There can be no assurance that a sublicensee will not use its rights under the
Cross License to develop additional products or services that compete with the
Company's products. The Company believes that the Cross License terminates on
the last to expire of the underlying patent rights. Any prior termination of the
Cross License could have a material adverse effect on the Company's business,
financial condition and results of operations.

Through a license with Georgetown University (the "Georgetown License"),
the Company has obtained exclusive, worldwide rights to a U.S. patent
application and corresponding foreign patents and patent applications relating
to HPV type 52 and to a U.S. patent and corresponding foreign patents relating
to the use of the L1 gene sequence to detect specific HPV types. Unless
terminated earlier, the Georgetown License will terminate upon the last to
expire of the licensed patent rights. All of the issued foreign patents relating
to HPV type 52 and the L1 related patent will expire in 2008. The Company is
obligated to make certain royalty payments to Georgetown University based on the
percentage of net sales of products incorporating the licensed technologies.

Through a license with Kanebo, Ltd. (the "Kanebo License"), the Company has
obtained exclusive, worldwide rights (except for Japan where Kanebo, Ltd.
retained the right to grant a non-exclusive sublicense to Toray Industries,
Inc.) to a foreign patent application relating to HPV type 58. Unless terminated
earlier, the Kanebo License expires on the later to occur of January 1, 2010 or
the expiration of any patent relating to HPV type 58. The Company is obligated
to make certain royalty payments to Kanebo, Ltd. based on a percentage of net
sales of products incorporating or using HPV type 58. The Company will be
required to obtain FDA approval in order to utilize HPV type 58 as part of its
HPV test, and there can be no assurance that the Company will be successful in
obtaining the required FDA approval. See "Risk Factors -- Government Regulation"
and "Business -- Government Regulation."

The Company has filed a U.S. patent application relating to certain aspects
of its Hybrid Capture technology. The Company has also filed U.S. patent
applications in the areas of direct DNA probe labeling, signal amplification and
biotin-avidin probe chemistry and its continuous amplification reaction ("CAR")
amplification method. The inventions claimed by these applications may be used
in the Company's DNA probes and any patents that issue from such applications
may provide some ancillary protection for certain aspects of the Company's
products. Under current law, patent applications in the United States are
maintained in secrecy until patents are issued and patent applications in
foreign countries are maintained in secrecy for a period of time after filing.
There can be no assurance that a U.S. patent or any foreign patents relating to
the Company's Hybrid Capture technology will be issued to the Company on a
timely basis, or at all.

The Company has received inquiries regarding possible patent infringements
relating to, among other things, certain aspects of its Hybrid Capture
technology. The Company believes that the patents of others to which these
inquiries relate are either not infringed by the Company's Hybrid Capture
technology or are invalid. However, there can be no assurance that the Company
will not be subject to further claims that its technology, including its Hybrid
Capture technology, or its products infringe the patents or proprietary rights
of third parties. The defense of any such claims, if made, could be time
consuming and expensive, even if the outcome is favorable. An adverse outcome
could subject the Company to significant liabilities to third parties, require
the Company to obtain licenses from third parties, or require the Company to
cease sales of related products. No assurance can be given that any licenses
required under any such third party patents or proprietary rights would be made
available or commercially reasonable terms, if at all.

No assurance can be given that the U.S. Patent and Trademark Office or any
foreign patent office will grant patent protection for the subject matter of any
pending patent applications, or that present or future patents will provide
commercially significant protection to the Company's present or future
technologies, products, or processes. Furthermore, no assurance can be given
that others will not independently develop substantially equivalent proprietary
information not covered by patents to which the Company owns rights or obtain
access to the Company's know-how or that others will not be issued patents that
may prevent the sale of one or more of the Company's products, or require
licensing and the payment of significant fees or royalties by the Company to
third parties in order to enable the Company to conduct its business. There can
be no

37
<PAGE> 40

assurance that such licenses would be available or, if available, would be on
terms acceptable to the Company or that the Company would be successful in any
attempt to redesign its products or processes to avoid infringement. The
Company's failure to obtain these licenses or to redesign its products or
processes would have a material adverse effect on the Company's business,
financial condition and results of operations. Legal standards relating to the
scope of claims and the validity of patents in the biotechnology field are still
evolving, and no assurance can be given as to the degree of protection any
patents issued to or licensed by the Company will not be infringed by the
products of others. Defense and prosecution of patent claims can be expensive
and time consuming, regardless of whether the outcome is favorable to the
Company, and can result in the diversion of substantial resources from the
Company's other activities. An adverse outcome could subject the Company to
significant liabilities to third parties, require the Company to obtain licenses
from third parties, or require the Company to cease any related research and
development activities or product sales. In addition, the laws of certain
countries may not protect the Company's intellectual property.

The Company's success is also dependent upon the skill, knowledge, and
experience of its scientific and technical personnel. To help protect its
rights, the Company requires all employees, consultants, advisors, and
collaborators to enter into confidentiality agreements that prohibit the
disclosure of confidential information to anyone outside the Company and require
disclosure and, in most cases, assignment to the Company of their ideas,
developments, discoveries, and inventions. There can be no assurance, however,
that these agreements will provide adequate protection for the Company's trade
secrets, know-how, or other proprietary information in the event of any
unauthorized use or disclosure. See "Risk Factors -- Uncertainty Regarding
Patents and Proprietary Rights."

Substantially all of the Company's assets, including its patents and
proprietary rights, are pledged to secure the LTI Note, which is expected to be
repaid with a portion of the proceeds of this Offering. See "Use of Proceeds"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

THIRD-PARTY REIMBURSEMENT

Hospitals, physicians and other health care providers rely on third-party
payors, such as government entities, managed care organizations and private
insurance plans, to reimburse the costs and fees associated with the use of
diagnostic tests, such as the Company's HPV test for the follow-up screening of
women with equivocal Pap smears. Successful sales of the Company's HPV test for
the follow-up screening of women with equivocal Pap smears in the United States
and other markets will depend, in part, on the availability of adequate
reimbursement from third-party payors such as government entities, managed care
organizations and private insurance plans. There is significant uncertainty
concerning third-party reimbursement for the use of any medical test
incorporating new technology. Reimbursement by a third-party payor may depend on
a number of factors, including the payor's determination that the use of the
Company's HPV test for the follow-up screening of women with equivocal Pap
smears is clinically useful and cost-effective, not experimental or
investigational, medically necessary and appropriate for the specific patient.
Since reimbursement approval is required from each payor individually, seeking
such approvals is a time consuming and costly process which requires the Company
to provide scientific and clinical support for the use of the Company's HPV test
for its approved indications to each payor separately. There can be no assurance
that third-party reimbursement will be consistently available for the Company's
HPV test for its approved indications or any of the Company's other products
that may be developed or that such third-party reimbursement will be adequate.
Federal and state governmental agencies are increasingly considering limiting
health care expenditures. For example, the United States Congress is currently
considering various proposals to significantly reduce Medicaid and Medicare
expenditures. Such proposals, if enacted, could have a material adverse effect
on the Company's business, financial condition and results of operations.

Outside the United States, the Company relies on a network of distributors
to establish reimbursement from third-party payors in their respective
territories. The Company's distributors have established reimbursement for the
HPV test in Germany and Brazil. Accordingly, the establishment of reimbursement
from third-party payors in such countries is outside the Company's control.
Health care reimbursement systems vary

38
<PAGE> 41

from country to country and, accordingly, there can be no assurance that
third-party reimbursement will be made available for the Company's products
under any other reimbursement system.

Third-party payors are increasingly limiting reimbursement coverage for
medical diagnostic products and in many instances are exerting significant
pressure on medical suppliers to lower their prices. Lack of or inadequate
reimbursement by governmental and other third-party payors for the Company's
products could have a material adverse effect on the Company's business,
financial condition and results of operations.

MANUFACTURING

Manufacturing of the Company's products involves the combination of more
than 200 biological reagents, inorganic and organic reagents and kit components
(such as vials and packaging material) into finished test kits. Biological
reagents include RNA probes, antibodies and detection reagents. These reagents
are manufactured in the Company's manufacturing facility in Beltsville,
Maryland. Kit components, inorganic and organic reagents and other reagents and
materials that are classified as low-complexity components are generally
purchased from outside vendors and processed into finished reagents and test
products. The Company believes it has sufficient manufacturing capacity to
expand production for the foreseeable future. The Company has established a
quality control program, including a set of standard manufacturing and
documentation procedures intended to ensure that, where required, the Company's
products are manufactured in accordance with GMP. See "Risk Factors -- Limited
Manufacturing Experience," "-- Government Regulation" and "-- Dependence on
Single Source Suppliers."

PRODUCT LIABILITY

The Company's business is subject to product liability risks inherent in
the testing, manufacturing and marketing of the Company's HPV test for its
approved indications and other products developed by the Company. There can be
no assurance that product liability claims will not be asserted against the
Company, its collaborators or licensees. The Company currently maintains product
liability insurance coverage of $1,000,000 per occurrence, and $3,000,000 in the
aggregate. There can be no assurance, however, that this coverage will be
adequate to protect the Company against future product liability claims or that
product liability insurance will be available to the Company in the future on
commercially reasonable terms, if at all. Furthermore, there can be no assurance
that the Company will be able to avoid significant product liability claims and
the attendant adverse publicity. Consequently, a product liability claim or
other claim with respect to uninsured or underinsured liabilities could have a
material adverse effect on the Company's business, financial condition and
results of operations.

LEGAL PROCEEDINGS

The Company is not a party to any material legal proceedings and is not
aware of any threatened litigation that could have a material adverse effect on
the Company's business, financial condition and results of operations.

EMPLOYEES

At February 29, 1996, the Company employed 81 persons, including 30 in
research and development, 28 in manufacturing, including quality assurance, 13
in sales and marketing and 10 in accounting, finance, administration and
clinical studies. The Company is not subject to any collective bargaining
agreements and believes that its relationship with its employees is good.

FACILITIES

The Company's executive office and research and development facility is
located in Silver Spring, Maryland. The lease on this 9,286-square-foot facility
will terminate on December 31, 1998, subject to renewal at the Company's option.
In addition, the Company has a 19,780-square-foot manufacturing facility in
Beltsville, Maryland. The lease on this facility expires on July 31, 1998, and
can be renewed by the Company for an additional five-year period.

39
<PAGE> 42

MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND SENIOR MANAGEMENT

The following table sets forth certain information with respect to each of
the directors and executive officers, and a member of senior management, of the
Company.

<TABLE>
<CAPTION>
NAME AGE POSITIONS WITH THE COMPANY
- ------------------------------ ---- --------------------------------------------------------
<S> <C> <C>
Evan Jones (1)................ 39 President, Chief Executive Officer and Chairman of the
Board of Directors
Charles M. Fleischman (1)..... 38 Executive Vice President, Chief Operating Officer, Chief
Financial Officer and Director
Attila D. Lorincz, Ph.D.(1)... 41 Vice President, Research and Development, and Scientific
Director
Deborah J. Oronzio (1)........ 44 Vice President, Marketing
Joseph P. Slattery (1)........ 31 Controller
Jeanmarie P. Curley........... 35 Director of Manufacturing
John J. Whitehead (2)......... 50 Director
Joseph M. Migliara (2)........ 51 Director
</TABLE>

- ---------------
(1) Executive Officer
(2) Member of Audit and Compensation Committees

Mr. Jones has served as President and Chief Executive Officer since Armonk
Partners acquired a controlling interest in the Company in July 1990, and has
served as Chairman of the Board of Directors since September 1995. From 1988 to
September 1990, Mr. Jones served as President and a director of Neomorphics,
Inc., a company specializing in transplantation technologies. Between 1987 and
1990, he was first an associate and then a partner with the CW Group, a health
care venture capital firm. From 1983 to 1987, Mr. Jones was employed by
Perkin-Elmer Corporation, a biotechnology supply company, ultimately serving as
Worldwide Biotechnology Marketing Manager. From 1977 to 1981, Mr. Jones was
employed by Technicon Corporation and National Health Laboratories, where he was
involved in clinical chemistry and hematology testing. He received a B.A. in
Biochemistry from the University of Colorado and an M.B.A. from The Wharton
School at the University of Pennsylvania. Mr. Jones is a step-brother of Mr.
Whitehead.

Mr. Fleischman has served as Executive Vice President and a director since
July 1990, Chief Operating Officer since September 1995 and Chief Financial
Officer since March 1996. Mr. Fleischman was named to the position of Executive
Vice President after Armonk Partners acquired a controlling interest in the
Company in July 1990. From March 1987 to August 1990, Mr. Fleischman served as
an Associate Director at Furman Selz Incorporated, an investment banking firm.
Beginning in 1987, he was employed by Swergold Chefitz Incorporated, which
became the health care division of Furman Selz in 1989. Prior thereto, he
co-founded Intercapital Brokers, Ltd., London, England, an interest rate and
cross-currency brokerage firm, and Kidder Reports, Inc., an interest rate risk
management arbitrage consulting firm. Mr. Fleischman received an A.B. in History
from Harvard University and an M.B.A. from The Wharton School at the University
of Pennsylvania.

Dr. Lorincz has served as Vice President, Research and Development, and
Scientific Director since the LTI Acquisition in December 1990. Prior to joining
the Company, he was Scientific Director, Corporate Research, at LTI from 1984 to
1990. Dr. Lorincz received his Ph.D. in Genetics from Trinity College, Dublin,
Ireland. His research career includes postdoctoral fellowships at the University
of California. He also serves on a number of advisory committees and is an
Adjunct Associate Professor in the Georgetown University Medical School
Department of Pathology.

Ms. Oronzio has served as Vice President, Marketing since March 1996 and
from August 1991 to March 1996 served as Director of Sales and Marketing. From
1987 until joining the Company, she was International Product Manager, AIDS and
Hepatitis Systems, at Pharmacia Diagnostics, Inc., a biomedical products
company. From 1980 to 1987, she held both product management and technical
positions at Becton Dickinson & Company, a biomedical products company. Ms.
Oronzio is a registered medical technologist and

40
<PAGE> 43

has received a B.S. in Medical Technology from Neumann College and an M.A.S. in
Management from The Johns Hopkins University.

Mr. Slattery has served as Controller since February 1996. From March 1995
to February 1996, Mr. Slattery was Director, Business Management, for I-NET,
Inc., a computer services company. From April 1994 to March 1995, he was the
Managing Principal of Payne, Slattery and Company, a management consulting firm.
From October 1992 to April 1994, Mr. Slattery was Treasurer and Vice President,
Finance and Accounting, for Telos Corporation, a computer hardware and services
company. From August 1992 to October 1992, Mr. Slattery was self employed as a
management consultant. From March 1992 to August 1992, Mr. Slattery was a
consultant with Argus Management, a management consulting firm. From October
1989 to February 1992, he was employed in various capacities by KPMG Peat
Marwick, and from May 1987 to September 1989 he served in various capacities at
Ernst & Young LLP. Mr. Slattery received a B.S. in Accounting from Bentley
College and is a certified public accountant.

Ms. Curley has served as Director of Manufacturing since the LTI
Acquisition in December 1990. Prior to joining the Company, she had been
Production Manager at LTI since 1987. Prior thereto, Ms. Curley was a Research
Assistant at Rockefeller University and a Development Chemist in the Clinical
Diagnostics Division of E.I. du Pont de Nemours. Ms. Curley received a B.S. in
Chemistry from Dickinson College.

Mr. Whitehead has served as a director of the Company since February 1992.
Since 1993, Mr. Whitehead has been a partner of Whitehead Partners, a private
investment company. From 1986 to 1993, Mr. Whitehead was the Chief Executive
Officer of TDS Healthcare Systems Corporation, a hospital information systems
company. Prior to that, he held numerous positions at Technicon Corporation,
including President of its Diagnostic Systems Division and Senior Vice President
of Research and Development. Mr. Whitehead received a B.S. in Biology and
Chemistry from Williams College and did graduate work in biochemistry at Case
Western Reserve University School of Medicine. He is a director emeritus of
i-STAT Corporation, a medical device company, and a director of the Whitehead
Institute for Biomedical Research at the Massachusetts Institute of Technology.
Mr. Whitehead is a step-brother of Mr. Jones.

Mr. Migliara has served as a director of the Company since October 1992.
Since 1980, he has been President of Migliara/Kaplan Associates
("Migliara/Kaplan"), a marketing research firm that conducts primary research in
the biomedical, diagnostics and pharmaceutical markets. Before founding
Migliara/Kaplan in 1980, he was a marketing executive with Becton Dickinson &
Company, a biomedical products company. Mr. Migliara received a B.S. in
Economics from The Wharton School at the University of Pennsylvania and an
M.B.A. from Fairleigh Dickinson University. He is a past president of the
Biomedical Marketing Association.

BOARD OF DIRECTORS

In accordance with the terms of the Company's Certificate of Incorporation
to be effective upon the completion of this Offering, the Board of Directors of
the Company (the "Board") will be divided into three classes, denominated Class
I, Class II and Class III, with members of each Class holding office for
staggered three-year terms. Mr. Whitehead is a Class I director whose term
expires at the 1997 annual meeting of stockholders, Messrs. Fleischman and
Migliara are Class II directors whose terms expire at the 1998 annual meeting of
stockholders, and Mr. Jones is a Class III director whose term expires at the
1999 annual meeting of stockholders (in all cases subject to the election and
qualification of their successors or to their earlier death, resignation or
removal). At each annual stockholder meeting commencing with the 1997 annual
meeting, the successors to the directors whose terms expire are elected to serve
from the time of their election and qualification until the third annual meeting
of stockholders following their election or until a successor has been duly
elected and qualified.

The Audit Committee of the Board was established in March 1996 and reviews,
acts on and reports to the Board with respect to various auditing and accounting
matters, including the selection of the Company's auditors, the scope of the
annual audits, fees to be paid to the auditors, the performance of the Company's
independent auditors and the accounting practices of the Company.

41
<PAGE> 44

The Compensation Committee of the Board was established in March 1996 and
determines the salaries and incentive compensation of the officers of the
Company and provides recommendations for the salaries and incentive compensation
of the other employees and the consultants of the Company. The Compensation
Committee also administers various incentive compensation, stock and benefit
plans.

Mr. Migliara has been appointed to serve on the Board of the Company
pursuant to an agreement with the Company. Following this Offering, Mr. Migliara
will continue to serve on the Board under the agreement. The Company has entered
into an agreement with Armonk Partners and Murex concerning the composition of
the Board. Messrs. Jones, Fleischman and Whitehead are expected to serve on the
Board as the nominees of Armonk Partners under the agreement. Murex has not
designated a nominee under the agreement. See "Certain Transactions."

As soon as possible after the date of this Prospectus, the Company intends
to appoint two independent members to the Board. The Company anticipates that
such independent directors will serve on the Audit Committee and the
Compensation Committee.

DIRECTOR COMPENSATION

Directors do not currently and in the foreseeable future will not receive a
fee for attending Board or committee meetings, but are reimbursed for expenses
incurred in connection with performing their respective duties as directors of
the Company. Additionally, non-employee directors are entitled to be granted
options under the Digene Corporation Omnibus Plan as compensation for serving on
the Board. See "-- Stock Option Plans."

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Company's Compensation Committee consists of Messrs. Whitehead and
Migliara. The Compensation Committee determines the salaries and incentive
compensation of the officers of the Company and provides recommendations for the
salaries and incentive compensation of the other employees and consultants of
the Company. Neither Messrs. Whitehead nor Migliara was an officer or employee
of the Company during fiscal 1995 or any prior year. Mr. Migliara is President
of Migliara/Kaplan, a consultant of the Company, and was appointed to serve on
the Board pursuant to an agreement between Migliara/Kaplan and the Company.
Prior to March 1996, the Board was responsible for issues concerning
compensation. See "Certain Transactions" for a further discussion of the
relationship between the Company and Migliara/Kaplan.

EXECUTIVE COMPENSATION

The following table sets forth information with respect to all compensation
awarded to, earned by or paid for services rendered to the Company by (i) the
Company's Chief Executive Officer and (ii) all of the other executive officers
of the Company who received compensation in excess of $100,000 in the fiscal
year ended June 30, 1995 (collectively, the "Named Executive Officers").

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
----------------
FISCAL
NAME AND PRINCIPAL POSITION YEAR SALARY
------------------------------------------------------------------- ---- --------
<S> <C> <C>
Evan Jones
President and Chief Executive Officer............................ 1995 $148,750
Charles M. Fleischman
Executive Vice President, Chief Operating Officer and
Chief Financial Officer.......................................... 1995 148,750
Attila D. Lorincz, Ph.D.
Vice President, Research and Development, and Scientific
Director......................................................... 1995 136,250
</TABLE>

42
<PAGE> 45

STOCK OPTION INFORMATION

No options were granted to, or exercised by, the Named Executive Officers
in fiscal 1995. The following table sets forth, for each of the Named Executive
Officers, certain information concerning the value of unexercised options at
June 30, 1995.

FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL YEAR END IN-THE-MONEY OPTIONS(1)
------------------------------- -------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Evan Jones..................... 288,331 125,954 $ 3,163,991 $ 1,310,911
Charles M. Fleischman.......... 288,331 125,954 3,163,991 1,310,911
Attila D. Lorincz, Ph.D........ 103,569 75,001 1,106,697 749,360
</TABLE>

--------------------
(1) There was no public trading market for the Common Stock at June 30,
1995. Accordingly, these values have been calculated on the basis of
the initial offering price, less the applicable exercise price,
multiplied by the number of shares underlying such options.

STOCK OPTION PLANS

In March 1996, the Company adopted the Digene Corporation Omnibus Plan (the
"Omnibus Plan"). Pursuant to the Omnibus Plan, officers and other employees of
the Company may receive (i) options to purchase Common Stock, including
incentive stock options intended to qualify under Section 422 of the Internal
Revenue Code of 1986, as amended, and non-qualified stock options that do not so
qualify, (ii) restricted stock, (iii) unrestricted stock or (iv) stock
appreciation rights. The Omnibus Plan is administered by the Compensation
Committee, which has the discretion to determine the number and purchase price
of shares subject to each award, and other applicable terms and conditions,
including a grant's vesting schedule. The term of an option may not be more than
ten years from the grant date, or five years from the grant date in the case of
an incentive stock option granted to a 10% stockholder. Options granted under
the Omnibus Plan generally terminate three months after an optionee ceases to be
employed by the Company (twelve months in the case of death or disability),
unless otherwise provided in the related option agreement or extended by the
Compensation Committee. A total of 1,700,000 shares have been reserved for
issuance under the Omnibus Plan. On March 27, 1996, the Compensation Committee
granted incentive stock options to purchase an aggregate of 248,627 shares of
Common Stock and non-qualified stock options to purchase 103,858 shares of
Common Stock to various employees under the Omnibus Plan, in each case at an
exercise price of $9.35 per share. Additionally, on March 27, 1996, Messrs.
Jones and Fleischman were each granted non-qualified options to purchase 269,514
shares of Common Stock at an exercise price of $9.35 per share and incentive
stock options to purchase 16,200 shares of Common Stock at an exercise price of
$10.285 per share under the Omnibus Plan. Options granted in March 1996 are
scheduled to vest as to 60%, 20% and 20% of the underlying shares in February
1999, 2000 and 2001, respectively. Such options will expire ten years from the
grant date, except for options granted to Messrs. Jones and Fleishman, which
will expire five years from the grant date. An additional 776,087 shares were
available for issuance under the Omnibus Plan at March 31, 1996.

The Omnibus Plan also provides that each year, immediately following the
Company's annual meeting of stockholders, each non-employee director who will
continue to serve as a director after the meeting will automatically be granted
options to purchase 5,000 shares of Common Stock. The exercise price for such
options will be equal to the fair market value of a share of Common Stock on the
grant date. All of such options will be immediately exercisable and will expire
ten years from the grant date.

Under prior stock option plans, the Company was authorized to grant both
incentive stock options and non-qualified stock options to key employees,
directors or consultants of the Company. At March 31, 1996, the Company had
outstanding under such plans and other prior grants, options to purchase an
aggregate of 1,775,297 shares. The Board has determined not to grant additional
options under any such plans.

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<PAGE> 46

EMPLOYMENT CONTRACTS

The Company has entered into employment agreements with each of Messrs.
Jones and Fleischman, which have substantially identical provisions (each
individual an "Executive" and collectively, "Executives"). Pursuant to the
agreements, Messrs. Jones and Fleischman are each entitled to receive minimum
base salaries of $171,500 per year, plus annual bonuses equal to 25% of base
salary. The agreements require the Executives to devote their full time,
attention and energies to the Company's business. The agreements contain
restrictive covenants pursuant to which the Executives have agreed not to
compete with the Company for a period of one year following termination of
employment. The agreements also prohibit disclosure of the Company's trade
secrets. There can be no assurance that any of these provisions, if violated,
would be enforceable by the Company. The agreements provide that, if an
Executive is terminated without "justifiable cause" (as defined), then such
Executive will be entitled to receive (i) the amount of the base salary for a
period of twelve months following termination as otherwise would be due if such
Executive was employed by the Company, which shall be immediately due and
payable upon termination; (ii) bonus accrued to the date of termination and
(iii) all other benefits accrued on or prior to the expiration date of the
agreement. In addition, any outstanding stock, incentive stock options or
equivalents will be accelerated and vested immediately upon termination. Messrs.
Jones' and Fleischman's employment agreements will expire on December 31, 1999.

The Company has entered into a similar employment agreement with Dr.
Lorincz, pursuant to which Dr. Lorincz is entitled to receive a minimum base
salary of $115,000 per year. The agreement provides that, if Dr. Lorincz is
terminated without "justifiable cause" (as defined), then he will be entitled to
receive (i) the amount of the base salary remaining due and payable from the
date of termination for a period of twelve months, payable as it otherwise would
be due if he were employed by the Company, such payments to cease if he accepts
employment at another company or ceases to work cooperatively with the Company;
and (ii) all of the compensation accruing on or prior to the expiration date of
the agreement. In addition, any outstanding stock, incentive stock options or
equivalents that would have vested in the ordinary course of events until
termination, plus an additional three months after the date of termination, will
be accelerated and vested immediately upon termination. Dr. Lorincz's employment
agreement will expire on December 31, 1996.

KEY-PERSON LIFE INSURANCE

The Company maintains and is the sole beneficiary of $1 million key-person
life insurance policies on the lives of each of Messrs. Jones and Fleischman,
and Dr. Lorincz.

LIMITATION OF LIABILITY OF OFFICERS AND DIRECTORS AND INDEMNIFICATION

The Company's Certificate of Incorporation (the "Certificate") and Bylaws
provide that, except to the extent prohibited by the Delaware General
Corporation Law, its directors shall not be personally liable to the Company or
its stockholders for monetary damages for any breach of fiduciary duty as
directors of the Company. Under Delaware law, the directors have a fiduciary
duty to the Company which is not eliminated by this provision of the Certificate
and, in appropriate circumstances, equitable remedies such as injunctive or
other forms of non-monetary relief will remain available. In addition, each
director will continue to be subject to liability under Delaware law for breach
of the directors' duty of loyalty to the Company or its stockholders, for acts
or omissions which are not in good faith or involving intentional misconduct,
for knowing violations of law, for actions leading to improper personal benefit
to the director, and for payment of dividends or approval of stock repurchases
or redemptions that are prohibited by Delaware law. This provision also does not
affect the directors' responsibilities under any other laws, such as the Federal
securities laws or state or Federal environmental laws. The Company maintains
liability insurance for its officers and directors.

The Certificate also provides that the Company shall indemnify, to the
fullest extent permitted by Section 145 of the Delaware General Corporation Law,
all of its present and former officers and directors, and any party serving or
agreeing to serve as an officer, director, or trustee of any entity at the
Company's request, in connection with any civil, criminal, administrative or
investigative proceeding threatened, pending or

44
<PAGE> 47

completed against such party by reason of their serving or agreeing to serve in
such capacity. Indemnification by the Company includes payment of expenses in
defense of the indemnified party in an action or proceeding in advance of final
disposition thereof if the indemnified party first undertakes to repay the
Company upon an ultimate determination that the indemnified party was not
entitled to indemnification by the Company according to the terms set forth in
the Certificate. The Certificate also requires Board approval as a precondition
to any indemnification by the Company for proceedings instituted by the
indemnified party. The rights to indemnification provided in the Certificate do
not preclude the exercise of any other indemnification rights by any party
pursuant to any law, agreement, or vote of the stockholders or the disinterested
directors of the Company.

Section 145 of the Delaware General Corporation Law generally allows the
Company to indemnify the parties described in the preceding paragraph for all
expenses (including attorneys' fees), judgments, fines, and amounts in
settlement actually paid and reasonably incurred in connection with any
proceedings so long as such party acted in good faith and in a manner reasonably
believed to be in or not opposed to the Company's best interests and, with
respect to any criminal proceedings, if such party had no reasonable cause to
believe his or her conduct to be unlawful. Indemnification may only be made by
the Company if the applicable standard of conduct set forth in Section 145 has
been met by the indemnified party upon a determination made (1) by the Board by
a majority vote of directors who are not parties to such proceedings, even
though less than a quorum, or (2) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, or (3)
by the stockholders.

45
<PAGE> 48

CERTAIN TRANSACTIONS

In February 1996, the Company and Murex entered into a Distribution
Agreement granting Murex the exclusive right to distribute certain of the
Company's products, including the HPV test, in most of Europe, Africa and
certain countries in the Middle East. Pursuant to the agreement, Murex has
agreed to use its best efforts to distribute and support the products, to
maintain a qualified sales force, to provide technical support for the products,
to comply with the Company's packaging and delivery requirements, and to assist
the Company in protecting its proprietary rights in the products. The Company is
required to use reasonable efforts to deliver products ordered by Murex, to
provide current promotional materials and to assist Murex in making sales
presentations. The agreement has a five-year term, subject to automatic renewal
for successive one-year terms. One year after the effective date of the
agreement, however, the Company will have the right to terminate the agreement
with respect to particular countries, subject to Murex's right to continue to
distribute products within any such country on a co-exclusive basis during a
"wind-down" period of up to two years.

In May 1994, the Company sold 333,333 shares of Redeemable Convertible
Preferred Stock to Murex for an aggregate purchase price of $999,999. Murex also
received warrants to purchase up to 297,619 shares of Common Stock at an
exercise price per share escalating from $4.20 on June 1, 1994 to $6.65 on
February 1, 1996. The sale was subject to the execution of a Stock Purchase
Agreement and a 1994 Development and License Agreement between the Company and
Murex. Under the terms of the 1994 Stock Purchase Agreement, Murex placed
$2,000,000 in escrow to purchase 666,667 additional shares of Redeemable
Convertible Preferred Stock, with net proceeds to be used, generally, for
mutually approved research and development projects under the 1994 Development
and License Agreement. During fiscal 1995 and 1996, $1,215,000 and $785,000 was
released from escrow to fund the purchase by Murex of 405,000 and 261,667
shares, respectively, of Redeemable Convertible Preferred Stock. No amounts
remain in escrow. The 1,000,000 shares of Redeemable Convertible Preferred Stock
held by Murex will be automatically converted into 714,285 shares of Common
Stock upon completion of this Offering. On April 15, 1996, Murex exercised
warrants to purchase 22,555 shares of Common Stock for an aggregate purchase
price of $150,000. The remainder of Murex's warrants expired on such date.

Under the 1994 Development and License Agreement, Murex agreed to fund the
Company's DNA probe product development efforts for particular applications on a
cost-reimbursement basis, generally through May 2004. The Company and Murex will
hold co-exclusive distribution licenses to market any products developed
pursuant to the agreement. The Company is required to supply, and Murex is
required to purchase from the Company, all of Murex's requirements for any
products developed under the agreement. To date, no products have been developed
under the 1994 Development and Licensing Agreement.

In May 1994, in conjunction with Murex's purchase of the Redeemable
Convertible Preferred Stock, the Company, Murex and Armonk Partners entered into
a shareholders agreement (the "Shareholders Agreement"). Pursuant to the
Shareholders Agreement, so long as Murex owns at least 5% of the issued and
outstanding capital stock of the Company, subject to certain exceptions, upon
the completion of an initial public offering, the Company agrees to nominate,
and Armonk agrees to exercise its vote in favor of, the minimum number of
Murex's designees necessary to give Murex a proportionate representation on the
Board equal to its proportionate ownership of capital stock. Likewise, the
Company agrees to nominate, and Murex agrees to exercise its vote in favor of,
the minimum number of Armonk's designees necessary to give Armonk a
proportionate representation on the Board equal to its proportionate ownership
of capital stock. Murex has not designated a nominee under the agreement. See
"Management -- Board of Directors." The Shareholders Agreement terminates on the
first anniversary of the effectiveness of this Offering.

In April 1993, the Company and Murex entered into a Development and License
Agreement pursuant to which Murex agreed to fund the Company's DNA probe product
development programs for certain applications through April 2003, subject to
extension. The Company and Murex hold co-exclusive distribution licenses to
market any products developed under the agreement. Murex is required to provide
certain minimum amounts of development funding for the Company over the first
five years of the agreement in order to maintain exclusive rights to fund the
development of specified projects. The Company is required to supply, and Murex
is required to purchase from the Company, all of Murex's requirements for
products developed

46
<PAGE> 49

pursuant to the agreement. To date, the Company's CMV test is the only product
that has been developed under the agreement.

In May 1992, the Company and Murex entered into a Distribution Agreement,
whereby the Company granted to Murex the exclusive right to distribute the
Company's HBV DNA assays in specified countries in the European Community and
the co-exclusive right (meaning that the Company may also distribute its
products) to distribute the Company's HBV DNA test (for the detection of the
hepatitis B virus) in Africa. The agreement was amended in May 1993 to expand
Murex's exclusive distribution right to also include certain countries in
Eastern Europe and in the Middle East.

During the fiscal years ended June 30, 1993, 1994 and 1995, product sales
to Murex were $1,075,000, $1,023,000 and $1,665,000, accounting for 23.2%, 21.5%
and 30.8% of product sales, respectively. In fiscal 1993, 1994 and 1995, Murex
paid $0, $485,000 and $606,000, respectively, to the Company under agreements
relating to research and development.

In May 1992, the Company entered into a five-year agreement with Joseph
Migliara, Harris Kaplan, Migliara/Kaplan and Valley Partners (a partnership
organized by Messrs. Migliara and Kaplan). Pursuant to the agreement, Mr.
Migliara agreed to join the Board and Migliara/Kaplan agreed to serve as a
strategic advisor to the Company. The Company agreed to grant to Migliara/Kaplan
options to purchase an aggregate of 178,571 shares of Common Stock. The
agreement also contains non-compete and confidentiality provisions.

In connection with this Offering, the Company expects to enter into a
registration rights agreement with Armonk Partners, Murex, Messrs. Jones and
Fleishman, Dr. Lorincz and certain other stockholders who will hold in the
aggregate approximately 6,210,110 shares of Common Stock upon completion of this
Offering. The agreement will become effective upon completion of this Offering.
See "Description of Capital Stock -- Registration Rights."

For information regarding employment agreements with Named Executive
Officers, see "Management -- Employment Agreements." For information regarding
compensation of directors, see "Management -- Director Compensation." For
information regarding options granted to executive officers, see
"Management -- Stock Option Plans."

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<PAGE> 50

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of the date of this Prospectus, and as adjusted
to reflect the sale of the Common Stock offered hereby by: (i) each person known
by the Company to be the beneficial owner of more than 5% of the outstanding
shares of Common Stock, (ii) each director and Named Executive Officer, and
(iii) all executive officers and directors of the Company as a group.

<TABLE>
<CAPTION>
PERCENTAGE OWNERSHIP
-------------------------------
NUMBER OF SHARES PERCENT BEFORE PERCENT AFTER
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) OFFERING OFFERING
- -------------------------------------------------- --------------------- -------------- -------------
<S> <C> <C> <C>
Armonk Partners (2)............................... 4,989,110 60.3% 44.2%
Murex Diagnostics Corporation (3)................. 736,840 8.9 6.5
Evan Jones (4).................................... 5,388,387 62.3 46.3
Charles M. Fleischman (5)......................... 5,381,800 62.3 46.2
Attila D. Lorincz, Ph.D (6)....................... 168,621 2.0 1.5
John J. Whitehead (7)............................. 17,857 * *
Joseph M. Migliara (8)............................ 178,571 2.1 1.6
All executive officers and directors as a group
(7 persons) (9)................................. 6,164,934 65.7 49.8
</TABLE>

- ---------------
* Less than one percent.

(1) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission (the "Commission"). Shares of Common
Stock subject to options or warrants currently exercisable or exercisable
within 60 days of the date of this Prospectus are deemed outstanding for
computing the percentage beneficially owned by such holder but are not
deemed outstanding for purposes of computing the percentage beneficially
owned by any other person. Except as otherwise indicated, the Company
believes that the beneficial owners of the Common Stock listed above, based
on information furnished by such owners, have sole investment and voting
power with respect to such shares, subject to community property laws where
applicable, and that there are no other affiliations among the stockholders
listed in the table.

(2) The general partners of Armonk Partners are Messrs. Jones and Fleischman.
The address for Armonk Partners is 2301-B Broadbirch Drive, Silver Spring,
Maryland 20904.

(3) The address for Murex Diagnostics Corporation is 2nd Floor, Trident House,
Bridgetown, St. Michael, Barbados. Murex Diagnostics Corporation is an
affiliate of International Murex Technologies Corporation. See "Certain
Transactions."

(4) Includes (i) 4,989,110 shares owned by Armonk Partners, as to which Mr.
Jones shares voting and investment power as a general partner, (ii) 14,682
shares owned by Mr. Jones' wife, as to which shares Mr. Jones disclaims
beneficial ownership, and (iii)367,916 shares issuable upon exercise of
stock options. The address for Mr. Jones is 2301-B Broadbirch Drive, Silver
Spring, Maryland 20904.

(5) Includes (i) 4,989,110 shares owned by Armonk Partners, as to which Mr.
Fleischman shares voting and investment power as a general partner, (ii)
16,679 shares held in trust for the benefit of Mr. Fleischman's minor
children, as to which Mr. Fleischman disclaims beneficial ownership, and
(iii) 367,916 shares issuable upon exercise of stock options. The address
for Mr. Fleischman is 2301-B Broadbirch Drive, Silver Spring, Maryland
20904.

(6) Includes (i) 16,679 shares owned jointly with Dr. Lorincz's wife, pursuant
to which Dr. Lorincz shares voting and investment power, and (ii) 151,188
shares issuable upon exercise of stock options.

(7) Represents 17,857 shares issuable upon exercise of stock options. Mr.
Whitehead is a limited partner in Armonk Partners and he does not have
voting or investment power with respect to the shares held by Armonk
Partners.

(8) Represents 178,571 shares issuable upon exercise of stock options held by
Valley Partners. See "Certain Transactions."

(9) See Notes (4) through (8).

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<PAGE> 51

DESCRIPTION OF CAPITAL STOCK

Upon the completion of this Offering, the authorized capital stock of the
Company will consist of 50,000,000 shares of Common Stock, par value $0.01 per
share, and 1,000,000 shares of undesignated Preferred Stock, par value $0.10 per
share.

The following summary of certain provisions of the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and qualified
in its entirety by, the provisions of the Company's Certificate of Incorporation
and Bylaws, both as amended and restated immediately prior to the completion of
this Offering and both of which are included as exhibits to the Registration
Statement on Form S-1 (including all schedules, exhibits and amendments thereto,
the "Registration Statement"), and by the provisions of applicable law.

COMMON STOCK

The holders of validly issued and outstanding shares of Common Stock are
entitled to one vote per share of record on all matters to be voted upon by
stockholders. At a meeting of stockholders at which a quorum is present, a
majority of the votes cast decides all questions, unless the matter is one upon
which by express provision of law a different vote is required. There is no
cumulative voting with respect to the election of directors or any other matter.

The holders of Common Stock have no preemptive rights to purchase capital
stock from the Company and have no rights to convert their Common Stock into any
other securities. All outstanding shares of Common Stock are, and the shares
offered hereby, when issued and paid for, will be, validly issued, fully paid
and nonassessable.

The holders of Common Stock are entitled to receive ratably such dividends
as the Board may declare out of assets legally available therefor, when and if
so declared. In the event of a liquidation, dissolution or winding up of the
Company, holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities.

The payment by the Company of dividends, if any, in the future rests within
the discretion of its Board and will depend, among other things, upon the
Company's earnings, its capital requirements and its financial condition, as
well as other relevant factors. The Company has never paid any dividends. It is
the current intention of the Company to retain any future earnings to fund the
Company's operations and, therefore, the Company does not anticipate paying any
cash dividends in the foreseeable future. See "Dividend Policy."

Prior to this Offering, there were 8,276,408 shares of Common Stock
outstanding (after giving effect to the conversion of all outstanding shares of
Redeemable Convertible Preferred Stock into Common Stock) held of record by 185
stockholders, and options to purchase an aggregate of 2,699,210 shares of Common
Stock were also outstanding. See "Management -- Stock Option Plans."

PREFERRED STOCK

The Board has the authority, without further action by the stockholders, to
issue from time to time up to 1,000,000 shares of Preferred Stock in one or more
classes or series, and to fix the designation, preferences, powers, and
relative, participation, optional or special rights and the qualifications,
limitations or restrictions thereof, including dividend rights, conversion
rights, voting rights, rights and terms of redemption and liquidation
preferences, any or all of which may be greater than the rights of the Common
Stock. The Board, without stockholder approval, can from time to time issue
Preferred Stock with voting, conversion and other rights which would adversely
affect the voting power and other rights of the holders of Common Stock.
Preferred Stock could thus be issued quickly with terms calculated to delay or
prevent a change in control of the Company or to make removal of management more
difficult. Such issuance could have the effect of decreasing the market price of
the Common Stock. The issuance of the Preferred Stock may have the effect of
delaying, deterring or preventing a change in control of the Company without any
further action by the stockholders. While the Company may consider from time to
time the issuance of Preferred Stock in

49
<PAGE> 52

connection with corporate collaborations or other transactions, the Company has
no present plans to issue shares of Preferred Stock.

REGISTRATION RIGHTS

Upon completion of this Offering, certain stockholders, including Armonk
Partners, Murex, Messrs. Jones and Fleischman and Dr. Lorincz, who will hold an
aggregate of 6,139,674 shares of Common Stock upon the completion of this
Offering) and the holders of 70,436 shares of Common Stock (collectively, the
"Holders"), will be entitled to certain rights with respect to the registration
of the Common Stock under the Securities Act. Pursuant to the terms of these
registration rights, except for registrations relating to employee benefit
plans, mergers, acquisitions or similar transactions, or registrations that do
not permit secondary sales, the Company is required to notify each Holder of
each decision by the Company to file a registration statement. Upon receipt of
such notice, a Holder may request to include certain of the Holder's shares of
Common Stock in the Company's registration, subject to the determination of the
managing underwriters that inclusion will not interfere with the offering. The
Company has granted similar registration rights, covering a total of 250,187
shares of Common Stock, to a certain institutional investor.

In addition to the above rights, under certain circumstances and subject to
certain limitations, the Holders of 51% of the Common Stock benefitting from
registration rights can require the Company to use its best efforts to prepare
and file a registration statement covering such shares. If the Company is
entitled to register shares on Form S-3, under certain circumstances and subject
to certain limitations, the Holders can require the Company to use its best
efforts to cause the Holders' shares of Common Stock to be registered on Form
S-3 (or any successor form). The right of the Holders to request the Company to
file a registration statement on Form S-3 is available to the Holders no more
than twice during any consecutive twelve-month period.

The Company generally is required to bear the expenses relating to the sale
of shares under registrations contemplated by the registration rights, except
for underwriting fees and discounts. The Company also is obligated to indemnify
the stockholders whose shares are included in any of the Company's registrations
against certain losses and liabilities, including certain liabilities under the
Securities Act and state securities laws.

DELAWARE LAW AND CERTAIN PROVISIONS OF THE BYLAWS

The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law which, subject to certain exceptions, prohibits a
publicly held Delaware corporation from engaging in any "business combination"
with any "interested stockholder" for a period of three years following the date
of the transaction in which such stockholder became an interested stockholder,
unless either (i) prior to the date such person becomes an interested
stockholder, the Board approves either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder, (ii) upon the consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the time of
the consummation of such transaction, excluding for purposes of determining the
number of shares outstanding those shares owned (a) by persons who are directors
and also officers and (b) by employee stock plans in which employee participants
do not have the right to determine confidentially whether shares held subject to
the plan will be tendered in a tender or exchange offer; or (iii) on or
subsequent to the date such person becomes an interested stockholder, the
business combination is approved by the Board and authorized at an annual or
special meeting of stockholders, not by written consent, by the affirmative vote
of at least two-thirds of the outstanding voting stock which is not owned by the
interested stockholder. A "business combination" includes a merger, asset sale,
or other transaction resulting in a financial benefit to such interested
stockholder. For purposes of Section 203, "interested stockholder" is a person
who, together with affiliates and associates, owns (or within three years prior,
did own) 15% or more of the corporation's voting stock.

The Bylaws of the Company establish an advance notice procedure for
stockholder proposals to be brought before a meeting of stockholders of the
Company and for nominations by stockholders of candidates for election as
directors at an annual meeting or a special meeting at which directors are to be
elected. Subject

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<PAGE> 53

to any other applicable requirements, only such business may be conducted at a
meeting of stockholders as has been brought before the meeting by, or at the
direction of, the Board or by a stockholder who has given to the Secretary of
the Company timely written notice, in proper form, of the stockholder's
intention to bring that business before the meeting. The presiding officer at
such meeting has the authority to make such determinations. Only persons who are
selected and recommended by the Board or by a committee of the Board designated
to make nominations, or who are nominated by a stockholder who has given timely
written notice, in proper form, to the Secretary of the Company prior to a
meeting at which directors are to be elected, will be eligible for election as
directors of the Company.

To be timely, notice of nominations or other business to be brought before
any meeting must be received by the Secretary of the Company not later than 120
days in advance of the anniversary date of the Company's proxy statement for the
previous year's annual meeting or, in the case of special meetings, at the close
of business on the tenth day following the date on which notice of such meeting
is first given to stockholders.

The notice of any stockholder proposal or nomination for election as a
director must set forth the various information required under the Bylaws. The
person submitting the notice of nomination and any person acting in concert with
such person must provide, among other things, the name and address under which
they appear on the Company's books (if they so appear) and the class and number
of shares of the Company's capital stock that are beneficially owned by them.

TRANSFER AGENT

The transfer agent and registrar for the Common Stock is StockTrans, Inc.

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<PAGE> 54

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this Offering, there has been no public market for the Company's
securities. Following this Offering, the Company cannot predict the effect, if
any, that market sales of the Common Stock, or the availability of such shares
for sale, will have on the market price prevailing from time to time.
Nevertheless, sales by existing stockholders of substantial amounts of Common
Stock in the public market could adversely affect prevailing market prices for
the Common Stock. The Company's executive officers, directors, employees and
certain other stockholders have agreed they will not sell or otherwise dispose
of any shares of Common Stock beneficially owned by them for a period of 180
days after the date of this Prospectus without the prior written consent of UBS
Securities LLC.

Sales of substantial amounts of Common Stock (including shares issued upon
the exercise of outstanding options and warrants) in the public market after
this Offering or the prospect of such sales could adversely affect the market
price of the Common Stock and may have a material adverse effect on the
Company's ability to raise any necessary capital to fund its future operations.
Upon completion of this Offering, the Company will have 11,276,408 shares of
Common Stock outstanding. The 3,000,000 shares offered hereby will be freely
tradeable without restrictions or further registration under the Securities Act,
except for any shares held by "affiliates" of the Company within the meaning of
the Securities Act, which will be subject to the resale limitations of Rule 144.
The remaining 8,276,408 shares are "restricted" securities that may be sold only
if registered under the Securities Act, or sold in accordance with an applicable
exemption from registration, such as Rule 144. The officers and directors of the
Company, each person known by the Company to beneficially own more than 5% of
the Common Stock and certain other stockholders, who together hold 8,024,112
shares of Common Stock and options to purchase an additional 2,387,157 shares of
Common Stock, have agreed not to sell, directly or indirectly, any Common Stock
without the prior written consent of UBS Securities LLC for a period of 180 days
from the date of this Prospectus. An aggregate of 201,482 shares of Common Stock
that have been held for more than three years and are not subject to Lock-up
Agreements will be eligible for immediate sale in the public market after this
Offering under Rule 144(k), unless such shares are held by "affiliates" of the
Company. An additional 37,644 shares of Common Stock that have been held for
more than two years will be eligible for sale in the public market commencing 90
days after this Offering, subject to compliance with Rule 144. Commencing on the
expiration of the Lock-up Agreements, an additional 7,015,141 shares of Common
Stock will be eligible for sale in the public market subject to compliance with
Rule 144. In addition, an aggregate of 131,592 shares of Common Stock issuable
upon the exercise of outstanding stock options will be eligible for sale in the
public market under Rule 701 commencing 90 days after the date of this
Prospectus, and the remaining 1,978,261 shares of Common Stock issuable upon the
exercise of outstanding stock options subject to Lock-up Agreements will be
eligible for sale under Rule 701 commencing on the 181st day after the date of
this Prospectus. In addition, holders of 6,389,861 shares of Common Stock will
be entitled to certain registration rights with respect to such shares. If such
holders, by exercising their registration rights, cause a large number of shares
to be registered and sold in the public market, such sales could have a material
adverse effect on the market price of the Company's Common Stock. In addition,
any demand of such holders to include such shares in Company initiated
registration statements could have an adverse effect on the Company's ability to
raise needed capital.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including a person who may be deemed to be an
"affiliate" of the Company as that term is defined under the Securities Act, is
entitled to sell within any three-month period a number of "restricted" shares
beneficially owned by such stockholder for at least two years that does not
exceed the greater of (i) one percent of the then-outstanding shares of Common
Stock (approximately 112,764 shares of Common Stock immediately after this
Offering) or (ii) the average weekly trading volume in the Common Stock during
the four calendar weeks preceding such sale. Sales under Rule 144 are also
subject to certain requirements as to the manner of sale, notice and the
availability of current public information about the Company. Under Rule 144(k),
a person who is not deemed to have been an affiliate of the Company during the
90 days preceding a sale by such person, and who has beneficially owned the
shares proposed to be sold for at least three years, is entitled to sell such
shares without restriction.

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<PAGE> 55

The Commission has proposed certain amendments to Rule 144 that would
reduce by one year the holding periods required for shares subject to Rule 144
and Rule 144(k) to become eligible for resale in the public market. This
proposal, if adopted, would substantially increase the number of shares of
Common Stock eligible for immediate resale following the expiration of the
Lock-up Agreements described above. No assurance can be given concerning whether
or when the proposal will be adopted by the Commission.

Under Rule 701 under the Securities Act, persons who purchase shares upon
exercise of options granted prior to the effective date of this Offering will be
entitled to resell such shares 90 days after the effective date of this Offering
in reliance on Rule 144, without having to comply with the holding period
requirements of Rule 144 and, in the case of non-affiliates, without having to
comply with the public information, volume limitation or notice provisions of
Rule 144.

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<PAGE> 56

UNDERWRITING

Subject to the terms and conditions of the Underwriting Agreement, the
underwriters named below (the "Underwriters"), for whom UBS Securities LLC and
Montgomery Securities are acting as representatives (the "Representatives"),
have agreed to purchase from the Company the following respective number of
shares of Common Stock.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
----------------------------------------------------------------- ---------
<S> <C>
UBS Securities LLC............................................... 1,200,000
Montgomery Securities............................................ 1,200,000
Alex. Brown & Sons Incorporated.................................. 75,000
Cowen & Company.................................................. 75,000
Donaldson, Lufkin & Jenrette Securities Corporation.............. 75,000
Hambrecht & Quist LLC............................................ 75,000
Smith Barney Inc. ............................................... 75,000
H.J. Meyers & Co. Inc. .......................................... 45,000
Ryan, Lee & Co., Inc. ........................................... 45,000
Van Kasper & Company............................................. 45,000
Vector Securities International, Inc. ........................... 45,000
Wessels, Arnold & Henderson, L.L.C. ............................. 45,000
---------
Total.................................................. 3,000,000
========
</TABLE>

The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company and its counsel. The
nature of the Underwriters' obligation is such that they are committed to
purchase all shares of Common Stock offered hereby if any of such shares are
purchased. The Underwriting Agreement contains certain provisions whereby if any
Underwriter defaults in its obligation to purchase shares, and the aggregate
obligations of the Underwriters so defaulting do not exceed 10% of the shares
offered hereby, the remaining Underwriters, or some of them, must assume such
obligations.

The Representatives have advised the Company that the Underwriters propose
to offer the shares of Common Stock directly to the public at the offering price
set forth on the cover page of this Prospectus and to certain dealers at such
price less a concession not in excess of $0.49 per share. The Underwriters may
allow and such dealers may reallow a concession not in excess of $0.10 per share
to certain other dealers. After the public offering of the shares of Common
Stock, the offering price and other selling terms may be changed by the
Underwriters.

The Company has granted the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 450,000
additional shares of Common Stock to cover over-allotments, if any, at the
public offering price set forth on the cover page of this Prospectus, less the
underwriting discounts and commissions. To the extent that the Underwriters
exercise such options, each of the Underwriters will have a firm commitment to
purchase approximately the same percentage thereof which the number of shares of
Common Stock to be purchased by it shown in the above table bears to the total
number of shares of Common Stock offered hereby. The Company will be obligated,
pursuant to the option, to sell such shares to the Underwriters to the extent
the option is exercised.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.

The executive officers, directors, employees and certain other stockholders
of the Company who beneficially own an aggregate of 8,024,112 shares of Common
Stock outstanding prior to this Offering have agreed that they will not, without
the prior written consent of UBS Securities LLC, offer, sell or otherwise
dispose of any shares of Common Stock, options to acquire shares of Common Stock
or securities

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<PAGE> 57

exchangeable for or convertible into shares of Common Stock owned by them for a
period of 180 days after the date of this Prospectus. The Company has agreed
that it will not, without the prior written consent of UBS Securities LLC,
offer, sell or otherwise dispose of any shares of Common Stock, options or
warrants to acquire shares of Common Stock or securities exchangeable for or
convertible into shares of Common Stock for a period of 180 days after the date
of this Prospectus, except that the Company may grant additional options under
its stock option plans or issue shares upon the exercise of outstanding stock
options.

The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any accounts over which they exercise discretionary
authority.

Prior to this Offering, there has been no public market for the Common
Stock of the Company. The initial public offering price was determined through
negotiations among the Company and the Representatives. Factors considered in
determining the initial public offering price, in addition to prevailing market
and economic conditions, were certain financial information of the Company, the
history of, and the prospects for, the Company and the industry in which it
competes, an assessment of the Company's management, its past and present
operations, the prospects for, and timing of, future revenues of the Company,
the present state of the Company's development and the above factors in relation
to market values and various valuation measures of other companies engaged in
activities similar to the Company. The initial public offering price set forth
on the cover page of this Prospectus should not, however, be considered an
indication of the actual value of the Common Stock. Such price is subject to
change as a result of market conditions and other factors. There can be no
assurance that an active trading market will develop for the Common Stock or
that the Common Stock will trade in the public market subsequent to this
Offering at or above the initial offering price.

LEGAL MATTERS

The validity of the shares offered hereby will be passed upon for the
Company by Ballard Spahr Andrews & Ingersoll, Philadelphia, Pennsylvania.
Certain legal matters relating to this Offering will be passed upon for the
Underwriters by Brobeck, Phleger & Harrison LLP, New York, New York.

EXPERTS

The financial statements of Digene Corporation (formerly Digene
Diagnostics, Inc.) at June 30, 1994 and 1995, and for each of the three fiscal
years in the period ended June 30, 1995, appearing in this Prospectus and
Registration Statement have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon appearing elsewhere herein and in
the Registration Statement, and have been included herein in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
ADDITIONAL INFORMATION

The Company has filed with the Commission the Registration Statement under
the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information with respect to the
Company and the Common Stock offered hereby, reference is made to the
Registration Statement. Statements contained in this Prospectus as to the
contents of any contract or any other document filed as an exhibit to the
Registration Statement are not necessarily complete, and, in each such instance,
reference is made to the copy of the contract or document filed as an exhibit to
the Registration Statement, each such statement being qualified in all respects
by such reference thereto. The Registration Statement may be inspected without
charge at the principal office of the Commission in Washington, D.C., and copies
of all or any part of the Registration Statement may be inspected and copied at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's Regional Offices
located at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7
World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material can also be obtained at prescribed rates by mail from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549.

The Company intends to furnish its stockholders with annual reports
containing financial statements audited by its independent auditors and
quarterly reports containing unaudited financial information for the first three
quarters of each fiscal year.

55
<PAGE> 58

DIGENE CORPORATION
INDEX TO FINANCIAL STATEMENTS

DIGENE CORPORATION

<TABLE>
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..................................... F-2
Financial Statements:
Balance Sheets as of June 30, 1994 and 1995 and March 31, 1996 (unaudited)....... F-3
Statements of Operations for the fiscal years ended June 30, 1993, 1994 and 1995
and for the nine months ended March 31, 1995 and 1996 (unaudited)............... F-4
Statements of Stockholders' Deficit for the fiscal years ended June 30, 1993,
1994 and 1995 and for the nine months ended March 31, 1995 and 1996
(unaudited)..................................................................... F-5
Statements of Cash Flows for the fiscal years ended June 30, 1993, 1994 and 1995
and for the nine months ended March 31, 1995 and 1996 (unaudited)............... F-6
Notes to Financial Statements......................................................... F-7
</TABLE>

F-1
<PAGE> 59

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors
Digene Corporation

We have audited the accompanying balance sheets of Digene Corporation
(formerly Digene Diagnostics, Inc.) as of June 30, 1994 and 1995, and the
related statements of operations, stockholders' deficit, and cash flows for each
of the three years in the period ended June 30, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Digene Corporation (formerly
Digene Diagnostics, Inc.) at June 30, 1994 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
June 30, 1995, in conformity with generally accepted accounting principles.

/s/ ERNST & YOUNG LLP
-------------------------------------
ERNST & YOUNG LLP

Vienna, Virginia
March 22, 1996, except Note 15, as to which the date is
May 20, 1996

F-2
<PAGE> 60

DIGENE CORPORATION
BALANCE SHEETS

<TABLE>
<CAPTION>
JUNE 30, PRO FORMA
---------------------------- MARCH 31, MARCH 31,
1994 1995 1996 1996 (NOTE 14)
------------ ------------ ------------ --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 1,014,956 $ 1,142,266 $ 403,503
Short-term investment (Note 8)........ 75,000 75,000 75,000
Accounts receivable, less allowance of
$55,000, $51,000 and $61,000 at
June 30, 1994 and 1995 and March
31, 1996, respectively............. 799,789 1,128,158 1,211,437
Inventories (Note 4).................. 928,119 989,315 1,292,187
Prepaid expenses and other current
assets............................. 86,722 71,159 81,295
------------ ------------ ------------
Total current assets...................... 2,904,586 3,405,898 3,063,422
Property and equipment, net (Note 5)...... 832,024 732,059 679,333
Intangible assets, net (Note 6)........... 516,306 286,915 120,665
Deposits.................................. 53,720 60,440 57,631
------------ ------------ ------------
Total assets.............................. $ 4,306,636 $ 4,485,312 $ 3,921,051
============= ============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable...................... $ 335,534 $ 722,569 $ 1,015,711
Accrued expenses...................... 272,338 371,065 480,864
Current maturities of long-term debt
(Note 8)........................... 101,710 205,695 171,691
------------ ------------ ------------
Total current liabilities................. 709,582 1,299,329 1,668,266
Accrued rent (Note 9)..................... 223,002 183,776 155,212
Deferred rent............................. 91,625 78,810 66,420
Long-term debt, less current maturities
(Note 8)................................ 3,004,623 2,812,490 2,665,577
Commitments (Notes 9 and 13)
Redeemable Convertible Preferred Stock,
$0.10 par value; 13,000,000 shares
authorized; 10,094,907, 10,543,907 and
10,807,157 shares issued and outstanding
at June 30, 1994 and 1995 and March 31,
1996, respectively; liquidation
preference of $20,707,582 at March 31,
1996 (Note 10).......................... 11,767,942 13,114,942 14,062,942 $ --
Stockholders' deficit:
Common stock, $0.01 par value,
50,000,000 shares authorized,
368,338, 368,356 and 374,775 shares
issued and outstanding at June 30,
1994 and 1995 and March 31, 1996,
respectively (8,276,408 pro forma
shares)............................ 3,683 3,684 3,748 82,764
Additional paid-in capital............ 3,690,013 3,690,025 3,703,461 18,625,861
Accumulated deficit................... (15,183,834) (16,697,744) (18,404,575) (18,404,575)
------------ ------------ ------------ --------------
Total stockholders' deficit............... (11,490,138) (13,004,035) (14,697,366) $ 304,050
------------ ------------ ------------ ==============
Total liabilities and stockholders'
deficit................................. $ 4,306,636 $ 4,485,312 $ 3,921,051
============= ============= =============
</TABLE>

See accompanying notes.

F-3
<PAGE> 61

DIGENE CORPORATION

STATEMENTS OF OPERATIONS

See accompanying notes.

F-4
<PAGE> 62

DIGENE CORPORATION

STATEMENTS OF STOCKHOLDERS' DEFICIT

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
----------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT DEFICIT
------- ------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1992............. 331,100 $3,311 $3,683,208 $(11,833,768) $ (8,147,249)
Exercise of Common Stock options..... 29,286 293 5,417 -- 5,710
Net loss............................. -- -- -- (1,916,627) (1,916,627)
------- ------ ---------- ------------ -------------
Balance at June 30, 1993............. 360,386 3,604 3,688,625 (13,750,395) (10,058,166)
Exercise of Common Stock options..... 7,952 79 1,388 -- 1,467
Net loss............................. -- -- -- (1,433,439) (1,433,439)
------- ------ ---------- ------------ -------------
Balance at June 30, 1994............. 368,338 3,683 3,690,013 (15,183,834) (11,490,138)
Exercise of Common Stock options..... 18 1 12 -- 13
Net loss............................. -- -- -- (1,513,910) (1,513,910)
------- ------ ---------- ------------ -------------
Balance at June 30, 1995............. 368,356 3,684 3,690,025 (16,697,744) (13,004,035)
Exercise of Common Stock options..... 6,419 64 13,436 -- 13,500
Net loss............................. -- -- -- (1,706,831) (1,706,831)
------- ------ ---------- ------------ -------------
Balance at March 31, 1996
(unaudited)........................ 374,775 $3,748 $3,703,461 $(18,404,575) $ (14,697,366)
======= ====== ========= =========== ===========
</TABLE>

See accompanying notes.

F-5
<PAGE> 63

DIGENE CORPORATION

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, NINE MONTHS ENDED
----------------------------------------- MARCH 31,
1993 1994 1995 -------------------------
----------- ----------- ----------- 1995 1996
---------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net loss....................... $(1,916,627) $(1,433,439) $(1,513,910) $ (939,715) $(1,706,831)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation and
amortization of property
and
equipment............... 305,250 311,686 346,401 242,799 275,492
Amortization of intangible
assets.................. 348,833 264,882 330,164 241,460 259,629
Changes in operating
assets and liabilities:
Accounts
receivable......... 204,269 80,286 (328,369) (328,880) (83,279)
Inventories.......... 3,536 188,325 (61,196) (264,063) (302,872)
Prepaid expenses and
other current
assets............. (45,864) 26,266 15,563 2,734 (10,136)
Deposits............. 14,367 (4,956) (6,720) (6,720) 2,809
Accounts payable..... (116,113) 51,136 387,035 155,574 293,142
Accrued expenses..... 42,036 6,130 98,727 35,292 109,799
Accrued rent......... (79,871) (35,329) (39,226) (28,888) (28,564)
Deferred rent........ 10,618 12,054 (12,815) 9,041 (12,390)
Deferred revenue..... (31,250) -- -- -- --
----------- ----------- ----------- ---------- -----------
Net cash used in operating
activities................... (1,260,816) (532,959) (784,346) (881,366) (1,203,201)
INVESTING ACTIVITIES
Capital expenditures........... (107,308) (129,709) (246,436) (209,498) (222,766)
Additions to intangible
assets....................... (1,617) (42,553) (100,773) (72,617) (93,379)
----------- ----------- ----------- ---------- -----------
Net cash used in investing
activities................... (108,925) (172,262) (347,209) (282,115) (316,145)
FINANCING ACTIVITIES
Proceeds from issuance of
Redeemable Convertible
Preferred Stock.............. 1,544,197 1,492,206 1,347,000 807,000 948,000
Exercise of Common Stock
options...................... 5,710 1,467 13 13 13,500
Principal repayments on
long-term debt............... (86,432) (95,124) (88,148) (93,863) (180,917)
----------- ----------- ----------- ---------- -----------
Net cash provided by financing
activities................... 1,463,475 1,398,549 1,258,865 713,150 780,583
----------- ----------- ----------- ---------- -----------
Net increase (decrease) in cash
and cash equivalents......... 93,734 693,328 127,310 (450,331) (738,763)
Cash and cash equivalents at
beginning of period.......... 227,894 321,628 1,014,956 1,014,956 1,142,266
----------- ----------- ----------- ---------- -----------
Cash and cash equivalents at
end of period................ $ 321,628 $ 1,014,956 $ 1,142,266 $ 564,625 $ 403,503
========== ========== ========== ========= ==========
SUPPLEMENTAL CASH FLOW
INFORMATION:
Interest paid.................. $ 321,000 $ 312,000 $ 172,000 $ 7,000 $ 6,000
========== ========== ========== ========= ==========
</TABLE>

See accompanying notes.

F-6
<PAGE> 64

DIGENE CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Information as of and for the nine months ended March 31, 1995 and 1996 is
unaudited.)

1. ORGANIZATION AND NATURE OF OPERATIONS

Digene Corporation (the "Company"), (formerly Digene Diagnostics, Inc.),
was incorporated in the state of Delaware in 1987. The Company develops,
manufactures and markets DNA testing systems for the screening, monitoring and
diagnosis of human diseases. The Company's products are designed to help improve
clinical outcomes and reduce the overall cost of disease management. The
Company's lead product, the Hybrid Capture HPV DNA test, detects the presence of
human papillomavirus ("HPV"), the primary cause of cervical cancer, the second
most common cancer among women worldwide. The Company's HPV test for the
follow-up screening of women with equivocal Pap smears is the first HPV test
approved for marketing in the United States by the Food and Drug Administration
(the "FDA"). The Company's objective is to establish its HPV test as the new
standard of care for cervical cancer screening.

The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

On March 29, 1996, the Company filed a registration statement with the
Securities and Exchange Commission relating to the initial public offering (the
"IPO") of 3,000,000 shares of the Company's Common Stock.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS

Cash equivalents, which are stated at cost, consist of highly liquid
investments with original maturities of three months or less.

SHORT-TERM INVESTMENT

The short-term investment is stated at cost, which as of June 30, 1994 and
1995 and March 31, 1996 approximates market, and consists of a certificate of
deposit with an original maturity of one year.

REVENUE RECOGNITION

Revenue from product sales is recognized upon shipment of goods. Revenue
from research and development contracts is recognized as research and
development activities are performed. Cash received in advance of services being
performed is deferred until the related revenue has been earned.

SIGNIFICANT CUSTOMERS

For the years ended June 30, 1993, 1994 and 1995 and the nine month periods
ended March 31, 1995 and 1996, the Company generated 23%, 29%, 38%, 33% and 40%,
respectively, of total revenue from a single customer who is also a preferred
stockholder. Export product sales accounted for approximately 39% in 1993, 43%
in 1994 and 53% in 1995 and 46% and 48% for the nine months ended March 31, 1995
and 1996, respectively, of total revenue.

F-7
<PAGE> 65

DIGENE CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(Information as of and for the nine months ended March 31, 1995 and 1996 is
unaudited.)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Export sales consist of the following:

<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH
YEAR ENDED JUNE 30 31
------------------------------------- -----------------------
1993 1994 1995 1995 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Europe................................ $1,623,014 $1,931,395 $2,660,767 $1,683,944 $1,895,858
Pacific Rim........................... 196,604 264,581 295,398 204,902 215,203
Other................................. 40,812 89,566 339,252 146,890 194,444
--------- --------- --------- --------- ---------
Total export sales.................... $1,860,430 $2,285,542 $3,295,417 $2,035,736 $2,305,505
========== ========== ========== ========== ==========
</TABLE>

RESEARCH AND DEVELOPMENT

The Company expenses its research and development costs as incurred.

INCOME TAXES

The Company provides for income taxes in accordance with the liability
method. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.

NET LOSS PER SHARE

The Company's net loss per share calculations are based upon the weighted
average number of shares of Common Stock outstanding. Pursuant to the
requirements of Securities and Exchange Commission Staff Accounting Bulletin No.
83, Redeemable Convertible Preferred Stock, Common Stock and options and
warrants to purchase Common Stock issued at prices below the initial public
offering price during the twelve months immediately preceding the contemplated
initial filing of the registration statement relating to the IPO, have been
included in the computation of net loss per share as if they were outstanding
for all periods presented (using the treasury method assuming repurchase of
Common Stock at the estimated IPO price). Other shares issuable upon the
exercise of stock options and warrants or conversion of Redeemable Convertible
Preferred Stock have been excluded from the computation because the effect of
their inclusion would be antidilutive. Subsequent to the Company's IPO, stock
options and warrants under the treasury stock method will be included to the
extent they are dilutive. Weighted average shares used to calculate pro forma
net loss per share for the year ended June 30, 1995 and the nine months ended
March 31, 1996 differs from the weighted average on a historical basis due to
the inclusion of the shares of Common Stock resulting from the assumed
conversion, at the beginning of the applicable period, of Redeemable Convertible
Preferred Stock as contemplated by the IPO (See Notes 14 and 15).

RECENT PRONOUNCEMENTS

In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation," which is effective for the
Company's June 30, 1997 financial statements. SFAS No. 123 allows companies to
account for stock-based compensation under either the new provisions of SFAS No.
123 or under the provisions of APB No. 25, but requires pro forma disclosures in
the footnotes to the financial statements as if the measurement provisions of
SFAS No. 123 had been adopted. The Company intends to continue accounting for
its stock-based compensation in accordance with the provisions of APB No. 25. As
such, the adoption of SFAS No. 123 will not impact the financial condition or
the results of operations of the Company.

F-8
<PAGE> 66

DIGENE CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(Information as of and for the nine months ended March 31, 1995 and 1996 is
unaudited.)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTERIM FINANCIAL STATEMENTS

The accompanying unaudited interim financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for a fair presentation
have been included. Operating results for the nine month period ended March 31,
1996 are not necessarily indicative of the results that may be expected for the
year ending June 30, 1996.

3. RESEARCH AND DEVELOPMENT AGREEMENTS

In April 1993, the Company entered into a Development and License Agreement
(the "1993 Agreement") with International Murex Technologies Limited ("IMTC").
Under the terms of the 1993 Agreement, IMTC funded certain of the Company's DNA
probe product development programs on a dollar for dollar cost reimbursement
basis. IMTC and the Company hold a co-exclusive license to market the products
developed under the 1993 Agreement.

In May 1994, the Company entered into an additional Development and License
Agreement (the "1994 Agreement") with IMTC . Under the terms of the 1994
Agreement, IMTC purchased 333,333 shares of the Company's Redeemable Convertible
Preferred Stock and placed $2 million in escrow to purchase 666,667 additional
shares of the Company's Redeemable Convertible Preferred Stock, over the term of
the 1994 Agreement. Generally, amounts released from escrow were used to fund
mutually approved research and development projects on a dollar for dollar cost
reimbursement basis (See Note 10). As funding was released from escrow, shares
of the Company's Redeemable Convertible Preferred Stock were issued. During the
year ended June 30, 1995 and the nine months ended March 31, 1996, $1,215,000
and $315,000, respectively, were released from the escrow and accordingly, the
Company issued 405,000 and 105,000 shares, respectively, of Redeemable
Convertible Preferred Stock. As of June 30, 1995 and March 31, 1996, an
independent third party held $785,000 and $470,000, respectively, in escrow for
the Company's future research and development projects. IMTC holds a license
that is co-exclusive (with the Company) to market products developed under the
1994 Agreement.

4. INVENTORIES

Inventories are stated at the lower of cost or market on a first-in,
first-out basis.

Inventories consist of the following:

<TABLE>
<CAPTION>
JUNE 30,
------------------------ MARCH 31,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Finished goods................................... $ 268,659 $ 312,366 $ 516,791
Work in process.................................. 502,552 624,307 697,241
Raw materials.................................... 356,908 188,158 328,155
---------- ---------- ----------
1,128,119 1,124,831 1,542,187
Obsolescence reserve............................. (200,000) (135,516) (250,000)
---------- ---------- ----------
$ 928,119 $ 989,315 $1,292,187
========= ========= =========
</TABLE>

F-9
<PAGE> 67

DIGENE CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(Information as of and for the nine months ended March 31, 1995 and 1996 is
unaudited.)

5. PROPERTY AND EQUIPMENT

Property and equipment, including leasehold improvements, are stated at
cost and depreciated or amortized using the straight-line method over the
estimated useful lives of three to ten years. Leasehold improvements are
amortized over the lesser of the related lease term or the useful life.

Property and equipment consist of the following:

<TABLE>
<CAPTION>
JUNE 30,
-------------------------- MARCH 31,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Furniture, fixtures and office equipment...... $ 501,175 $ 578,336 $ 651,342
Machinery and equipment....................... 1,001,062 1,142,736 1,282,711
Leasehold improvements........................ 637,032 664,633 664,633
----------- ----------- -----------
2,139,269 2,385,705 2,598,686
Accumulated depreciation and amortization..... (1,307,245) (1,653,646) (1,919,353)
----------- ----------- -----------
$ 832,024 $ 732,059 $ 679,333
========== ========== ==========
</TABLE>

6. INTANGIBLE ASSETS

Patent application costs are expensed as incurred. Noncompetition
agreements are amortized on a straight-line basis over their respective terms,
generally two to six years. Goodwill, which resulted from the acquisition of the
Molecular Diagnostics Division of Life Technologies, Inc. ("LTI") in December
1990, is being amortized using the straight-line method over five years.

Intangible assets consist of the following:

<TABLE>
<CAPTION>
JUNE 30,
------------------------- MARCH 31,
1994 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
Noncompetition agreements...................... $1,087,349 $ 1,087,349 $ 1,087,349
Goodwill and other intangibles................. 297,273 398,046 491,425
---------- ----------- -----------
1,384,622 1,485,395 1,578,774
Accumulated amortization....................... (868,316) (1,198,480) (1,458,109)
---------- ----------- -----------
$ 516,306 $ 286,915 $ 120,665
========= ========== ==========
</TABLE>

7. INCOME TAXES

The Company's net deferred tax assets are as follows:

<TABLE>
<CAPTION>
JUNE 30,
-------------------------- MARCH 31,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net operating loss carryforwards.............. $ 4,096,000 $ 4,032,000 $ 4,033,000
Research and development credits.............. 393,000 488,000 534,000
Other......................................... 1,574,000 2,252,000 2,924,000
----------- ----------- -----------
Deferred tax assets........................... 6,063,000 6,772,000 7,491,000
Valuation allowance........................... (6,063,000) (6,772,000) (7,491,000)
----------- ----------- -----------
Net deferred tax assets....................... $ -- $ -- $ --
========== ========== ==========
</TABLE>

F-10
<PAGE> 68

DIGENE CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(Information as of and for the nine months ended March 31, 1995 and 1996 is
unaudited.)

7. INCOME TAXES (CONTINUED)
At June 30, 1995 and March 31, 1996, the Company had tax net operating loss
carryforwards for income tax purposes of approximately $10,081,000 and
$10,082,000, respectively. At June 30, 1995 and March 31, 1996, the Company also
had research and development credit carryforwards of approximately $488,000 and
$534,000, respectively. In 1990, the Company experienced a change in ownership
pursuant to Section 382 of the Internal Revenue Code, which will cause the
utilization of pre-change losses and credits to be limited. Subject to this
limitation, the Company's net operating loss carryforwards and tax credits
expire, if unused, at various dates from 2003 through 2008.

8. LONG-TERM DEBT

Long-term debt consists of follows:

<TABLE>
<CAPTION>
JUNE 30,
------------------------ MARCH 31,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
10% secured note payable to LTI.................. $2,625,000 $ -- $ --
8% secured note payable to LTI................... -- 2,625,000 2,568,647
Amounts due to former stockholders, net of
unamortized discount........................... 365,519 289,514 186,852
Note payable to lessor........................... 115,814 93,956 76,227
Other............................................ -- 9,715 5,542
---------- ---------- ----------
3,106,333 3,018,185 2,837,268
Current maturities of long-term debt............. (101,710) (205,695) (171,691)
---------- ---------- ----------
Long-term debt, less current maturities.......... $3,004,623 $2,812,490 $2,665,577
========= ========= =========
</TABLE>

The secured note payable to LTI was issued in conjunction with the
Company's acquisition of LTI's Molecular Diagnostics Division in December 1990.
During 1995, a 10% secured note payable was canceled and an 8% secured note
payable was issued. Interest is payable semiannually. Principal is payable in
eight semi-annual installments ranging from $27,624 to $36,352, with the first
payment made on June 30, 1995, followed by five annual installments of $474,093,
beginning June 30, 1999. The note is secured by certain assets of the Company.

Amounts due to former stockholders, related to repurchases of Common Stock
during 1991, are noninterest-bearing, but have been discounted at 8.74%. Payment
is due in seven equal annual installments beginning July 1991.

The note payable to lessor represents the financing of a portion of
leasehold improvements made by the lessor under terms of the lease agreement for
the Company's headquarters and research and development facility (Note 9). The
note, originally for $200,000, is repayable through December 1998 in 114 equal
monthly installments of $2,616 in principal plus interest at 9%. A $75,000
certificate of deposit held by the Company is assigned to the lessor as
collateral for the lease obligation (Note 2).

F-11
<PAGE> 69

DIGENE CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(Information as of and for the nine months ended March 31, 1995 and 1996 is
unaudited.)

8. LONG-TERM DEBT (CONTINUED)
Annual maturities of long-term debt outstanding at June 30, 1995 are as
follows:

<TABLE>
<S> <C>
1996............................................ $ 205,695
1997............................................ 190,540
1998............................................ 199,841
1999............................................ 525,737
2000............................................ 474,093
Thereafter...................................... 1,422,279
----------
$3,018,185
=========
</TABLE>

9. LEASE COMMITMENTS

The Company occupies a facility serving as its corporate headquarters and
research and development facility. The lease agreement for this facility
terminates on December 31, 1998, but provides for a five-year renewal at the
Company's option. Under the lease agreement, no rent was due during the period
of construction and the initial period of occupancy. The total minimum lease
obligation is being expensed over the term of the lease obligation on a
straight-line basis, with expense in excess of cash outlays recorded as deferred
rent. The lessor agreed to make approximately $372,000 of improvements to the
facility at the Company's expense, paid for in cash of $172,000 and a note
payable for $200,000 (Note 8). The minimum annual base rentals are subject to an
annual increase of 30% of the increase in the Consumer Price Index.

The Company's production operations are in a manufacturing and office
facility. The related lease agreement terminates in July 1998, but is renewable
at the Company's option for an additional five-year period. The total minimum
lease obligation is being expensed over the term of the lease on a straight-line
basis, with the expense in excess of cash outlays recorded as deferred rent.

Future minimum rental commitments under these lease agreements, including
where applicable the Company's pro rata share of insurance, real estate taxes
and common area operating expenses, are as follows as of June 30, 1995:

Rent expense under these leases was $348,144, $366,616, $380,804, $323,800
and $319,632, for the years ended June 30, 1993, 1994 and 1995 and for the nine
months ended March 31, 1995 and 1996, respectively.

Remaining lease payments, net of anticipated sublease income of
approximately $380,000, for facilities vacated as a result of the relocation and
consolidation, described above, were accrued in 1992. The remaining accrual at
March 31, 1996 is $155,212.

F-12
<PAGE> 70

DIGENE CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(Information as of and for the nine months ended March 31, 1995 and 1996 is
unaudited.)

10. REDEEMABLE CONVERTIBLE PREFERRED STOCK

Shares of Redeemable Convertible Preferred Stock consist of the following:

<TABLE>
<CAPTION>
JUNE 30,
------------------------ MARCH 31,
SERIES 1994 1995 1996
----------------------------------------- ---------- ---------- ------------
<S> <C> <C> <C>
1990..................................... 6,919,109 6,919,109 6,919,109
1991..................................... 2,842,465 2,842,465 2,842,465
1994..................................... 333,333 782,333 1,045,583
---------- ---------- ------------
10,094,907 10,543,907 10,807,157
========= ========= ==========
</TABLE>

Holders of 1990 and 1991 Series Redeemable Convertible Preferred Stock are
to receive dividends of approximately $0.0728 per share before dividends can be
paid to any holder of Common Stock. Any additional dividends would be paid in
equivalent per-share amounts to holders of Preferred and Common Stock. Dividends
are payable only if declared by the Company's Board of Directors. Such 1990 and
1991 Series Preferred Stock have a liquidation preference of $1.80 per share
(plus any declared but unpaid dividends) and would share ratably with other
holders of Preferred and Common Stock in any available assets exceeding its
liquidation preference.

The 1990 and 1991 Series Redeemable Convertible Preferred Stock
automatically converts into Common Stock (at the then applicable conversion
rate) in the event of a public offering of Common Stock in which the Company
receives gross proceeds of at least $10 million. If the Company sells additional
shares of Common or Preferred Stock, holders of the Preferred Stock have the
right (with certain exceptions) to purchase a pro-rata portion of the additional
shares. Voting rights for the Preferred Stock are equal to those of the number
of shares of Common Stock into which the Preferred Stock is convertible. At the
request of holders of at least 50% of the outstanding Preferred Stock and to the
extent there are retained earnings, the Company must repurchase, for $1.80 per
share, 25% of the outstanding Preferred Stock during January of 1997 through
2000. Holders of Preferred Stock also may, under certain circumstances, require
the Company to register with the Securities and Exchange Commission the shares
of Common Stock into which the Preferred Stock is convertible.

In May 1994, the Company sold 333,333 shares of 1994 Series Redeemable
Convertible Preferred Stock to IMTC for proceeds of $999,999. The sale was
subject to a Stock Purchase Agreement and a 1994 Development and Licensing
Agreement between the Company and IMTC. Pursuant to the Stock Purchase
Agreement, IMTC placed $2,000,000 in escrow for the purchase of an additional
666,667 shares of 1994 Series Preferred Stock (see Note 3). During the year
ended June 30, 1995 and the nine months ended March 31, 1996, $1,215,000 and
$315,000, respectively, was released from the escrow account to purchase 405,000
and 105,000 shares, respectively, of the Company's Preferred Stock and to fund
mutually approved research and development projects.

The 1994 Series Preferred Stock has terms and conditions substantially
identical to those described for the 1990 and 1991 Series Preferred Stock,
except that the liquidation preference is $3.00 per share for the 1994 Series
Preferred Stock.

11. COMMON STOCK OPTIONS AND WARRANTS

The Company has adopted Stock Option Plans (the "Option Plans") under which
1,737,536 shares of Common Stock were reserved for issuance upon exercise of
options granted to employees, officers and consultants of the Company. The
Option Plans provide for grants of stock options to employees (including
officers and employee directors), directors and consultants of the Company. The
Option Plans were previously

F-13
<PAGE> 71

DIGENE CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(Information as of and for the nine months ended March 31, 1995 and 1996 is
unaudited.)

11. COMMON STOCK OPTIONS AND WARRANTS (CONTINUED)
administered by the Board of Directors and presently are being administered by
the Compensation Committee, which determines recipients and types of awards to
be granted, including the exercise price, number of shares subject to the award
and the exercisability thereof. The terms of stock options granted under the
Option Plans may not exceed ten years. The exercise price of options granted
under the Option Plans, as determined by the Compensation Committee,
approximates fair value.

The Company has also granted 37,761 options to purchase Common Stock to
outside consultants.

In March 1996, the Company adopted the Digene Corporation Omnibus Plan (the
"Omnibus Plan"). Pursuant to the Omnibus Plan, officers or other employees of
the Company may receive options to purchase Common Stock. The Omnibus Plan is
administered by the Compensation Committee. 1,700,000 shares have been reserved
for issuance under the Omnibus Plan. On March 27, 1996, the Compensation
Committee granted incentive stock options to purchase an aggregate of 923,913
shares of Common Stock to various employees under the Omnibus Plan, at exercise
prices of $9.35 to $10.285 per share.

Common stock options activity is as follows:

<TABLE>
<CAPTION>
NUMBER OF
SHARES
---------
<S> <C>
Outstanding at June 30, 1993..................................... 1,556,028
Granted..................................................... 284,689
Exercised................................................... (7,952)
Canceled or expired......................................... (54,452)
---------
Outstanding at June 30, 1994..................................... 1,778,313
Granted..................................................... 57,372
Exercised................................................... (18)
Canceled or expired......................................... (82,456)
---------
Outstanding at June 30, 1995..................................... 1,753,211
Granted..................................................... 987,033
Exercised................................................... (6,428)
Canceled or expired......................................... (34,606)
---------
Outstanding at March 31, 1996.................................... 2,699,210
========
Exercisable at March 31, 1996.................................... 1,382,055
========
</TABLE>

Exercise prices range from $0.028 to $10.285 per share. The options
generally vest on a time-based schedule over a period of three to six years.

In conjunction with the sale of 1994 Series Preferred Stock, the Company
has issued Common Stock purchase warrants which provide for certain
anti-dilution adjustment rights for shares underlying these warrants. The
warrants expire on the earlier of 15 days following the Company's initial filing
for an IPO or April 30, 1996. As of March 31, 1996, there were 235,886 Common
Stock purchase warrants outstanding which were exercisable at $6.65 per share.

RESERVE FOR ISSUANCE

The Company has reserved approximately 11,542,380 shares of Common Stock as
of March 31, 1996 for issuance upon conversion of the 1990, 1991 and 1994 Series
Preferred Stock, exercise of common stock

F-14
<PAGE> 72

DIGENE CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(Information as of and for the nine months ended March 31, 1995 and 1996 is
unaudited.)

11. COMMON STOCK OPTIONS AND WARRANTS (CONTINUED)
purchase warrants, exercise of Common Stock options and issuance of 1994 Series
Preferred Stock to IMTC in conjunction with the 1994 Development and Licensing
Agreement (See Note 3).

12. RETIREMENT PLAN

Effective January 1, 1994, the Company adopted a 401(k) Profit Sharing Plan
(the "Plan"). The Plan, which covers all employees who have completed six months
of service, stipulates that employees may elect an amount between 1% and 15% of
their total compensation to contribute to the Plan. Employee contributions are
subject to Internal Revenue Service limitations. All employees who have
completed 1,000 hours of service during the plan year and are employed by the
Company on the last day of the plan year are eligible to share in discretionary
Company contributions. Employees vest in employer contributions over five years.
No contributions were made by the Company during the years ended June 30, 1993,
1994 and 1995 and the nine months ended March 31, 1995 and 1996.

13. OTHER COMMITMENTS

The Company's access to various probes, diagnostic techniques and a key
product component were acquired under agreements requiring the Company to pay
future royalties based upon specified percentages of applicable future gross
sales. None of the royalty commitments have had, or are expected to have in the
future, a materially adverse impact on the Company's financial position or the
results of operations.

Under terms of the agreement covering the acquisition of the Molecular
Diagnostics Division of LTI, the Company will make additional payments to LTI
contingent on sales levels for most of the acquired operations' products. The
payments extend through May 31, 1997 and will be at a rate of 2.5% on certain
products and 5% on other products, for sales in excess of $4 million per year.
No contingent payments were owed during the years ended June 30, 1993, 1994, and
1995 and the nine months ended March 31, 1995 and 1996.

14. PRO FORMA INFORMATION

The financial statements include pro forma information as of March 31, 1996
to reflect, upon the completion of the Company's IPO, the conversion of all
outstanding shares of Series 1990, Series 1991, and Series 1994 Preferred Stock
into shares of Common Stock on a 0.71 for 1 basis, the exercise of 70,436
warrants to purchase Common Stock, and the issuance of 156,667 shares of Series
1994 Preferred Stock to IMTC, in accordance with the 1994 Agreement, described
in Note 3.

15. SUBSEQUENT EVENTS

COMMON STOCK

On April 15, 1996, the holders of the Common Stock purchase warrants
elected to purchase 70,436 shares of Common Stock at an exercise price of $6.65
per share. As a result of this warrant exercise, the Company received net
proceeds of $468,474. The remaining unexercised warrants expired on April 15,
1996.

On April 15, 1996, pursuant to the 1994 agreement with IMTC described in
Note 3, the remaining amount of $470,000 held in escrow was released and
accordingly, the Company issued 156,667 shares of Redeemable Convertible
Preferred Stock.

On May 6, 1996, the Board of Directors approved a 1 for 1.4 reverse stock
split of the Company's Common Stock, which will become effective on May 20,
1996. All references in the accompanying financial

F-15
<PAGE> 73

DIGENE CORPORATION

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

(Information as of and for the nine months ended March 31, 1995 and 1996 is
unaudited.)

15. SUBSEQUENT EVENTS (CONTINUED)
statements to the number of shares of Common Stock and per-share amounts have
been restated to reflect the split.

REDEEMABLE CONVERTIBLE PREFERRED STOCK

Immediately upon completion of the IPO, all outstanding shares of 1990,
1991 and 1994 Series Preferred Stock will convert into shares of Common Stock on
a 0.71 for 1 basis.

F-16
<PAGE> 74
ENABLING TECHNOLOGY PLATFORM - HYBRID CAPTURE(TM)

DNA SCREENING AND MONITORING

[DIAGRAM IS DESCRIBED BELOW]

The Company's Hybrid Capture technology uses RNA probes to bind specific DNA
sequences which creates hybrid DNA:RNA molecules that can be detected with
chemiluminescent materials.

To perform a test using the Hybrid Capture system, the test sample is mixed
with RNA probes. Complementary DNA sequences in the sample (1) immediately bind
to the RNA, creating DNA:RNA hybrids (2). The DNA:RNA hybrids are then captured
on the surface of a specially coated polysterene tube (3). All remaining DNA
and specimen contaminants are removed by washing the tube. Captured hybrids are
then reacted with the Company's proprietary signal amplification system, which
uses antibodies to detect any DNA:RNA hybrids bound to the tube (4). If DNA:RNA
hybrids from the specimen are present on the surface of the tube, light is
emitted, signaling a positive test result (5). The amount of DNA present in the
sample can be rapidly and accurately quantified using standard laboratory
luminometers.

The entire test is completed in 4 to 6 hours.
<PAGE> 75

No person is authorized in connection with any offering made hereby to give
any information or to make any representation not contained herein and, if given
or made, such information or representation must not be relied upon as having
been authorized by the Company or the Underwriters. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any security
other than the Common Stock offered hereby, nor does it constitute an offer to
sell or a solicitation of an offer to buy any of the securities offered hereby
to any person in any jurisdiction in which it is unlawful to make such an offer
or solicitation. Neither the delivery of this Prospectus nor any sale made
hereunder shall under any circumstances create any implication that there has
been no change in the affairs of the Company since the date hereof or that the
information contained herein is correct as of any date subsequent to the date
hereof.
---------------------------
TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 16
Dividend Policy....................... 16
Capitalization........................ 17
Dilution.............................. 18
Selected Financial Data............... 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 20
Business.............................. 24
Management............................ 40
Certain Transactions.................. 46
Principal Stockholders................ 48
Description of Capital Stock.......... 49
Shares Eligible for Future Sale....... 52
Underwriting.......................... 54
Legal Matters......................... 55
Experts............................... 55
Additional Information................ 55
Index to Financial Statements......... F-1
</TABLE>

---------------------------

Until June 16, 1996 (25 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.

3,000,000 SHARES

[DIGENE LOGO]
COMMON STOCK

---------------------------
Prospectus
May 22, 1996
---------------------------
UBS SECURITIES

MONTGOMERY SECURITIES