VIROLOGIC INC, S-1/A, 2000-03-27

VIROLOGIC INC
S-1/A, 2000-03-27
TESTING LABORATORIES

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 27, 2000

REGISTRATION NO. 333-30896

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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VIROLOGIC, INC.
(NAME OF ISSUER IN ITS CHARTER)

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<S> <C> <C>
DELAWARE 8734 94-3234479
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>

270 EAST GRAND AVENUE
SOUTH SAN FRANCISCO, CA 94080
(650) 635-1100
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------

WILLIAM D. YOUNG
CHIEF EXECUTIVE OFFICER
VIROLOGIC, INC.
270 EAST GRAND AVENUE
SOUTH SAN FRANCISCO, CA 94080
(650) 635-1100
(NAME, ADDRESS, TELEPHONE NUMBER OF AGENT FOR SERVICE)
------------------------

COPIES TO:

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<S> <C>
FREDERICK T. MUTO, ESQ. MARK J. MIHANOVIC, ESQ.
CHRISTOPHER J. KEARNS, ESQ. MARC A. JONES, ESQ.
DANIEL P. DILLON, ESQ. MCDERMOTT, WILL & EMERY
COOLEY GODWARD LLP 2049 CENTURY PARK EAST
4365 EXECUTIVE DRIVE, SUITE 1100 SUITE 3400
SAN DIEGO, CALIFORNIA 92121 LOS ANGELES, CA 90067
(858) 550-6000 (310) 277-4110
</TABLE>

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
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If any of the securities being registered on this Form are being offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ______

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ______

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ______

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE

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PROPOSED MAXIMUM AMOUNT OF
TITLE OF SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
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Common Stock, $0.001 par value........................... $92,000,000 $24,288
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</TABLE>

(1) Includes shares that the Underwriters will have the option to purchase
solely to cover over-allotments, if any. Estimated solely for the purpose of
calculating the amount of the registration fee in accordance with Rule
457(o) under the Securities Act of 1933.
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON
SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.

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<PAGE> 2

SUBJECT TO COMPLETION, DATED MARCH 27, 2000

THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

5,000,000 SHARES

[VIROLOGIC LOGO]

COMMON STOCK
$ PER SHARE

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This is an initial public offering of common stock of ViroLogic, Inc.

We expect that the price to the public in the offering will be between $14.00
and $16.00 per share. The market price of the shares after the offering may be
higher or lower than the offering price.

We have applied to include the common stock on the Nasdaq National Market under
the symbol "VLGC."

INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 10.

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<CAPTION>
PER SHARE TOTAL
--------- -----------
<S> <C> <C>
Price to the public.................................. $ $
Underwriting discount................................
Proceeds to ViroLogic................................
</TABLE>

We have granted an over-allotment option to the underwriters. Under this option,
the underwriters may elect to purchase a maximum of 750,000 additional shares
from us within 30 days following the date of this prospectus to cover
over-allotments.

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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

CIBC WORLD MARKETS
ING BARINGS
PRUDENTIAL VECTOR HEALTHCARE
A UNIT OF PRUDENTIAL SECURITIES

The date of this prospectus is , 2000.
<PAGE> 3
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<S> <C> <C>

PhenoSense HIV is a test that directly TEXT: PhenoSense HIV Test Procedure TEXT: 8. Analyze data and generate
measures the resistance of HIV to anti- patient report
viral drugs. When making HIV treatment
decisions, PhenoSense HIV provides TEXT: 1. Obtain a blood sample from TEXT: Blue curves represent drug-sensitive
direction and guidance toward the most patient control virus. Red curves represent
effective drugs. patient's virus.
ARTWORK: Picture of blood in vial
ARTWORK: Compass in a human hand TEXT: For example, patient's virus is
TEXT: 2. Isolate virus resistant to Lamivudine
TEXT: PhenoSense HIV Assay
ARTWORK: Picture of virus TEXT: Susceptible to Saquinavir
TEXT: Choosing the path of least
resistance TEXT: 3. Copy of viral genes TEXT: More susceptible to Efavirenz

ARTWORK: Picture representing vector ARTWORK: Picture of print-out report of
with indicator test results

TEXT: 4. Insert genes into our TEXT: PhenoSense HIV Assay
proprietary viral gene set
Choosing the path of least resistance
ARTWORK: Picture of resistance test
vector

TEXT: 5. Introduce gene set into
cells to produce virus

ARTWORK: Picture of assembled vector
inserted into cell

TEXT: 6. Add anti-viral drugs that
block virus reproduction or . . .
add anti-viral drugs that block
cell infection

TEXT: 7. Measure reproduction
indicator to evaluate drug
resistance

TEXT: Reduced drug effectiveness
indicated by greater reproduction

ARTWORK: Bar containing multiple
samples

TEXT: Increasing drug concentrations
</TABLE>
<PAGE> 4

TABLE OF CONTENTS

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PAGE
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<S> <C>
Prospectus Summary.......................................... 6
Risk Factors................................................ 10
Forward-Looking Statements.................................. 17
Use of Proceeds............................................. 18
Dividend Policy............................................. 18
Capitalization.............................................. 19
Dilution.................................................... 20
Selected Financial Data..................................... 21
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 22
Business.................................................... 26
Management.................................................. 38
Principal Stockholders...................................... 47
Related Party Transactions.................................. 49
Description of Capital Stock................................ 50
Shares Eligible for Future Sale............................. 53
Underwriting................................................ 55
Legal Matters............................................... 57
Experts..................................................... 57
Where You Can Find More Information......................... 57
Index to Financial Statements............................... F-1
</TABLE>

5
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PROSPECTUS SUMMARY

This summary highlights information contained in other parts of this
prospectus. Because it is a summary, it does not contain all of the
information that you should consider before investing in the shares. You
should read the entire prospectus carefully.

THE COMPANY

Our first product, PhenoSense HIV, is a test that directly and quantitatively
measures resistance of a patient's HIV to anti-viral drugs. The results help
physicians select appropriate drugs for their HIV patients. We began actively
marketing PhenoSense HIV to physicians in November 1999.

We are also developing PhenoSense products for other viral diseases.
Additionally, we are developing an interactive database built from the results
of our PhenoSense tests and other clinical data, which we call the Therapy
Guidance System, or TGS. We intend to make TGS available to physicians via the
Internet as a tool to guide patient therapy.

VIRAL DRUG RESISTANCE

Physicians treat viruses like HIV with drugs that inhibit the virus'
reproduction and therefore slow the progression of disease. However, during
reproduction, viruses often change slightly, or mutate. As a result, anti-viral
drugs are typically effective for only a limited time because viruses develop
resistance through mutation. To address this problem, physicians must use
anti-viral drugs in combination, to simultaneously attack different targets
within a virus and slow the development of drug resistance. However, even the
most potent drug combinations eventually fail in the majority of patients. To
achieve long term clinical benefit, it is desirable to select drugs that
maximally suppress viral reproduction and to avoid drugs to which a patient's
virus is resistant. As a result, there is a critical need for products that can
directly measure viral drug resistance.

The need for resistance tests is well illustrated in HIV, where resistance is a
serious crisis despite the availability of 14 approved drugs. HIV infection
cannot be cured with these drugs, requiring lifelong treatment with complex drug
combinations. When these combinations fail, which can occur multiple times per
year for many patients, physicians must make difficult treatment decisions to
select effective alternative drugs. A panel led by the Department of Health and
Human Services has recently issued guidelines that recommend routine use of
resistance tests for HIV patients.

OUR SOLUTION

PhenoSense is our proprietary phenotypic drug resistance testing technology.
Phenotypic drug resistance tests directly measure the susceptibility of a
patient's virus to anti-viral drugs by adding a drug to a virus sample and
determining whether the virus reproduces. We believe that we are revolutionizing
phenotypic testing by avoiding the need to grow, or "culture," viruses during
testing, thereby dramatically shortening the time required to perform the tests
and improving the consistency and accuracy of the tests. Also, we can perform
our tests in large numbers, making them practical for routine use in managing
patient care.

6
<PAGE> 6

OUR PRODUCTS

PhenoSense HIV. PhenoSense HIV is a patented phenotypic drug resistance test
that directly measures the resistance of HIV to all approved HIV drugs.
Phenotypic resistance tests measure resistance by adding each drug to a virus
sample and determining whether the virus can reproduce in the presence of the
drug. Phenotypic resistance tests differ from genotypic tests, which attempt to
predict drug resistance by identifying certain mutations in a virus' genes that
may be associated with drug resistance.

HIV infects nearly one million people in the United States, of whom
approximately 300,000 are currently receiving anti-viral therapy. Assuming
resistance testing becomes widely accepted, we believe these treated patients
would require a total of at least 500,000 tests per year. We are marketing the
product to physicians in the United States through our own sales force,
initially focusing on the 1,000 leading physicians who treat 80% of the total
HIV/AIDS patient population.

Overcoming resistance to existing drugs is a critical objective when developing
new drugs. In November 1999, the FDA Antiviral Drugs Advisory Committee
emphatically recommended that resistance tests should be utilized in the
development of new anti-viral drugs for HIV. To date, we have signed testing
agreements with the following pharmaceutical and biotechnology companies
involved in AIDS drug development: Abbott Laboratories, Agouron, Bristol-Myers
Squibb, Gilead Sciences, Glaxo Wellcome and Merck.

In addition to increasing the use of PhenoSense HIV in clinical trials, we
intend to form collaborations with pharmaceutical companies for the application
of our viral resistance technology to the discovery and development of new
anti-viral drugs.

PhenoSense HBV. We are currently developing PhenoSense HBV for hepatitis B
virus. HBV infects over one million people in the United States, and we estimate
that approximately half of those infected would benefit from anti-viral drug
therapy. More than 15 drugs for treatment of HBV infection are in preclinical or
clinical development. Just as with HIV, we believe our PhenoSense HBV drug
resistance testing will play a significant role in guiding HBV treatment and in
clinical trials for new HBV drugs.

PhenoSense HCV. We have designed and intend to develop PhenoSense HCV, for
hepatitis C virus. HCV infects approximately four million people in the United
States, of whom we estimate that approximately 75% could benefit from anti-viral
drug therapy. Many drugs for treatment of HCV are in preclinical or clinical
development. We expect PhenoSense HCV will be used to assist in the discovery
and development of HCV drugs and, in the longer term, the assessment of drug
resistance in HCV patients.

Other Products. We are developing and marketing a number of additional products.
We sell GeneSeq HIV, a genotypic test. We are also developing a test to measure
viral fitness, a measure of a virus' ability to reproduce and infect new cells.

Therapy Guidance System. We are building a proprietary database of test results
and other patient information that we expect to combine with sophisticated data
mining and outcome modeling software to build our Therapy Guidance System. Our
Therapy Guidance System will be a computer tool designed to help physicians
select optimal therapies for each patient. We expect to provide our Therapy
Guidance System as a fee-based service over the Internet.

GENERAL INFORMATION

We were incorporated in Delaware in November 1995. Our principal executive
offices are located at 270 East Grand Avenue, South San Francisco, CA 94080. Our
telephone number is (650) 635-1100. Our website is located at
"www.virologic.com." Our website is not part of this prospectus.

7
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THE OFFERING

Common stock offered...................... 5,000,000 shares

Common stock to be outstanding after the
offering.................................. 19,687,397 shares

Use of proceeds........................... We intend to use the net proceeds
from this offering for sales and
marketing, capital expenditures
including the expansion of our
clinical laboratory capabilities,
research and development, and
general corporate purposes.

Proposed Nasdaq National Market symbol.... VLGC

The number of shares of common stock to be outstanding after the offering in the
table above is based on the number of shares outstanding as of March 24, 2000.
The number excludes:

- 1,434,028 shares of common stock issuable upon exercise of options
outstanding as of March 24, 2000, at a weighted average exercise price of
$3.45 per share

- 742,083 shares of common stock issuable upon exercise of warrants to
purchase our common stock or preferred stock outstanding as of March 24,
2000, at a weighted average exercise price of $4.82 per share

ViroLogic, the ViroLogic logo, PhenoSense, GeneSeq, Therapy Guidance System, TGS
and Choosing the Path of Least Resistance are trademarks of ViroLogic. All other
product names, trade names and trademarks included in this prospectus are the
property of their respective owners.

Unless otherwise stated, all information contained in this prospectus assumes:

- no exercise of the over-allotment option granted to the underwriters

- a one for two reverse stock split of our common stock

- the conversion of all outstanding shares of our preferred stock into shares
of common stock

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SUMMARY FINANCIAL INFORMATION

(in thousands, except per share data)

<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(NOVEMBER 14,
1995) TO YEAR ENDED DECEMBER 31,
DECEMBER 31, ----------------------------
1996 1997 1998 1999
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<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue...................................... $ -- $ -- $ 102 $ 1,069
Operating costs and expenses:
Cost of revenue............................ -- -- 17 627
Research and development................... 867 2,458 5,977 9,588
General and administrative................. 510 858 1,782 6,804
Sales and marketing........................ -- -- 484 1,196
------- ------- ------- --------
Total costs and operating expenses........... 1,377 3,316 8,260 18,215
------- ------- ------- --------
Operating loss............................... (1,377) (3,316) (8,158) (17,146)
Interest income.............................. 116 262 302 249
Interest expense............................. (13) (83) (198) (243)
------- ------- ------- --------
Net loss..................................... (1,274) (3,137) (8,054) (17,140)
Deemed dividend to preferred stockholders.... -- -- -- 3,100
------- ------- ------- --------
Net loss allocable to common stockholders.... $(1,274) $(3,137) $(8,054) $(20,240)
======= ======= ======= ========
Basic and diluted net loss per common
share...................................... $ (0.74) $ (1.21) $ (1.71) $ (4.24)
======= ======= ======= ========
Shares used in computing basic and diluted
net loss per common share.................. 1,720 2,591 4,700 4,772
Pro forma basic and diluted net loss per
common share............................... $ (2.53)
========
Shares used in computing pro forma basic and
diluted net loss per common share.......... 8,015
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
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<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................ $ 2,208 $17,862 $85,912
Restricted cash.................................. 950 950 950
Working capital.................................. 522 16,176 84,226
Total assets..................................... 9,777 25,431 93,481
Long term obligations, less current portion...... 1,051 1,051 1,051
Total stockholders' equity....................... 4,698 20,352 88,402
</TABLE>

See notes to the financial statements for a description of the number of shares
used in the computation of the basic and diluted net loss per common share and
pro forma basic and diluted net loss per common share.

The pro forma balance sheet data above reflects the January and February 2000
sale of our Series C preferred stock for proceeds of approximately $15.7
million.

The pro forma as adjusted balance sheet data above gives effect to our sale of
5,000,000 shares to be sold in the initial public offering at an assumed
offering price of $15.00 per share, less underwriters' discounts and offering
expenses.

9
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RISK FACTORS

You should carefully consider the following factors and other information in
this prospectus before deciding to invest in the shares.

WE EXPECT TO INCUR FUTURE OPERATING LOSSES AND MAY NOT ACHIEVE PROFITABILITY,
WHICH MAY CAUSE OUR STOCK PRICE TO FALL.

We have experienced significant and increasing operating losses each year since
our inception and expect to incur substantial additional operating losses for at
least the next two years. We experienced net losses of approximately $3.1
million in 1997, $8.1 million in 1998 and $17.1 million in 1999. As of December
31, 1999, we had an accumulated deficit of approximately $29.6 million. We
expect to continue to incur substantial operating losses for the foreseeable
future primarily as a result of expected increases in expenses for:

- sales and marketing

- expanding patient sample processing capabilities

- research and product development costs

- acquisition of additional office space and other necessary facilities

- general and administrative costs

If our history of operating losses continues, our stock price may fall and you
may lose part or all of your investment.

THE MARKET FOR PHENOTYPIC RESISTANCE TESTING PRODUCTS FOR VIRUSES IS NEW AND IT
MAY NOT BECOME AN ACCEPTED METHOD OF MANAGING ANTI-VIRAL DRUG TREATMENT.

Our ability to establish phenotypic resistance testing as the standard of care
to guide and improve the treatment of viral diseases will depend on the
widespread acceptance and use by physicians and clinicians of phenotypic
resistance testing. Phenotypic resistance testing is new. We cannot predict the
extent to which physicians and clinicians will accept and use phenotypic
resistance testing. They may prefer competing technologies and products such as
genotypic testing. The commercial success of phenotypic resistance testing will
require demonstrations of its advantages and potential economic value in
relation to the current standard of care, as well as to genotypic testing. If
phenotypic resistance testing is not accepted, our ability to generate revenue
will be limited and our competitors could gain an advantage relative to us.

OUR PHENOSENSE TESTING PRODUCTS MAY NOT ACHIEVE MARKET ACCEPTANCE, WHICH COULD
LIMIT OUR FUTURE REVENUE.

We have introduced only one product using our proprietary PhenoSense technology,
PhenoSense HIV, which we began actively marketing in November 1999. Because
PhenoSense HIV has been available for a limited period of time, its commercial
value has not been established and has not been widely accepted among physicians
and their patients. We are still in the early stages of development of new
testing products applying our PhenoSense technology to other viral diseases. If
PhenoSense HIV is not accepted in the marketplace, our ability to sell other
PhenoSense products would be undermined. If PhenoSense HIV or other applications
of our proprietary PhenoSense technology do not gain market acceptance, we will
be unable to generate sales. Market acceptance will depend on:

- our marketing efforts and continued ability to demonstrate the utility of
PhenoSense in guiding anti-viral drug therapy

- our ability to demonstrate the advantages and potential economic value of
our PhenoSense testing products over current treatment methods and other
resistance tests

If the market does not accept our products, our ability to generate revenue will
be limited.

OUR REVENUES WILL BE DIMINISHED IF PAYORS DO NOT AUTHORIZE REIMBURSEMENT FOR OUR
PRODUCTS.

Government and third-party payors, which reimburse patients and healthcare
providers for medical expenses, are attempting to contain or reduce the costs of
healthcare. This could limit the price that we can charge for our products and
hurt our ability to generate revenues.

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<PAGE> 10

In the United States, federal and state government healthcare programs have been
attempting to reduce costs and otherwise implement government control of
healthcare costs. In addition, increasing emphasis on managed care in the United
States will continue to put pressure on the pricing of healthcare products.
Significant uncertainty exists as to the reimbursement status of new medical
products like PhenoSense HIV. Third-party payors, including state payors and
Medicare, are challenging the prices charged for medical products and services.
If government and other third-party payors do not provide adequate coverage and
reimbursement for PhenoSense HIV or other phenotypic testing products, our
revenues will be reduced.

IF WE ARE UNABLE TO EXPAND OUR SALES AND MARKETING CAPABILITIES, WE MAY NOT BE
ABLE TO EFFECTIVELY COMMERCIALIZE OUR PRODUCTS.

We currently have only five sales people and limited marketing capability. In
order to commercialize our products effectively, we must expand our sales and
marketing capabilities or arrange with a third party to perform these services.
We may not be able to do this successfully. If we enter into co-promotion or
other marketing arrangements, our share of product revenues is likely to be
lower than if we directly marketed and sold our products through our own sales
force. If we fail to effectively commercialize our products our revenue will be
reduced.

WE HAVE LIMITED EXPERIENCE PROCESSING PATIENT SAMPLES FOR OUR PHENOSENSE HIV
TEST AND MAY ENCOUNTER PROBLEMS OR DELAYS IN EXPANDING OUR AUTOMATED TESTING
SYSTEMS, WHICH COULD RESULT IN LOST SALES REVENUE.

We have only recently begun to process a significant number of patient samples
and are continuing to develop our quality-control procedures. In order to meet
the projected demand for PhenoSense HIV and other future phenotypic resistance
testing products, we will have to process many more patient samples than we are
currently processing. Thus, we need to develop and implement additional
automated systems to perform our tests. We also need to develop more
sophisticated software to support the automated tests, analyze the data
generated by our tests, and report the results. We may not be able to do this.
Further, as we attempt to scale up our processing of patient samples, processing
or quality-control problems may arise.

If we are unable to consistently process patient samples on a timely basis
because of these or other factors, or if we encounter problems with our
automated processes, our revenues will be limited.

WE FACE INTENSE COMPETITION, AND IF OUR COMPETITORS' EXISTING PRODUCTS OR NEW
PRODUCTS ARE MORE EFFECTIVE THAN OUR PRODUCTS, THE COMMERCIAL OPPORTUNITY FOR
OUR PRODUCTS WILL BE REDUCED OR ELIMINATED.

The commercial opportunity for our products will be reduced or eliminated if our
competitors develop and market new testing products that are superior to, or are
less expensive than, PhenoSense HIV or other phenotypic resistance testing
products we develop using our proprietary PhenoSense technology.

The biotechnology industry evolves at a rapid pace and is highly competitive.
Our major competitors include manufacturers and distributors of phenotypic drug
resistance technology, such as Virco N.V. We also compete with makers of
genotypic tests such as PE Biosystems Group of PE Corporation and Visible
Genetics Inc. Each of these competitors is attempting to establish its test as
the standard of care. Virco's phenotypic test and genotypic tests have been
commercially available for a longer time than has PhenoSense HIV. Genotypic
tests are cheaper and generally faster than our phenotypic resistance tests.

We hold a license from Roche Molecular Systems, Inc. for technology that we use
in our PhenoSense testing products. This license is non-exclusive. We believe
that many of our competitors, including Virco and other resistance testing
companies, also license this technology on non-exclusive terms.

Our competitors may successfully develop and market other testing products that
are either superior to those that we may develop or that are marketed prior to
marketing of our testing products. Some of our competitors have substantially
greater financial resources and research and development staffs than we do. In
addition, some of our competitors have significantly greater experience in
developing
11
<PAGE> 11

products, and in obtaining the necessary regulatory approvals of products and
processing and marketing products.

THE INTELLECTUAL PROPERTY UNDERLYING OUR PHENOSENSE TECHNOLOGY AND TRADE SECRETS
MAY NOT BE ADEQUATE, ALLOWING THIRD PARTIES TO USE OUR PHENOSENSE TECHNOLOGY OR
SIMILAR TECHNOLOGIES, AND THUS REDUCING OUR ABILITY TO COMPETE IN THE MARKET.

The strength of our intellectual property protection is uncertain. In
particular, we cannot ensure that:

- we were the first to invent the technologies covered by our patent or
pending patent applications

- we were the first to file patent applications for these inventions

- others will not independently develop similar or alternative technologies or
duplicate any of our technologies

- any of our pending patent applications will result in issued patents

- any patents issued to us will provide a basis for commercially viable
products or will provide us with any competitive advantages or will not be
challenged by third parties

Other companies may have patents or patent applications relating to products or
processes similar to, competitive with or otherwise related to our products.

Patent law relating to the scope of claims in the technology fields in which we
operate (including biotechnology and information technology) is still evolving
and, consequently, patent positions in our industry are generally uncertain. We
cannot assure you that we will prevail in any of these lawsuits or that, if
successful, we will be awarded commercially valuable remedies. In addition, it
is possible that we will not have the required resources to pursue such
litigation or to otherwise protect our patent rights.

We also rely on unpatented trade secrets to protect our proprietary technology.
Other companies may independently develop or otherwise acquire equivalent
technology or gain access to our proprietary technology.

OUR PRODUCTS COULD INFRINGE ON THE INTELLECTUAL PROPERTY RIGHTS OF OTHERS, WHICH
MAY CAUSE US TO ENGAGE IN COSTLY LITIGATION AND, IF WE ARE NOT SUCCESSFUL, COULD
CAUSE US TO PAY SUBSTANTIAL DAMAGES AND PROHIBIT US FROM SELLING OUR PRODUCTS.

Third parties may assert infringement or other intellectual property claims
against us based on their patents or other intellectual property claims. We may
have to pay substantial damages, possibly including treble damages, for past
infringement if it is ultimately determined that our products infringe a third
party's patents. Further, we may be prohibited from selling our products before
we obtain a license, which, if available at all, may require us to pay
substantial royalties. Even if infringement claims against us are without merit,
defending a lawsuit takes significant time, may be expensive and may divert
management attention from other business concerns.

WE MAY BE UNABLE TO BUILD BRAND LOYALTY BECAUSE OUR TRADEMARKS AND TRADE NAMES
MAY NOT BE PROTECTED.

Our registered or unregistered trademarks or trade names such as the name
PhenoSense, may be challenged, canceled, infringed, circumvented or declared
generic or determined to be infringing on other marks. We may not be able to
protect our rights to these trademarks and trade names, which we need to build
brand loyalty. Brand recognition is critical to our short-term and long term
marketing strategies especially as we commercialize future enhancements to our
products.

WE ARE DEPENDENT ON A LICENSE FOR TECHNOLOGY WE USE IN OUR PHENOSENSE TESTING,
AND OUR BUSINESS WOULD SUFFER IF THE LICENSE WAS TERMINATED OR NOT RENEWED.

We license technology that we use in our PhenoSense testing products from Roche
Molecular Systems, Inc. We hold this non-exclusive license for the patent term
of the licensed patents. In order to maintain this license, however, we must pay
royalties, make a semi-annual royalty report and participate in proficiency
testing. If Roche were to terminate this license or this license were not
renewed, we would have to change a portion of our testing methodology, which
would halt our testing, at

12
<PAGE> 12

least temporarily, and cause us to incur substantial additional expenses.

IF WE DO NOT SUCCESSFULLY INTRODUCE NEW PRODUCTS USING OUR PHENOSENSE
TECHNOLOGY, WE MAY NOT ACHIEVE PROFITABILITY.

We may not be able to develop and market phenotypic resistance testing products
for viral diseases other than HIV, including hepatitis B and hepatitis C.

Demand for these products will depend in part on the development by others of
additional anti-viral drugs to fight these diseases. Physicians will likely use
our resistance tests to determine which drug is best for a particular patient
only if there are multiple drug treatment options. Several anti-viral drugs are
in development but we cannot assure you that they will be approved for
marketing, or if these drugs are approved that there will be a need for our
resistance tests.

If we are unable to develop and market phenotypic resistance test products for
other viral diseases, or if an insufficient number of anti-viral drug products
are approved for marketing, we may not achieve profitability.

OUR BUSINESS OPERATIONS AND THE OPERATION OF OUR CLINICAL LABORATORY FACILITY
ARE SUBJECT TO STRINGENT REGULATIONS AND IF WE ARE UNABLE TO COMPLY WITH THEM,
WE MAY BE PROHIBITED FROM ACCEPTING PATIENT SAMPLES OR MAY INCUR ADDITIONAL
EXPENSE TO ATTAIN AND MAINTAIN COMPLIANCE.

The operation of our clinical laboratory facility is subject to a stringent
level of regulation under the Clinical Laboratory Improvement Amendments of
1988. Laboratories must meet various requirements, including requirements
relating to quality assurance, quality control and personnel standards. Our
laboratory is also subject to regulation by the State of California and various
other states. We have sought accreditation by the College of American
Pathologists and therefore are subject to their requirements and evaluation. Our
failure to comply with applicable requirements could result in various
penalties, including loss of certification or accreditation.

We believe that the FDA will not at this time seek to fully regulate our
PhenoSense products under our current labeling and marketing plans. However, we
cannot predict the extent of future FDA regulation, and we might be subject in
the future to greater regulation, or different regulations, that could have a
material effect on our finances and operations.

We also believe that the FDA will not require that phenotypic testing conducted
at a clinical laboratory be subject to premarketing clearance. Although the FDA
has stated in the past that it believes that its jurisdiction extends to tests
generated in a clinical laboratory, the agency has said it will allow the home
brewed tests to be run and the results commercialized without FDA premarket
approval. We cannot be sure, however, that the FDA will not in the future
require premarket clearance, and clinical data demonstrating the sensitivity and
specificity, of our PhenoSense products.

If we do not comply with existing or additional regulations, or if we incur
penalties, it could increase our expenses, prevent us from increasing revenues,
or hinder our ability to conduct our business. In addition, changes in existing
regulations or new regulations may delay or prevent us from marketing our
products.

CLINICIANS OR PATIENTS USING OUR PRODUCTS OR SERVICES MAY SUE US AND OUR
INSURANCE MAY NOT SUFFICIENTLY COVER ALL CLAIMS BROUGHT AGAINST US WHICH WILL
INCREASE OUR EXPENSES.

Clinicians, patients and others may at times seek damages from us if drugs are
incorrectly prescribed for a patient based on testing errors or similar claims.
Although we have obtained liability insurance coverage, we cannot guarantee that
liability insurance will continue to be available to us on acceptable terms or
that our coverage will be sufficient to protect us against all claims that may
be brought against us. We may incur significant legal defense expenses in
connection with a liability claim, even one without merit or for which we have
coverage.

OUR LACK OF OPERATING EXPERIENCE MAY CAUSE US DIFFICULTY IN MANAGING OUR GROWTH.

We have limited experience selling our products and processing patient samples.
To grow, we will need to improve and expand our management and our operational
and financial systems. If our management is unable to manage our growth
effectively, it is possible that the number and skills

13
<PAGE> 13

of our personnel, our systems and our facilities may become inadequate.

FAILURE TO ATTRACT AND RETAIN SKILLED PERSONNEL COULD HINDER OUR RESEARCH AND
DEVELOPMENT EFFORTS AND IMPAIR OUR ABILITY TO COMPETE.

Our success depends on our continued ability to attract and retain highly
qualified management and scientific personnel. Competition for personnel is
intense. We believe stock options are a critical component of motivating and
retaining our key employees. Stock options granted shortly after the completion
of the offering may be less attractive to potential candidates for our
management and scientific positions, and, therefore, it may be more difficult to
fill those positions. If we cannot successfully attract and retain qualified
personnel, our research and development efforts could be hindered and our
ability to run our business effectively and compete with others in our industry
will be harmed.

IF WE NEED TO RAISE ADDITIONAL CAPITAL TO BUILD OUR BUSINESS AND IT IS NOT
AVAILABLE ON COMMERCIALLY REASONABLE TERMS, OUR ABILITY TO COMPETE MAY BE
DIMINISHED.

We anticipate that our existing capital resources and the net proceeds from this
offering will enable us to maintain currently planned operations for at least
two years. However, we may need additional funding sooner than anticipated. Our
inability to raise capital would seriously harm our business and product
development efforts. In addition, we may choose to raise additional capital due
to market conditions or strategic considerations even if we believe we have
sufficient funds for our current or future operating plans. To the extent that
additional capital is raised through the sale of equity or convertible debt
securities, the issuance of these securities could result in dilution to our
stockholders.

We currently have no credit facility or committed sources of capital. To the
extent operating and capital resources are insufficient to meet future
requirements, we will have to raise additional funds to continue the development
and commercialization of our technologies. These funds may not be available on
favorable terms, or at all. If adequate funds are not available on attractive
terms, we may be required to curtail operations significantly or to obtain funds
by entering into financing, supply or collaboration agreements on unattractive
terms.

WE MAY BE SUBJECT TO LITIGATION, WHICH WOULD BE TIME CONSUMING AND DIVERT OUR
RESOURCES AND THE ATTENTION OF OUR MANAGEMENT.

We were involved in a dispute with Dr. Daniel Capon, a significant stockholder
and former employee. We settled the dispute in November 1999. In connection with
the settlement, we purchased shares of our common stock held by him for $225,000
in cash, and allowed him to retain other shares that we had a right to
repurchase. In 1999, we recorded $1.9 million in legal fees and costs related to
this settlement, including a non-cash charge related to the common stock
retained by him. In the future, our stockholders or former employees may bring
further claims and we may have to spend significant additional resources and
time. Even if we are eventually successful in our defense of any such claim, the
time and money spent may prevent us from operating our business effectively or
profitably or may distract our management.

OUR OPERATING RESULTS MAY FLUCTUATE FROM QUARTER TO QUARTER, MAKING IT LIKELY
THAT, IN SOME FUTURE QUARTER OR QUARTERS, WE WILL FAIL TO MEET ANALYSTS'
ESTIMATES OF OPERATING RESULTS OR FINANCIAL PERFORMANCE, CAUSING OUR STOCK PRICE
TO FALL.

If revenue declines in a quarter, our earnings will decline because many of our
expenses are relatively fixed. In the first year following the initial sales of
our product in November 1999, our revenues may fluctuate significantly as we
build the market for our product. In particular, research and development, sales
and marketing and general and administrative expenses are not affected directly
by variations in revenue. In addition, our cost of revenue could also fluctuate
significantly due to variations in the initial demand for our product and the
relatively fixed costs to produce it. We cannot accurately predict how volatile
our future operating results will be because our past and present operating
results, which reflect little sales activity, are not indicative of what we
might expect in the future.

It is likely that in some future quarter or quarters, our operating results will
be below the expectations of securities analysts or investors. In this event,
the market price of our common stock

14
<PAGE> 14

may fall abruptly and significantly. Because our revenue and operating results
are difficult to predict, we believe that period-to-period comparisons of our
results of operations are not a good indication of our future performance.

IF A NATURAL DISASTER STRIKES OUR CLINICAL LABORATORY FACILITY WE WOULD BE
UNABLE TO PROCESS OUR CUSTOMERS' SAMPLES FOR A SUBSTANTIAL AMOUNT OF TIME AND WE
WOULD LOSE REVENUE.

We rely on a single clinical laboratory facility to process patient samples for
our PhenoSense HIV test and have no alternative facilities. We will also use
this facility for conducting other tests we develop, and even if we move into
different or additional facilities they will likely be in close proximity to our
current clinical laboratory. Our clinical laboratory and some pieces of
processing equipment are difficult to replace and could require substantial
replacement lead-time. Our processing facility may be affected by natural
disasters such as earthquakes and floods. Earthquakes are of particular
significance since our clinical laboratory is located in South San Francisco,
California, an earthquake-prone area. In the event our existing clinical
laboratory facility or equipment is affected by man-made or natural disasters,
we would be unable to process patient samples and meet customer demands or sales
projections. If our patient sample processing operations were curtailed or
ceased, we would not be able to perform our tests and we would lose revenue.

WE HAVE BROAD DISCRETION OVER THE USE OF THE NET PROCEEDS FROM THE OFFERING.

We have broad discretion to allocate the net proceeds of the offering. The
timing and amount of our actual expenditures are subject to change and will be
based on many factors, including:

- success of our sales and marketing efforts

- competitive market developments

- progress in and scope of our research and development activities

Our management will determine, in its sole discretion without the need for
stockholder approval, how to allocate these proceeds. If we do not wisely
allocate the proceeds, we will not be able to carry out or business plan and our
share price will fall.

CONCENTRATION OF OWNERSHIP AMONG OUR EXISTING EXECUTIVE OFFICERS, DIRECTORS AND
PRINCIPAL STOCKHOLDERS MAY PREVENT NEW INVESTORS FROM INFLUENCING SIGNIFICANT
CORPORATE DECISIONS.

Following this offering our directors, entities affiliated with our directors
and our executive officers will beneficially own, in the aggregate,
approximately 43.2% of our outstanding common stock. These stockholders as a
group will be able to substantially influence our management and affairs. If
acting together, they would be able to influence most matters requiring the
approval by our stockholders, including the election of directors, any merger,
consolidation or sale of all or substantially all of our assets and any other
significant corporate transaction. The concentration of ownership may also delay
or prevent a change in our control at a premium price if these stockholders
oppose it.

NEW INVESTORS IN OUR COMMON STOCK WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL
DILUTION.

Investors purchasing common stock in this offering will pay a price per share
that substantially exceeds the value per share of our assets, after subtracting
our liabilities. In addition, new investors will have contributed 60.5% of the
total amount we will have received from sales of our stock since our inception
but will own only 25.4% of the shares outstanding.

OUR STOCK PRICE MAY BE VOLATILE, AND YOUR INVESTMENT IN OUR STOCK COULD DECLINE
IN VALUE.

Prior to this offering, there has been no public market for our common stock. An
active public market for our common stock may not develop or be sustained after
the offering. The initial public offering price will be determined by
negotiation between the representatives of the underwriters and us and may not
be indicative of future market prices. Among the factors to be considered in
determining the initial public offering price of the common stock, in addition
to prevailing market conditions, will be:

- estimates of our business potential and earnings prospects

- an assessment of our management

- the consideration of the above factors in relation to market valuations of
companies in related businesses
15
<PAGE> 15

The market prices for securities of biotechnology companies in general have been
highly volatile and may continue to be highly volatile in the future. The
following factors, in addition to other risk factors described in this section,
may have a significant adverse impact on the market price of our common stock:

- announcements of technological innovations or new commercial products by our
competitors

- developments concerning proprietary rights, including patents

- publicity regarding actual or potential medical results relating to products
under development by our competitors

- regulatory developments in the United States and foreign countries

- litigation

- economic and other external factors or other disaster or crisis

- period-to-period fluctuations in financial results

IF OUR STOCKHOLDERS SELL SUBSTANTIAL AMOUNTS OF OUR COMMON STOCK AFTER THE
OFFERING, THE MARKET PRICE OF OUR COMMON STOCK MAY FALL.

If our stockholders sell substantial amounts of our common stock, including
shares issued upon the exercise of outstanding options and warrants, the market
price of our common stock may fall. These sales also might make it more
difficult for us to sell equity or equity-related securities in the future at a
time and price that we deem appropriate.

At March 24, 2000, approximately 14,687,397 shares of common stock, representing
74.6% of our common stock outstanding after the offering, were unregistered and
eligible for sale, subject to compliance with Rule 144 or Rule 701 under the
Securities Act.

The holders of all of these shares are subject to lock-up for 180 days after
this offering. All or any portion of these shares may be released from this
lock-up by CIBC World Markets Corp. and us. In addition, sales of a substantial
number of shares could occur at any time after the expiration of the 180-day
period. This may have an adverse effect on the price of our common stock and may
impair our ability to raise capital in the future.

PROVISIONS OF OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY INHIBIT A TAKEOVER,
WHICH COULD LIMIT THE PRICE INVESTORS MIGHT BE WILLING TO PAY IN THE FUTURE FOR
OUR COMMON STOCK.

Provisions in our certificate of incorporation and bylaws may have the effect of
delaying or preventing an acquisition, or merger in which we are not the
surviving company or changes in our management. In addition, because we are
incorporated in Delaware, we are governed by the provisions of Section 203 of
the Delaware General Corporation Law. These provisions could discourage
acquisitions or other changes in our control and otherwise limit the price that
investors might be willing to pay in the future for our common stock.

16
<PAGE> 16

FORWARD-LOOKING STATEMENTS

Some of the information in this prospectus contains forward-looking statements
within the meaning of the federal securities laws. You can find these statements
under "Prospectus Summary," "Risk Factors," "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and elsewhere in this prospectus.

We typically identify forward-looking statements by using terms such as "may,"
"will," "should," "could," "expect," "plan," "anticipate," "believe,"
"estimate," "predict," "potential," "continue" and similar words, although we
express some forward-looking statements differently. You should be aware that
actual events could differ materially from those suggested in the
forward-looking statements due to a number of factors, including:

- failure to successfully commercialize our products

- competitive factors

- general economic conditions

- uncertainty regarding our patents and patent rights (including the risk that
we may be forced to engage in costly litigation to protect such patent
rights and the material harm to us if there were an unfavorable outcome of
any such litigation)

- technological change

- government regulation

- changes in industry practice

- one-time events

You should also consider carefully the statements under "Risk Factors" and other
sections of this prospectus, which address additional factors that could cause
our actual results to differ from those set forth in the forward-looking
statements. We expressly qualify all subsequent written and oral forward-
looking statements attributed to us or persons acting on our behalf in their
entirety by the applicable cautionary statements. We have no plans to update
these forward-looking statements.

17
<PAGE> 17

USE OF PROCEEDS

We estimate that our net proceeds from the sale of the shares of common stock we
are offering will be approximately $68.1 million. If the underwriters fully
exercise their over-allotment option, we estimate that our net proceeds from the
offering will be $78.5 million. "Net proceeds" are what we expect to receive
after paying the underwriting discount and other expenses of the offering. For
the purpose of estimating net proceeds, we are assuming that the initial public
offering price will be $15.00 per share.

We intend to use the net proceeds of this offering primarily for:

- expanding our sales and marketing activities

- capital expenditures, including the expansion of our clinical laboratory
capabilities

- research and development

- general corporate purposes

The timing and amount of our actual expenditures are subject to change and will
be based on many factors, including:

- success of our sales and marketing efforts

- competitive market developments

- progress in and scope of our research and development activities

These or other factors may result in our making changes in the use of these
proceeds. Our management has broad discretion as to the allocation of the net
proceeds of this offering.

Until we use the net proceeds of the offering, we will invest the funds in
short-term, investment grade, interest-bearing securities.

DIVIDEND POLICY

We have never paid any cash dividends on our capital stock. We anticipate that
we will retain earnings to support operations and to finance our business growth
and development. Therefore, we do not expect to pay cash dividends in the
foreseeable future.

18
<PAGE> 18

CAPITALIZATION

The following table shows:

- our actual capitalization on December 31, 1999

- on a pro forma basis to reflect:

- the sale of 8,461,645 shares of Series C preferred stock in January and
February 2000 for aggregate proceeds of $15.7 million that will convert
into 4,230,823 shares of common stock

- the conversion of all 9,749,265 shares of our outstanding preferred stock
as of December 31, 1999, and the preferred shares sold in January and
February 2000, into 9,587,769 shares of common stock, which will occur
upon the closing of this offering

- our pro forma as adjusted capitalization on December 31, 1999, assuming the
pro forma adjustments described above and the completion of the offering at
an assumed initial public offering price of $15.00 per share

<TABLE>
<CAPTION>
DECEMBER 31, 1999
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- -------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long term loan, less current portion................ $ 1,051 $ 1,051 $ 1,051
-------- -------- --------
Stockholders' equity:
Preferred stock; $0.001 par value; 13,959,459
shares authorized, 9,749,265 shares issued and
outstanding (5,356,946 common shares on an
as-if converted basis), actual; no shares
issued and outstanding, pro forma; 5,000,000
shares authorized, no shares issued and
outstanding, pro forma as adjusted............. 10 -- --
Common stock; $0.001 par value; 30,000,000, shares
authorized, 5,096,628 shares issued and
outstanding, actual; 14,684,397 shares issued
and outstanding, pro forma; 60,000,000 shares
authorized, 19,684,397 shares issued and
outstanding, pro forma as adjusted............. 5 15 20
Additional paid-in capital........................ 38,812 54,466 122,511
Deferred compensation............................. (4,478) (4,478) (4,478)
Notes receivable from officers and employees...... (46) (46) (46)
Accumulated deficit............................... (29,605) (29,605) (29,605)
-------- -------- --------
Total stockholders' equity................... 4,698 20,352 88,402
-------- -------- --------
Total capitalization...................... $ 5,749 $ 21,403 $ 89,453
======== ======== ========
</TABLE>

The number of shares of common stock outstanding in the table above is based on
the number of shares outstanding as of December 31, 1999 and excludes:

- 1,240,867 shares of common stock issuable upon exercise of options
outstanding as of December 31, 1999, at a weighted average exercise price of
$3.47 per share

- 745,083 shares of common stock issuable upon exercise of warrants to
purchase our common or preferred stock outstanding as of December 31, 1999,
at a weighted average exercise price of $4.82 per share

19
<PAGE> 19

DILUTION

Our tangible book value of our common stock as of December 31, 1999 was $4.7
million, or approximately $0.45 per share. Net tangible book value per share
represents the amount of our stockholders' equity, less intangible assets,
divided by 10,453,574 shares of common stock outstanding after giving effect to
the conversion of all outstanding shares of preferred stock into shares of
common stock upon completion of this offering.

Subsequent to December 31, 1999, we issued 8,461,645 shares of Series C
preferred stock for aggregate proceeds of $15.7 million that will convert into
4,230,823 shares of common stock upon the completion of this offering. This
subsequent issuance increased our net tangible book value per share by $0.94,
assuming the conversion of these preferred shares into common stock.

Net tangible book value dilution per share to new investors represents the
difference between the amount per share paid by purchasers of shares of common
stock in this offering and the pro forma net tangible book value per share of
common stock immediately after completion of this offering. After giving effect
to our sale of 5,000,000 shares of common stock in this offering, after
deducting the underwriting discounts and offering expenses and the application
of the estimated net proceeds, our pro forma net tangible book value as of
December 31, 1999 would have been $10.51 per share to existing stockholders and
an immediate dilution in net tangible book value of $4.49 per share to
purchasers of common stock in this offering, as illustrated in the following
table:

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $15.00
------
Net tangible book value per share as of December 31, 1999... $ 0.45
Increase per share attributable to sales of Series C
preferred stock in January and February 2000.............. 0.94
Increase in net tangible book value per share attributable
to the offering........................................... 3.10
------
Pro forma net tangible book value per share as of December
31, 1999, after giving effect to the offering............. 4.49
------
Dilution per share to new investors in the offering......... $10.51
======
</TABLE>

The following table shows the total consideration paid and the average price per
share paid by the existing stockholders and by new investors, after deducting
underwriting discounts and offering expenses payable by us, at an assumed
initial public offering price of $15.00 per share.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........ 14,684,397 74.6% $ 48,877,790 39.5% $ 3.33
New investors................ 5,000,000 25.4 75,000,000 60.5 15.00
---------- ----- ------------ -----
Total................... 19,684,397 100.0% $123,877,790 100.0%
========== ===== ============ =====
</TABLE>

The number of shares of common stock outstanding in the table above is based on
the number of shares outstanding as of December 31, 1999 and excludes:

- 1,240,867 shares of common stock issuable upon exercise of options
outstanding as of December 31, 1999, at a weighted average exercise price of
$3.47 per share

- 745,083 shares of common stock issuable upon the exercise of warrants to
purchase our common or preferred stock, outstanding as of December 31, 1999,
at a weighted average exercise price of $4.82 per share

20
<PAGE> 20

SELECTED FINANCIAL DATA

This section presents our historical financial data. You should read carefully
the financial statements included in this prospectus, including the notes to the
financial statements. We do not intend the selected data in this section to
replace the financial statements.

We derived the statement of operations data for the years ended December 31,
1997, 1998 and 1999 and the balance sheet data as of December 31, 1998 and 1999
from the audited financial statements in this prospectus, which Ernst & Young
LLP, independent auditors, audited. We derived the statement of operations data
for the period from our inception to December 31, 1996 and the balance sheet
data as of December 31, 1996 and 1997 from audited financial statements that are
not included in this prospectus. Historical results are not necessarily
indicative of results that may be expected in the future.

<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(NOVEMBER 14,
1995) TO YEAR ENDED DECEMBER 31,
DECEMBER 31, ------------------------------
1996 1997 1998 1999
------------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue....................................... $ -- $ -- $ 102 $ 1,069
Operating costs and expenses:
Cost of revenue............................. -- -- 17 627
Research and development.................... 867 2,458 5,977 9,588
General and administrative.................. 510 858 1,782 6,804
Sales and marketing......................... -- -- 484 1,196
------- ------- ------- --------
Total costs and operating expenses............ 1,377 3,316 8,260 18,215
------- ------- ------- --------
Operating loss................................ (1,377) (3,316) (8,158) (17,146)
Interest income............................... 116 262 302 249
Interest expense.............................. (13) (83) (198) (243)
------- ------- ------- --------
Net loss...................................... (1,274) (3,137) (8,054) (17,140)
Deemed dividend to preferred stockholders..... -- -- -- 3,100
------- ------- ------- --------
Net loss allocable to common stockholders..... $(1,274) $(3,137) $(8,054) $(20,240)
======= ======= ======= ========
Basic and diluted net loss per common share... $ (0.74) $ (1.21) $ (1.71) $ (4.24)
======= ======= ======= ========
Shares used in computing basic and diluted net
loss
per common share............................ 1,720 2,591 4,700 4,772
Pro forma basic and diluted net loss per
common share................................ $ (2.53)
========
Shares used in computing basic and diluted pro
forma net loss per common share............. 8,015
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1996 1997 1998 1999
------- ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents..................... $ 3,141 $ 3,986 $ 9,564 $ 2,208
Restricted cash............................... -- -- -- 950
Working capital............................... 2,966 3,315 7,398 522
Total assets.................................. 3,911 5,598 13,275 9,777
Long term loan, less current portion.......... 488 470 1,948 1,051
Accumulated deficit........................... (1,274) (4,411) (12,465) (29,605)
Total stockholders' equity.................... 3,191 4,336 8,830 4,698
</TABLE>

See notes to the financial statements for a description of the number of shares
used in the computation of net loss per common share and pro forma net loss per
common share.

21
<PAGE> 21

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

You should read this discussion together with the financial statements and other
financial information included in this prospectus.

OVERVIEW

We are a biotechnology company developing and marketing innovative products to
guide and improve treatment of viral diseases. We have a proprietary technology,
called PhenoSense, for testing drug resistance in viruses that cause serious
diseases such as AIDS, hepatitis B and hepatitis C. Our first product,
PhenoSense HIV, is a test that directly and quantitatively measures resistance
of a patient's HIV to anti-viral drugs. We believe our products have the
potential to revolutionize the way physicians treat many serious viral diseases.

Historically our revenues have consisted primarily of sales of PhenoSense HIV to
pharmaceutical companies utilizing our tests in their clinical trials and
preclinical studies. Recently we began generating revenue from PhenoSense HIV
tests sold to physicians for use in treating their patients. We expect sales of
PhenoSense HIV for patient care to grow due to increased sales and marketing
activity, increasing awareness of the benefits of phenotypic testing, and the
recent publication of guidelines recommending the use of resistance testing in
treating HIV patients. We also expect these revenues to increase substantially
relative to revenues from test sales for clinical trials.

Since our inception, we have incurred significant losses. As of December 31,
1999, our accumulated deficit was $29.6 million. Our losses have resulted
principally from costs incurred in research and development, clinical laboratory
scale-up, and from general and administrative costs associated with our
operations. We expect to continue to incur substantial costs in these areas, as
well as in sales and marketing.

RESULTS OF OPERATIONS

Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

Revenue. Revenue increased to $1.1 million in 1999 from $102,000 in 1998, an
increase of $967,000. This increase was primarily attributable to revenue
recognized from sales in the second half of 1999 to major pharmaceutical
companies, with the balance attributable to revenue recognized from sales to
physicians. In 1998, revenue was solely attributable to sales to pharmaceutical
companies. Our gross margin was approximately 40% in 1999 and approximately 80%
in 1998. Our expenses increased significantly in 1999 to support the expansion
of our manufacturing activities related to our initiation of commercial sales of
PhenoSense HIV tests to physicians in November 1999. Particularly during the
first year of commercial sales, we expect fluctuations in our gross margins.
This is most notably attributable to variations in demand, manufacturing
capacity and processes, and the mix of our customers.

Cost of revenue. Cost of revenue increased to $627,000 in 1999 from $17,000 in
1998. The increase was due to the higher volume of test sales in 1999. Included
in these costs are materials, supplies, and labor and overhead related to the
tests.

Research and development. Research and development expense increased to $9.6
million in 1999 from $6.0 million in 1998, an increase of $3.6 million. The
increase was primarily the result of increasing capacity and automation for our
PhenoSense HIV test. We also increased our spending on clinical trials of
PhenoSense HIV. We expect research and development spending to increase
significantly over the next several years as we expand our research, product
development and automation efforts.

General and administrative. General and administrative expense increased to $6.8
million in 1999 from $1.8 million in 1998, an increase of $5.0 million. The
increase was related primarily to expanding our executive team, as well as
consulting expense and the settlement of litigation. Non-cash compensation
expense related to

22
<PAGE> 22

granting stock and options increased to $1.1 million in 1999, as discussed
below, from no charge in 1998. We recorded legal expenses in 1999 of
approximately $1.9 million for settlement and other costs arising from a lawsuit
brought by a former officer and stockholder, which was settled in November 1999.

Stock based compensation. Deferred compensation for options granted to employees
is the difference between the exercise price and the deemed fair value for
financial reporting purposes of our common stock on the date options were
granted. In connection with the grant of stock options to employees, we recorded
deferred stock compensation of approximately $5.0 million during the year ended
December 31, 1999, of which $490,000 was amortized as a general and
administrative expense in 1999. We also granted a director a stock award of
150,000 shares of fully vested common stock in September 1999. We reflected the
deemed fair value of these shares, $555,000, as a compensation charge in general
and administrative expense in the quarter ended December 31, 1999.

We determined compensation for options granted to non-employees in accordance
with Statement of Financial Accounting Standards No. 123 and the Emerging Issues
Task Force Consensus No. 96-18 as the fair value of the equity instruments
issued. We record compensation for options granted to non-employees as the
related services are rendered, and the value of the compensation may be
periodically remeasured and the expense adjusted accordingly as the underlying
options vest. We recorded an aggregate of $48,000 as a general and
administrative expense in the year ended December 31, 1999 for non-employee
stock based compensation. The aggregate value of $654,000, based on the deemed
fair value of our common stock at December 31, 1999, will be recorded as a
general and administrative expense over the period of the related services,
which is generally three months to four years.

In January and February 2000, we granted employees additional stock options to
purchase 199,193 shares of common stock at $3.70 per share. We will record
additional deferred stock compensation of approximately $1.6 million in the
quarter ending March 31, 2000 to account for the difference between the exercise
price of these employee grants and the deemed fair value for financial reporting
purposes of our common stock on the date of grant. We expect to record
amortization of deferred compensation of approximately $3.6 million as a general
and administrative expense in 2000 related to the employee stock options granted
in 1999 and February 2000. The remaining $2.5 million will be amortized through
January 2004.

In January and February 2000, we also granted non-employees options to purchase
45,000 common shares at $3.70 per share. We will recognize general and
administrative expense related to non-employee stock options recognized over the
respective consultants' service periods and that expense will be based on the
fair value of the stock option using the Black Scholes option valuation model.
The aggregate option fair value of $383,000, based on the fair value of our
common stock as of February 29, 2000, will be recorded over the period of the
related services, which is generally three months to four years. The value may
be periodically remeasured and the expense adjusted accordingly as the
underlying options vest.

Sales and marketing. Sales and marketing expense increased to $1.2 million in
1999 from $484,000 in 1998, an increase of $712,000. This increase was primarily
attributable to hiring our sales force and commencing sales and marketing
activities. In addition, we increased spending on public relations and marketing
materials.

Interest income. Interest income decreased to $249,000 in 1999 from $302,000 in
1998, a decrease of $53,000. This decrease was due to lower average cash and
investment balances in 1999.

Interest expense. Interest expense increased to $243,000 in 1999 from $198,000
in 1998, an increase of $45,000. This increase was due to additional debt
incurred in the second half of 1998 resulting in additional interest expense for
only six months of 1998 compared to the entire year in 1999.

Deemed dividend. In November and December 1999, we sold 1,675,621 shares of
Series C preferred stock for proceeds of $3.1 million. In January and February
2000, we sold an additional 8,461,645 shares of Series C preferred stock for
proceeds of approximately $15.7 million. After reevaluating the fair value of
our common stock in contemplation of this offering, we determined that the
issuance of the Series C preferred stock resulted in a beneficial conversion
feature of approximately $3.1 million in 1999 and $15.7 million in 2000,
calculated in accordance with Emerging Issues Task Force Consensus No. 98-5,
"Accounting for Convertible Securities with

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Beneficial Conversion Features." The beneficial conversion feature was reflected
as a deemed dividend in the Statement of Operations of $3.1 million for the year
ended December 31, 1999 and will be reflected as a deemed dividend of $15.7
million in the first quarter of 2000.

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

Revenue. Revenue increased to $102,000 in 1998 while no revenue were recognized
in 1997. The 1998 revenue was from the sale of PhenoSense HIV tests to one
pharmaceutical company.

Cost of revenue. Cost of revenue was $17,000 in 1998. There was no cost of
revenue in 1997.

Research and development. Research and development expense increased to $6.0
million in 1998 from $2.5 million in 1997, an increase of $3.5 million. The
increase was due primarily to increased staffing and other personnel-related
costs.

General and administrative. General and administrative expense increased to $1.8
million in 1998 from $858,000 in 1997, an increase of $924,000. The increase was
primarily due to increasing our staff in support of our expanding operations. We
recorded legal expenses of approximately $162,000 in 1998 for litigation related
costs.

Sales and marketing. Sales and marketing expense increased to $484,000 in 1998
from no costs incurred in 1997. The cost was related to establishing a sales and
marketing effort as well as incurring market research and promotional expenses
in connection with marketing PhenoSense HIV to pharmaceutical companies which
commenced in late 1998.

Interest income. Interest income increased to $302,000 in 1998 from $262,000 in
1997, an increase of $40,000. This increase was due to higher average cash and
investment balances in 1998.

Interest expense. Interest expense increased to $198,000 in 1998 from $83,000 in
1997, an increase of $115,000. This increase was due to higher average debt
outstanding during 1998.

LIQUIDITY AND CAPITAL RESOURCES

We have financed our operations since inception primarily through private sales
of preferred stock and equipment financing arrangements. As of December 31,
1999, we had received net proceeds of $31.8 million from issuance of preferred
stock. Through December 31, 1999, we financed equipment purchases and leasehold
improvements totaling approximately $3.5 million. As of December 31, 1999, we
had approximately $3.2 million in cash, cash equivalents and restricted cash. In
January and February 2000, we sold Series C preferred stock for aggregate
proceeds of $15.7 million. On a pro forma basis, accounting for the Series C
preferred stock proceeds received in January and February 2000, we had cash,
cash equivalents and restricted cash of $18.8 million as of December 31, 1999.

Our cash balance decreased from $9.6 million as of December 31, 1998 to $3.2
million as of December 31, 1999. This $6.4 million net decrease resulted from
the combination of $13.4 million used in operating activities, $3.9 million used
in investing activities including $2.6 million in capital expenditures, and
$10.0 million provided by financing activities.

We believe that the net proceeds of this offering together with existing cash
and marketable securities, borrowings under equipment financing arrangements and
anticipated cash flow from operations, will be sufficient to support our
operations for at least the next two years. Our actual future capital
requirements will depend on many factors, including the following:

- success of our sales and marketing efforts

- competitive market developments

- progress in and scope of our research and development activities

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Future capital requirements will also depend on the extent to which we acquire
or invest in businesses, products and technologies. If we should require
additional financing due to unanticipated developments, additional financing may
not be available when needed or, if available, we may not be able to obtain this
financing on terms favorable to us or to our stockholders. Insufficient funds
may require us to delay, scale back or eliminate some or all of our research and
development programs, or may adversely affect our ability to operate as a going
concern. If additional funds are raised by issuing equity securities,
substantial dilution to existing stockholders may result.

Subsequent to the commencement of our initial public offering process, we
re-evaluated the deemed fair value of our common stock as of January and
February 2000 and determined it to be $11.90 per share. The difference between
the fair value and the price at which the preferred stock was sold is deemed to
be the equivalent of a preferred stock dividend. Accordingly, for Series C
preferred stock sold for $3.70 per share on an as-if converted basis in January
and February 2000, we will record a deemed dividend of $15.7 million in the
quarter ended March 31, 2000. This represents 100% of the proceeds received for
issuing the beneficially convertible preferred stock, the limit established
under the Emerging Issues Task Force Consenses No. 98-5. The deemed dividend
will increase the loss attributed to common stockholders in the quarter ended
March 31, 2000 and will have no impact on our balance sheet.

Income taxes. We incurred net operating losses in 1997, 1998 and 1999 and
consequently we did not pay any federal, state or foreign income taxes. At
December 31, 1999, we had federal and state net operating loss carryforwards of
approximately $27.3 million and $13.8 million, respectively. The federal net
operating loss and credit carryforwards will expire at various dates during 2010
through 2019, if not utilized. The state of California net operating losses will
begin to expire in 2003.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," as amended,
which will be effective for our fiscal year 2001. SFAS 133 establishes
accounting and reporting standards requiring that every derivative instrument,
including certain derivative instruments embedded in other contracts, be
recorded in the balance sheet as either an asset or liability measured at its
fair value. SFAS 133 also requires that changes in the derivative's fair value
be recognized in earnings unless specific hedge accounting criteria are met. We
believe the adoption of SFAS 133 will not have a material effect on our
financial statements, since we currently do not hold derivative instruments or
engage in hedging activities.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The primary objective of our investment activities is to preserve principal
while at the same time maximizing the income we receive from our investments
without significantly increasing risk. Some of the securities that we invest in
may have market risk. This means that a change in prevailing interest rates may
cause the principal amount of the investment to fluctuate. For example, if we
hold a security that was issued with a fixed interest rate at the
then-prevailing rate and the prevailing interest rate later rises, the principal
amount of our investment will probably decline. To minimize this risk in the
future, we intend to maintain our portfolio of cash equivalents and short-term
investments in a variety of securities, including commercial paper, money market
funds, government and non-government debt securities. The average duration of
all of our investments in 1999 was less than one year. Due to the short-term
nature of these investments, we believe we have no material exposure to interest
rate risk arising from our investments. Therefore we have not included
quantitative tabular disclosure in this prospectus.

We have operated primarily in the United States and all sales to date have been
made in U.S. dollars. Accordingly, we have not had any material exposure to
foreign currency rate fluctuations.

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BUSINESS

We are a biotechnology company developing and marketing innovative products to
guide and improve treatment of viral diseases. We have developed a practical way
of directly measuring the impact of genetic mutations on drug resistance and
using this information to guide therapy. We have a proprietary technology,
called PhenoSense, for testing drug resistance in viruses that cause serious
diseases such as AIDS, hepatitis B and hepatitis C. Our first product,
PhenoSense HIV, is a test that directly and quantitatively measures resistance
of a patient's HIV to anti-viral drugs. The results help physicians select
appropriate drugs for their HIV patients. We are also developing PhenoSense
products for other serious viral diseases and are collecting PhenoSense test
results and related clinical data in an interactive database that we plan to
make available to physicians for use in therapy guidance. We believe our
products have the potential to revolutionize the way physicians treat many
serious viral diseases.

BACKGROUND

Viruses

Viruses are microorganisms that must infect living cells to reproduce, or
replicate. Many viruses cause disease in people. These viruses infect human
cells and replicate, making new viruses that can infect other cells. There are
many different types of viruses, but all viruses share structural and functional
characteristics associated with their ability to replicate. During the
replication cycle, viruses often change slightly, or mutate. For example, in an
untreated HIV patient, as many as ten billion new viruses are produced each day,
and at least one quarter of the new viruses have errors, or mutations, in their
genes. At any given time there can be many different variants of the virus
present within the body, each with a slightly different genetic sequence.

The Viral Drug Resistance Crisis

Viruses are so adaptive that the drugs used to fight them can become
ineffective, making many serious viral diseases almost impossible to cure.
Currently available anti-viral drugs interfere with key viral functions to
prevent viruses from replicating, and therefore slow the progression of disease.
However, these drugs are typically effective for only a limited time because
viruses develop resistance to them through mutation, making the therapy less
effective. A resistant virus is one that is less sensitive to the drug that is
administered. Mutant viruses resistant to a particular drug therapy continue to
replicate while the others are eliminated. Over time the mutant, resistant virus
predominates, and the drug therapy fails. In response to this effect, physicians
now use anti-viral drugs in combination, attacking different targets within a
virus simultaneously. Combination therapy slows replication more effectively
than a single drug, further delaying the development of drug resistance. In the
short term, combination therapy has helped many patients. However, even
combination drug therapy eventually fails in a great majority of patients, due
in large part to the fact that the virus becomes resistant to some or all of the
drugs used in combination.

This drug resistance crisis is most serious in HIV/AIDS. There are currently 14
FDA-approved drugs used in various combinations to treat HIV infections.
Combination therapy requires each drug in the combination to be active for
therapy to be most effective. If any of the drugs are not active, the therapy
will likely fail more quickly. To make matters worse, each treatment failure
increases the risk that the next drug combination will not work, and leaves the
patient with fewer future treatment options. And, not surprisingly, drug
resistant viruses are being transmitted to newly infected individuals,
increasing the risk that initial treatment will not work. New drugs with
increased potency and activity against drug resistant viruses are not becoming
available in time to overcome this crisis. Consequently, physicians are faced
with the challenge of tailoring therapy to individual patients without the tools
necessary to assess drug resistance. In fact, physicians face this challenge
numerous times per year for many patients.

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Resistance Testing

When anti-viral therapy does not completely suppress viral replication, drug
resistant variants can emerge rapidly, within days to weeks. If left unchecked,
patients may be at greater risk of becoming more seriously ill unless effective
drugs are promptly administered. Until recently, physicians chose drugs based on
a patient's treatment history and assumptions regarding drug resistance of the
patient's virus. Without drug resistance tests, physicians select drugs not
knowing which drugs the patient's virus is resistant to, and frequently change
all drugs in a treatment regimen even when some may still be effective. When
physicians select ineffective drugs, patients become more seriously ill, suffer
toxic side effects, and unnecessarily bear the costs of the drugs.

To achieve long term clinical benefit, physicians must select drugs that
maximally suppress viral replication and avoid drugs to which a patient's virus
is resistant. We believe that long term solutions will rely on drug resistance
tests and information systems that can guide physicians in selecting the most
effective drugs against the patient's virus and avoiding drugs to which the
patient's virus is resistant. The need for resistance testing was affirmed in
recent guidelines from a panel led by the U.S. Department of Health and Human
Services recommending that resistance tests be routinely used when treating HIV
patients. Resistance tests can also assist pharmaceutical companies in the
development of drugs to target resistant viruses. In fact, a recent FDA advisory
committee recommended emphatically that resistance testing be used in the
development of all new anti-viral drugs for HIV.

Phenotypic tests determine "phenotype," which refers to an organism's outward
appearance or functional characteristics. For example, eye color is a phenotype.
One viral phenotype is the ability to replicate in the presence of anti-viral
drugs, also referred to as "drug resistance." Phenotypic drug resistance tests
directly measure the sensitivity of a patient's virus to anti-viral drugs by
adding a drug to a virus sample and determining whether the virus is able to
replicate in the presence of the drug. These tests eliminate much of the
guesswork in making treatment decisions by providing the physician with
information about drug resistance of a patient's virus.

Early phenotypic tests required culturing, or growing viruses in the laboratory.
These tests were slow, labor intensive and not easily automated. Since viruses
mutate while growing in culture, the process could produce inaccurate results
since the virus in culture may be different from the virus in the patient. As a
result, early phenotypic testing was impractical for patient management. In the
absence of practical phenotypic drug resistance tests, clinicians began to use
genotypic tests in an attempt to predict drug resistance indirectly. Genotypic
tests detect mutations in the underlying gene sequence, or genotype, and attempt
to correlate these mutations with drug resistance. However, the relationship
between genotype and phenotype is complex and not easily interpreted.

OUR SOLUTION

Our PhenoSense technology has revolutionized viral drug resistance testing. Our
technology uses a genetically engineered virus that replicates only once. As a
result, we avoid the need to culture viruses during testing, which makes the
tests more consistent and accurate and dramatically shortens the time required
to complete them. Also, our tests can be automated and performed in large
numbers, making them practical for routine use in clinical management of
patients. We believe that our tests and the information that we collect from
these tests have the potential to significantly change the way physicians treat
viral diseases.

We believe our PhenoSense technology meets the needs of physicians and patients
because it is:

- DIRECT: detects drug resistance of viruses without need for complex
interpretation of mutations

- QUANTITATIVE: measures the degree of drug resistance and susceptibility,
providing more than a "yes" or "no" answer

- RELIABLE: results are accurate and reproducible

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- COMPREHENSIVE: can evaluate drug resistance to all currently available
anti-viral drugs

- VERSATILE: can be modified to evaluate new classes of anti-viral drugs

- USER-FRIENDLY: results are easy to read and understand

- RAPID: can be performed in eight to ten days, much faster than other
phenotypic resistance tests

The cornerstone of our PhenoSense technology is a proprietary vector, which we
call the "resistance test vector." This vector is a strand of viral genes that
replicates when introduced into a living cell. Our vector includes two key
elements. The first is a gene that produces a protein that can be easily
detected, which we call an "indicator." An example of an indicator we use is
luciferase, which is responsible for the glow of fireflies. The second key
element is one or more specific genes derived from the patient's virus. These
genes correspond to the targets of the antiviral drugs being tested. For
example, many HIV drugs target an enzyme called protease that is needed for HIV
to replicate. We incorporate the gene that makes protease into the vector for
our HIV drug resistance test.

[RESISTANCE TEST VECTOR DIAGRAM]

ARTWORK: Diagram of resistance test vector with labels.

TEXT: Resistance Test Vector.

Construction of a resistance test vector for use in PhenoSense tests
involves:

- the insertion of the specific genes from a patient's virus that correspond
to the targets of anti-viral drugs.

- the inclusion of an indicator, like luciferase, to allow measurement of
replication.

To perform our PhenoSense tests, we:

- obtain a blood sample from the patient

- isolate and inactivate the virus

- copy the viral genes corresponding to the drug targets

- insert these genes into the vector

- introduce the assembled vector into living cells in a test tube

- add anti-viral drugs to the cells

- allow the vector to complete a single round of replication

- measure the replication of the vector using the indicator

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The amount of indicator we detect is used to measure drug resistance. For
example, we measure the amount of light produced by luciferase in our PhenoSense
HIV test. If the virus is sensitive to the drug being tested, less light is
detected. If the virus is resistant to the drug, more light is detected.

We report our resistance test results using curve diagrams, as shown below. We
plot the amount of luciferase, which corresponds to the amount of virus
replication, on the vertical axis against the amount of drug tested on the
horizontal axis. We generate curves for both a patient's virus and a
drug-sensitive control virus, and compare the two curves to quantitatively
measure drug resistance. Viruses with increased resistance require more drug to
inhibit replication. We produce curves for each available drug.

[DRUG SUSCEPTIBILITY CURVES DIAGRAM]

ARTWORK: Two charts with curves, one labeled 'susceptible' and one labeled
'resistant.'

TEXT: Drug Susceptibility Curves.

Test results are reported using curve diagrams. Solid curves represent the
patient's virus and dotted curves represent a drug-sensitive control virus.

Susceptible

- When the patient curve closely aligns with the control curve, the
patient's virus is sensitive to the drug;

Resistant

- When the patient curve shifts to the right of the control curve, the
patient's virus is demonstrating increased resistance. The greater the
curve shift to the right, the greater is the degree of resistance.

OUR STRATEGY

Our objective is to be the leader in developing and commercializing products and
information systems to guide anti-viral therapy. Key elements of our strategy
are to:

- Establish PhenoSense HIV as the Standard of Care. We plan to aggressively
market PhenoSense HIV to physicians directly and through scientific
publications, clinical trials and scientific meetings, and to patients
through direct-to-patient advertising. We intend to rapidly expand our
physician customer base by marketing the product directly to physicians in
the United States through our own sales force, initially focusing on the
1,000 leading physicians who treat 80% of the total HIV/AIDS
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patient population. Numerous pharmaceutical companies are already using
PhenoSense HIV in their clinical trials, which we expect will further
establish the value of our product in treating HIV patients. We also plan to
expand the use of our tests by pharmaceutical companies in their clinical
trials.

- Expand Our PhenoSense Technology to Other Serious Viral Diseases. Using our
proprietary PhenoSense technology, we intend to develop phenotypic drug
resistance testing products for other viral diseases. We are developing a
resistance test for hepatitis B and intend to develop one for hepatitis C.

- Apply Our PhenoSense Technology to Drug Discovery and Development. We are
developing our PhenoSense technology for use in high throughput screening
applications and other drug discovery efforts. We are also assembling a
library of resistance test vectors for testing of drug compounds and
candidates. We intend to enter into corporate partnerships to jointly
discover and develop drug candidates for the treatment of viral diseases.

- Develop Computer-Based Therapy Guidance Tools. We believe that the data
generated from our resistance tests and related patient information will be
useful in guiding treatment decisions. We are assembling a proprietary
database and developing software to enable the use of this information by
physicians and other healthcare providers to guide individual therapy.

- Maintain a Strong Intellectual Property Portfolio. We have patent coverage
for our PhenoSense HIV product and patent applications directed to our other
PhenoSense products. As we expand into new areas and diversify our business,
we intend to build strong intellectual property positions to maintain our
competitive advantage.

PRODUCTS

PHENOSENSE HIV

PhenoSense HIV is a phenotypic drug resistance test that measures the resistance
of HIV to all available anti-viral drugs. When a physician orders a PhenoSense
HIV test, a blood sample is drawn from the patient. This sample is sent to us to
perform the test in our clinical laboratory located in South San Francisco,
California. We then send a report detailing the results of the test to the
physician, typically within two weeks. We began sales and marketing activity for
PhenoSense HIV in November 1999.

HIV now affects nearly one million people in the United States and over 33
million people worldwide. Fourteen anti-viral drugs are FDA-approved for
treatment of HIV infection and more than 20 additional drugs are currently being
tested in clinical trials. Despite the availability of anti-viral drugs, HIV is
difficult to treat effectively because it replicates rapidly and becomes
resistant to individual anti-viral drugs. Selecting the right drugs when
treating HIV patients is often difficult because physicians have limited
information about the susceptibility to specific anti-viral drugs of the HIV
infecting an individual patient. We estimate that the 300,000 HIV/AIDS patients
in the United States currently receiving anti-viral therapy will require an
aggregate of at least 500,000 resistance tests per year.

Physicians are increasingly using resistance testing because drug resistance in
HIV/AIDS treatment has become a serious crisis. New guidelines for the
management of patients with HIV, issued by a panel led by the U.S. Department of
Health and Human Services, recommend that resistance tests be routinely used for
HIV patients. The guidelines also state that it is reasonable to use resistance
testing when selecting an initial anti-viral drug regimen because transmission
of drug resistant strains of HIV has now been documented. In addition, the FDA
Antiviral Drugs Advisory Committee in November 1999 emphatically recommended
that resistance tests should be utilized in the development of new anti-viral
drugs for HIV.

All currently FDA-approved HIV drugs target one of two important steps in the
replication cycle of HIV. One group of drugs, called "reverse transcriptase
inhibitors," blocks the virus from copying its genetic material. Another group,
called "protease inhibitors," blocks the formation of viral proteins that are
necessary for the virus to infect other cells. The vectors used in our
PhenoSense HIV test incorporate the protease and reverse transcriptase gene
segments from the virus of the patient being tested. Based on our
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knowledge of the mechanism of action of all of the HIV drugs currently in
development, we believe we will be able to incorporate appropriate genes
corresponding to the targets of the new drugs into our PhenoSense HIV vector.

Three prospective clinical trials have demonstrated that the use of resistance
testing to guide selection of anti-viral drug treatment regimens leads to
significantly better treatment outcomes than therapy selection without
resistance testing. These trials included patients who had failed a standard
combination therapy regimen. Patients in these trials who had their therapy
guided by resistance tests had, on average, significantly lower amounts of virus
in their blood; and a significantly higher percentage of those patients had
undetectable levels of virus in their blood after therapy.

We have, with our collaborators, performed numerous retrospective clinical
studies that support the conclusion that resistance testing of HIV patients
improves their treatment outcomes. A retrospective study of 20 patients who were
treated with a new drug combination after failing a previous combination regimen
found that those patients whose new regimen included a greater number of
susceptible drugs, as determined using PhenoSense HIV, had a significantly
greater reduction in viral load for a longer period of time than those patients
whose new regimen included fewer susceptible drugs. Another retrospective study
of 71 HIV-infected patients found that PhenoSense HIV was a significantly better
predictor of treatment outcome after failure of multiple treatment regimens than
patient treatment history or other clinical factors. Two additional studies
using PhenoSense HIV detected reduced drug susceptibility in the virus strains
infecting approximately 25% of newly infected and untreated patients,
demonstrating the value of resistance testing for these patients.

We are conducting a prospective clinical trial to reaffirm the usefulness of
PhenoSense HIV. The trial involves 256 patients who are not responding to their
current combination therapy and is measuring treatment outcomes, in the form of
viral suppression, after their treatment regimen changes. One group of patients
is tested using PhenoSense HIV prior to treatment changes. The control group is
not tested. Patient enrollment for the trial is complete. Additional clinical
trials are evaluating the role of PhenoSense HIV in guiding treatment decisions
in newly infected adult patients, in patients treated previously with one
treatment regimen and in patients treated previously with multiple treatment
regimens. We expect these trials to demonstrate the potential benefits of using
PhenoSense HIV at different stages of HIV therapy.

PHENOSENSE HBV

We are currently developing our PhenoSense technology to analyze drug resistance
of hepatitis B virus, or HBV. HBV infection is a leading cause of liver disease
and liver cancer, and leads to more than one million deaths worldwide each year.
The Center for Disease Control and Prevention estimates that there are over one
million people in the United States chronically infected with HBV, and over 350
million people chronically infected worldwide, mostly in Asia. We estimate that
approximately half of those chronically infected would benefit from anti-viral
drug therapy.

As in the case of HIV, drug resistance is a problem when treating HBV. Similar
to the treatment of HIV infection, effective therapy of chronic HBV infection
will likely require complex combinations of anti-viral drugs. As more drugs
become available, physicians will face increasing difficulty selecting the most
appropriate drug combinations for HBV patients. Therefore, we believe drug
resistance testing will play a significant role in guiding HBV treatment.

The FDA has approved two drugs for the treatment of HBV infection and more than
15 drugs are in preclinical or clinical stages of development. Many of these
drugs target HBV reverse transcriptase, which acts in a manner similar to HIV
reverse transcriptase, to prevent the virus from copying its genes. Research
efforts are ongoing to discover drugs that target other aspects of HBV's life
cycle, such as the assembly of HBV viruses, or the entry of HBV into liver
cells. Based on our knowledge of the mechanism of action of these drugs in
research, we believe that we will be able to incorporate genes corresponding to
the targets of these drugs into our PhenoSense HBV vectors.

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As the use of HBV drugs increases, we expect the demand for PhenoSense HBV to
grow dramatically. Prior to that time, we expect PhenoSense HBV will be used in
discovery and development of new HBV drugs.

PHENOSENSE HCV

We have designed and intend to develop our PhenoSense technology to analyze drug
resistance of hepatitis C virus, or HCV. HCV infection causes liver disease and
liver cancer, similar to HBV. The CDC estimates that four million people in the
United States and more than 170 million people worldwide are infected with HCV.
We estimate that approximately 75% of patients infected with HCV may benefit
from anti-viral drug therapy.

HCV replicates and mutates at extremely high rates inside an infected patient,
similar to HIV and HBV. The virus is likely to develop resistance to drugs being
developed for treatment. Complex combinations of drugs may then be required to
increase the success of treatment. As a result, a number of major pharmaceutical
companies are discovering and developing new drugs for HCV.

HCV drugs are in development that target many different aspects of HCV's life
cycle. Similar to HIV drugs, there are efforts to develop HCV protease
inhibitors as well as drugs that block the replication of the genetic material
of HCV or the production of HCV proteins. Based on our knowledge of the
mechanism of action of these drugs in research, we believe we will be able to
incorporate appropriate genes that correspond to the targets of these drugs into
our PhenoSense HCV vector.

We expect PhenoSense HCV will be utilized to assist in the discovery and
development of HCV drugs and the assessment of drug resistance in HCV patients.
As effective treatments for HCV become more widely available, we intend to offer
PhenoSense HCV to assist physicians in drug treatment decisions.

OTHER PRODUCTS

GeneSeq HIV. We have developed a genotypic test, GeneSeq HIV. Genotypic tests
identify gene sequence mutations that may be associated with resistance to
certain drugs. We have developed GeneSeq HIV as a tool to examine and evaluate
the genetic sequences of patients' HIV. We intend to use this genetic sequence
information as a component of the database supporting our Therapy Guidance
System described below. In addition, we also sell GeneSeq HIV to physicians who
request genotypic testing and pharmaceutical companies that are developing new
drugs.

Viral Fitness Test. We are developing a modified version of our PhenoSense
technology to measure viral fitness. Viral fitness is a measure of a virus'
ability to replicate and infect new cells. It is different from resistance in
that it is a measure of ability to replicate, rather than of activity relative
to a particular drug. While this technology is new, we believe that there will
be numerous applications for this test. For example, in a heavily treated
patient infected with a resistant strain of virus with low viral fitness, a
physician may choose to maintain that patient on the regimen even though it does
not fully suppress the virus. We also believe that viral fitness will be an
important data category in our Therapy Guidance System.

THERAPY GUIDANCE SYSTEM

We are developing a proprietary database derived from the results of the
PhenoSense HIV and other tests that we perform, as well as from data we obtain
from other sources. We expect to combine this database with highly sophisticated
data mining and outcome modeling software to build our Therapy Guidance System.
Our Therapy Guidance System database will include genetic and physical
characteristics of viruses, including their drug resistance patterns and genetic
mutations. In addition, we will incorporate other clinical data including viral
load, drug interactions, patient demographic data, drug side effects and
cost-benefit data. We expect our Therapy Guidance System to give doctors an
interactive computer tool that can be used to help them select optimal therapies
based on both virus and patient characteristics. We expect to provide our
Therapy Guidance System as a fee-based service over the Internet.

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<PAGE> 32

DRUG DISCOVERY AND DEVELOPMENT

Drug and Vaccine Screening. We are developing our PhenoSense technology for use
in high throughput screening applications to evaluate large libraries of
potential drugs or vaccines. We believe our drug resistance screening technology
can provide more extensive information about the activity of chemical compounds
than conventional assays. We expect to enter into corporate partnerships to
jointly discover and develop drug candidates for the treatment of viral diseases
as well as potential vaccines. We will evaluate the activity of compounds or
vaccines against viruses selected from our extensive collection of patient
samples.

Clinical Trials. Because clinical trials are the most expensive part of drug
development, pharmaceutical companies are trying to improve the outcomes of
clinical trials by using the methods of "pharmacogenomics," the scientific
discipline focused on how genetic differences among patients determine or
predict responsiveness or adverse reactions to particular drugs. In a similar
way, pharmaceutical companies are applying our PhenoSense technology to help
select patients for clinical trials. This selection process may allow companies
to guide important drug development decisions before large resource commitments
are made. To date, we have signed testing agreements with the following
pharmaceutical companies involved in AIDS drug development: Agouron, Abbott,
Bristol-Myers Squibb, Gilead Sciences, GlaxoWellcome and Merck. We intend to
grow our clinical research business by applying our technology and expertise to
other serious viral diseases.

We are also involved in more than 30 trials with leading government and academic
organizations evaluating a number of HIV drugs and drug regimens including: the
NIH/AIDS Clinical Trials Group, the University of California, San Francisco, the
University of California, San Diego, the Aaron Diamond AIDS Research Center, and
the University of Colorado. We expect these trials will further support the
utility of PhenoSense HIV resistance testing.

SALES AND MARKETING

We commenced sales and marketing activity for PhenoSense HIV in November 1999.
We currently have five experienced sales representatives promoting PhenoSense
HIV and focus on several major U.S. markets -- New York, San Francisco, Los
Angeles, Chicago, Washington, D.C. and Miami. Within these regions, we are
initially targeting the 1,000 leading HIV physicians who treat 80% of the
HIV/AIDS patients in the United States. We plan to aggressively expand our
direct sales force over the coming months. Outside the United States, we intend
to enter into relationships with other companies to serve these markets.

We employ a wide range of public relations and communications channels to
promote our products. Our marketing strategies focus on physician, patient and
payor education in order to increase market awareness of PhenoSense HIV and
resistance testing. We are sponsoring and participating in conferences and
scientific meetings, advertising in relevant journals and publications, and
continuing to develop literature and sales support tools. Additionally we target
patients directly through advertising.

We have implemented a reimbursement strategy relating to PhenoSense HIV. We have
a toll free hotline to assist customers in obtaining reimbursement or
pre-approval for testing services from healthcare payors. We are also actively
educating both private and public payors about ongoing clinical research in drug
resistance testing to maximize reimbursement.

In addition, we plan to make PhenoSense HIV more broadly available through
multiple national and regional reference laboratories and hospitals. We
currently have distribution agreements with national reference laboratories
including Quest Diagnostics, Laboratory Corporation of America, Specialty
Laboratories and American Medical Laboratories. Under these agreements, these
entities perform numerous services for us including collection of samples,
shipping the samples to us, billing and reporting the results to doctors.

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<PAGE> 33

PATENTS AND PROPRIETARY RIGHTS

We will be able to protect our technology from unauthorized use by third parties
only to the extent that our proprietary rights are covered by valid and
enforceable patents or are effectively maintained as trade secrets. Patents and
other proprietary rights are an essential element of our business. We have an
issued U.S. patent, with claims to the method of carrying out our PhenoSense HIV
test and composition of matter claims for our HIV resistance test vector. As of
December 1999, we have filed nine patent applications in the United States and
corresponding foreign patent applications. Our policy is to file patent
applications and to protect technology, inventions and improvements to
inventions that are commercially important to the development of our business.
Our commercial success will depend in part on obtaining this patent protection.
We also seek protection through confidentiality and proprietary information
agreements. Some of the intellectual property we use is owned by a third party.
We license it on a non-exclusive basis. Other companies may have patents or
patent applications relating to products or processes similar to, competitive
with or otherwise related to our products. These products and processes include
technologies relating to hepatitis C virus. Patents covering these technologies
may adversely impact our ability to commercialize one or more of our PhenoSense
products.

Roche License

We license technology for performing a step in our PhenoSense test from Roche
Molecular Systems, Inc. This license is non-exclusive and lasts for the life of
the patent term of the last licensed Roche patent. In exchange for the license,
we have agreed to pay Roche a royalty based on net revenues we receive. We also
agreed to participate in proficiency testing in accordance with applicable
quality assurance standards and to comply with all relevant regulations and
standards. Further, we have agreed to give Roche a reasonable opportunity to
negotiate for a license to use any technology we develop related to the reaction
technology we license from Roche, such as the automation of the method for
performing the reaction.

COMPETITION

We face, and will continue to face, competition from organizations such as other
biotechnology companies and commercial laboratories, as well as academic and
research institutions.

Our major competitors include manufacturers and distributors of phenotypic drug
resistance technology, such as Virco, and makers of genotypic tests and
instrumentation, such as PE Biosystems and Visible Genetics. Each of these
competitors is attempting to establish its test as the standard of care among
opinion leaders. Although genotypic tests are currently cheaper and faster, we
believe that PhenoSense HIV is superior because it eliminates guesswork when
evaluating test results by providing:

- a direct measure which does not rely on correlation between genetic
mutations and drug resistance

- a quantitative measure of the degree of drug resistance

Some of our competitors have substantially greater financial resources and
larger research and development staffs than we do. In addition, they may have
significantly greater experience in developing products, obtaining the necessary
regulatory approvals of products, and the processing and marketing of products.

Our ability to compete successfully will depend, in part, on our ability to:

- demonstrate the degree of clinical benefit of our products relative to their
costs

- develop proprietary products

- develop and maintain products that reach the market first

- develop products that are technologically superior to other products in the
market

- obtain patent or other proprietary protection for our products and
technologies

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<PAGE> 34

- obtain reimbursement coverage from payors

- attract and retain scientific and product development personnel

REGULATION AND REIMBURSEMENT

Regulation of Clinical Laboratory Operations

The Clinical Laboratory Improvement Amendments of 1988, extends federal
oversight to virtually all clinical laboratories by requiring that laboratories
be certified by the federal government, by a federally-approved accreditation
agency or by a state that has been deemed exempt from the regulation's
requirements. Pursuant to these Federal clinical laboratory regulations,
clinical laboratories must meet quality assurance, quality control and personnel
standards. Labs also must undergo proficiency testing and inspections. Standards
are based on the complexity of the method of testing performed by the
laboratory.

These regulations categorize our laboratory as high complexity, and we believe
we are in compliance with the more stringent standards applicable to high
complexity testing for personnel, quality control, quality assurance and patient
test management. Our clinical laboratory holds a Certificate of Registration
under these regulations, which allows us to conduct testing pending
determination of compliance through a survey. Our laboratory recently was
surveyed by the College of American Pathologists, which is a federally-approved
accreditation agency. The College of American Pathologists has not yet issued a
final determination regarding accreditation, and we cannot guarantee that we
will be granted a certificate or accreditation.

In addition to the Federal laboratory regulations, states, including California,
may require laboratory licensure and may adopt regulations that are more
stringent than federal law. We believe we are in material compliance with
California and other applicable state laws and regulations.

The sanctions for failure to comply with Federal or state clinical laboratory
regulations, or accreditation requirements of federally-approved agencies, may
be suspension, revocation or limitation of a laboratory's certificate or
accreditation. There also could be fines and criminal penalties. The suspension
or loss of a license, failure to achieve or loss of accreditation, imposition of
a fine, or future changes in applicable federal or state laws or regulations or
in the interpretation of current laws and regulations, could have a material
adverse effect on our business.

Medical Waste and Radioactive Materials

We are subject to licensing and regulation under federal, state and local laws
relating to the handling and disposal of medical specimens and hazardous waste
and radioactive materials as well as to the safety and health of laboratory
employees. Our clinical laboratory is operated in material compliance with
applicable federal and state laws and regulations relating to disposal of all
laboratory specimens. We utilize the outside vendors for disposal of specimens.

Although we believe that we are currently in compliance in all material respects
with such federal, state and local laws, failure to comply could subject us to
denial of the right to conduct business, fines, criminal penalties and other
enforcement actions.

Occupational Safety

In addition to its comprehensive regulation of safety in the workplace, the
federal Occupational Safety and Health Administration, has established extensive
requirements relating to workplace safety for healthcare employers, including
clinical laboratories, whose workers may be exposed to blood-borne pathogens
such as HIV and the hepatitis B virus. These regulations, among other things,
require work practice controls, protective clothing and equipment, training,
medical follow-up, vaccinations and other measures designed to minimize exposure
to chemicals and transmission of the blood-borne and airborne pathogens.

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<PAGE> 35

Specimen Transportation

Regulations of the Department of Transportation, the Public Health Service and
the Postal Service apply to the surface and air transportation of clinical
laboratory specimens.

Regulation of Coverage and Reimbursement

Revenues for clinical laboratory testing services come from a variety of
sources, including Medicare and Medicaid programs; other third-party payors,
including commercial insurers, Blue Cross Blue Shield plans, health maintenance
and other managed care organizations; and patients, physicians, hospitals and
other laboratories. We have applied to become a Medicare laboratory services
provider. We have submitted Medicaid provider applications in certain key
states. Medicare, Medicaid and most other third party payors do not cover
services they deem to be still investigational or otherwise not reasonable and
necessary for diagnosis or treatment. While recently issued guidelines of the
Department of Health and Human Services recommend drug resistance testing for
HIV patients, this does not assure coverage by Medicare or any other payors.

We are unable to predict whether and under what circumstances Medicare, Medicaid
and other payors will cover resistance testing services. Denial of such coverage
by payors would have a material adverse impact on our business.

Since 1984, Congress has periodically lowered the ceilings on Medicare
reimbursement for clinical laboratory services from previously authorized
levels. In addition, state Medicaid programs are prohibited from paying more
than Medicare for clinical laboratory tests. In most instances, they pay
significantly less. Similarly, other payors, including managed care
organizations, have sought on an ongoing basis to reduce the costs of healthcare
by limiting utilization and payment rates. Actions by Medicare or other payors
to reduce reimbursement rates or limit coverage or utilization of resistance
testing will have a direct adverse impact on our revenues and cash flows. We
cannot predict whether reductions or limitations will occur, though we feel some
reductions are likely.

Fraud and Abuse Regulation

Existing federal laws governing Medicare and Medicaid and other federal
healthcare programs, as well as similar state laws, impose a variety of broadly
described fraud and abuse prohibitions on healthcare providers, including
clinical laboratories. Multiple government agencies enforce these laws. The
Health Insurance Portability and Accountability Act of 1996 provides for the
establishment of a program to coordinate federal, state and local law
enforcement programs. Over the last several years, the clinical laboratory
industry has also been the focus of major government enforcement actions.

One set of fraud and abuse laws, the federal anti-kickback laws, prohibits
clinical laboratories from, among other things, making payments or furnishing
other benefits intended to induce the referral of patients for tests billed to
Medicare, Medicaid, or certain other federally funded programs. California also
has its own Medicaid anti-kickback law, as well as an anti-kickback law that
prohibits payments made to physicians to influence the referral of any patients.
California laws also limit the ability to use a non-employee sales force.

Under another federal provision, known as the "Stark" law or "self-referral"
prohibition, physicians who have an investment or compensation relationship with
a clinical laboratory may not, unless a statutory exception applies, refer
Medicare or Medicaid patients for testing to the laboratory. In addition, a
laboratory may not bill Medicare, Medicaid or any other party for testing
furnished pursuant to a prohibited referral. There is a California self-referral
law, as well, which applies to all patient referrals.

Currently, we have a financial relationship with one referring physician, who
serves as part-time medical director at our clinical laboratory. Very few of
this physician's patients, if any, are federal healthcare program patients. In
addition, we do not bill for services furnished to any patients referred by this
physician. The California anti-kickback law may have exceptions applicable to
our relationship with this physician. We plan to seek a written opinion from
California officials to determine whether this relationship is appropriate.

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<PAGE> 36

There are a variety of other types of federal and state anti-fraud and abuse
laws, including laws prohibiting submission of false or otherwise improper
claims to federal healthcare programs, and laws limiting the extent of any
differences between charges to Medicare and Medicaid and charges to other
parties. We seek to structure our business to comply with the federal and state
anti-fraud and abuse laws. We cannot predict, however, how these laws will be
applied in the future, and we cannot be sure arrangements will not be found in
violation of them. Sanctions for violations of these laws may include exclusion
from participation in Medicare, Medicaid and other federal healthcare programs,
criminal and civil fines and penalties, and loss of license. Any of these could
have a material adverse effect on us.

EMPLOYEES

As of March 24, 2000, we had 109 employees, of whom 10 hold PhD or MD degrees
and 18 hold other advanced degrees. Approximately 41 employees are engaged in
clinical laboratory operations, including 15 licensed healthcare professionals.
There are 25 employees in research and development, and 33 in sales, marketing,
information systems, finance and other administrative functions. We believe we
maintain excellent relations with our employees.

FACILITIES

We currently lease 27,000 square feet of office and laboratory space in South
San Francisco, California. In May 2000, we will begin leasing an additional
40,000 square feet of office and laboratory space at a South San Francisco
location. In July 2001 we will begin leasing a building adjacent to this space,
adding 54,000 square feet of space. We believe these facilities will meet our
space requirements for clinical reference laboratory operations, research and
development, and administration for the next several years. Our lease on our
current and future facilities expire in the years 2004 and 2010, respectively.
All leases provide options to extend.

LEGAL PROCEEDINGS

We are not a party to any legal proceedings.

SCIENTIFIC ADVISORY BOARD

We have established an internationally renowned Scientific Advisory Board to
provide specific expertise in areas of research and development relevant to our
business. Our Scientific Advisory Board meets periodically with our scientific
and development personnel and management to discuss our present and long-term
research and development activities. Scientific Advisory Board members include
the following leaders in scientific and clinical HIV research:

STEPHEN P. GOFF, PHD -- Higgens Professor of Biochemistry and Molecular
Biophysics at the College of Physicians and Surgeons of Columbia University, and
an Investigator of the Howard Hughes Medical Institute

DAVID D. HO, MD -- Scientific Director and Chief Executive Officer of the Aaron
Diamond AIDS Research Center, and a Professor of The Rockefeller University.

STEPHEN H. HUGHES, PHD -- Chief, Retrovirus Replication Laboratory and Head,
Vector Design and Replication Section of the HIV Drug Resistance Program at the
National Cancer Institute -- Frederick Cancer Research and Development Center

DOUGLAS D. RICHMAN, MD -- Professor of Pathology and Medicine (Infectious
Diseases) at the University of California, San Diego School of Medicine

ROBERT T. SCHOOLEY, MD -- Gill Professor of Medicine and Head of the Infectious
Disease Division at the University of Colorado Health Sciences Center

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<PAGE> 37

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth, as of March 24, 2000, certain information
concerning our executive officers and directors:

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
William D. Young................ 55 Chairman, Chief Executive Officer and Director
Martin H. Goldstein............. 50 President and Director
Frank Barker.................... 57 Vice President, Information Technology and
Chief Information Officer
Nicholas S. Hellmann, MD........ 41 Vice President, Clinical Research
Christos J. Petropoulos, PhD.... 46 Vice President, Research and Development
Robin M. Toft................... 39 Vice President, Sales and Marketing
Patricia A. Wray................ 43 Vice President, Human Resources
Richard M. Beleson(1)(2)........ 46 Director
Anders Hove, MD(1).............. 34 Director
Cristina H. Kepner(2)........... 54 Director
Albert L. Zesiger(1)(2)......... 70 Director
</TABLE>

- -------------------------
(1) Member of the compensation committee.

(2) Member of the audit committee.

WILLIAM D. YOUNG has served as our Chief Executive Officer since November 1999
and has served as the Chairman of the Board since May 1999. From March 1997 to
October 1999, Mr. Young was Chief Operating Officer at Genentech, Inc., a
biotechnology company. As COO at Genentech, Mr. Young was responsible for all of
the company's development, operations and commercial functions. Mr. Young joined
Genentech in 1980 as Director of Manufacturing and Process Sciences and held
various positions prior to becoming COO. Prior to joining Genentech, Mr. Young
was employed by Eli Lilly and Company for 14 years. Mr. Young is a member of the
board of directors of IDEC Pharmaceuticals, Inc., VaxGen, Inc. and Energy
Biosystems, Inc. He received his BS in chemical engineering from Purdue
University and his MBA from Indiana University.

MARTIN H. GOLDSTEIN has served as our President since May 1996 and as a director
since November 1995. Mr. Goldstein was one of our co-founders in 1995 and has
served in other executive officer positions, including Chief Executive Officer
and Chief Operating Officer, since that time. From 1993 to May 1996, Mr.
Goldstein was a consultant to privately held biotechnology companies in the
areas of patents and licensing. From 1991 to 1993, Mr. Goldstein was Vice
President, General Counsel and Secretary of Epimmune, Inc., a biotechnology
company. From 1989 to 1991, Mr. Goldstein was Vice President, General Counsel
and Secretary of Xoma Corporation, a biotechnology company. From 1985 to 1989,
Mr. Goldstein was Patent Counsel at Genentech. From 1983 to 1985, he was a
patent attorney at Hoffmann-LaRoche, a pharmaceutical company. He received his
MS in physiology from the University of Florida School of Medicine and a JD from
Cardozo School of Law of Yeshiva University.

FRANK BARKER has served as our Vice President, Information Technology and Chief
Information Officer since November 1999. From 1996 until January 2000, Mr.
Barker was Senior Vice President and Chief Information Officer for HealthCor,
Inc., a home healthcare provider. From 1993 to 1996, Mr. Barker was Vice
President of Client Services for Antrim, Corp., a laboratory information systems
vendor. From 1993 to 1996, he was Chief Operating Officer for CHC, Inc., a
hospital and laboratory information systems vendor.

NICHOLAS S. HELLMANN, MD has served as our Vice President, Clinical Research
since September 1997. From 1995 to 1997, Dr. Hellmann was Director of Clinical
Research at Gilead Sciences, Inc., a biopharmaceutical company. In 1995 he was
employed as a clinical scientist at Genentech. From 1993 to

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<PAGE> 38

1995, he was Associate Director of Antiviral Clinical Research at Bristol-Myers
Squibb, a pharmaceutical company. Dr. Hellmann has been involved with clinical
care of patients with infectious diseases, especially HIV infection, and
infectious disease research since 1982. He received his MD degree from the
University of Kentucky and completed his internal medicine residency and
infectious diseases fellowship training at the University of California, San
Francisco.

CHRISTOS J. PETROPOULOS, PHD has served as our Director of Research and
Development since August 1996, became Senior Director of Research and
Development in September 1997 and was named our Vice President, Research and
Development in November 1999. From 1992 to 1996, Dr. Petropoulos was a scientist
at Genentech where he headed the Molecular Virology Laboratory and the Research
Virology and Molecular Detection Laboratories from 1994 to 1996. Dr. Petropoulos
received his PhD in molecular and cell biology from Brown University.

ROBIN M. TOFT has served as our Vice President, Sales and Marketing since May
1998. From 1996 to May 1998 Ms. Toft was employed with Laboratory Corporation of
America, or LabCorp, a national clinical laboratory, first as national sales
director and then as Associate Vice President of Business Development. From 1991
through 1996, Ms. Toft worked in sales for National Health Laboratories, a
clinical laboratory, which merged with Roche Biomedical Laboratories to form
LabCorp in 1995. Ms. Toft received her BS in medical technology from Michigan
State University.

PATRICIA A. WRAY has served as our Senior Director of Human Resources since
September 1998 and was named our Vice President of Human Resources in November
1999. From 1997 until September 1998, Ms. Wray operated her own human resources
consulting business. From 1989 to 1997, Ms. Wray was an internal consultant and
director with Genentech. She received her MS from Michigan State University.

RICHARD M. BELESON has served on our board of directors since May 1996. Mr.
Beleson is Senior Vice President for Capital Research Company, an investment
company. Prior to joining Capital Research in 1984, he was a research analyst
for Boettcher & Company.

ANDERS HOVE, MD has served on our board of directors since August 1998. Dr. Hove
has been a member of the Bellevue Group in Zurich, Switzerland since 1996, which
focuses on investing in public and private biotechnology companies in the United
States and in Europe. Dr. Hove is also a director of The Medicines Company. From
1992 to 1996, Dr. Hove held various corporate positions in clinical development
and marketing at Ciba-Geigy Pharmaceuticals Division, Basel, Switzerland.

CRISTINA H. KEPNER has served on our board of directors since May 1996. Ms.
Kepner is Director, Executive Vice President and Corporate Finance Director at
Invemed Associates LLC, an investment banking firm which she joined in 1978. Ms.
Kepner serves on the board of directors of Quipp, Inc.

ALBERT L. ZESIGER has served on our board of directors since August 1999. Mr.
Zesiger is a founding Principal of Zesiger Capital Group LLC, an investment
advisory firm. He has been in the money management business for over 30 years.
He also serves on the board of directors of Durect Corporation, Eos
Biotechnology, Inc., Hayes Medical Inc., and Praecis Pharmaceuticals Inc. and is
Co-Chair of Asphalt Green, Inc., a non-profit corporation.

BOARD COMPOSITION

Upon the closing of this offering, in accordance with the terms of our restated
certificate of incorporation, the terms of office of the board of directors will
be divided into three classes:

- Class I directors, whose term will expire at the annual meeting of
stockholders to be held in 2001

- Class II directors, whose term will expire at the annual meeting of
stockholders to be held in 2002

- Class III directors, whose term will expire at the annual meeting of
stockholders to be held in 2003

Our Class I directors will be Messrs. Beleson and Young, our Class II directors
will be Mr. Goldstein and Ms. Kepner, and our Class III directors will be Dr.
Hove and Mr. Zesiger. At each annual meeting of

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<PAGE> 39

stockholders after the initial classification, the successors to directors whose
terms will then expire will be elected to serve from the time of election and
qualification until the third annual meeting following election. Any additional
directorships resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as possible, each class
will consist of one-third of the directors. This classification of the board of
directors may have the effect of delaying or preventing changes in control or
management of our company.

COMMITTEES OF THE BOARD OF DIRECTORS

The audit committee of the board of directors reviews our internal accounting
procedures and consults with and reviews the services provided by our
independent accountants.

Our compensation committee reviews and makes recommendations to the board
concerning compensation and benefits of all of our executive officers,
administers our stock option plan and establishes and reviews general policies
relating to compensation and benefits of our employees.

DIRECTOR COMPENSATION

Our directors do not currently receive any cash compensation for services on the
board of directors or any committee thereof, but directors may be reimbursed for
certain expenses in connection with attendance at board and committee meetings.
In addition, all directors are eligible to participate in our 2000 Equity
Incentive Plan.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During the fiscal year ended December 31, 1999, Messrs. Beleson, Hove and Young
served as members of our compensation committee. None of our executive officers
serves as a member of the board of directors or compensation committee of any
entity that has one or more executive officers serving on our board of directors
or compensation committee.

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<PAGE> 40

EXECUTIVE COMPENSATION

SUMMARY COMPENSATION TABLE

The following table sets forth the compensation awarded or paid to, or earned or
accrued for services rendered to us in all capacities during 1999 by our chief
executive officer, and the four other most highly compensated officers whose
total compensation exceeded $100,000 during 1999. The compensation described in
the table does not include medical, group life insurance or other benefits
which, in the aggregate, are available generally to all our salaried employees
and perquisites and other personal benefits which do not exceed the lesser of
$50,000 or 10% of the executive officer's salary disclosed in this table. We
refer to these executive officers as our "named executive officers" in other
parts of this prospectus.

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION --------------------
------------------------------- NUMBER OF SECURITIES
NAME AND PRINCIPAL POSITION SALARY BONUS OTHER UNDERLYING OPTIONS
--------------------------- -------- -------- ------- --------------------
<S> <C> <C> <C> <C>
William D. Young................. $ 51,868 $825,000(1) -- 650,000(2)
Chairman of the Board and
Chief Executive Officer
Martin H. Goldstein.............. $258,310 -- -- 13,612(3)
President and Director
Nicholas S. Hellmann............. $182,676 $ 45,000 -- --
Vice President, Clinical
Research
Christos J. Petropoulos.......... $130,912 $ 7,421 -- 5,775(3)
Vice President, Research and
Development
Robin M. Toft.................... $158,339 -- $48,084(4) --
Vice President, Sales and
Marketing
</TABLE>

- ---------------------------
(1) Consists of a stock bonus granted to Mr. Young prior to his employment with
us in consideration of his service as our Chairman of the Board. At the time
of grant, these shares had an aggregate fair value of $555,000. For a more
detailed discussion of this grant, see "Employment Agreements -- William D.
Young." Also includes $270,000 in cash bonuses accrued in 1999 that will be
paid in 2000.

(2) For a detailed description of these option grants, see "-- Employment
Agreements -- William D. Young."

(3) This option is intended to be an incentive stock option. The shares
underlying this option vest monthly over 48 months beginning on April 30,
1999. The exercise price of this option is $5.40 per share.

(4) Includes a housing allowance of $20,074 and forgiveness of $28,010 owed to
us by Ms. Toft.

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<PAGE> 41

1999 OPTION GRANTS

The following table sets forth information concerning stock options granted to
each of our named executive officers during 1999:

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
PERCENTAGE AT ASSUMED ANNUAL
NUMBER OF OF TOTAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION ---------------------------
NAME GRANTED YEAR 1999 PER SHARE DATE 5% 10%
---- ---------- ------------ --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
William D. Young.......... 250,000(1)(2) 24.5% $3.14 11/11/09 $5,323,355 $8,941,534
250,000(1)(2) 24.5 3.14 11/11/09 5,323,355 8,941,534
150,000(2) 14.7 3.14 11/11/09 3,194,013 5,364,921
Martin H. Goldstein....... 13,612(3) 1.3 5.40 3/30/09 259,083 456,086
Christos J. Petropoulos... 5,775(3) 0.6 5.40 3/30/09 109,918 193,498
</TABLE>

- ---------------------------
(1) These options were granted outside of our equity incentive plans.

(2) For a description of the vesting of these options, see "-- Employment
Agreements -- William D. Young."

(3) One forty-eighth of the underlying shares vest each month beginning on April
30, 1999.

Except where noted, the figures in the table above represent options granted
under our 2000 Equity Incentive Plan. We granted options to purchase 1,019,675
shares of our common stock in 1999. All options were granted at an exercise
price equal to the fair value of the common stock on the date of grant as
determined by our board of directors.

The exercise price of the options listed in the table above is equal to the fair
value of our common stock on the date of grant, as determined by the board of
directors. Because there has been no public market for our common stock, in
determining the fair value, the board of directors gives consideration to a
number of factors, including the following:

- - the available cash and financial condition of our company and our difficulty
raising capital in 1999

- - the share price in our most recent round of preferred stock financing

- - the material differences between the rights, preferences and privileges of the
most-recently issued series of preferred stock and the rights of the common
stock

- - the stage of development of our company

- - the valuations of other companies in our industry at similar stages of
development

- - other factors that the board of directors deems relevant

In view of the variety of factors considered by the board in determining the
fair market value of our common stock on any given date, the board does not
believe it is practicable to quantify or otherwise assign relative weight to the
specific factors considered in determining fair market value.

You should note the disparity between the exercise price of the options in the
table above and the assumed public offering price. Because of this disparity, we
have used the assumed public offering price to compute the potential realizable
option values in the table above.

The potential realizable value represents amounts, net of exercise price before
taxes, that may be realized upon exercise of the options immediately prior to
the expiration of their terms assuming appreciation of 5% and 10% over the
option term. The 5% and 10% are calculated based on rules promulgated by the
Securities and Exchange Commission and an assumed initial public offering price
of $15.00 per share and do not reflect our estimate of future stock price
growth. The actual value realized may be greater or less than the potential
realizable value set forth in the table.

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<PAGE> 42

1999 OPTION VALUES

The following table sets forth information concerning the number and value of
exercisable and unexercisable options held by each of the named executive
officers as of December 31, 1999. The value of unexercised in-the-money options
at December 31, 1999 represents an amount equal to the difference between the
assumed initial public offering price of $15.00 per share and the option
exercise price, multiplied by the number of unexercised in-the-money options. An
option is in-the-money if the fair value of the underlying shares exceeds the
exercise price of the options.

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 31, 1999 AT DECEMBER 31, 1999
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
William D. Young.................. 533,125 129,375 $6,315,800 $1,513,200
Martin H. Goldstein............... 2,552 11,060 24,499 106,176
Christos J. Petropoulos........... 5,925 7,350 79,933 83,207
Robin M. Toft..................... 19,791 42,709 233,534 503,966
</TABLE>

As of December 31, 1999, 500,000 of the shares subject to options held by
William D. Young would, if exercised, be subject to a repurchase right in our
favor that lapses over time as described in "-- Employment Agreements -- William
D. Young."

EMPLOYEE BENEFIT PLANS

2000 Equity Incentive Plan

In November 1995, our board of directors adopted our 1996 Stock Plan, and the
plan was approved by our stockholders on May 1996. In February 2000, we approved
an amendment and restatement of the plan, and re-named the plan the "2000 Equity
Incentive Plan." As amended, a total of 4,200,000 shares of common stock are
authorized for issuance under the plan. Shares subject to stock awards that have
expired or otherwise terminated without having been exercised in full again
become available for grant.

The plan permits the grant of options to our directors, executive officers, key
employees and consultants and certain of our advisors. Options may be either
incentive stock options to employees within the meaning of Section 422 of the
Internal Revenue Code or non-statutory stock options. In addition, the plan
permits the grant of stock bonuses and rights to purchase restricted stock.
Except in specified circumstances, no person may be granted options covering
more than 1,000,000 shares of common stock in any calendar year.

The plan is administered by the board of directors or a committee appointed by
the board. The board has delegated the authority to administer the plan to our
compensation committee. Subject to the limitations set forth in the plan, the
compensation committee and the administrator have the authority to select the
eligible persons to whom award grants are to be made, to designate the number of
shares to be covered by each award, to determine whether an option is to be an
incentive stock option or a non-statutory stock option, to establish vesting
schedules, to specify the exercise price of options and the type of
consideration to be paid upon exercise and, subject to specified restrictions,
to specify other terms of awards.

The maximum term of options granted under the plan is ten years. Incentive stock
options granted under the plan generally are non-transferable. Non-statutory
stock options generally are non-transferable, although the applicable option
agreement may permit some transfers. Options generally expire from one to three
months after the termination of an optionholder's service. However, if an
optionholder is permanently disabled or dies during his or her service, that
person's options generally may be exercised up to 12 months following disability
or death.

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<PAGE> 43

The exercise price of options granted under the plan is determined by the board
of directors or committee in accordance with the guidelines set forth in the
plan. The exercise price of an incentive stock option cannot be less than 100%
of the fair value of the common stock on the date of grant. The exercise price
of a non-statutory stock option cannot be less than 85% of the fair market value
of the common stock on the date of grant.

Options granted under the plan vest at the rate determined by the board of
directors or committee and specified in the option agreement. The terms of any
stock bonuses or restricted stock purchase awards granted under the plan will be
determined by the board of directors or committee. The purchase price of
restricted stock under any restricted stock purchase agreement will be
determined by the board of directors or committee and will not be less than 85%
of the fair value of our common stock on the date of grant. Stock bonuses and
restricted stock purchase agreements awarded under the plan are generally non-
transferable, although the applicable award agreement may permit some transfers.

In the event of a change in control in our ownership as defined in our plan, all
outstanding stock awards under the plan must either be assumed or substituted by
the surviving entity. In the event the surviving entity does not assume or
substitute such stock awards, then the vesting and exercisability of outstanding
awards will accelerate prior to the change in control and such awards will
terminate to the extent not exercised prior to the change in control. The board
of directors may amend or terminate the plan at any time. Amendments will
generally be submitted for stockholder approval to the extent required by
applicable law.

As of December 31, 1999, we had issued and outstanding under the plan options to
purchase 740,867 shares of common stock and 394,253 shares had been purchased
upon the exercise of previously held options. The per share exercise prices of
these outstanding options range from $0.32 to $5.40. In February 2000, we
granted to our employees and non-employees stock options to purchase 244,193
shares of common stock at an exercise price of $3.70 per share.

2000 Employee Stock Purchase Plan

In February 2000, we adopted the 2000 Employee Stock Purchase Plan. A total of
500,000 shares of common stock has been reserved for issuance under the purchase
plan. The purchase plan is intended to qualify as an employee stock purchase
plan within the meaning of Section 423 of the Internal Revenue Code. Under the
purchase plan, the board of directors may authorize participation by eligible
employees, including executive officers, in periodic offering following the
commencement of the purchase plan. The initial offering under the purchase plan
will commence on the effective date of this offering and terminate on January
31, 2002.

Unless otherwise determined by the board of directors, employees are eligible to
participate in the purchase plan only if they are employed by us or one of our
subsidiaries designated by the board of directors for at least 20 hours per week
and are customarily employed for at least five months per calendar year.
Employees who participate in an offering may have up to 15% of their earnings
withheld pursuant to the purchase plan. The amount withheld is then used to
purchase shares of common stock on specified dates determined by the board of
directors. The price of common stock purchased under the purchase plan will be
equal to 85% of the lower of the fair value of the common stock at the
commencement date of each offering period or the relevant purchase date.
Employees may end their participation in the offering at any time during the
offering period, and participation ends automatically on termination of
employment.

In the event of a merger, reorganization, consolidation or liquidation, the
board of directors has discretion to provide that each right to purchase common
stock will be assumed or an equivalent right substituted by the successor
corporation or the board of directors may provide for all sums collected by
payroll deductions to be applied to purchase stock immediately prior to such
merger or other transaction. The board of directors has the authority to amend
or terminate the purchase plan, provided, however, that no such action may
adversely affect any outstanding rights to purchase common stock.

44
<PAGE> 44

EMPLOYMENT AGREEMENTS

William D. Young

We have an agreement with William D. Young governing his employment as our Chief
Executive Officer. Our employment agreement provides for a base salary of
$300,000 per year, plus a yearly incentive bonus as part of our bonus program
based on objectives established by the board of directors after consultation
with Mr. Young, plus a yearly special bonus of between $50,000 and $100,000,
grossed up for tax purposes. In addition, the agreement contains a
non-solicitation agreement.

As required by the agreement, prior to the commencement of Mr. Young's
employment, we also granted him a stock bonus award of 150,000 fully vested
shares of our common stock, in consideration of his past service as our Chairman
of the Board prior to becoming our chief executive officer. The agreement also
provides for the following:

- a cash bonus in the gross amount of $180,000, granted on January 15, 2000,
and an additional cash bonus in the gross amount of $180,000, to be granted
on April 15, 2000

- an incentive stock option under our 2000 Equity Incentive Plan covering
150,000 shares of our common stock, to vest as to 30,000 shares on December
31, 1999 and as to an additional 2,500 shares at the end of each month
thereafter

- a non-statutory stock option, granted outside of our 2000 Equity Incentive
Plan, covering 250,000 shares of our common stock, to vest as to 25% after
the first year of employment and the remaining 75% in equal installments
over the next three years. This option may be exercised prior to vesting,
but unvested portions acquired will be subject to a repurchase right by us
that will expire gradually consistent with the vesting schedule

- a non-statutory stock option, granted outside of our 2000 Equity Incentive
Plan, covering 250,000 shares of our common stock. This option vests 100%
after the five years of employment, unless either one of the following
occurs before that date:

- a merger or acquisition or initial public offering where the per share
valuation of our common stock is imputed to be more than $18.50, in which
case 125,000 shares shall immediately vest

- our product revenue for any fiscal year exceeds $20.0 million, in which
case 125,000 shares shall immediately vest

This option may also be exercised prior to vesting, subject to our repurchase
right.

Any of these options may be exercised by delivery of a promissory note, and each
of the options immediately becomes fully vested if, within one year of a change
in our control or liquidation, Mr. Young is terminated without cause or resigns
for good reason.

Our agreement with Mr. Young specifies that Mr. Young's employment is at-will.
If we terminate his employment for any reason other than for cause, however, or
if his employment is terminated as a result of death or permanent disability, we
have also agreed to continue to pay him, or his estate, his base salary, at the
level in effect at the time of termination, for an additional 12 months. Also,
we have agreed that in any of these events the vesting of his options shall
accelerate, either for an additional 12 months or, after he has been employed
for more than two years, in full.

Martin H. Goldstein

We have an agreement with Martin H. Goldstein governing his employment as our
President. The agreement provided that the stock options granted to Mr.
Goldstein under the agreement were to vest over four years. These options are
now fully vested.

Our agreement with Mr. Goldstein specifies that Mr. Goldstein's employment is
at-will. If we terminate his employment for any reason other than for cause,
however, or if his employment is terminated as a

45
<PAGE> 45

result of death or permanent disability, we have also agreed to continue to pay
him, or his estate, his base salary, at the level in effect at the time of
termination, for an additional six months.

LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS

Our certificate of incorporation limits the liability of directors to the
maximum extent permitted by Delaware law. In addition, our bylaws require us to
indemnify our directors and executive officers, and allow us to indemnify our
other employees and agents, to the fullest extent permitted by law. We have also
entered into agreements to indemnify some of our directors and executive
officers. We believe that these provisions and agreements are necessary to
attract and retain qualified directors and executive officers. At present, there
is no pending litigation or proceeding involving any director, executive
officer, employee or agent where indemnification will be required or permitted.
We are not aware of any threatened litigation or proceeding that might result in
a claim for such indemnification. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, executive
officers or persons controlling our company pursuant to the foregoing
provisions, we have been informed that, in the opinion of the Securities and
Exchange Commission, such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.

46
<PAGE> 46

PRINCIPAL STOCKHOLDERS

The following table sets forth information regarding beneficial ownership of our
common stock as of March 24, 2000, by:

- each of our directors

- each of our named executive officers

- each person who beneficially owns more than five percent of the outstanding
shares of common stock

- all of our directors and executive officers as a group

Beneficial ownership is determined according to the rules of the Securities and
Exchange Commission, and generally means that a person has beneficial ownership
of a security and warrants if he or she possesses sole or shared voting or
investment power of that security, and includes options and warrants that are
currently exercisable or exercisable within 60 days. Information with respect to
beneficial ownership has been furnished to us by each director, officer or 5% or
more stockholder, as the case may be. Except as otherwise indicated, we believe
that the beneficial owners of the common stock listed below, based on the
information each of them has given to us, have sole investment and voting power
with respect to their shares, except where community property laws may apply.

This table lists applicable percentage ownership based on 14,687,397 shares of
common stock outstanding as of March 24, 2000, and also lists applicable
percentage ownership based on 19,687,397 shares of common stock outstanding
after completion of this offering. Options and warrants to purchase shares of
our common stock that are exercisable within 60 days of March 24, 2000, are
deemed to be beneficially owned by the persons holding these options and
warrants for the purpose of computing percentage ownership of that person, but
are not treated as outstanding for the purpose of computing any other person's
ownership percentage. Shares underlying options and warrants that are deemed
beneficially owned are listed in this table separately in the column labeled
"Shares Subject to Options." These shares are included in the number of shares
listed in the column labeled "Total Number."

Unless otherwise indicated, the address for each person or entity named below is
ViroLogic, Inc., 270 East Grand Avenue, South San Francisco, California 94080.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
---------------------------------------------------------------
SHARES SUBJECT
TOTAL TO OPTIONS PERCENT BEFORE PERCENT AFTER
NAME OF BENEFICIAL OWNER NUMBER AND WARRANTS OFFERING OFFERING
------------------------ ---------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Anders Hove(1)......................... 3,804,710 199,705 25.6% 19.1%
Biotech Growth S.A.
Albert L. Zesiger(2)................... 2,676,598 -- 18.2 13.6
Zesiger Capital Group
Richard M. Beleson(3).................. 955,157 631 6.5 4.9
Capital Management Services, Inc.
Martin H. Goldstein(4)................. 464,813 4,324 3.2 2.4
Cristina H. Kepner(5).................. 360,937 59,445 2.4 1.8
Invemed Associates, Inc.
William D. Young....................... 193,125 43,125 1.3 *
Christos J. Petropoulos................ 82,459 7,459 * *
Nicholas S. Hellmann................... 75,292 292 * *
Robin M. Toft.......................... 25,000 25,000 * *
Daniel Capon(6)........................ 1,831,170 -- 12.5 9.3
All directors and executive officers as
a group (11 persons)(7).............. 8,648,283 350,173 57.5 43.2
</TABLE>

(footnotes on next page)

47
<PAGE> 47

- ---------------------------
* Represents beneficial ownership of less than 1%.

(1) Includes 3,605,005 shares held by Biotech Growth S.A., a fully owned
subsidiary of BB Biotech A.G., and 199,705 shares that Biotech Growth may
acquire on or before May 23, 2000 by exercising warrants that it holds. Mr.
Hove disclaims beneficial ownership of these shares and warrants. Mr. Hove's
business address is c/o Bellevue Research, 1 Cambridge Center, 9th Floor,
Cambridge, MA 02142.

(2) Includes 2,614,098 shares held by entities for whom Zesiger Capital Group
acts as an investment advisor. The largest of these entities is the State of
Oregon Public Employee Retirement system which owns 968,750 shares,
representing approximately 6.6% and 4.9% of the total number of shares
outstanding before and after the offering, respectively. Mr. Zesiger shares
voting and investment power over shares held by these entities and disclaims
beneficial ownership of these shares except to the extent of his pecuniary
interest therein. Mr. Zesiger's business address is c/o Zesiger Capital
Group, 320 Park Avenue, New York, NY 10022.

(3) Includes 941,026 shares held by Capital Management Services, Inc. and 631
shares that Capital Management Services may acquire on or before April 15,
2000 by exercising warrants that it holds. Mr. Beleson shares voting and
investment power over the shares and warrants held by Capital Management
Services and disclaims beneficial ownership of these shares and warrants
except to the extent of his pecuniary interest therein. Mr. Beleson's
business address is c/o Capital Group, One Market, Stewart Tower, Suite
1800, San Francisco, CA 94105.

(4) Includes 50,000 shares held in trust by Mr. Goldstein for his children. Also
includes 8,239 shares held in our 401(k) plan of which Mr. Goldstein serves
as a trustee. Mr. Goldstein disclaims beneficial ownership of these shares.

(5) Includes 267,060 shares held by Invemed Associates, Inc. Ms. Kepner shares
voting and investment power over the shares held by Invemed and disclaims
beneficial ownership of these shares except to the extent of her pecuniary
interest therein. Ms. Kepner's business address is c/o Invemed Associates,
375 Park Avenue, Suite 2205, New York, NY 10152.

(6) Includes 25,000 shares held by Dr. Capon in trust for his children as well
as 150,000 shares held by his wife, Miriam Siekevitz. Dr. Capon disclaims
beneficial ownership of these shares. The business address of Dr. Capon, our
Chairman Emeritus, is 1324 Rollins Road, Burlingame, CA 94010.

(7) Includes:

- shares listed in footnotes 1 through 5

- 10,192 shares acquirable by an executive officer not listed separately in
the table above on or before May 23, 2000 by exercising vested stock
options

48
<PAGE> 48

RELATED PARTY TRANSACTIONS

The following is a description of transactions since inception to which we have
been a party, in which the amount involved exceeds $60,000 and in which any
director, executive officer or holder of more than 5% of our capital stock had
or will have a direct or indirect material interest, other than compensation
arrangements which are described under "Management."

The following persons or entities purchased securities in the amounts set forth,
on an as-converted to common basis, in the chart below. We sold shares of our
Series A preferred stock between May 1996 and May 1997. We sold shares of our
Series B preferred stock in August 1998. We sold shares of our Series C
preferred stock between August 1999 and February 2000.

<TABLE>
<CAPTION>
COMMON SERIES A SERIES B SERIES C
PURCHASER(1) STOCK FINANCING FINANCING FINANCING WARRANTS
------------ --------------- ----------- --------- ----------- --------------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND PRINCIPAL STOCKHOLDERS
Richard M. Beleson.................... -- 843,750 97,276 13,500 631
Capital Management Services, Inc.
Cristina H. Kepner.................... -- 101,562 4,864 195,066 59,445
Invemed Associates, Inc.
Anders Hove........................... -- -- 2,237,354 1,756,756 241,748
Biotech Growth S.A.
Albert L. Zesiger..................... -- 1,124,998 -- 1,676,600 --
Zesiger Capital Group,
Daniel Capon.......................... 1,387,500 -- -- 892,920 --

EXECUTIVE OFFICERS
William D. Young...................... 150,000 -- -- -- --
Martin H. Goldstein................... 402,250 -- -- 50,000 --
Nicholas S. Hellmann.................. 75,000 -- -- -- --
Christos J. Petropoulos............... 75,000 -- -- -- --

OTHER TRANSACTION INFORMATION
Price per share....................... $0.002 to $3.70 $3.20 $6.40 $3.70 $0.02 to $8.00
</TABLE>

- -------------------------
(1) See "Principal Stockholders" for more detail on shares held by these
purchasers.

We were involved in a dispute with Dr. Daniel Capon, a significant stockholder
and former employee. We settled the dispute in November 1999. In connection with
this settlement we purchased shares of our common stock held by him for $225,000
in cash and allowed Dr. Capon to retain 100,000 shares of our common stock that
we had the right to repurchase.

We have entered into an Amended and Restated Investor Rights Agreement with each
of the purchasers of our preferred stock pursuant to which these and other
stockholders will have registration rights following this offering with respect
to their shares of common stock issued upon conversion of their preferred stock.

We have entered into, or prior to this offering will enter into, indemnification
agreements with our directors and executive officers for the indemnification of
and advancement of expenses to these persons to the fullest extent permitted by
law. We also intend to enter into these agreements with our future directors and
executive officers.

49
<PAGE> 49

DESCRIPTION OF CAPITAL STOCK

GENERAL

Immediately following the closing of this offering, our authorized capital stock
will consist of 60,000,000 shares of common stock, $0.001 par value per share,
and 5,000,000 shares of preferred stock, $0.001 par value per share.

This summary does not purport to be complete and is subject to, and qualified in
its entirety by: the provisions of our certificate of incorporation, as amended
and restated; various documents and agreements evidencing warrants and
registration rights, all of which are included as exhibits to the registration
statement which this prospectus is a part; and applicable provisions of Delaware
law.

COMMON STOCK

As of March 24, 2000, and assuming the conversion of all outstanding preferred
stock into common stock upon the closing of this offering, there were
outstanding 14,687,397 shares of common stock held of record by 152
stockholders, options to purchase 1,434,028 shares of common stock and warrants
to purchase 742,083 shares of common stock. The holders of common stock are
entitled to one vote per share on all matters to be voted on by the
stockholders. Subject to preferences that may be applicable to any outstanding
shares of preferred stock, holders of common stock are entitled to receive
ratably such dividends as may be declared by the board of directors out of funds
legally available therefor. In the event of our liquidation, dissolution or
winding up, holders of common stock are entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preferences of any
outstanding shares of preferred stock. Holders of common stock have no
preemptive, conversion, subscription or other rights. There are no redemption or
sinking fund provisions applicable to the common stock. All outstanding shares
of common stock are, and all shares of common stock to be outstanding upon
completion of this offering will be, fully paid and nonassessable.

PREFERRED STOCK

As of March 24, 2000, assuming the closing of this offering, all outstanding
shares of preferred stock would have been converted into 9,587,769 shares of
common stock. See Note 5 to financial statements for a description of the
currently outstanding preferred stock. Following the conversion, our certificate
of incorporation will be amended and restated to delete all references to such
shares of preferred stock. The certificate of incorporation, as restated, gives
to the board of directors the authority, without further action by stockholders,
to issue up to 5,000,000 shares of preferred stock in one or more series and to
fix the rights, preferences, privileges, qualifications and restrictions granted
to or imposed upon such preferred stock, including dividend rights, conversion
rights, voting rights, rights and terms of redemption, liquidation preference
and sinking fund terms, any or all of which may be greater than the rights of
the common stock. The issuance of preferred stock could:

- adversely affect the voting power of holders of common stock and reduce the
likelihood that such holders will receive dividend payments and payments
upon liquidation

- decrease the market price of our common stock

- delay, deter or prevent a change in our control

We have no present plans to issue any shares of preferred stock.

In November 1997, all of our outstanding shares of Series A preferred stock were
converted into shares of common stock. No shares of Series A preferred stock
remain outstanding.

50
<PAGE> 50

WARRANTS

In connection with the private placement of our Series A preferred stock, in May
1996, we issued warrants which are now exercisable for up to 396,094 shares of
common stock, all of which remain unexercised as of March 24, 2000. The exercise
price of these warrants is $3.68 per share.

In connection with the private placement of our Series B preferred stock in
August, 1998, we issued warrants to purchase shares of our common stock and
preferred stock which, after the offering, will be exercisable for 243,122
shares of common stock, of which 243,106 remain unexercised as of March 24,
2000. The exercise prices of these warrants range from $0.02 to $5.91 per share
of common stock.

In connection with leases for our facilities and financing agreements between
May 1998 and August 1998, we issued warrants to purchase 105,883 shares of our
common stock, 102,883 of which remain unexercised as of March 24, 2000. The
exercise prices of these warrants range from $3.68 to $8.00 per share.

The exercise price of each of our outstanding warrants is subject to customary
adjustments upon stock splits, stock dividends or subdivisions. Additionally,
the warrants are subject to customary adjustments upon a sale of all or
substantially all of our assets or upon our reorganization, reclassification,
consolidation or merger. The exercise prices of the warrants are also subject to
adjustment in the event of our subsequent issuance of common stock at a price
per share less than their respective exercise prices. None of our warrants
confer upon the holder any voting or any other rights of our stockholders, and
are subject to certain registration rights agreements described below.

REGISTRATION RIGHTS

Pursuant to the Amended and Restated Investor Rights Agreement, as amended, and
individual warrant agreements between us and some of our investors, the
investors, holding an aggregate of 12,965,690 shares of our common stock issued
or issuable upon conversion of our outstanding preferred stock and upon exercise
of outstanding warrants to purchase common stock, have registration rights
pertaining to the securities they hold, exercisable any time following 180 days
after the effective date of this offering. If we propose to register any of our
securities under the Securities Act for our own account or the account of any of
our stockholders other than these holders of registrable shares, holders of such
registrable shares are entitled to notice of the registration and are entitled
to include registrable shares therein, provided, among other conditions, that
the underwriters of any such offering have the right to limit the number of
shares included in such registration. In addition, commencing 180 days after the
effective date of the registration statement of which this prospectus is a part,
we may be required to prepare and file a registration statement under the
Securities Act at our expense if requested to do so by the holders of at least
30% of the registrable shares, or by holders who propose to register securities,
the aggregate offering price of which, net of underwriting discounts and
commissions, equals or exceeds $10.0 million. We are required to use our best
efforts to effect such registration. We are not obligated to effect more than
three of such stockholder-initiated registrations. Further, holders of
registrable securities may require us to file additional registration statements
on Form S-3.

We are required to bear substantially all costs incurred in connection with any
such registrations, other than underwriting discounts and commissions. The
foregoing registration rights could result in substantial future expenses for us
and adversely affect any future equity offerings.

ANTI-TAKEOVER PROVISIONS

Delaware Law

We are governed by the provisions of Section 203 of the Delaware General
Corporation Law. In general, Section 203 prohibits a public Delaware corporation
from engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. A
51
<PAGE> 51

"business combination" includes mergers, asset sale or other transactions
resulting in a financial benefit to the stockholder. An "interested stockholder"
is a person who, together with affiliates and associates, owns (or within three
years, did own) 15% or more of the corporation's voting stock. The statute could
have the effect of delaying, deferring or preventing a change in our control.

Certificate of Incorporation and Bylaw Provisions

Our certificate of incorporation, which will become effective shortly following
the closing of this offering, provides that our board of directors will be
divided into three classes of directors, with each class serving a staggered
three-year term. The classification system of electing directors may tend to
discourage a third party from making a tender offer or otherwise attempting to
obtain control of us and may maintain the composition of our current board of
directors, as the classification of the board of directors generally increases
the difficulty of replacing a majority of directors. Our certificate of
incorporation provides that any action required or permitted to be taken by our
stockholders must be effected at a duly called annual or special meeting of
stockholders and may not be effected by any consent in writing. In addition, our
bylaws provide that special meetings of our stockholders may be called only by
the chairman of the board, our president, our chief executive officer, or by the
board of directors pursuant to a resolution adopted by a majority of the total
number of authorized directors.

Our certificate of incorporation also specifies that the authorized number of
directors may be changed only by resolution of the board of directors and does
not include a provision for cumulative voting for directors. Under cumulative
voting, a minority stockholder holding a sufficient percentage of a class of
shares may be able to ensure the election of one or more directors. These and
other provisions contained in our certificate of incorporation and bylaws could
delay or discourage certain types of transactions involving an actual or
potential change in our control or change in our management (including
transactions in which stockholders might otherwise receive a premium for their
shares over then current prices) and may limit the ability of stockholders to
remove current management or approve transactions that stockholders may deem to
be in their best interests and, therefore, could adversely affect the price of
our common stock.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is American Stock Transfer
& Trust.

LISTING

We have applied to list our common stock on the Nasdaq National Market under the
symbol "VLGC."

52
<PAGE> 52

SHARES ELIGIBLE FOR FUTURE SALE

When the offering is completed, we will have a total of 19,687,397 shares of
common stock outstanding. The 5,000,000 shares offered by this prospectus will
be freely tradeable unless they are purchased by our "affiliates," as defined in
Rule 144 under the Securities Act. Shares purchased by affiliates may generally
only be sold pursuant to an effective registration statement under the
Securities Act or in compliance with Rule 144. The remaining 14,687,397 shares
are "restricted," which means they were originally sold in offerings that were
not subject to a registration statement filed with the Securities and Exchange
Commission. These restricted shares may generally be resold only through
registration under the Securities Act or under an available exemption from
registration, such as provided through Rule 144.

RULE 144

Generally, Rule 144 as currently in effect provides that, beginning 90 days
after the first date of this prospectus, a person who has beneficially owned
shares of our common stock for at least one year would be entitled to sell,
within any three-month period, a number of shares that does not exceed the
greater of:

- one percent of the number of shares of common stock then outstanding, which
based on the shares outstanding as of March 24, 2000, will equal
approximately 196,874 shares; or

- the average weekly trading volume of the common stock on the Nasdaq National
Market during the four calendar weeks preceeding the filing of the notice on
Form 144 with respect to the sale.

Rule 144 provides limitation as the manner of sales and imposes requirements as
to notice and the availability of current public information about us.

Under Rule 144(k), a person who has not been one of our affiliates at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years, may sell his or her shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144. Therefore, unless otherwise restricted (including
by a lock-up agreement), a person who has been a non-affiliate for at least two
years may sell his or her shares in the open market.

One hundred eighty days after the date of this prospectus 9,464,722 shares of
our common stock will be eligible for sale under Rule 144 (including 2,595,214
shares under Rule 144(k)) or Rule 701. The remaining shares will become eligible
for sale under Rule 144 or Rule 701 from time to time during the 180 days
thereafter.

RULE 701

Rule 701 permits any of our employees, officers, directors or consultants who
purchased their shares under a compensatory stock or option plan or other
written agreement prior to the effective date of this offering to sell such
shares under Rule 144 without complying with the holding period, public
information, volume limitation or notice requirement of Rule 144. All holders of
Rule 701 shares may not sell their Rule 701 shares until 90 days after the date
of this prospectus. However, substantially all shares of our common stock issued
under Rule 701 are subject to lock-up agreements described above.

REGISTRATION RIGHTS

The holders of 12,291,658 shares of common stock and of warrants exercisable for
674,032 shares of common stock will be entitled to certain rights with respect
to the registration of these shares under the Securities Act. After these shares
are registered, they will be freely tradable.

53
<PAGE> 53

LOCK-UP AGREEMENTS

All of our stockholders have entered into lock-up agreements with us prohibiting
them from offering, selling, pledging or otherwise disposing of their shares for
a period of 180 days after the date of this prospectus. In addition, our
directors and officers and other stockholders who together own 10,822,517 shares
of common stock have agreed to similar lock-up agreements with the underwriters
prohibiting them from offering, selling, pledging or otherwise disposing of
these shares for the same 180-day period. This generally means that the
stockholders cannot sell these shares during the 180 days following the date of
this prospectus. See "Underwriting" for additional details.

54
<PAGE> 54

UNDERWRITING

We have entered into an underwriting agreement with the underwriters named
below. CIBC World Markets Corp., ING Barings LLC and Prudential Securities
Incorporated are acting as representatives of the underwriters.

The underwriting agreement provides for the purchase of a specific number of
shares of common stock by each of the underwriters. The underwriters'
obligations are several, which means that each underwriter is required to
purchase a specified number of shares, but is not responsible for the commitment
of any other underwriter to purchase shares. Subject to the terms and conditions
of the underwriting agreement, each underwriter has severally agreed to purchase
the number of shares of common stock set forth opposite its name below:

<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
CIBC World Markets Corp. ...................................
ING Barings LLC.............................................
Prudential Securities Incorporated..........................
-----------------
Total..................................................... 5,000,000
=================
</TABLE>

The underwriters have agreed to purchase all of the shares offered by this
prospectus (other than those covered by the over-allotment option described
below) if any are purchased. Under the underwriting agreement, if an underwriter
defaults in its commitment to purchase shares, the commitments of non-
defaulting underwriters may be increased or the underwriting agreement may be
terminated, depending on the circumstances.

The shares should be ready for delivery on or about , 2000 against
payment in immediately available funds. The representatives have advised us that
the underwriters propose to offer the shares directly to the public at the
public offering price that appears on the cover page of this prospectus. In
addition, the representatives may offer some of the shares to other securities
dealers at such price less a concession of $ per share. The underwriters may
also allow, and such dealers may reallow, a concession not in excess of
$ per share to other dealers. After the shares are released for sale to the
public, the representatives may change the offering price and other selling
terms at various times.

We have granted the underwriters an over-allotment option. This option, which is
exercisable for up to 30 days after the date of this prospectus, permits the
underwriters to purchase a maximum of 750,000 additional shares from us to cover
over-allotments. If the underwriters exercise all or part of this option, they
will purchase shares covered by the option at the initial public offering price
that appears on the cover page of this prospectus, less the underwriting
discount. If this option is exercised in full, the total price to public will be
$ , and the total proceeds to us will be $ . The underwriters
have severally agreed that, to the extent the over-allotment option is
exercised, they will each purchase a number of additional shares proportionate
to the underwriter's initial amount reflected in the foregoing table.

The following table provides information regarding the amount of the discount to
be paid to the underwriters by us:

<TABLE>
<CAPTION>
TOTAL WITHOUT EXERCISE OF TOTAL WITH FULL EXERCISE OF
PER SHARE OVER-ALLOTMENT OPTION OVER-ALLOTMENT OPTION
--------- ---------------------------- ---------------------------
<S> <C> <C> <C>
ViroLogic...................... $ $ $
</TABLE>

We estimate that our total expenses of the offering, excluding the underwriting
discount, will be approximately $1.7 million.

55
<PAGE> 55

We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act.

We, our officers and directors and some other stockholders have agreed to a
180-day "lock up" with respect to 10,822,517 shares of common stock that they
beneficially own, including securities that are convertible into shares of
common stock and securities that are exchangeable or exercisable for shares of
common stock. This means that for a period of 180 days following the date of
this prospectus, we and such persons may not offer, sell, pledge or otherwise
dispose of these securities without the prior written consent of CIBC World
Markets Corp.

The representatives have informed us that they do not expect discretionary sales
by the underwriters to exceed five percent of the shares offered by this
prospectus.

The underwriters have reserved for sale up to 250,000 shares for employees,
directors and other persons associated with us. These reserved shares will be
sold at the initial public offering price that appears on the cover page of this
prospectus. The number of shares available for sale to the general public in the
offering will be reduced to the extent reserved shares are purchased by such
persons. The underwriters will offer to the general public, on the same terms as
other shares offered by this prospectus, any reserved shares that are not
purchased by such persons.

There is no established trading market for the shares. The offering price for
the shares has been determined by us and the representatives, based on the
following factors:

- estimates of our business potential and earnings prospects

- an assessment of our management

- consideration of the above factors in relation to market valuations of
companies in related businesses

Rules of the Securities and Exchange Commission may limit the ability of the
underwriters to bid for or purchase shares before the distribution of the shares
is completed. The underwriters may, however, engage in the following activities
in accordance with the rules:

- Stabilizing transactions -- The representatives may make bids or purchases
for the purpose of pegging, fixing or maintaining the price of the shares,
so long as stabilizing bids do not exceed a specified maximum.

- Over-allotments and syndicate covering transactions -- The underwriters may
create a short position in the shares by selling more shares than are set
forth on the cover page of this prospectus. If a short position is created
in connection with the offering, the representatives may engage in syndicate
covering transactions by purchasing shares in the open market. The
representatives may also elect to reduce any short position by exercising
all or part of the over-allotment option.

- Penalty bids -- If the representatives purchase shares in the open market in
a stabilizing transaction or syndicate covering transaction, they may
reclaim a selling concession from the underwriters and selling group members
who sold those shares as part of this offering.

Stabilization and syndicate covering transactions may cause the price of the
shares to be higher than it would be in the absence of such transactions. The
imposition of a penalty bid might also have an effect on the price of the shares
if it discourages resales of the shares.

Neither we nor the underwriters makes any representation or prediction as to the
effect that the transactions described above may have on the price of the
shares. These transactions may occur on the Nasdaq National Market or otherwise.
If such transactions are commenced, they may be discontinued without notice at
any time.

One of the representatives, Prudential Securities Incorporated, facilitates the
making of new issues online through its Prudential Securities.com division.
Clients of Prudential Advisors(SM) may view offering terms and a prospectus
online and place orders through their financial advisors. Other than the
prospectus in electronic format, the information on the Prudential Securities
Incorporated website is not part of this prospectus or the registration
statement of which this prospectus forms a part and has not been approved or
endorsed by us or any underwriter in such capacity and should not be relied on
by prospective investors.

56
<PAGE> 56

LEGAL MATTERS

Certain legal matters with respect to the legality of the issuance of shares of
common stock offered by this prospectus will be passed upon for us by Cooley
Godward LLP, San Diego, California. Certain legal matters will be passed upon
for the underwriters by McDermott, Will & Emery.

EXPERTS

Ernst & Young LLP, independent auditors, have audited our financial statements
at December 31, 1998 and 1999, and for each of the three years in the period
ended December 31, 1999, as set forth in their report. We have included our
financial statements in the prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We have filed a registration statement on Form S-1 with the Securities and
Exchange Commission in connection with this offering. In addition, upon
completion of the offering, we will be required to file annual, quarterly and
current reports, proxy statements and other information with the Securities and
Exchange Commission. You may read and copy the registration statement and any
other documents filed by us at the Securities and Exchange Commission's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call
the Securities and Exchange Commission at 1-800-SEC-0330 for further information
on the Public Reference Room. Our Securities and Exchange Commission filings are
also available to the public at the Securities and Exchange Commission's
Internet site at "http://www.sec.gov."

This prospectus is part of the registration statement and does not contain all
of the information included in the registration statement. Whenever a reference
is made in this prospectus to any contract or other document of ViroLogic, the
reference may not be complete and you should refer to the exhibits that are a
part of the registration statement for a copy of the contract or document.

After the offering, we expect to provide annual reports to our stockholders that
include financial statements examined and reported on by our independent
auditors.

57
<PAGE> 57

INDEX OF FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........... F-2
Balance Sheets.............................................. F-3
Statements of Operations.................................... F-4
Statement of Stockholders' Equity........................... F-5
Statements of Cash Flows.................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>

F-1
<PAGE> 58

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

To the Board of Directors and Stockholders
ViroLogic, Inc.

We have audited the accompanying balance sheets of ViroLogic, Inc. as of
December 31, 1998 and 1999 and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1999. 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 auditing standards generally accepted
in the United States. 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 ViroLogic, Inc. at December 31,
1998 and 1999 and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States.

Palo Alto, California
February 4, 2000, except as to Notes 1 and 9

for which the date is March , 2000

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

The foregoing report is in the form that will be signed upon the completion of
the one for two reverse stock split described in Notes 1 and 9 to the financial
statements.

/s/ ERNST & YOUNG LLP

Palo Alto, California

February 4, 2000

F-2
<PAGE> 59

VIROLOGIC, INC.

BALANCE SHEETS
(in thousands, except par value per share)

<TABLE>
<CAPTION>
PRO FORMA
STOCKHOLDERS'
DECEMBER 31, EQUITY AT
-------------------- DECEMBER 31,
1998 1999 1999
-------- -------- -------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 9,564 $ 2,208
Accounts receivable, net of allowance for bad debts of
$63.................................................. -- 550
Inventory............................................... -- 287
Restricted cash......................................... -- 950
Other current assets.................................... 100 310
-------- --------
Total current assets................................. 9,664 4,305
Property and equipment, net............................... 3,538 5,028
Other assets.............................................. 73 444
-------- --------
Total assets......................................... $ 13,275 $ 9,777
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ $ 586 $ 1,457
Accrued compensation.................................... 163 560
Other accrued liabilities............................... 568 788
Deferred revenue........................................ 148 81
Current portion of loan................................. 801 897
-------- --------
Total current liabilities............................ 2,266 3,783
Long term portion of loan................................. 1,948 1,051
Long term deferred rent................................... 231 245
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value, 13,959 shares
authorized; issuable in series; 3,935 and 9,749
shares issued and outstanding at December 31, 1998
and 1999, respectively, (2,450 and 5,357,
respectively, on an as-if converted basis) (none-pro
forma); aggregate liquidation preference of $23,349
at December 31, 1999 (none -- pro forma)............. 4 10 $ --
Common stock, $0.001 par value, 30,000 shares
authorized; 4,810 and 5,097 shares issued and
outstanding at December 31, 1998 and 1999,
respectively (10,454 shares -- pro forma)............ 5 5 10
Additional paid-in capital.............................. 21,381 38,812 38,817
Notes receivable from officers and employees............ (95) (46) (46)
Deferred compensation................................... -- (4,478) (4,478)
Accumulated deficit..................................... (12,465) (29,605) (29,605)
-------- -------- --------
Total stockholders' equity........................... 8,830 4,698 $ 4,698
======== ======== ========
Total liabilities and stockholders' equity........... $ 13,275 $ 9,777
======== ========
</TABLE>

See accompanying notes.
F-3
<PAGE> 60

VIROLOGIC, INC.

STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1998 1999
------- ------- --------
<S> <C> <C> <C>
Revenue..................................................... $ -- $ 102 $ 1,069
Operating costs and expenses:
Cost of revenue........................................... -- 17 627
Research and development.................................. 2,458 5,977 9,588
General and administrative................................ 858 1,782 6,804
Sales and marketing....................................... -- 484 1,196
------- ------- --------
Total costs and operating expenses..................... 3,316 8,260 18,215
------- ------- --------
Operating loss.............................................. (3,316) (8,158) (17,146)
Interest income............................................. 262 302 249
Interest expense............................................ (83) (198) (243)
------- ------- --------
Net loss.................................................... (3,137) (8,054) (17,140)
Deemed dividend to preferred stockholders................... -- -- 3,100
------- ------- --------
Net loss allocable to common stockholders................... $(3,137) $(8,054) $(20,240)

Basic and diluted net loss per common share................. $ (1.21) $ (1.71) $ (4.24)
======= ======= ========
Shares used in computing basic and diluted net loss per
common share.............................................. 2,591 4,700 4,772
======= ======= ========
Pro forma basic and diluted net loss per common share
(unaudited)............................................... $ (2.53)
========
Shares used in computing pro forma basic and diluted net
loss per common share (unaudited)......................... 8,015
========
</TABLE>

See accompanying notes.
F-4
<PAGE> 61

VIROLOGIC, INC.

STATEMENT OF STOCKHOLDERS' EQUITY
(in thousands, except shares and per share data)

<TABLE>
<CAPTION>
NOTES
CONVERTIBLE RECEIVABLE
PREFERRED STOCK COMMON STOCK ADDITIONAL FROM
------------------- ------------------- PAID-IN OFFICERS & DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL EMPLOYEES COMPENSATION
---------- ------ ---------- ------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of December 31, 1996.... 2,733,596 $ 3 2,287,500 $ 2 $ 4,531 $ (71) $ --
Issuance of Series A convertible
preferred stock.................. 2,674,216 2 -- -- 4,275 -- --
Conversion of Series A preferred
stock to common stock............ (5,407,812) (5) 2,703,906 3 -- -- --
Repurchase of common stock......... -- -- (265,625) -- 2 -- --
Issuance of common stock in
exchange for notes............... -- -- 106,750 -- 72 (72) --
Exercise of stock options.......... -- -- 3,749 -- 1 -- --
Repayment of notes receivable...... -- -- -- -- -- 4 --
Net loss........................... -- -- -- -- -- -- --
---------- --- ---------- --- ------- ----- -------
Balance as of December 31, 1997.... -- -- 4,836,280 5 8,881 (139) --
Issuance of Series B convertible
preferred stock.................. 3,935,158 4 -- -- 12,508 -- --
Repurchase of common stock......... -- -- (6,666) -- (2) -- --
Exercise of common stock options... -- -- 15,000 -- 5 (4) --
Repurchase of restricted common
shares........................... -- -- (34,375) -- (11) 11 --
Exercise of common stock warrant... -- -- 12 -- -- -- --
Repayment of note receivable....... -- -- -- -- -- 37 --
Net loss........................... -- -- -- -- -- -- --
---------- --- ---------- --- ------- ----- -------
Balance as of December 31, 1998.... 3,935,158 4 4,810,251 5 21,381 (95) --
Exercise of stock options, net of
repurchases...................... -- -- 25,004 -- 18 -- --
Issuance of Series C convertible
preferred stock.................. 5,814,107 6 -- -- 10,729 -- --
Issuance of common stock........... -- -- 261,223 -- 1,113 -- --
Stock award to officer............. -- -- 150 -- 555 -- --
Repayment of note receivable....... -- -- -- -- -- 16 --
Forgiveness of note receivable..... -- -- -- -- -- 33 --
Deferred compensation.............. -- -- -- -- 4,968 -- (4,968)
Amortization of deferred
compensation..................... -- -- -- -- -- -- 490
Stock-based compensation related to
consultant options............... -- -- -- -- 48 -- --
Net loss........................... -- -- -- -- -- -- --
Deemed dividend to preferred
stockholders..................... -- -- -- -- (3,100) -- --
3,100
---------- --- ---------- --- ------- ----- -------
Balance as of December 31, 1999.... 9,749,265 $10 5,096,628 $ 5 $38,812 $ (46) $(4,478)
========== === ========== === ======= ===== =======

TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY
----------- -------------
<S> <C> <C>
Balance as of December 31, 1996.... $ (1,274) $ 3,191
Issuance of Series A convertible
preferred stock.................. -- 4,277
Conversion of Series A preferred
stock to common stock............ -- (2)
Repurchase of common stock......... -- 2
Issuance of common stock in
exchange for notes............... -- --
Exercise of stock options.......... -- 1
Repayment of notes receivable...... -- 4
Net loss........................... (3,137) (3,137)
-------- --------
Balance as of December 31, 1997.... (4,411) 4,336
Issuance of Series B convertible
preferred stock.................. -- 12,512
Repurchase of common stock......... -- (2)
Exercise of common stock options... -- 1
Repurchase of restricted common
shares........................... -- --
Exercise of common stock warrant... -- --
Repayment of note receivable....... -- 37
Net loss........................... (8,054) (8,054)
-------- --------
Balance as of December 31, 1998.... (12,465) 8,830
Exercise of stock options, net of
repurchases...................... -- 18
Issuance of Series C convertible
preferred stock.................. -- 10,735
Issuance of common stock........... -- 1,113
Stock award to officer............. -- 555
Repayment of note receivable....... -- 16
Forgiveness of note receivable..... -- 33
Deferred compensation.............. -- --
Amortization of deferred
compensation..................... -- 490
Stock-based compensation related to
consultant options............... -- 48
Net loss........................... (17,140) (17,140)
Deemed dividend to preferred
stockholders..................... -- --
-------- --------
Balance as of December 31, 1999.... $(29,605) $ 4,698
======== ========
</TABLE>

See accompanying notes.

F-5
<PAGE> 62

VIROLOGIC, INC.

STATEMENTS OF CASH FLOWS
(in thousands)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1998 1999
------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................. $(3,137) $ (8,054) $(17,140)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization.......................... 173 517 1,135
Non-cash stock-based compensation...................... -- -- 2,227
Changes in assets and liabilities:
Accounts receivable.................................. -- -- (550)
Inventory............................................ -- -- (287)
Other current assets................................. (64) 21 (210)
Accounts payable..................................... 394 151 871
Accrued compensation................................. 57 62 397
Other accrued liabilities............................ 30 502 223
Deferred rent........................................ 20 222 11
Deferred revenue..................................... -- 148 (67)
------- -------- --------
Net cash used in operating activities............. (2,527) (6,431) (13,390)
INVESTING ACTIVITIES
Purchases of short-term investments......................... (6,534) (14,500) --
Maturities and sales of short-term investments.............. 5,254 18,423 --
Other assets................................................ 19 (52) (371)
Restricted cash............................................. -- -- (950)
Capital expenditures........................................ (969) (2,585) (2,625)
------- -------- --------
Net cash (used in) provided by investing
activities...................................... (2,230) 1,286 (3,946)
FINANCING ACTIVITIES
Principal payments on long term debt........................ (164) (540) (801)
Borrowings under long term debt............................. 204 2,639 --
Proceeds from issuance of common stock, net of common stock
repurchases............................................... 1 (1) 30
Repayments of notes receivable.............................. 4 37 16
Net proceeds from issuance of preferred stock............... 4,277 12,512 10,735
------- -------- --------
Net cash provided by financing activities......... 4,322 14,647 9,980
------- -------- --------
Net increase (decrease) in cash and cash
equivalents..................................... (435) 9,502 (7,356)
Cash and cash equivalents at beginning of year.............. 497 62 9,564
------- -------- --------
Cash and cash equivalents at end of year.................... $ 62 $ 9,564 $ 2,208
======= ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest...................................... $ 83 $ 198 $ 243
======= ======== ========
SCHEDULE OF NONCASH FINANCING AND INVESTING ACTIVITIES
Notes receivable issued to officers and employees for common
stock purchase............................................ $ 72 $ 4 $ --
======= ======== ========
Deferred stock compensation................................. $ -- $ -- $ 4,968
======= ======== ========
</TABLE>

See accompanying notes.
F-6
<PAGE> 63

VIROLOGIC, INC.

NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Basis of Presentation

ViroLogic, Inc., a biotechnology company, was incorporated in the state of
Delaware on November 14, 1995. ViroLogic is developing and marketing innovative
products to guide and improve treatment of viral diseases. ViroLogic has
developed a way of directly measuring the impact of genetic mutations on drug
resistance and using this information to guide therapy. ViroLogic has a
proprietary technology, called PhenoSense, for testing drug resistance in
viruses that cause serious viral diseases such as AIDS, hepatitis B and
hepatitis C. Through December 31, 1998, ViroLogic was in the development stage.
ViroLogic commenced commercial operations in 1999, and therefore ceased to be in
the development stage during 1999 for financial reporting purposes.

Management's Plans

As of December 31, 1999, ViroLogic had an accumulated deficit of approximately
$29.6 million. Management expects to continue to incur substantial operating
losses for the foreseeable future primarily as a result of expected increases in
expenses for:

- sales and marketing

- expanding patient sample processing capabilities

- research and product development costs

- acquisition of additional office space and other necessary facilities

- general and administrative costs

In January and February 2000, ViroLogic consummated the sale of an additional
8,461,645 shares of Series C convertible preferred stock, or 4,230,823 shares of
common stock on an as-if converted basis, from which ViroLogic received proceeds
of approximately $15.7 million. ViroLogic may need additional funding.

ViroLogic currently does not have a credit facility or committed sources of
capital. To the extent operating and capital resources are insufficient to meet
future requirements, ViroLogic will have to raise additional funds to continue
the development and commercialization of future technologies. These funds may
not be available on favorable terms, or at all. If adequate funds are not
available on attractive terms, ViroLogic may be required to curtail operations
significantly or to obtain funds by entering into financing, supply or
collaboration agreements on unattractive terms. In addition, ViroLogic may
choose to raise additional capital due to market conditions or strategic
considerations even if it has sufficient funds for current or future operating
plans.

ViroLogic believes that its available cash, cash equivalents and restricted cash
of $3.2 million as of December 31, 1999 along with the $15.7 million net
proceeds of its January and February 2000 sales of Series C convertible
preferred stock and available borrowing capacity under existing equipment
financing arrangements will be adequate to fund its operations through at least
December 31, 2000.

Unaudited Pro Forma Stockholders' Equity

If ViroLogic consummates its initial public offering as described in Note 9, all
of the convertible preferred stock outstanding will automatically convert into
common stock. ViroLogic has adjusted the unaudited pro

F-7
<PAGE> 64
VIROLOGIC, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999

forma stockholders' equity at December 31, 1999 for the assumed conversion of
preferred stock based on the shares of preferred stock outstanding at December
31, 1999 and excluding the sales of preferred stock in January and February
2000.

Reverse Stock Split

On February 21, 2000, ViroLogic's board of directors approved a one for two
reverse split of its common stock. The accompanying financial statements have
been adjusted retroactively to reflect the reverse split. The conversion ratios
of the respective series of convertible preferred stock were automatically
adjusted to reflect the reverse split.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.

Cash Equivalents

ViroLogic considers all highly liquid investments with original maturities of
three months or less from the date of purchase to be cash equivalents.
Management determines the appropriate classification of its cash equivalents and
investment securities at the time of purchase and reevaluates such determination
as of each balance sheet date. Management has classified ViroLogic's marketable
securities as available-for-sale securities in the accompanying financial
statements. Available-for-sale securities are carried at fair value, with
unrealized gains and losses reported in a separate component of stockholders'
equity, when material. Interest income includes realized gains and losses. The
cost of securities sold is based on the specific identification method.

ViroLogic invests its excess cash in U.S. government and agency securities, debt
instruments of financial institutions and corporations and money market funds
with strong credit ratings. ViroLogic has established guidelines regarding
diversification of its investments and their maturities which should maintain
safety and liquidity.

Inventory

Inventory is stated at the lower of standard cost, which approximates actual
cost, or market. At December 31, 1999, inventories consisted mainly of raw
materials used in the performance of tests.

Property and Equipment

Property and equipment are recorded at cost and are depreciated using the
straight-line method over the estimated useful lives of the assets, generally
five years. Computer hardware and software are generally depreciated over three
years. Furniture and equipment acquired under equipment financing is amortized
over the shorter of the useful lives of the furniture or equipment or the
applicable financing period. Leasehold improvements are amortized over the
shorter of the estimated useful life of the assets or the lease term.

F-8
<PAGE> 65
VIROLOGIC, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999

Impairment of Long-Lived Assets

In accordance with the provisions of Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" (SFAS 121), ViroLogic reviews long-lived assets,
including property and equipment, for impairment whenever events or changes in
business circumstances indicate that the carrying amount of the assets may not
be fully recoverable. Under SFAS 121, ViroLogic would recognize an impairment
loss when estimated undiscounted future cash flows expected to result from the
use of the asset and its eventual disposition are less than the asset's carrying
amount. Impairment, if any, is assessed using discounted cash flows. Through
December 31, 1999, there have been no such losses.

Revenue Recognition

ViroLogic currently recognizes revenue solely from sales of its tests upon the
delivery of test results to customers. Deferred revenue relates to cash received
in advance of delivery of the test results.

Research and Development

ViroLogic expenses research and development costs as incurred. Research and
development expenses consist primarily of salaries and related personnel costs,
material, supply costs for prototypes and expenses related to clinical trials to
validate ViroLogic's testing processes and procedures and related overhead
expenses.

Stock-Based Compensation

ViroLogic accounts for employee stock option grants using the intrinsic value
method in accordance with Accounting Principles Board Opinion No. 25 (APB 25),
which does not require the recognition of compensation expense for options
granted to employees with exercise prices equal to the fair value of the common
stock at the date of grant. Note 5 includes the fair value disclosures required
by Statement of Financial Accounting Standards Board Statement No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123). SFAS No. 123 requires the
disclosure of pro forma information regarding net loss and net loss per share as
if ViroLogic had accounted for its stock options under the fair value method.

ViroLogic accounts for stock option grants to non-employees in accordance with
the Emerging Issues Task Force Consensus No. 96-18, "Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services," which requires the options subject
to vesting to be periodically re-valued and expensed over their vesting periods.

Comprehensive Income (Loss)

As of January 1, 1998, ViroLogic adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). SFAS 130
requires ViroLogic to include in other comprehensive income unrealized gains or
losses on available-for-sale securities. Comprehensive loss equalled net loss
for the years ended December 31, 1997, 1998 and 1999.

Segment Reporting

Effective in January 1998, ViroLogic adopted Statement of Financial Accounting
Standards No. 131, "Disclosure about Segments of an Enterprise and Related
Information" (SFAS 131). SFAS 131

F-9
<PAGE> 66
VIROLOGIC, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999

establishes annual and interim reporting standards for an enterprise's operating
segments and related disclosures about its products, services, geographic areas
and major customers. ViroLogic has determined that it operates in only one
segment. Accordingly, the adoption of SFAS 131 had no impact on ViroLogic's
financial statements.

Net Loss Per Share

Basic earnings per share is calculated based on the weighted-average number of
common shares outstanding during the periods presented, less the
weighted-average shares outstanding which are subject to ViroLogic's right of
repurchase. Diluted earnings per share give effect to the dilutive effect of
common stock equivalents consisting of convertible preferred stock and stock
options and warrants, calculated using the treasury stock method. Potentially
dilutive securities have been excluded from the diluted earnings per share
computations, as they have an antidilutive effect due to ViroLogic's net loss.

The computation of pro forma net loss per share includes shares issuable upon
the conversion of outstanding shares of convertible preferred stock, using the
as-if converted method, from the original date of issuance.

A reconciliation of shares used in the calculations is as follows:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
---------- ---------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Actual:
Net loss allocable to common shares.................. $(3,137) $(8,054) $(20,240)
======= ======= ========
Weighted-average shares of common stock
outstanding........................................ 2,671 4,826 4,856
Less: weighted-average shares subject to
repurchase......................................... (80) (126) (84)
------- ------- --------
Weighted-average shares used in basic and diluted net
loss per common share.............................. 2,591 4,700 4,772
======= ======= ========
Basic and diluted net loss per common share.......... $ (1.21) $ (1.71) $ (4.24)
======= ======= ========
Pro forma:
Net loss........................................... $(20,240)
========
Shares used above.................................... 4,772
Adjusted to reflect weighted-average effect of
assumed conversion of preferred stock
(unaudited)........................................ 3,243
--------
Weighted-average shares used in pro forma basic and
diluted net loss per common share (unaudited)...... 8,015
========
Pro forma basic and diluted net loss per common share
(unaudited)........................................ $ (2.53)
========
</TABLE>

F-10
<PAGE> 67
VIROLOGIC, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999

The following outstanding options and warrants, prior to the application of the
treasury stock method, and convertible preferred stock, on an as-converted
basis, were excluded from the computation of diluted net loss per share, as they
had an antidilutive effect:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1998 1999
----- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Convertible preferred stock (as-if converted basis)......... -- 2,450 5,357
Stock options............................................... 215 357 1,241
Warrants to purchase common stock........................... 457 518 518
Warrants to purchase preferred stock (as-if converted
basis).................................................... -- 227 227
</TABLE>

Significant Concentrations

Financial instruments that potentially subject ViroLogic to concentrations of
credit risk primarily consist of cash equivalents and marketable securities (see
Note 2).

In 1998, one company represented 100% of total revenues. In 1999, two customers
represented 41% and 33% of total revenues, respectively. The accounts receivable
balances as of December 31, 1999 were $196,289 and $159,825 for these two
customers, respectively.

ViroLogic relies on a few companies as the sole source of various materials in
its testing process. Any extended interruption in the supply of these materials
could result in the failure to meet customer demand.

Recent Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Financial
Instruments and for Hedging Activities" (SFAS 133), which provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities. SFAS 133 is effective for fiscal years
beginning after June 15, 2000 and is not anticipated to have an impact on
ViroLogic's results of operations or financial condition when adopted, as
ViroLogic holds no derivative financial instruments and does not currently
engage in hedging activities.

In March 1998, the AICPA issued Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" (SOP 98-1).
SOP 98-1 requires that entities capitalize certain costs related to internal use
software once certain criteria have been met. ViroLogic adopted the provisions
of SOP 98-1 on January 1, 1999. ViroLogic capitalized costs totaling $222,000
related to laboratory information software placed in service during 1999 in
accordance with SOP 98-1. The expected asset life is 17 months and accumulated
amortization of $104,000 was recorded in 1999.

F-11
<PAGE> 68
VIROLOGIC, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999

2. CASH EQUIVALENTS

The following is a summary of cash equivalents at December 31, 1998 and 1999:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1998 1999
------ ------
(IN THOUSANDS)
<S> <C> <C>
Money market fund........................................... $1,985 $2,111
Corporate notes............................................. 7,538 --
------ ------
$9,523 $2,111
====== ======
</TABLE>

As of December 31, 1998 and 1999, the fair value approximated the amortized cost
of available-for-sale securities. As of December 31, 1998 and 1999, the average
portfolio duration was less than 90 days.

There were no material gross realized gains or losses from sales of securities
or material unrealized gains or losses on investments at December 31, 1998 and
1999.

3. PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------- -------
(IN THOUSANDS)
<S> <C> <C>
Machinery, equipment and furniture.......................... $ 4,266 $ 6,489
Leasehold improvements...................................... 45 447
------- -------
4,311 6,936
Accumulated depreciation and amortization................... (773) (1,908)
------- -------
Property and equipment, net................................. $ 3,538 $ 5,028
======= =======
</TABLE>

4. EQUIPMENT FINANCING AND RENTAL COMMITMENTS

ViroLogic executed an operating lease agreement in December 1997 for its
laboratory and office space. The operating lease provides for two successive
extensions of three and four years, respectively. The lease term expires in
November 2004.

In January 1998, ViroLogic executed a tenant improvement agreement for the
construction of laboratory and office improvements of up to $1.0 million. An
additional obligation of approximately $18,300 per month for 83 months
commencing February 1998 has been added to the operating lease commitment.

In May and November 1999, ViroLogic entered into two operating lease agreements
for two additional facilities. Each lease has a term of 10 years from the lease
commencement date of March 2000 and July 2001, respectively. Each of the leases
provide for two additional successive five-year extensions at the then-
prevailing rate.

In connection with the facility lease executed in May 1999, ViroLogic has a
$950,000 deposit which secures a standby letter of credit expiring in August
2000. This balance has been recorded in the balance sheet as "restricted cash".

F-12
<PAGE> 69
VIROLOGIC, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999

As of December 31, 1999, ViroLogic had $3.5 million of property and equipment
financed through long-term equipment financing obligations. The obligations
under the equipment financings are secured by the equipment financed, bear
interest at a weighted-average fixed rate of approximately 10.4% and are due in
monthly installments through November 2002. Some of these equipment financing
agreements require a balloon payment at the end of their respective loan terms.

As of December 31, 1999, future minimum lease payments under operating and
capital leases and principal payments on equipment loans are as follows:

<TABLE>
<CAPTION>
OPERATING EQUIPMENT
LEASES LOANS
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Year ending December 31:
2000...................................................... $ 1,308 $1,054
2001...................................................... 2,247 823
2002...................................................... 2,961 303
2003...................................................... 3,042 --
2004...................................................... 3,068 --
Thereafter................................................ 15,391 --
------- ------
Total minimum lease and principal payments........ $28,017 2,180
=======
Amount representing interest................................ (232)
------
Present value of future payments............................ 1,948
Current portion of equipment financing...................... (897)
------
Noncurrent portion of equipment financing................... $1,051
======
</TABLE>

Rental expense was approximately $207,000, $827,000 and $851,000 for the years
ended December 31, 1997, 1998 and 1999, respectively.

5. STOCKHOLDERS' EQUITY

Convertible Preferred Stock

Convertible preferred stock is issuable in series, with rights and preferences
designated by series. The shares designated and outstanding are as follows (in
thousands, except per share amounts):

<TABLE>
<CAPTION>
"AS-IF"
CONVERTED
ISSUED AND COMMON DIVIDEND CONVERSION LIQUIDATION
AUTHORIZED OUTSTANDING SHARES RATE RATIO VALUE
---------- ----------- --------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Series B............................ 4,500 3,935 2,450 $0.256 0.623 $12,593
Series C............................ 9,459 5,814 2,907 0.148 0.500 10,756
------ ----- ------ -------
Total............................. 13,959 9,749 5,357 $23,349
====== ===== ====== =======
</TABLE>

The holders of Series B and C preferred stock are entitled to receive
noncumulative dividends, when and if declared, at a rate of $0.256 per share, or
$0.411 per common share on an as-if converted basis, and $0.148 per share, or
$0.296 per common share on an as-if converted basis, per year, respectively, if

F-13
<PAGE> 70
VIROLOGIC, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999

declared, prior to and in preference to the payment of dividends to holders of
common stock. At December 31, 1999, no such dividends had been declared.

Each share of Series B and C preferred stock is convertible into common stock at
the option of the holder, subject to adjustments for antidilution purposes.
Series B and C preferred shares are automatically converted into common stock at
the earlier of (i) the closing of ViroLogic's initial underwritten public
offering which is at a price to the public of at least $14.00 per share and
which results in aggregate proceeds to ViroLogic of at least $15.0 million or
(ii) a vote or written consent of a majority of the shares of preferred stock
then outstanding, voting together as a single class. All preferred shares have
voting rights equal to common stock on an as-if-converted basis.

As long as 2,000,000 shares of Series B preferred stock remain outstanding, the
holders of Series B preferred stock, voting as a separate class, are entitled to
elect two members of the board of directors. The holders of the common stock,
voting together as a separate class, shall be entitled to elect three members of
the board of directors. The holders of Series B and C preferred stock and common
stock, voting together as a class, are entitled to elect the remaining members
to the board of directors.

Series B and C preferred stockholders are entitled to receive, upon liquidation,
a distribution of $3.20 per share and $1.85 per share, respectively, subject to
adjustment for a recapitalization, plus all declared but unpaid dividends, in
preference to common stockholders. Thereafter, the remaining assets and funds,
if any, shall be distributed among common stockholders.

Deemed Dividend

In November and December 1999, ViroLogic consummated the sale of 1,675,621
shares of Series C convertible preferred stock, or 837,810 shares of common
stock at an as-if converted basis, from which ViroLogic received proceeds of
approximately $3.1 million or $1.85 per share, or $3.70 per share on an as-if
converted basis. At the date of issuance, ViroLogic believed the per share price
of $1.85, or $3.70 per share on an as-if converted basis, represented the fair
value of the preferred stock. Subsequent to the commencement of ViroLogic's
initial public offering process, ViroLogic re-evaluated the fair value of its
common stock as of November and December 1999 and deemed it to be $10.50 per
share, for financial reporting purposes. Accordingly, the increase in fair value
has resulted in a beneficial conversion feature of $3.1 million, that has been
recorded as a deemed dividend to preferred stockholders in 1999. ViroLogic
recorded the deemed dividend at the date of issuance by offsetting charges and
credits to additional paid-in-capital, without any effect on total stockholders'
equity. The preferred stock dividend increases the loss applicable to common
stockholders in the calculation of basic and diluted net loss per common share
for the year ended December 31, 1999. The guidelines set forth in the Emerging
Issues Task Force Consensus No. 98-5 limit the amount of the deemed dividend to
the amount of the proceeds of the related financing.

Warrants

In connection with the May 1996 sale of Series A preferred stock, ViroLogic
issued to four investors warrants to purchase an aggregate of 792,188 shares of
Series A preferred stock at a price of $1.84 per share. The warrants expire on
May 30, 2001. Pursuant to the conversion of all Series A preferred stock in
November 1997, these warrants are now exercisable for 396,094 shares of common
stock at an exercise price of $3.68 per share. The value of the warrant was
deemed to be insignificant and, therefore, no value was recorded.

F-14
<PAGE> 71
VIROLOGIC, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999

In connection with the loan agreement signed in October 1996, ViroLogic issued
the lender a warrant to purchase an aggregate of 11,050 shares of ViroLogic's
common stock for $3.68 per share. The warrant expires on October 16, 2002. The
value of the warrant was deemed to be insignificant and, therefore, no value was
recorded.

Pursuant to the operating lease, ViroLogic issued the landlord a warrant to
purchase an aggregate of 100,000 shares of Series A preferred stock, which
converted into 50,000 shares of common stock, for $8.00 per share. The warrant
expires on August 2002. The value of the warrant was deemed to be insignificant
and, therefore, no value was recorded.

In connection with the loan agreement signed in January 1998, ViroLogic issued
the lender a warrant to purchase an aggregate of 34,833 shares of common stock
at a price of $8.00 per share. The warrant is exercisable immediately and
expires on the later of January 2008 or five years subsequent to an initial
public offering. The value of the warrant was deemed to be insignificant and,
therefore, no value was recorded.

In connection with the tenant improvement financing entered into in August 1998,
ViroLogic issued the landlord a warrant to purchase up to an aggregate of 10,000
shares of common stock at a price of $8.00 per share. The warrant term is five
years. The value of the warrant was deemed to be insignificant and, therefore,
no value was recorded.

In connection with the Series B preferred stock issuance in August 1998,
ViroLogic issued to Series B investors warrants to purchase up to 15,890 shares
of common stock at a price of $0.02 per share. The warrant term is 10 years and
was valued at $85,000. ViroLogic issued warrants to purchase 365,000 shares of
Series B preferred stock, or 227,232 shares of common stock on an as-if
converted basis, at a price of $3.68 per share, or $5.91 per common share on an
as-if converted basis. The warrant term is 10 years and was valued at $383,000.
The fair values of these warrants were determined using the Black-Scholes option
valuation model with the following assumptions: risk free interest rate of 5.5%;
term of 10 years; dividend yield of 0%; and expected volatility of ViroLogic's
common stock of .01%.

Common Stock Subject to Repurchase

Stock options granted pursuant to the 1996 Stock Plan may be exercised prior to
vesting, subject to ViroLogic's right to repurchase at the original exercise
price if the holder terminates employment. The right to repurchase lapses over
the original option vesting period, which is generally four years. From
inception through December 31, 1999, employees purchased 344,250 shares of
common stock, of which 66,417 shares are unvested and remain subject to
repurchase. ViroLogic has repurchased 41,040 shares in accordance with its
repurchase rights.

Stock Option and Stock Award to Chief Executive Officer

Pursuant to the employment agreement with the chief executive officer, ViroLogic
granted:

- a stock award of 150,000 shares of fully-vested common stock. ViroLogic
recorded compensation expense of $555,000 for this award in 1999,
representing the fair value of the common stock on the grant date

- an incentive stock option under the Plan covering 150,000 shares of common
stock at an exercise price of $3.14. This option vested as to 30,000 shares
on December 31, 1999 and as to an additional

F-15
<PAGE> 72
VIROLOGIC, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999

2,500 shares at the end of each month thereafter. Deferred compensation of
$1.1 million was recorded on the date of grant. The amount will be recognized
ratably over the vesting period

- a non-statutory stock option, granted outside of the Plan, covering 250,000
shares of common stock at an exercise price of $3.14 per share. This option
vests 25% after the first year of employment and the remaining 75% in equal
monthly installments over the next three years, and may be exercised prior
to vesting. Virologic recorded deferred compensation of $1.8 million on the
date of grant. The amount will be recognized ratably over the vesting period

- a non-statutory stock option, granted outside of the Plan, covering 250,000
shares of common stock at an exercise price of $3.14 per share. Virologic
recorded deferred compensation of $1.8 million on the date of grant and such
amount will be amortized over the five-year period unless the milestones
below are achieved. This option vests 100% after five years of employment,
unless either one of the following occurs before that date:

- a merger or acquisition or initial public offering where the per share
valuation of common stock is imputed to be more than $18.50, in which
case 125,000 shares shall immediately vest, or

- when product revenue for any fiscal year exceeds $20.0 million, in which
case 125,000 shares shall immediately vest

The chief executive officer may exercise any of these options prior to vesting
by either cash or by delivery of a promissory note, and each of the options
immediately becomes fully vested if, within one year of a change in our control
or liquidation, the chief executive officer is terminated without cause or
resigns for good reason.

Stock Option Plans

On May 20, 1996, ViroLogic's board of directors and stockholders adopted the
1996 Stock Plan, which was amended and restated and renamed the 2000 Equity
Incentive Plan in February 2000. This Plan provides for the granting of options
to purchase common stock and other stock awards to employees, officers,
directors and consultants of ViroLogic. ViroLogic generally grants shares of
common stock for issuance under this Plan at no less than the fair value of the
stock on the grant date; however, management is permitted to grant non-statutory
stock options at a price not lower than 85% of the fair value of common stock on
the date of grant. Options granted under this Plan generally vest over four
years at a rate of 25% one year from the grant date and ratably monthly
thereafter.

F-16
<PAGE> 73
VIROLOGIC, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999

A summary of activity under the Plan is as follows:

<TABLE>
<CAPTION>
OUTSTANDING STOCK OPTIONS/STOCK RIGHTS
--------------------------------------
WEIGHTED-AVERAGE
SHARES AVAILABLE NUMBER OF SHARES PRICE PER SHARE
---------------- ----------------- -----------------
<S> <C> <C> <C>
Balances at December 31, 1996........ 190,000 22,500 $0.32
Additional shares authorized....... 375,000 -- --
Options/rights granted............. (305,800) 305,800 1.36
Options/rights exercised........... -- (110,499) 0.66
Options/rights forfeited........... 2,501 (2,501) 0.32
-------- --------
Balances at December 31, 1997........ 261,701 215,300 1.62
Options/rights granted............. (170,880) 170,880 3.98
Options/rights exercised........... -- (15,000) 0.38
Options/rights forfeited........... 14,250 (14,250) 0.98
Options/rights repurchased......... 41,040 -- 0.32
-------- --------
Balances at December 31, 1998........ 146,111 356,930 2.83
Additional shares authorized....... 375,000 -- --
Options/rights granted............. (519,675) 519,675 3.98
Options/rights exercised........... -- (31,254) 2.04
Options/rights forfeited........... 104,484 (104,484) 2.68
Options/rights repurchased......... 6,250 -- 3.20
-------- --------
Balances at December 31, 1999........ 112,170 740,867 3.69
======== ========
</TABLE>

In connection with options granted in 1999, ViroLogic recorded deferred
stock-based compensation of $4,968,000, representing the difference between the
exercise price and the deemed fair value of the Company's common stock at the
date of grant. The amount is being amortized over the vesting period for the
individual options. Amortization of deferred stock-based compensation of
$490,000 was recognized during 1999. In addition, ViroLogic recorded stock-based
compensation of $48,000 in 1999 for services rendered by non-employees.

In January and February 2000, ViroLogic granted employees additional stock
options to purchase 199,193 shares of common stock at $3.70 per share. ViroLogic
will record additional deferred stock compensation of approximately $1.6 million
in the quarter ending March 31, 2000 to account for the difference between the
exercise price of these employee grants and the deemed fair value for financial
reporting purposes of our common stock on the date of grant.

In January and February 2000, ViroLogic also granted non-employees options to
purchase 45,000 common shares at $3.70 per share. ViroLogic will recognize
general and administrative expense related to non-employee stock options over
the respective consultants' service periods, and that expense will be based on
the fair value of the stock option using the Black Scholes option valuation
model. The aggregate value of $383,000, is based on the fair value of
ViroLogic's common stock as of February 29, 2000, will be recorded over the
period of the related services, which is generally three months to four years.
That value may be periodically remeasured as the underlying options vest.

Options were exercisable to purchase 68,291 shares, at a weighted-average
exercise price of $1.58 per share, and 161,035 shares, at a weighted-average
exercise price of $3.08 per share, at December 31, 1998 and 1999, respectively.

F-17
<PAGE> 74
VIROLOGIC, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999

The following table summarizes information about the stock options outstanding
under the Plan at December 31, 1999:

<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
------------------------------------------------------------
NUMBER OF WEIGHTED-AVERAGE REMAINING NUMBER OF OPTIONS
EXERCISE PRICE OPTIONS CONTRACTUAL LIFE EXERCISABLE
-------------- --------- -------------------------- -----------------
<S> <C> <C> <C>
$0.32............................ 5,000 6.75 5,000
0.64............................ 39,000 7.30 25,182
0.80............................ 12,500 7.59 9,375
3.14............................ 326,050 9.85 31,430
3.20............................ 118,780 8.26 51,907
5.40............................ 239,537 9.19 38,141
------- -------
740,867 9.19 161,035
======= =======
</TABLE>

Pro Forma Information

SFAS 123 requires pro forma information regarding net loss, which has been
determined as if ViroLogic accounted for its employee stock options under the
fair value method of SFAS 123. ViroLogic estimates the fair value of these
options at the date of grant using the minimum value method with the following
weighted-average assumptions: risk-free interest rate of 5.5% for grants made in
1998 and 1999; a weighted-average expected life of the option from grant date of
four years; and a dividend yield of zero in 1998 and 1999. The weighted-average
fair value of stock options granted in 1998 and 1999 was $4.34 and $3.98,
respectively.

For pro forma purposes, the estimated fair value of ViroLogic's stock-based
awards to its employees is amortized ratably over the options vesting period.
ViroLogic's pro forma information is as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1997 1998 1999
-------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
As reported:
Net loss........................................... $(3,137) $(8,054) $(20,240)
======= ======= ========
Net loss per common share.......................... $ (1.21) $ (1.71) $ (4.24)
======= ======= ========
Proforma:
Net loss........................................... $(3,162) $(8,153) $(20,491)
======= ======= ========
Net loss per common share.......................... $ (1.22) $ (1.73) $ (4.29)
======= ======= ========
</TABLE>

Because the SFAS No. 123 method of accounting has not been applied to options
granted prior to 1996 and the vesting period of option grants is four years, the
above pro forma effect may not be representative of the pro forma effect to be
expected in future years.

F-18
<PAGE> 75
VIROLOGIC, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999

Reserved Shares

As of December 31, 1999, ViroLogic had reserved shares of common stock for
future issuance as follows:

<TABLE>
<CAPTION>
SHARES RESERVED
---------------
(IN THOUSANDS)
<S> <C>
Stock options............................................... 1,353
Warrants.................................................... 745
Preferred stock............................................. 5,357
-----
7,455
=====
</TABLE>

6. 401(K) PLAN

During 1996, ViroLogic adopted a 401(k) Plan, and matching contributions in the
form of ViroLogic common shares equaling 2.5% of the employee's contributions to
the 401(k) Plan were made by ViroLogic in both 1996 and 1997. ViroLogic amended
the Plan in 1998 to increase the matching percentage to 5%. The matching
contribution vests ratably over four years. ViroLogic recorded compensation
expense of $37,000 in 1999. ViroLogic has issued an aggregate of 8,254 shares
under the 401(k) Plan through December 31, 1999.

7. INCOME TAXES

As of December 31, 1999 and 1998, ViroLogic had federal and state net operating
loss carryforwards of approximately $27.3 million and $13.8 million,
respectively. ViroLogic also had research and other tax credit carryforwards of
approximately $1.0 million. The federal net operating loss and credit
carryforwards will expire at various dates beginning in the year 2010 through
2019, if not utilized. The State of California net operating losses will start
to expire in the year 2003, if not utilized.

Utilization of the federal and state net operating loss and credit carryforwards
may be subject to a substantial annual limitation due to the "change in
ownership" provisions of the Internal Revenue Code of 1986. The annual
limitation may result in the expiration of net operating losses and credits
before utilization.

F-19
<PAGE> 76
VIROLOGIC, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets for financial reporting purposes and the
amount used for income tax purposes. Significant components of ViroLogic's
deferred tax assets for federal and state income taxes are as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1998 1999
------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 4,700 $ 10,100
Research and other credits................................ 300 1,000
Capitalized research and development...................... 100 400
Other..................................................... 300 200
------- --------
Total deferred tax assets................................... 5,400 11,700
Valuation allowance......................................... (5,400) (11,700)
------- --------
Net deferred taxes.......................................... $ -- $ --
======= ========
</TABLE>

Due to ViroLogic's lack of earnings history, the net deferred tax assets have
been fully offset by a valuation allowance. The valuation allowance increased by
$2.0 million, $3.4 million and $6.3 million during the years ended December 31,
1997, 1998 and 1999, respectively.

8. LEGAL MATTER

On August 12, 1998, a former officer and stockholder filed a complaint against
ViroLogic. In November 1999, ViroLogic settled the claim. The settlement
included a cash payment of $225,000 and the right to retain 100,000 shares of
ViroLogic's common stock that ViroLogic previously had a right to repurchase.
The right to retain the shares triggered a new measurement date for accounting
purposes. In 1999, ViroLogic recorded $1.9 million of legal fees and settlement
related costs, including the non-cash charge related to the retained common
stock.

9. SUBSEQUENT EVENTS (UNAUDITED)

In January 2000, ViroLogic's board of directors authorized management to file a
registration statement with the Securities and Exchange Commission to permit
ViroLogic to sell its common stock to the public.

At the date of issuance, ViroLogic believed the per share price of $1.85, or
$3.70 per share on an as if converted basis, represented the fair value of the
preferred stock. Subsequent to the commencement of the initial public offering
process, ViroLogic re-evaluated the fair value of its common stock as of January
and February 2000 and deemed it to be $11.90 per share. Accordingly, the
increase in fair value has resulted in a beneficial conversion feature of $15.7
million which will be recorded as a deemed dividend to preferred stockholders in
the quarter ending March 31, 2000 by offsetting charges and credits to
additional paid-in capital without any effect on total stockholders' equity. The
preferred stock dividend will increase the net loss allocable to common
stockholders in the calculation of basic and diluted net loss per common share
in

F-20
<PAGE> 77
VIROLOGIC, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1999

the quarter ending March 31, 2000. The amount of the deemed dividend is limited
to the amount of the proceeds of the related financing pursuant to the
guidelines set forth in the Emerging Issues Task Force Consensus No. 98-5.

In February 2000, the board of directors amended and restated the 1996 Stock
Plan, which was renamed the 2000 Equity Incentive Plan, and increased the shares
reserved for issuance by an additional 3,000,000 shares, subject to stockholder
approval. In February 2000, ViroLogic granted stock options to employees and
non-employees to purchase 244,193 shares of common stock at an exercise price of
$3.70 per share. ViroLogic will record additional deferred compensation of $1.6
million in the quarter ending March 31, 2000 related to the employee stock
option grants.

In February 2000, the board of directors adopted, subject to stockholder
approval, the 2000 Employee Stock Purchase Plan. ViroLogic has reserved a total
of 500,000 shares of common stock for issuance under the 2000 Purchase Plan. The
2000 Purchase Plan permits eligible employees to acquire shares of ViroLogic's
common stock through payroll deductions of up to 15% of their base compensation.
The initial offering period will begin on the effective date of the initial
public offering.

In February 2000, the board of directors approved a one for two reverse split of
its common stock. All common stock, options and warrants to purchase common
stock and per share amounts in the accompanying financial statements have been
adjusted retroactively to reflect the reverse split. The conversion ratios of
the respective series of convertible preferred stock were automatically adjusted
to reflect the reverse split.

F-21
<PAGE> 78

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

[ViroLogic LOGO]

VIROLOGIC, INC.

5,000,000 SHARES

COMMON STOCK

---------------------------
PROSPECTUS
---------------------------

, 2000

CIBC WORLD MARKETS
ING BARINGS
PRUDENTIAL VECTOR HEALTHCARE
A UNIT OF PRUDENTIAL SECURITIES

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

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NO DEALER,
SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE INFORMATION THAT IS NOT
CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT
SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR
SALE IS NOT PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT
ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY
OF THIS PROSPECTUS OR ANY SALE OF THESE SECURITIES.

UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.

<PAGE> 79

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth all expenses payable by the Registrant in
connection with the sale of the common stock being registered. All the amounts
shown are estimates except for the SEC registration fee and the NASD filing fee.

<TABLE>
<S> <C>
Registration fee............................................ $ 24,288
NASD filing fee............................................. 10,000
Nasdaq National Market listing fee.......................... 80,000
Printing and engraving expenses............................. 200,000
Legal fees and expenses..................................... 550,000
Accounting fees and expenses................................ 350,000
Blue Sky fees and expenses.................................. 10,000
Transfer agent and registrar fees........................... 12,000
Directors' and officers' insurance.......................... 325,000
Miscellaneous............................................... 138,712
----------
Total.................................................. $1,700,000
==========
</TABLE>

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

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Under Section 145 of the General Corporation Law of Delaware (the "Delaware
Law"), we have broad powers to indemnify our directors and officers against
liabilities they may incur in such capacities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act").

Our certificate of incorporation and bylaws include provisions to (i) eliminate
the personal liability of its directors for monetary damages resulting from
breaches of their fiduciary duty to the extent permitted by Section 102(b)(7) of
the Delaware Law and (ii) require us to indemnify its directors and officers to
the fullest extent permitted by Section 145 of the Delaware Law, including
circumstances in which indemnification is otherwise discretionary. Pursuant to
Section 145 of the Delaware Law, a corporation generally has the power to
indemnify its present and former directors, officers, employees and agents
against expenses incurred by them in connection with any suit to which they are,
or are threatened to be made, a party by reason of their serving in such
positions so long as they acted in good faith and in a manner they reasonably
believed to be in or not opposed to, the best interests of the corporation and,
with respect to any criminal action, had no reasonable cause to believe their
conduct was unlawful. We believe that these provisions are necessary to attract
and retain qualified persons as directors and officers. These provisions do not
eliminate the directors' duty of care, and, in appropriate circumstances,
equitable remedies such as injunctive or other forms of non-monetary relief will
remain available under Delaware Law. In addition, each director will continue to
be subject to liability for breach of the director's duty of loyalty to us, for
acts or omissions not in good faith or involving intentional misconduct, for
knowing violations of law, for acts or omissions that the director believes to
be contrary to our best interests or the best interests of our stockholders, for
any transaction from which the director derived an improper personal benefit,
for acts or omissions involving a reckless disregard for the director's duty to
us or our stockholders when the director was aware or should have been aware of
a risk of serious injury to us or its stockholders, for acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication of
the director's duty to us or our stockholders, for improper transactions between
the director and us and for improper distributions to stockholders and loans to
directors and officers. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities law or
state or federal environmental laws.

II-1
<PAGE> 80

We have entered into indemnity agreements with each of our directors and
executive officers that require us to indemnify such persons against expenses,
judgments, fines, settlements and other amounts incurred (including expenses of
a derivative action) in connection with any proceeding, whether actual or
threatened, to which any such person may be made a party by reason of the fact
that such person is or was one of our directors or executive officers or any of
our affiliated enterprises, provided that such person acted in good faith and in
a manner such person reasonably believed to be in or not opposed to our best
interests and, with respect to any criminal proceeding, had no reasonable cause
to believe his conduct was unlawful. The indemnification agreements also set
forth certain procedures that will apply in the event of a claim for
indemnification thereunder.

At present, there is no pending litigation or proceeding involving any of our
directors or officers as to which indemnification is being sought nor are we
aware of any threatened litigation that may result in claims for indemnification
by any officer or director.

We have an insurance policy covering our officers and directors with respect to
certain liabilities, including liabilities arising under the Securities Act or
otherwise.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

Since inception, we have sold and issued the following unregistered securities:

(a) On February 7, 1996 we issued and sold 2,037,500 shares of common
stock for an aggregate purchase price of $4,075.00 to three of our
founders, four consultants and three accredited investors. For these
issuances we relied on the exemptions provided by Section 4(2) of the
Securities Act and Rule 701 promulgated thereunder.

(b) On May 9, 1996 we issued and sold 12,500 shares of common stock
for an aggregate purchase price of $25.00 to one of our consultants. For
these issuances we relied on the exemption provided by Section 4(2) of the
Securities Act and Rule 701 promulgated thereunder.

(c) On May 23, 1996 we issued and sold 2,689,846 shares of Series A
preferred stock for an aggregate purchase price of $4,303,753.60 to 36
accredited investors. For these issuances we relied on the exemption
provided by Section 4(2) of the Securities Act.

(d) On May 23, 1996 we issued warrants to purchase 792,188 shares of
Series A preferred stock at an exercise price purchase price of $1.84 per
share to four accredited investors. For these issuances we relied on the
exemption provided by Section 4(2) of the Securities Act.

(e) On August 26, 1996 we issued and sold 92,500 shares of common
stock to three of our employees for an aggregate purchase price of
$29,600.00. For these issuances we relied on the exemption provided by
Section 4(2) of the Securities Act and Rule 701 promulgated thereunder.

(f) On September 17, 1996 we issued and sold 43,750 shares of Series A
preferred stock for a purchase price of $70,000.00 to the Notkin Living
Trust, an accredited investor. For these issuances we relied on the
exemption provided by Section 4(2) of the Securities Act.

(g) In September and October 1996 we issued and sold 145,000 shares of
common stock to six of our employees for an aggregate purchase price of
$46,400.00. For these issuances we relied on the exemption provided by
Section 4(2) of the Securities Act and Rule 701 promulgated thereunder.

(h) On October 16, 1996 we issued a warrant to purchase 11,050 shares
of common stock at an exercise price of $3.68 per share to Lease Management
Services, Inc. For these issuances we relied on the exemption provided by
Section 4(2) of the Securities Act.

(i) On December 31, 1996 we issued 2,206 shares of common stock to the
ViroLogic, Inc. 401(k) Profit Sharing Plan for an aggregate of $706.08. For
these issuances we relied on the exemption provided by Section 4(2) of the
Securities Act.

(j) On March 3, 1997 we issued and sold 25,000 shares of common stock
to one of our employees for an aggregate purchase price of $8,000.00. For
these issuances we relied on the exemption provided by Section 4(2) of the
Securities Act and Rule 701 promulgated thereunder.

II-2
<PAGE> 81

(k) On May 2, 1997 we issued and sold 2,674,216 shares of Series A
preferred stock for an aggregate purchase price of $4,278,745.60 to 35
accredited investors. For these issuances we relied on the exemption
provided by Section 4(2) of the Securities Act.

(l) In August and September 1997 we issued and sold 81,750 shares of
common stock to one of our employees for a purchase price of $64,320.00.
For these issuances we relied on the exemption provided by Section 4(2) of
the Securities Act and Rule 701 promulgated thereunder.

(m) On August 22, 1997 we issued a warrant to purchase 100,000 shares
of Series A preferred stock at an exercise price of $4.00 per share to
Britannia Pointe Grand Limited Partnership. For these issuances we relied
on the exemption provided by Section 4(2) of the Securities Act.

(n) On December 31, 1997 we issued and sold 625 shares of common stock
to the ViroLogic, Inc. 401(k) Profit Sharing Plan for an aggregate of
$2,001.60. For these issuances we relied on the exemption provided by
Section 4(2) of the Securities Act.

(o) On January 30, 1998 we issued a warrant to purchase 34,833 shares
of common stock at an exercise price of $8.00 per share to MMC/GATX
Partnership No. 1. For these issuances we relied on the exemption provided
by Section 4(2) of the Securities Act.

(p) In August 1998, we issued a warrant to purchase 10,000 shares of
common stock at an exercise price of $8.00 per share to Britannia Pointe
Grand Limited Partnership. For these issuances we relied on the exemption
provided by Section 4(2) of the Securities Act.

(q) On August 25, 1998 we issued warrants to purchase 15,890 shares of
common stock at an exercise price purchase price of $0.02 per share to 19
accredited investors. For these issuances we relied on the exemption
provided by Section 4(2) of the Securities Act.

(r) On August 25, 1998 we issued and sold 3,935,158 shares of Series B
preferred stock for an aggregate purchase price of $12,592,505.60 to 13
accredited investors. For these issuances we relied on the exemption
provided by Section 4(2) of the Securities Act.

(s) On August 25, 1998 we issued warrants to purchase 365,000 shares
of Series B preferred stock at an exercise price purchase price of $3.68
per share to two accredited investors. For these issuances we relied on the
exemption provided by Section 4(2) of the Securities Act.

(t) On December 31, 1998 we issued and sold 1,376 shares of common
stock to the ViroLogic, Inc. 401(k) Profit Sharing Plan for an aggregate of
$7,430.40. For these issuances we relied on the exemption provided by
Section 4(2) of the Securities Act.

(u) On August 23, 1999 we issued and sold 4,138,486 shares of Series C
preferred stock for an aggregate purchase price of $7,656,199.10 to 21
accredited investors. For these issuances we relied on the exemption
provided by Section 4(2) of the Securities Act and Regulation D promulgated
thereunder.

(v) On September 29, 1999 we issued and sold 150,000 shares of our
common stock as a stock bonus award to William D. Young. For these
issuances we relied on the exemption provided by Section 4(2) of the
Securities Act and Rule 701 promulgated thereunder.

(w) In November and December 1999 we issued and sold 1,675,621 shares
of Series C preferred stock for an aggregate purchase price of
$3,099,898.85 to four accredited investors. For these issuances we relied
on the exemption provided by Section 4(2) of the Securities Act and
Regulation D promulgated thereunder.

(x) On December 31, 1999 we issued and sold 4,046 shares of common
stock to the ViroLogic, Inc. 401(k) Profit Sharing Plan for an aggregate of
$12,704.44. For these issuances we relied on the exemption provided by
Section 4(2) of the Securities Act.

(y) In January and February 2000 we issued and sold 8,461,630 shares
of Series C preferred stock for an aggregate purchase price of $15,654,015
to 42 accredited investors. For these issuances we relied on the exemption
provided by Section 4(2) of the Securities Act and Regulation D promulgated
thereunder.

II-3
<PAGE> 82

(z) We have a program of granting a single share of our common stock
to children born to our employees. Under this program we have granted one
share to each of five children of our employees. For these issuances we
rely on the exemption provided by Section 4(2) of the Securities Act.

(aa) From time to time since inception, we have issued and sold shares
of our common stock to employees and consultants upon exercise of stock
options held by them. As of March 24, 2000, we had issued a total of 43,753
shares of common stock as a result of these exercises for an aggregate
exercise price of $47,616.28. For these issuances we relied on the
exemption provided by Section 4(2) of the Securities Act and Rule 701
promulgated thereunder.

(bb) Since inception we have issued and sold 12 shares of our common
stock and 3,000 shares of our Series A preferred stock upon exercise of
outstanding warrants. For these issuances we relied on the exemption
provided by Section 4(2) of the Securities Act.

The recipients of the above-mentioned securities represented their intention to
acquire the securities for investment only and not with a view to distribution
thereof. Appropriate legends were affixed to the stock certificates in such
transactions. All recipients had adequate access, through employment or other
relationships, to information about us.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Certificate of Incorporation, as
currently in effect.(2)
3.2 Bylaws, as currently in effect.(2)
3.3 Amended and Restated Certificate of Incorporation, to be
filed and become effective prior to the closing of this
offering.(2)
3.4 Bylaws, to become effective prior to the closing of this
offering.(2)
3.5 Amended and Restated Certificate of Incorporation, to be
filed and become effective after the closing of this
offering.(2)
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5.
4.2 Specimen Stock Certificate.
4.3 Amended and Restated Investors Rights Agreement by and among
the Company and certain stockholders of the Company dated
August 23, 1999.(2)
4.4 Form of Indemnity Agreement between the Company and its
directors and officers.(2)
4.5 Warrant Agreement by and between ViroLogic and Lease
Management Services, Inc. dated as of October 16, 1996.(2)
4.6 Warrant Agreement by and between ViroLogic and MMC/GATX
Partnership No. 1 dated as of January 30, 1998.(2)
4.7 Form of Warrant to purchase Common Stock.(2)
4.8 Form of Warrant to purchase Common Stock.(2)
4.9 Form of Warrant to Series A Preferred Stock.(2)
4.10 Form of Warrant to Series A Preferred Stock.(2)
4.11 Form of Warrant to Series B Preferred Stock.(2)
4.12 2000 Equity Incentive Plan.(2)
4.13 Form of Stock Option Agreement under the 2000 Equity
Incentive Plan for options granted prior to the
effectiveness of this Registration Statement.(2)
4.14 Form of Stock Option Agreement Pursuant to the 2000 Equity
Incentive Plan for options granted after the effectiveness
of this Registration Statement.(2)
4.15 2000 Employee Stock Purchase Plan and related offering
documents.
5.1 Opinion of Cooley Godward LLP.
10.1+ Agreement with Roche Molecular Systems, Inc. dated July 29,
1997.(2)
10.2 Office Lease by and between ViroLogic and Oyster Point Tech
Center LLC dated as of May 25, 1999.(2)
</TABLE>

II-4
<PAGE> 83

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
10.3 Office Lease by and between ViroLogic and Trammell Crow
Northern California Development, Inc. dated as of November
23, 1999.(2)
10.4 Equipment Financing Agreement by and between ViroLogic and
Lease Management Services, Inc. dated as of October 16,
1996.(2)
10.5 Loan and Security Agreement by and between ViroLogic and
MMC/GATX Partnership No. 1 dated as of January 30, 1998.(2)
10.6 Employment Agreement by and between ViroLogic and William D.
Young dated September 29, 1999.(2)
10.7 Employment Agreement by and between ViroLogic and Martin H.
Goldstein dated , 1996.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.3 Consent of Cooley Godward LLP. Reference is made to Exhibit
5.1(1)
24.1 Power of Attorney. Reference is made to page II-6.
27 Financial Data Schedule.
</TABLE>

- ---------------------------
(1) To be filed by amendment.

(2) Previously filed.

+ Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.

ITEM 17. UNDERTAKINGS.

The undersigned registrant hereby undertakes to provide to the underwriters at
the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to provisions described in Item 14 or otherwise, the registrant has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.

The undersigned Registrant hereby undertakes:

(1) That, for purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497 (h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.

II-5
<PAGE> 84

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of South San
Francisco, County of San Mateo, State of California, on March 27, 2000.

By: /s/ WILLIAM D. YOUNG
------------------------------------
William D. Young
Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ WILLIAM D. YOUNG Chief Executive Officer March 27, 2000
- ----------------------------------------------------- and Chairman
William D. Young (Principal Executive Officer;
Principal Financial and
Accounting Officer)

* President and Director March 27, 2000
- -----------------------------------------------------
Martin H. Goldstein

* Director March 27, 2000
- -----------------------------------------------------
Richard M. Beleson

* Director March 27, 2000
- -----------------------------------------------------
Anders Hove

* Director March 27, 2000
- -----------------------------------------------------
Cristina Kepner

* Director March 27, 2000
- -----------------------------------------------------
Albert L. Zesiger

*By: /s/ WILLIAM D. YOUNG
------------------------------------------------
(William D. Young)
(Attorney-in-fact)
</TABLE>

II-6
<PAGE> 85

EXHIBIT INDEX

- ---------------------------
(1) To be filed by amendment.

(2) Previously filed.

+ Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.

<PAGE> 1

EXHIBIT 1.1

MARCH ___, 2000

5,000,000 Shares

VIROLOGIC, INC.

Common Stock

UNDERWRITING AGREEMENT

_________ __, 2000

IBC WORLD MARKETS CORP.
ING BARINGS LLC
PRUDENTIAL SECURITIES INCORPORATED
on behalf of the Several
Underwriters named on
Schedule I attached hereto

c/o CIBC World Markets Corp.
One World Financial Center
New York, New York 10281

Ladies and Gentlemen:

ViroLogic, Inc., a Delaware corporation (the "Company"), proposes,
subject to the terms and conditions contained herein, to sell to you and the
other underwriters named on Schedule I to this Agreement (the "Underwriters"),
for whom you are acting as Representatives (the "Representatives"), an aggregate
of 5,000,000 shares (the "Firm Shares") of the Company's Common Stock, with a
par value of $0.001 per share (the "Common Stock"). The respective amounts of
the Firm Shares to be purchased by each of the several Underwriters are set
forth opposite their names on Schedule I attached hereto. In addition, the
Company proposes to grant to the Underwriters an option to purchase up to an
additional 750,000 shares (the "Option Shares") of Common Stock from the Company
for the sole purpose of covering over-allotments in connection with the sale of
the Firm Shares. The Firm Shares and the Option Shares are together called the
"Shares."

As part of the offering contemplated by this Agreement, the
Representatives have agreed to reserve out of the Firm Shares purchased by them
up to 250,000 shares (the "Directed Shares") for sale to the Company's
directors, officers, employees and other parties associated with the Company, as
determined by the Company (each, individually a "Participant" and, collectively,
the "Participants") under the terms of the friends and family directed sales
program (the "Friends and Family Program"). Shares to be sold pursuant to the
Friends and Family Program shall be sold pursuant to this Agreement at the
public offering price. Any Directed Shares not confirmed for purchase by a
Participant by 5:00 p.m. (New York time) on the date of this Agreement will be
offered to the public by the Representatives as set forth in the Prospectus (as
such term is hereinafter defined).

<PAGE> 2

1. Sale and Purchase of the Shares.

On the basis of the representations, warranties and agreements contained
in, and subject to the terms and conditions of, this Agreement:

(a) The Company agrees to sell to each of the Underwriters, and
each of the Underwriters agrees, severally and not jointly, to purchase
from the Company, at a price of $_____ per share (the "Initial Price"),
the number of Firm Shares set forth opposite the name of such
Underwriter under the column "Number of Firm Shares to be Purchased from
the Company" on Schedule I to this Agreement, subject to adjustment in
accordance with Section 10 hereof.

(b) The Company grants to the several Underwriters an option to
purchase, severally and not jointly, all or any part of the Option
Shares at the Initial Price. The number of Option Shares to be purchased
by each Underwriter shall be the same percentage (adjusted by the
Representatives to eliminate fractions) of the total number of Option
Shares to be purchased by the Underwriters as such Underwriter is
purchasing of the Firm Shares. Such option may be exercised only to
cover over-allotments in the sales of the Firm Shares by the
Underwriters and may be exercised in whole or in part at any time on or
before 12:00 noon, New York City time, on the business day before the
Firm Shares Closing Date (as defined below), and from time to time
thereafter within 30 days after the date of this Agreement, in each case
upon written, facsimile or telegraphic notice, or verbal or telephonic
notice confirmed by written, facsimile or telegraphic notice, by the
Representatives to the Company no later than 12:00 noon, New York City
time, on the business day before the Firm Shares Closing Date or at
least two business days before the Option Shares Closing Date (as
defined below), as the case may be, setting forth the number of Option
Shares to be purchased and the time and date (if other than the Firm
Shares Closing Date) of such purchase.

2. Delivery and Payment. Delivery by the Company of the Firm Shares to
the Representatives for the respective accounts of the Underwriters, and payment
of the purchase price by certified or official bank check or checks payable in
New York Clearing House (same day) funds drawn to the order of the Company for
the shares purchased from the Company, against delivery of the respective
certificates therefor to the Representatives, shall take place at the offices of
CIBC World Markets Corp., One World Financial Center, New York, New York 10281,
at 10:00 a.m., New York City time, on the third business day following the date
of this Agreement, or at such time on such other date, not later than 10
business days after the date of this Agreement, as shall be agreed upon by the
Company and the Representatives (such time and date of delivery and payment are
called the "Firm Shares Closing Date").

In the event the option with respect to the Option Shares is exercised
in whole or in part on one or more occasions, delivery by the Company of the
Option Shares to the Representatives for the respective accounts of the
Underwriters and payment of the purchase price thereof in immediately available
funds by wire transfer or by certified or official bank check or checks payable
in New York Clearing House (same day) funds to the Company shall take place at
the offices of CIBC World Markets Corp. specified above at the time and on the
date (which may be the same date as, but in no event shall be earlier than, the
Firm Shares Closing Date) specified in the notice referred to in Section 1(b)
hereof (such time and date of delivery and payment are called the "Option Shares

2
<PAGE> 3

Closing Date"). The Firm Shares Closing Date and the Option Shares Closing Date
are called, individually, a "Closing Date" and, together, the "Closing Dates."

Certificates evidencing the Shares shall be registered in such names and
shall be in such denominations as the Representatives shall request at least two
full business days before the Firm Shares Closing Date or, in the case of Option
Shares, on the day of notice of exercise of the option as described in Section
l(b) hereof and shall be made available to the Representatives for checking and
packaging, at such place as is designated by the Representatives, on the full
business day before the Firm Shares Closing Date (or the Option Shares Closing
Date in the case of the Option Shares).

3. Registration Statement and Prospectus; Public Offering. The Company
has prepared and filed in conformity with the requirements of the Securities Act
of 1933, as amended (the "Securities Act"), and the published rules and
regulations thereunder (the "Rules") adopted by the Securities and Exchange
Commission (the "Commission") a Registration Statement (as hereinafter defined)
on Form S-1 (No. 333-30896), including a preliminary prospectus relating to the
Shares, and such amendments thereof as may have been required to the date of
this Agreement. Copies of such Registration Statement (including all amendments
thereof) and of the related Preliminary Prospectus (as hereinafter defined) have
heretofore been delivered by the Company to you. The term "Preliminary
Prospectus" means any preliminary prospectus (as described in Rule 430 of the
Rules) included at any time as a part of the Registration Statement or filed
with the Commission by the Company with the consent of the Representatives
pursuant to Rule 424(a) of the Rules. The term "Registration Statement" as used
in this Agreement means the initial registration statement (including all
exhibits, financial schedules and information deemed to be a part of the
Registration Statement through incorporation by reference or otherwise), as
amended at the time and on the date it becomes effective (the "Effective Date")
including the information (if any) deemed to be part thereof at the time of
effectiveness pursuant to Rule 430A of the Rules. If the Company has filed an
abbreviated registration statement to register additional Shares pursuant to
Rule 462(b) under the Rules (the "462(b) Registration Statement") then any
reference herein to the Registration Statement shall also be deemed to include
such 462(b) Registration Statement. The term "Prospectus" as used in this
Agreement means the prospectus in the form included in the Registration
Statement at the time of effectiveness or, if Rule 430A of the Rules is relied
on, the term Prospectus shall also include the final prospectus filed with the
Commission pursuant to Rule 424(b) of the Rules.

The Company understands that the Underwriters propose to make a public
offering of the Shares, as set forth in and pursuant to the Prospectus, as soon
after the Effective Date and the date of this Agreement as the Representatives
deem advisable. The Company hereby confirms that the Underwriters and dealers
have been authorized to distribute or cause to be distributed the Preliminary
Prospectus, dated as of March 27, 2000, and are authorized to distribute the
Prospectus (as from time to time amended or supplemented if the Company
furnishes amendments or supplements thereto to the Underwriters).

4. Representations and Warranties of the Company. The Company hereby
represents and warrants to each Underwriter as follows:

(a) On the Effective Date, the Registration Statement complied,
and on the date of the Prospectus, the date any post-effective amendment
to the Registration Statement becomes effective, the date any supplement
or amendment to the Prospectus is filed with the

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<PAGE> 4

Commission and each Closing Date, the Registration Statement and the
Prospectus (and any amendment thereof or supplement thereto) will
comply, in all material respects, with the applicable provisions of the
Securities Act and the Rules. The Registration Statement did not, as of
the Effective Date, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading; and on
the Effective Date and the other dates referred to above neither the
Registration Statement nor the Prospectus, nor any amendment thereof or
supplement thereto, will contain any untrue statement of a material fact
or will omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading. When
any related preliminary prospectus was first filed with the Commission
(whether filed as part of the Registration Statement or any amendment
thereto or pursuant to Rule 424(a) of the Rules) and when any amendment
thereof or supplement thereto was first filed with the Commission, such
preliminary prospectus as amended or supplemented complied in all
material respects with the applicable provisions of the Securities Act
and the Rules and did not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading except
as may have been corrected in all material respects by subsequent
amendment or supplement prior to or as a part of the Registration
Statement and Prospectus. Notwithstanding the foregoing, none of the
representations and warranties in this Section 4(a) shall apply to
statements in, or omissions from, the Registration Statement or the
Prospectus made in reliance upon, and in conformity with, information
herein or otherwise furnished in writing by the Representatives on
behalf of the several Underwriters for use in the Registration Statement
or the Prospectus. With respect to the preceding sentence, the Company
acknowledges that the only information furnished in writing by the
Representatives on behalf of the several Underwriters for use in the
Registration Statement or the Prospectus is the paragraph with respect
to stabilization on the inside front cover page of the Prospectus and
the statements contained under the caption "Underwriting" in the
Prospectus.

(b) The Registration Statement is effective under the Securities
Act and no stop order preventing or suspending the effectiveness of the
Registration Statement or suspending or preventing the use of the
Prospectus has been issued and no proceedings for that purpose have been
instituted or are threatened under the Securities Act. Any required
filing of the Prospectus and any supplement thereto pursuant to Rule
424(b) of the Rules has been or will be made in the manner and within
the time period required by such Rule 424(b).

(c) The financial statements of the Company (including all notes
and schedules thereto) included in the Registration Statement and
Prospectus present fairly the financial position, the results of
operations, the statements of cash flows and the statements of
stockholders' equity and the other information purported to be shown
therein of the Company at the respective dates and for the respective
periods to which they apply; and such financial statements and related
schedules and notes have been prepared in conformity with generally
accepted accounting principles, consistently applied throughout the
periods involved, and all adjustments necessary for a fair presentation
of the results for such periods have been made. The "Summary Financial
Data" and "Selected Financial Data" included in the Prospectus present
fairly the information shown therein as at the respective dates and for
the respective periods specified and the summary and selected financial
data have been

4
<PAGE> 5

presented on a basis consistent with the consolidated financial
statements so set forth in the Prospectus and other financial
information.

(d) Ernst & Young LLP, whose reports are filed with the
Commission as a part of the Registration Statement, are and, during the
periods covered by their reports, were independent public accountants as
required by the Securities Act and the Rules.

(e) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
The Company has no subsidiary or subsidiaries and does not control,
directly or indirectly, any corporation, partnership, joint venture,
association or other business organization. The Company is duly
qualified to do business and is in good standing as a foreign
corporation in each jurisdiction in which the nature of the business
conducted by it or location of the assets or properties owned, leased or
licensed by it requires such qualification, except for such
jurisdictions where the failure to so qualify would not have a material
adverse effect on the assets or properties, business, results of
operations or financial condition of the Company (a "Material Adverse
Effect"). The Company does not own, lease or license any asset or
property or conduct any business outside the United States of America.
The Company has all requisite corporate power and authority, and all
necessary authorizations, approvals, consents, orders, licenses,
certificates and permits of and from all governmental or regulatory
bodies or any other person or entity (collectively, the "Permits"), to
own, lease and license its assets and properties and conduct its
business, all of which are valid and in full force and effect, as
described in the Registration Statement and the Prospectus, except where
the lack of such Permits, individually or in the aggregate, would not
have a Material Adverse Effect. The Company has fulfilled and performed
in all respects all of its obligations with respect to such Permits and
no event has occurred that allows, or after notice or lapse of time
would allow, revocation or termination thereof or results in any other
impairment of the rights of the Company thereunder except for such
failure to fulfill and for such events as would not, individually or in
the aggregate, have a Material Adverse Effect. Except as may be required
under the Securities Act and state and foreign Blue Sky laws, no other
Permits are required to enter into, deliver and perform this Agreement
and to issue and sell the Shares.

(f) The Company owns or possesses adequate and enforceable
rights to use all patent, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights, copyright
applications, licenses, know-how and other similar rights and
proprietary knowledge (collectively, "Intangibles") described in the
Prospectus as being owned by it reasonably necessary for the conduct of
its business. The Company has not received any notice of, or is not
aware of, any infringement of or conflict with asserted rights of others
with respect to any Intangibles. No departed employee of the Company has
a right of reverter, or any other interest, with respect to any
Intangible.

(g) The Company has good and marketable title in fee simple to
all items of real property and good and marketable title to all personal
property described in the Prospectuses as being owned by it except where
the lack of such good and marketable title would not have a Material
Adverse Effect. Any real property and buildings described in the
Prospectuses as being held under lease by the Company is held by it
under valid, existing and enforceable leases, free and clear of all
liens, encumbrances, claims, security interests and defects, except

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<PAGE> 6

such as are described in the Registration Statement and the Prospectus
or where the failure to have such leases would not have a Material
Adverse Effect.

(h) There are no litigation or governmental proceedings to which
the Company is subject or which is pending or, to the knowledge of the
Company, threatened, against the Company, which, individually or in the
aggregate, might have a Material Adverse Effect, prevent or delay the
consummation of this Agreement or which is required to be disclosed in
the Registration Statement and the Prospectus that is not so disclosed.

(i) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, except as
described therein, (a) there has not been any loss or adverse change
with regard to the assets or properties, business, results of operations
or financial condition of the Company except as would not have a
Material Adverse Effect; (b) the Company has not sustained any loss or
interference with its assets, businesses or properties (whether owned or
leased) from fire, explosion, earthquake, flood or other calamity,
whether or not covered by insurance, or from any labor dispute or any
court or legislative or other governmental action, order or decree which
would have a Material Adverse Effect; and (c) since the date of the
latest balance sheet included in the Registration Statement and the
Prospectus, except as reflected therein, the Company has not (i) issued
any securities or incurred any liability or obligation, direct or
contingent, for borrowed money, except such liabilities or obligations
incurred in the ordinary course of business, (ii) entered into any
material transaction not in the ordinary course of business or (iii)
declared or paid any dividend or made any distribution on any shares of
its stock or redeemed, purchased or otherwise acquired or agreed to
redeem, purchase or otherwise acquire any shares of its stock.

(j) There is no document, contract or other agreement of a
character required to be described in the Registration Statement or
Prospectus or to be filed as an exhibit to the Registration Statement
which is not described or filed as required by the Securities Act or
Rules. Each description of a contract, document or other agreement in
the Registration Statement and the Prospectus accurately reflects in all
respects the terms of the underlying document, contract or agreement.
Each agreement described in the Registration Statement and Prospectus or
listed in the Exhibits to the Registration Statement or incorporated by
reference is in full force and effect and is valid and enforceable by
and against the Company in accordance with its terms. Neither the
Company, nor to the Company's knowledge, any other party is in default
in the observance or performance of any term or obligation to be
performed by it under any such agreement, and no event has occurred
which with notice or lapse of time or both would constitute such a
default, in any such case which default or event, individually or in the
aggregate, would have a Material Adverse Effect. No default exists, and
no event has occurred which with notice or lapse of time or both would
constitute a default, in the due performance and observance of any term,
covenant or condition, by the Company of any other agreement or
instrument to which the Company is a party or by which it or its
properties or business may be bound or affected which default or event,
individually or in the aggregate, would have a Material Adverse Effect.

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<PAGE> 7

(k) The Company is not in violation of any term or provision of
its charter or by-laws or of any franchise, license, permit, judgment,
decree, order, statute, rule or regulation, where the consequences of
any such violation, individually or in the aggregate, would have a
Material Adverse Effect.

(l) Neither the execution, delivery and performance of this
Agreement by the Company nor the consummation of any of the transactions
contemplated hereby (including, without limitation, the issuance and
sale by the Company of the Shares) will give rise to a right to
terminate or accelerate the due date of any payment due under, or
conflict with or result in the breach of any term or provision of, or
constitute a default (or an event which with notice or lapse of time or
both would constitute a default) under, or require any consent or waiver
under, or result in the execution or imposition of any lien, charge or
encumbrance upon any properties or assets of the Company pursuant to the
terms of, any indenture, mortgage, deed of trust or other agreement or
instrument to which the Company is a party or by which it or any of its
properties or businesses is bound, or any franchise, license, permit,
judgment, decree, order, statute, rule or regulation applicable to the
Company or violate any provision of the charter or by-laws of the
Company, except for such consents or waivers which have already been
obtained and are in full force and effect.

(m) The Company's authorized and outstanding capital stock
conforms in all material respects to the description thereof contained
under the caption "Capitalization" in the Prospectus. The certificates
evidencing the Shares are in due and proper legal form and have been
duly authorized for issuance by the Company. All of the issued and
outstanding shares of Common Stock have been duly and validly issued and
are fully paid and nonassessable. There are no statutory preemptive or
other similar rights to subscribe for or to purchase or acquire any
shares of Common Stock of the Company or any such rights pursuant to its
Certificate of Incorporation or by-laws or, except for any rights which
do not apply to the transactions contemplated hereby and which will
expire on the Firm Shares Closing Date, any agreement or instrument to
or by which the Company is a party or bound. The Shares, when issued and
sold pursuant to this Agreement, will be duly and validly issued, fully
paid and nonassessable and none of them will be issued in violation of
any preemptive or other similar right. Except as disclosed in the
Registration Statement and the Prospectus, there is no outstanding
option, warrant or other right calling for the issuance of, and there is
no commitment, plan or arrangement to issue, any share of stock of the
Company or any security convertible into, or exercisable or exchangeable
for, such stock. The Common Stock and the Shares conform in all material
respects to all statements in relation thereto contained under the
heading "Description of Capital Stock" in the Registration Statement and
the Prospectus.

(n) No holder of any security of the Company has the right to
have any security owned by such holder included in the Registration
Statement or to demand registration of any security owned by such holder
during the period ending 180 days after the date of this Agreement,
except for such rights as have been waived. Each five percent
stockholder, director and executive officer of the Company, and each
person listed on Schedule __ attached hereto, has delivered to the
Representatives such person's enforceable written lock-up agreement in
the form attached to this Agreement ("Lock-Up Agreement").

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<PAGE> 8

(o) All necessary corporate action has been duly and validly
taken by the Company to authorize the execution, delivery and
performance of this Agreement and the issuance and sale of the Shares by
the Company. This Agreement has been duly and validly authorized,
executed and delivered by the Company and constitutes and will
constitute the legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as
the enforceability thereof may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the
enforcement of creditors' rights generally and (ii) general principles
of equity (regardless of whether such enforcement is considered in a
proceeding in equity or at law).

(p) The Company is not involved in any labor dispute nor, to the
knowledge of the Company, is any such dispute threatened, which dispute
would have a Material Adverse Effect. The Company is not aware of any
existing or imminent labor disturbance by the employees of any of its
principal suppliers or contractors which would have a Material Adverse
Effect. The Company is not aware of any threatened or pending litigation
between the Company and any of its executive officers which, if
adversely determined, could have a Material Adverse Effect and, to the
knowledge of the Company, no such officer has a present intention to
leave the employment of the Company.

(q) No transaction has occurred between or among the Company and
any of its officers or directors or five percent stockholders or any
affiliate or affiliates of any such officer or director or five percent
stockholder that is required to be described in and is not described in
the Registration Statement and the Prospectus.

(r) The Company has not taken, nor will it take, directly or
indirectly, any action designed to or which might reasonably be expected
to cause or result in, or which has constituted or which might
reasonably be expected to constitute, under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), the stabilization or
manipulation of the price of the Common Stock to facilitate the sale or
resale of any of the Shares.

(s) The Company has filed all Federal, state, local and foreign
tax returns which are required to be filed through the date hereof, or
has received extensions thereof, and has paid all taxes shown on such
returns and all assessments received by it to the extent that the same
are material and have become due. There are no tax audits or
investigations pending, which if adversely determined would have a
Material Adverse Effect; nor are there any material proposed additional
tax assessments against the Company.

(t) The Shares have been duly authorized for quotation on the
National Association of Securities Dealers Automated Quotation
("Nasdaq") National Market System, subject to official Notice of
Issuance. A registration statement has been filed on Form 8-A pursuant
to Section 12 of the Exchange Act, which registration statement complies
in all material respects with the Exchange Act.

(u) The books, records and accounts of the Company accurately
and fairly reflect, in reasonable detail, the transactions in, and
dispositions of, the assets of, and the results of operations of, the
Company. The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are
executed in

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<PAGE> 9

accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting
principles and to maintain asset accountability, (iii) access to assets
is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.

(v) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are
customary in the businesses in which it is engaged or propose to engage
after giving effect to the transactions described in the Prospectus; all
policies of insurance and fidelity or surety bonds insuring the Company
or any of its subsidiaries or the Company's or its subsidiaries'
respective businesses, assets, employees, officers and directors are in
full force and effect; the Company and each of its subsidiaries are in
compliance with the terms of such policies and instruments in all
material respects; and the Company has no reason to believe that it will
not be able to renew its existing insurance coverage as and when such
coverage expires or to obtain similar coverage from similar insurers as
may be necessary to continue its business at a cost that would not have
a Material Adverse Effect. The Company has not been denied any insurance
coverage which it has sought or for which it has applied.

(w) Each approval, consent, order, authorization, designation,
declaration or filing of, by or with any regulatory, administrative or
other governmental body necessary in connection with the execution and
delivery by the Company of this Agreement and the consummation of the
transactions herein contemplated required to be obtained or performed by
the Company (except such additional steps as may be required by the
National Association of Securities Dealers, Inc. (the "NASD") or may be
necessary to qualify the Shares for public offering by the Underwriters
under the state securities or Blue Sky laws) has been obtained or made
and is in full force and effect.

(x) There are no affiliations with the NASD among the Company's
officers, directors or, to the knowledge of the Company, any five
percent or greater stockholder of the Company, except as set forth in
the Registration Statement or otherwise disclosed in writing to the
Representatives.

(y) (i) The Company is in compliance in all material respects
with all rules, laws and regulation relating to the use, treatment,
storage and disposal of toxic substances and protection of health or the
environment ("Environmental Law") which are applicable to its business;
(ii) the Company has not received any notice from any governmental
authority or third party of an asserted claim under Environmental Laws;
(iii) the Company has received all permits, licenses or other approvals
required of it under applicable Environmental Laws to conduct its
business and is in compliance with all terms and conditions of any such
permit, license or approval; (iv) to the Company's knowledge, no facts
currently exist that will require the Company to make future material
capital expenditures to comply with Environmental Laws; and (v) no
property which is or has been owned, leased or occupied by the Company
has been designated as a Superfund site pursuant to the Comprehensive
Environmental Response, Compensation of Liability Act of 1980, as
amended (42 U.S.C. Section 9601, et. seq.) or otherwise designated as a
contaminated site under applicable state

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<PAGE> 10

or local law. The Company has not been named as a "potentially
responsible party" under the CER, CLA 1980.

(z) In the ordinary course of its business, the Company has
periodically conducted a reasonable due diligence investigation of the
effect of Environmental Laws on the business, operations and properties
of the Company to identify and evaluate associated costs and liabilities
(including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with
Environmental Laws, or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to
third parties). On the basis of such investigation, the Company has
reasonably concluded that such associated costs and liabilities would
not, individually or in the aggregate, have a Material Adverse Effect.

(aa) The Company is not and, after giving effect to the offering
and sale of the Shares and the application of proceeds thereof as
described in the Prospectus in the Section titled "Use of Proceeds,"
will not be subject to registration as an "investment company" within
the meaning of the Investment Company Act of 1940, as amended (the
"Investment Company Act").

(bb) The Company or any other person associated with or acting
on behalf of the Company including, without limitation, any director,
officer, agent or employee of the Company has not, directly or
indirectly, while acting on behalf of the Company (i) used any corporate
funds for unlawful contributions, gifts, entertainment or other unlawful
expenses relating to political activity; (ii) made any unlawful payment
to foreign or domestic government officials or employees or to foreign
or domestic political parties or campaigns from corporate funds; (iii)
violated any provision of the Foreign Corrupt Practices Act of 1977, as
amended; or (iv) made any bribe, unlawful rebate, payoff, influence
payment, kickback or other unlawful payment in connection with the
business of the Company.

(cc) (i) The Company has no reason to believe that the Year 2000
Problem has had or will have a Material Adverse Effect on the business
or operations of the Company. The Year 2000 Problem, as used herein,
means computer or other technological problems resulting from the
transition from December 31, 1999 to January 1, 2000.

(dd) Neither the Company nor any other person associated with or
acting on behalf of the Company, including, without limitation, any
director, officer, agent or employee of the Company has offered or
caused the Underwriters to offer any of the Shares to any person
pursuant to the Friends and Family Program with the specific intent to
unlawfully influence (i) a customer or supplier of the Company to alter
the customer's or supplier's level or type of business with the Company
or (ii) a trade journalist or publication to write or publish favorable
information about the Company or its products.

5. Conditions of the Underwriters' Obligations. The obligations of the
Underwriters under this Agreement are several and not joint. The respective
obligations of the Underwriters to purchase the Shares are subject to each of
the following terms and conditions:

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<PAGE> 11

(a) Notification that the Registration Statement has become
effective shall have been received by the Representatives and the
Prospectus shall have been timely filed with the Commission in
accordance with Section 6(a) of this Agreement.

(b) No order preventing or suspending the use of any preliminary
prospectus or the Prospectus shall have been or shall be in effect and
no order suspending the effectiveness of the Registration Statement
shall be in effect and no proceedings for such purpose shall be pending
before or threatened by the Commission, and any requests for additional
information on the part of the Commission (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been
complied with to the satisfaction of the Commission and the
Representatives.

(c) The representations and warranties of the Company contained
in this Agreement and in the certificates delivered pursuant to Section
5(d) shall be true and correct when made and on and as of each Closing
Date as if made on such date. The Company shall have performed all
covenants and agreements and satisfied all the conditions contained in
this Agreement required to be performed or satisfied by it at or before
such Closing Date.

(d) The Representatives shall have received on each Closing Date
a certificate, addressed to the Representatives and dated such Closing
Date, of the chief executive or chief operating officer and the chief
financial officer or chief accounting officer of the Company to the
effect that (i) the signers of such certificate have carefully examined
the Registration Statement, the Prospectus and this Agreement and that
the representations and warranties of the Company in this Agreement are
true and correct on and as of such Closing Date with the same effect as
if made on such Closing Date and the Company has performed all covenants
and agreements and satisfied all conditions contained in this Agreement
required to be performed or satisfied by it at or prior to such Closing
Date, and (ii) no stop order suspending the effectiveness of the
Registration Statement has been issued and to the best of their
knowledge, no proceedings for that purpose have been instituted or are
pending under the Securities Act.

(e) The Representatives shall have received, at the time this
Agreement is executed and on each Closing Date a signed letter from
Ernst & Young LLP addressed to the Representatives and dated,
respectively, the date of this Agreement and each such Closing Date, in
form and substance reasonably satisfactory to the Representatives,
confirming that they are independent accountants within the meaning of
the Securities Act and the Rules, that the response to Item 10 of the
Registration Statement is correct insofar as it relates to them and
stating in effect that:

(i) in their opinion the audited financial statements
and financial statement schedules included or incorporated by
reference in the Registration Statement and the Prospectus and
reported on by them comply as to form in all material respects
with the applicable accounting requirements of the Securities
Act and the Rules;

(ii) on the basis of a reading of the amounts included
in the Registration Statement and the Prospectus under the
headings "Summary Financial Information"

11
<PAGE> 12

and "Selected Financial Data," carrying out certain procedures
(but not an examination in accordance with generally accepted
auditing standards) which would not necessarily reveal matters
of significance with respect to the comments set forth in such
letter, a reading of the minutes of the meetings of the
stockholders and directors of the Company, and inquiries of
certain officials of the Company who have responsibility for
financial and accounting matters of the Company as to
transactions and events subsequent to the date of the latest
audited financial statements, except as disclosed in the
Registration Statement and the Prospectus, nothing came to their
attention which caused them to believe that:

(A) the amounts in "Summary Financial
Information," and "Selected Financial Data" included in
the Registration Statement and the Prospectus do not
agree with the corresponding amounts in the audited [and
unaudited financial statements] from which such amounts
were derived; or

(B) with respect to the Company, there were, at
a specified date not more than three business days prior
to the date of the letter, any increases in the current
liabilities and long-term liabilities of the Company or
any decreases in net income or in working capital or the
stockholders' equity in the Company, as compared with
the amounts shown on the Company's audited balance sheet
for the fiscal year ended _________________ and the ____
months ended __________________ included in the
Registration Statement;

(iii) they have performed certain other procedures as
may be permitted under Generally Acceptable Auditing Standards
as a result of which they determined that certain information of
an accounting, financial or statistical nature (which is limited
to accounting, financial or statistical information derived from
the general accounting records of the Company) set forth in the
Registration Statement and the Prospectus and reasonably
specified by the Representatives agrees with the accounting
records of the Company; and

(iv) based upon the procedures set forth in clauses (ii)
and (iii) above and a reading of the amounts included in the
Registration Statement under the headings "Summary Financial and
Other Data" and "Selected Financial Data" included in the
Registration Statement and Prospectus and a reading of the
financial statements from which certain of such data were
derived, nothing has come to their attention that gives them
reason to believe that the "Summary Financial and Other Data"
and "Selected Financial Data" included in the Registration
Statement and Prospectus do not comply as to the form in all
material respects with the applicable accounting requirements of
the Securities Act and the Rules or that the information set
forth therein is not fairly stated in relation to the financial
statements included in the Registration Statement or Prospectus
from which certain of such data were derived are not in
conformity with generally accepted accounting principles applied
on a basis substantially consistent with that of the audited
financial statements included in the Registration Statement and
Prospectus.

12
<PAGE> 13

References to the Registration Statement and the
Prospectus in this paragraph (e) are to such documents as
amended and supplemented at the date of the letter.

(f) The Representatives shall have received on each Closing Date
from Cooley Godward LLP, counsel for the Company, an opinion, addressed
to the Representatives and dated such Closing Date, and stating in
effect that:

(i) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the
State of Delaware. To the best of such counsel's knowledge, the
Company has no subsidiary and does not control, directly or
indirectly, any corporation, partnership, joint venture,
association or other business organization. The Company is duly
qualified and in good standing as a foreign corporation in each
jurisdiction in which the character or location of its assets or
properties (owned, leased or licensed) or the nature of its
businesses makes such qualification necessary, except for such
jurisdictions where the failure to so qualify, individually or
in the aggregate, would not have a Material Adverse Effect.

(ii) The Company has all requisite corporate power to
own, lease and license its assets and properties and conduct its
business as now being conducted and as described in the
Registration Statement and the Prospectus and to enter into,
deliver and perform this Agreement and to issue and sell the
Shares, other than those required under the state and foreign
Blue Sky laws.

(iii) The Company has authorized and issued capital
stock as set forth in the Registration Statement and the
Prospectus under the caption "Capitalization"; the certificates
evidencing the Shares are in due and proper legal form and have
been duly authorized for issuance by the Company; all of the
outstanding shares of Common Stock of the Company have been duly
and validly authorized and issued and are fully paid and
nonassessable and none of them was issued in violation of any
preemptive or other similar right. The Shares when issued and
sold pursuant to this Agreement will be duly and validly issued,
outstanding, fully paid and nonassessable and to the best of
such counsel's knowledge, none of them will have been issued in
violation of any preemptive or other similar right. To the best
of such counsel's knowledge, except as disclosed in the
Registration Statement and the Prospectus, and except for any
rights which do not apply to the transactions contemplated
hereby and which will expire on the Firm Shares Closing Date,
there are no preemptive or other rights to subscribe for or to
purchase or any restriction upon the voting or transfer of any
securities of the Company pursuant to the Company's Certificate
of Incorporation or by-laws or other governing documents or any
agreements or other instruments to which the Company is a party
or by which it is bound. To the best of such counsel's
knowledge, except as disclosed in the Registration Statement and
the Prospectus, there is no outstanding option, warrant or other
right calling for the issuance of, and no commitment, plan or
arrangement to issue, any share of stock of the Company or any
security convertible into, exercisable for, or exchangeable for
stock of the Company.

13
<PAGE> 14

respects to the descriptions thereof contained in the
Registration Statement and the Prospectus.

(iv) This Agreement has been duly and validly
authorized, executed and delivered by the Company and this
Agreement constitutes the legal, valid and binding obligation of
the Company [enforceable against the Company in accordance with
its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and other similar laws affecting the
enforcement of creditors' rights generally and by general
equitable principles.]

(v) Neither the execution, delivery and performance of
this Agreement by the Company nor the consummation of any of the
transactions contemplated hereby (including, without limitation,
the issuance and sale by the Company of the Shares) will give
rise to a right to terminate or accelerate the due date of any
payment due under, or conflict with or result in the breach of
any term or provision of, or constitute a default (or any event
which with notice or lapse of time, or both, would constitute a
default) under, or require consent or waiver under, or result in
the execution or imposition of any lien, charge, claim, security
interest or encumbrance upon any properties or assets of the
Company pursuant to the terms of any indenture, mortgage, deed
trust, note or other agreement or instrument [of which such
counsel is aware and to which the Company is a party] or by
which it or any of its properties or businesses is bound, or
violate, to the best of such counsel's knowledge, any franchise,
license, permit, judgment, decree, order, statute, rule or
regulation or violate any provision of the charter or by-laws of
the Company.

(vi) No consent, approval, authorization or order of any
court or governmental agency or regulatory body is required for
the execution, delivery or performance of this Agreement by the
Company or the consummation of the transactions contemplated
hereby or thereby, except such as have been obtained under the
Securities Act and such as may be required under state
securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the several Underwriters.

(vii) To the best of such counsel's knowledge, there is
no litigation or governmental or other proceeding or
investigation, before any court or before or by any public body
or board pending or threatened against, or involving the assets,
properties or businesses of, the Company which would have a
Material Adverse Effect.

14
<PAGE> 15

(viii) The Registration Statement and the Prospectus and
each amendment or supplement thereto (except for the financial
statements and schedules and other financial and statistical
data included therein, as to which such counsel expresses no
opinion) comply as to form in all material respects with the
requirements of the Securities Act and the Rules.

(ix) The Registration Statement is effective under the
Securities Act and, to the best of such counsel's knowledge, no
stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose
have been instituted or are threatened, pending or contemplated.
Any required filing of the Prospectus and any supplement thereto
pursuant to Rule 424(b) under the Securities Act has been made
in the manner and within the time period required by such Rule
424(b).

(x) The Shares have been approved, upon issuance as
contemplated by this Agreement, for quotation on the Nasdaq
National Market.

(xi) The capital stock of the Company conforms in all
material respects to the description thereof contained in the
Prospectus under the caption "Description of Capital Stock."

(xii) The Company is not an "investment company" or an
entity controlled by an "investment company" as such terms are
defined in the Investment Company Act of 1940, as amended.

To the extent deemed advisable by such counsel, they may rely as to
matters of fact on certificates of responsible officers of the Company and
public officials. Such counsel shall not be obligated to opine as to any
opinions of other counsel or laws other than the laws of the State of
California, the General Corporation Law of the State of Delaware and the Federal
laws of the United States.

In addition, such counsel shall state that such counsel has participated
in conferences with officers and other representatives of the Company,
representatives of the Representatives and their counsel, and representatives of
the independent certified public accountants of the Company, at which
conferences the contents of the Registration Statement and the Prospectus and
related matters were discussed and, although such counsel has not verified and
is not passing upon and does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement and the Prospectus (except as specified in the foregoing opinion), on
the basis of the foregoing, no facts have come to the attention of such counsel
which lead such counsel to believe that the Registration Statement at the time
it became effective (except with respect to the financial statements and notes
and schedules thereto and other statistical and financial data, as to which such
counsel need express no belief) contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements

15
<PAGE> 16
therein not misleading, or that the Prospectus as amended or supplemented
(except with respect to the financial statements, notes and schedules thereto
and other statistical and financial data, as to which such counsel need make no
statement) on the date thereof contained any untrue statement of a material fact
or omitted to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.

(g) The Representatives shall have received on each Closing Date
from Cooper & Dunham LLP, special patent counsel to the Company, an
opinion, addressed to the Representatives and dated such Closing Date,
in substantially the form attached hereto as Exhibit 5(g).

(h) All proceedings taken in connection with the sale of the
Firm Shares and the Option Shares as herein contemplated shall be
reasonably satisfactory in form and substance to the Representatives,
and their counsel and the Underwriters shall have received from
McDermott, Will & Emery a favorable opinion, addressed to the
Representatives and dated such Closing Date, with respect to the Shares,
the Registration Statement and the Prospectus, and such other related
matters, as the Representatives may reasonably request, and the Company
shall have furnished to McDermott, Will & Emery such documents as they
may reasonably request for the purpose of enabling them to pass upon
such matters.

(i) The Representatives shall have received copies of the
Lock-up Agreements executed by each entity or person described in
Section 4(n).

(j) The Company shall have furnished or caused to be furnished
to the Representatives such further certificates or documents as the
Representatives shall have reasonably requested.

6. Covenants of the Company.

(a) The Company covenants and agrees as follows:

(i) The Company will use its best efforts to cause the
Registration Statement, if not effective at the time of
execution of this Agreement, and any amendments thereto, to
become effective as promptly as possible. The Company shall
prepare the Prospectus in a form approved by the Representatives
and file such Prospectus pursuant to Rule 424(b) under the
Securities Act within the prescribed time period and will
provide evidence satisfactory to you of such timely filing.

(ii) The Company shall promptly advise the
Representatives in writing (i) when any amendment to the
Registration Statement shall have become effective, (ii) of any
request by the Commission for any amendment of the Registration
Statement or the Prospectus or for any additional information,
(iii) of the prevention or suspension of the use of any
preliminary prospectus or the Prospectus or of the issuance by
the Commission of any stop order suspending the effectiveness of
the Registration Statement or the institution or threatening of
any proceeding for that purpose and (iv) of the receipt by the
Company of any notification with respect to the suspension of
the qualification of the Shares for sale in any jurisdiction or
the initiation or threatening of any proceeding for such
purpose. The Company shall not

16
<PAGE> 17

file any amendment of the Registration Statement or supplement
to the Prospectus unless the Company has furnished the
Representatives a copy for its review prior to filing and shall
not file any such proposed amendment or supplement to which the
Representatives reasonably object. The Company shall use its
best efforts to prevent the issuance of any such stop order and,
if issued, to obtain as soon as possible the withdrawal thereof.

(iii) If, at any time when a prospectus relating to the
Shares is required to be delivered under the Securities Act and
the Rules, any event occurs as a result of which the Prospectus
as then amended or supplemented would include any untrue
statement of a material fact or omit to state any material fact
necessary to make the statements therein in the light of the
circumstances under which they were made not misleading, or if
it shall be necessary to amend or supplement the Prospectus to
comply with the Securities Act or the Rules, the Company
promptly shall prepare and file with the Commission, subject to
the second sentence of paragraph (ii) of this Section 6(a), an
amendment or supplement which shall correct such statement or
omission or an amendment which shall effect such compliance.

(iv) The Company shall make generally available to its
security holders and to the Representatives as soon as
practicable, but not later than 45 days after the end of the
12-month period beginning at the end of the fiscal quarter of
the Company during which the Effective Date occurs (or 90 days
if such 12-month period coincides with the Company's fiscal
year), an earning statement (which need not be audited) of the
Company, covering such 12-month period, which shall satisfy the
provisions of Section 11(a) of the Securities Act or Rule 158 of
the Rules.

(v) The Company shall furnish to the Representatives and
counsel for the Underwriters, without charge, signed copies of
the Registration Statement (including all exhibits thereto and
amendments thereof) and to each other Underwriter a copy of the
Registration Statement (without exhibits thereto) and all
amendments thereof and, so long as delivery of a prospectus by
an Underwriter or dealer may be required by the Securities Act
or the Rules, as many copies of any preliminary prospectus and
the Prospectus and any amendments thereof and supplements
thereto as the Representatives may reasonably request.

(vi) The Company shall cooperate with the
Representatives and their counsel in endeavoring to qualify the
Shares for offer and sale in connection with the offering under
the laws of such jurisdictions as the Representatives may
designate and shall maintain such qualifications in effect so
long as required for the distribution of the Shares; provided,
however, that the Company shall not be required in connection
therewith, as a condition thereof, to qualify as a foreign
corporation or to execute a general consent to service of
process in any jurisdiction or subject itself to taxation as
doing business in any jurisdiction in which it is not now so
required.

(vii) Without the prior written consent of CIBC World
Markets Corp., for a period of 180 days after the date of this
Agreement, the Company and each of its individual directors and
executive officers shall not issue, sell or register with the

17
<PAGE> 18

Commission (other than on Form S-8 or on any successor form), or
otherwise dispose of, directly or indirectly, any equity
securities of the Company (or any securities convertible into,
exercisable for or exchangeable for equity securities of the
Company), except for the issuance of the Shares pursuant to the
Registration Statement and the issuance of shares pursuant to
the Company's existing stock plans or bonus plan as described in
the Registration Statement and the Prospectus. In the event that
during this period, (i) any shares are issued pursuant to the
Company's existing stock plans or bonus plan that are
exercisable during such 180 day period or (ii) any registration
is effected on Form S-8 or on any successor form relating to
shares that are exercisable during such 180 period, the Company
shall obtain the written agreement of such grantee or purchaser
or holder of such registered securities that, for a period of
180 days after the date of this Agreement, such person will not,
without the prior written consent of CIBC World Markets Corp.,
offer for sale, sell, distribute, grant any option for the sale
of, or otherwise dispose of, directly or indirectly, or exercise
any registration rights with respect to, any shares of Common
Stock (or any securities convertible into, exercisable for, or
exchangeable for any shares of Common Stock) owned by such
person.

(viii) On or before completion of the offering of the
Shares, the Company shall make all filings required under
applicable securities laws and by the Nasdaq National Market
(including any required registration under the Exchange Act).

(ix) The Company will apply the net proceeds to the
Company from the offering of the Shares in the manner set forth
under "Use of Proceeds" in the Prospectus.

(x) [The Company will comply with all applicable
securities laws and other applicable laws, rules and regulations
in each foreign jurisdiction in which the Directed Shares are
offered in connection with the Friends and Family Program.]

(xi) [The Company will ensure that the Directed Shares
will be restricted, to the extent required by the NASD or the
NASD rules, from sale, transfer, assignment, pledge or
hypothecation for a period of three months following the date of
the effectiveness of the Registration Statement. The
Representatives will notify the Company as to which Participants
will need to be so restricted. The Company shall direct the
transfer agent to place stop transfer restrictions upon such
securities for such period of time.]

(b) The Company agrees to pay, or reimburse if paid by the
Representatives, whether or not the transactions contemplated hereby are
consummated or this Agreement is terminated, all costs and expenses
incident to the public offering of the Shares and the performance of the
obligations of the Company under this Agreement including those relating
to: (i) the preparation, printing, filing and distribution of the
Registration Statement including all exhibits thereto, each preliminary
prospectus, the Prospectus, all amendments and supplements to the
Registration Statement and the Prospectus, and the printing, filing and
distribution of this Agreement; (ii) the preparation and delivery of
certificates for the Shares to the Underwriters; (iii) the registration
or qualification of the Shares for offer and

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<PAGE> 19

sale under the securities or Blue Sky laws of the various jurisdictions
referred to in Section 6(a)(vi), including the reasonable fees and
disbursements of counsel for the Underwriters in connection with such
registration and qualification and the preparation, printing,
distribution and shipment of preliminary and supplementary Blue Sky
memoranda, if any; (iv) the furnishing (including costs of shipping and
mailing) to the Representatives and to the Underwriters of copies of
each preliminary prospectus, the Prospectus and all amendments or
supplements to the Prospectus, and of the several documents required by
this Section to be so furnished, as may be reasonably requested for use
in connection with the offering and sale of the Shares by the
Underwriters or by dealers to whom Shares may be sold; (v) the filing
fees of the NASD in connection with its review of the terms of the
public offering and reasonable fees and disbursements of counsel for the
Underwriters in connection with such review; (vi) inclusion of the
Shares for quotation on the Nasdaq National Market; and (vii) all
transfer taxes, if any, with respect to the sale and delivery of the
Shares by the Company to the Underwriters [(viii) payments to counsel
for costs incurred by the Underwriters in connection with the Friends
and Family Program and payment of any stamp duties, similar taxes or
duties or other taxes, if any, incurred by the Underwriters in
connection with the Friends and Family Program.] Subject to the
provisions of Section 9 hereof, the Underwriters agree to pay, whether
or not the transactions contemplated hereby are consummated or this
Agreement is terminated, all costs and expenses incident to the
performance of the obligations of the Underwriters under this Agreement
not payable by the Company pursuant to the preceding sentence,
including, without limitation, the fees and disbursements of counsel for
the Underwriters.

(c) If at any time during the 25-day period after the
Registration Statement becomes effective or the period prior to the
Option Shares Closing Date, any rumor, publication or event relating to
or affecting the Company shall occur as a result of which in the
Representatives' opinion the market price of the Common Stock has been
or is likely to be materially affected (regardless of whether such
rumor, publication or event necessitates a supplement to or amendment of
the Prospectus and any integrated prospectus), the Company will, after
notice from the Representatives advising the Company to the effect set
forth above, forthwith prepare, consult with the Representatives
concerning the substance of, and disseminate a press release or other
public statement, reasonably satisfactory to the Representatives,
responding to or commenting on such rumor, publication or event.

7. Indemnification.

(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within
the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act against any and all losses, claims, damages and
liabilities, joint or several (including any reasonable investigation,
legal and other expenses incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or any claim
asserted), to which they, or any of them, may become subject under the
Securities Act, the Exchange Act or other Federal or state law or
regulation, at common law or otherwise, insofar as such losses, claims,
damages or liabilities arise out of or are based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in
any preliminary prospectus, the Registration Statement or the Prospectus
or any amendment thereof or supplement thereto, or arise out of or are
based upon any omission or

19
<PAGE> 20

alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, (ii)
in whole or in part upon any breach of the representations and
warranties set forth in Section 4 hereof, (iii) in whole or in part upon
any failure of the Company to perform any of its obligations hereunder
or under law or (iv) any untrue statement of any material fact contained
in any audio or visual materials prepared by the Company or based upon
written information furnished by or on behalf of the Company, including
(without limitation) slides, videos, films, tape recordings used in
connection with the marketing of the Shares, including (without
limitation) statements communicated to securities analysts employed by
the Underwriters; provided, however, that such indemnity shall not inure
to the benefit of any Underwriter (or any person controlling such
Underwriter) on account of any losses, claims, damages or liabilities
arising from the sale of the Shares to any person by such Underwriter if
such untrue statement or omission or alleged untrue statement or
omission was made in such preliminary prospectus, the Registration
Statement or the Prospectus, or such amendment or supplement thereto, in
reliance upon and in conformity with information furnished in writing to
the Company by the Representatives on behalf of any Underwriter
specifically for use therein. This indemnity agreement will be in
addition to any liability which the Company may otherwise have.
Notwithstanding the foregoing, with regard to any preliminary
prospectus, the benefit of this Section 7(a) will not accrue to any
Underwriter from whom the person asserting the loss purchased the shares
if such person was not delivered the final prospectus by such
Underwriter (when such Underwriter was delivered the final prospectus in
a timely manner by the Company.

The Company agrees to indemnify and hold harmless the
Representatives and each person, if any, who controls any Representative
within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act against any and all losses, claims, damages, expenses
and liabilities (including any reasonable investigation, legal and other
expenses incurred in connection with, and any amount paid in settlement
of, any action, suit or proceeding or any claim asserted) (i) arising
out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in any material prepared by or with the
consent of the Company for distribution to Participants in connection
with the Friends and Family Program or arising out of or based upon any
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, (ii) arising out of or based upon the failure of any
Participant to pay for and accept delivery of Directed Shares otherwise
reserved for such Participant pursuant to the Friends and Family
Program, and (iii) related to, arising out of, or in connection with the
Friends and Family Program, other than losses, claims, damages or
liabilities (or expenses relating thereto) that are finally judicially
determined to have resulted from the bad faith or gross negligence of
the Representatives.

(b) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company and each person, if any, who
controls the Company within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act, each director of the Company, and
each officer of the Company who signs the Registration Statement, to the
same extent as the foregoing indemnity from the Company to each
Underwriter, but only insofar as such losses, claims, damages or
liabilities arise out of or are based upon any untrue statement or
omission or alleged untrue statement or omission which was made in any
preliminary prospectus, the Registration Statement or the Prospectus, or
any amendment

20
<PAGE> 21

thereof or supplement thereto, contained in the (i) concession and
reallowance figures appearing under the caption "Underwriting" and (ii)
the stabilization information contained under the caption "Underwriting"
in the Prospectus; provided, however, that the obligation of each
Underwriter to indemnify the Company (including any controlling person,
director or officer thereof) shall be limited to the net proceeds
received by the Company from such Underwriter.

(c) Any party that proposes to assert the right to be
indemnified under this Section will, promptly after receipt of notice of
commencement of any action, suit or proceeding against such party in
respect of which a claim is to be made against an indemnifying party or
parties under this Section, notify each such indemnifying party of the
commencement of such action, suit or proceeding, enclosing a copy of all
papers served. No indemnification provided for in Section 7(a) or 7(b)
shall be available to any party who shall fail to give notice as
provided in this Section 7(c) if the party to whom notice was not given
was unaware of the proceeding to which such notice would have related
and was prejudiced by the failure to give such notice but the omission
so to notify such indemnifying party of any such action, suit or
proceeding shall not relieve it from any liability that it may have to
any indemnified party for contribution or otherwise than under this
Section. In case any such action, suit or proceeding shall be brought
against any indemnified party and it shall notify the indemnifying party
of the commencement thereof, the indemnifying party shall be entitled to
participate in, and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof and the approval by the
indemnified party of such counsel, the indemnifying party shall not be
liable to such indemnified party for any legal or other expenses, except
as provided below and except for the reasonable costs of investigation
subsequently incurred by such indemnified party in connection with the
defense thereof. The indemnified party shall have the right to employ
its counsel in any such action, but the fees and expenses of such
counsel shall be at the expense of such indemnified party unless (i) the
employment of counsel by such indemnified party has been authorized in
writing by the indemnifying parties, (ii) the indemnified party shall
have been advised by counsel that there may be one or more legal
defenses available to it which are different from or in addition to
those available to the indemnifying party (in which case the
indemnifying parties shall not have the right to direct the defense of
such action on behalf of the indemnified party) or (iii) the
indemnifying parties shall not have employed counsel to assume the
defense of such action within a reasonable time after notice of the
commencement thereof, in each of which cases the fees and expenses of
counsel shall be at the expense of the indemnifying parties. An
indemnifying party shall not be liable for any settlement of any action,
suit, proceeding or claim effected without its written consent, which
consent shall not be unreasonably withheld or delayed.

8. Contribution. In order to provide for just and equitable contribution
in circumstances in which the indemnification provided for in Section 7(a) or
7(b) is due in accordance with its terms but for any reason is held to be
unavailable to or insufficient to hold harmless an indemnified party under
Section 7(a) or 7(b), then each indemnifying party shall contribute to the
aggregate losses, claims, damages and liabilities (including any investigation,
legal and other expenses reasonably incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or

21
<PAGE> 22

any claims asserted, but after deducting any contribution received by any person
entitled hereunder to contribution from any person who may be liable for
contribution) to which the indemnified party may be subject in such proportion
as is appropriate to reflect the relative benefits received by the Company and
the Underwriters from the offering of the Shares or, if such allocation is not
permitted by applicable law or indemnification is not available as a result of
the indemnifying party not having received notice as provided in Section 7
hereof, in such proportion as is appropriate to reflect not only the relative
benefits referred to above but also the relative fault of the Company and the
Underwriters in connection with the statements or omissions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative benefits received by the Company
and the Underwriters shall be deemed to be in the same proportion as (x) the
total proceeds from the offering (net of underwriting discounts but before
deducting expenses) received by the Company, as set forth in the table on the
cover page of the Prospectus, bear to (y) the underwriting discounts received by
the Underwriters, as set forth in the table on the cover page of the Prospectus.
The relative fault of the Company or the Underwriters shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact related to information supplied by the Company or the
Underwriters and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The Company
and the Underwriters agree that it would not be just and equitable if
contribution pursuant to this Section 8 were determined by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the equitable
considerations referred to above. Notwithstanding the provisions of this Section
8, (i) in no case shall any Underwriter (except as may be provided in the
Agreement Among Underwriters) be liable or responsible for any amount in excess
of the underwriting discount applicable to the Shares purchased by such
Underwriter hereunder and (ii) the Company shall be liable and responsible for
any amount in excess of such underwriting discount; provided, however, that no
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. For purposes of this
Section 8, each person, if any, who controls an Underwriter within the meaning
of Section 15 of the Securities Act or Section 20(a) of the Exchange Act shall
have the same rights to contribution as such Underwriter, and each person, if
any, who controls the Company within the meaning of the Section 15 of the
Securities Act or Section 20(a) of the Exchange Act, each officer of the Company
who shall have signed the Registration Statement and each director of the
Company shall have the same rights to contribution as the Company, subject in
each case to clauses (i) and (ii) in the immediately preceding sentence of this
Section 8. Any party entitled to contribution will, promptly after receipt of
notice of commencement of any action, suit or proceeding against such party in
respect of which a claim for contribution may be made against another party or
parties under this Section 8, notify such party or parties from whom
contribution may be sought, but the omission so to notify such party or parties
from whom contribution may be sought shall not relieve the party or parties from
whom contribution may be sought from any other obligation it or they may have
hereunder or otherwise than under this Section. No party shall be liable for
contribution with respect to any action, suit, proceeding or claim settled
without its written consent, which consent shall not be unreasonably withheld.
The Underwriter's obligations to contribute pursuant to this Section 8 are
several in proportion to their respective underwriting commitments and not
joint.

9. Termination. This Agreement may be terminated with respect to the
Shares to be purchased on a Closing Date by the Representatives by notifying the
Company at any time:

22
<PAGE> 23

(a) in the absolute discretion of the Representatives at or
before any Closing Date: (i) if on or prior to such date, any domestic
or international event or act or occurrence has materially disrupted, or
in the opinion of the Representatives will in the future materially
disrupt, the securities markets; (ii) if there has occurred any new
outbreak or material escalation of hostilities or other calamity or
crisis the effect of which on the financial markets of the United States
is such as to make it, in the judgment of the Representatives,
inadvisable to proceed with the offering; (iii) if there shall be such a
material adverse change in general financial, political or economic
conditions or the effect of international conditions on the financial
markets in the United States is such as to make it, in the judgment of
the Representatives, inadvisable or impracticable to market the Shares;
(iv) if trading in the Shares has been suspended by the Commission or
trading generally on the New York Stock Exchange, Inc., on the American
Stock Exchange, Inc. or the Nasdaq National Market has been suspended or
limited, or minimum or maximum ranges for prices for securities shall
have been fixed, or maximum ranges for prices for securities have been
required, by said exchanges or by order of the Commission, the National
Association of Securities Dealers, Inc., or any other governmental or
regulatory authority; or (v) if a banking moratorium has been declared
by any state or Federal authority; or (vi) if, in the judgment of the
Representatives, there has occurred a Material Adverse Effect, or

(b) at or before any Closing Date, that any of the conditions
specified in Section 5 hereof shall not have been fulfilled when and as
required by this Agreement.

If this Agreement is terminated pursuant to any of its
provisions, the Company shall be under no liability to any Underwriter,
and no Underwriter shall be under any liability to the Company, except
that (y) if this Agreement is terminated by the Representatives or the
Underwriters because of any failure, refusal or inability on the part of
the Company to comply with the terms or to fulfill any of the conditions
of this Agreement, the Company will reimburse the Underwriters for all
out-of-pocket expenses (including the reasonable fees and disbursements
of their counsel) incurred by them in connection with the proposed
purchase and sale of the Shares or in contemplation of performing their
obligations hereunder and (z) no Underwriter who shall have failed or
refused to purchase the Shares agreed to be purchased by it under this
Agreement, without some reason sufficient hereunder to justify
cancellation or termination of its obligations under this Agreement,
shall be relieved of liability to the Company or to the other
Underwriters for damages occasioned by its failure or refusal.

10. Substitution of Underwriters. If one or more of the Underwriters
shall fail (other than for a reason sufficient to justify the cancellation or
termination of this Agreement under Section 9) to purchase on any Closing Date
the Shares agreed to be purchased on such Closing Date by such Underwriter or
Underwriters, the Representatives may find one or more substitute underwriters
to purchase such Shares or make such other arrangements as the Representatives
may deem advisable or one or more of the remaining Underwriters may agree to
purchase such Shares in such proportions as may be approved by the
Representatives, in each case upon the terms set forth in this Agreement. If no
such arrangements have been made by the close of business on the business day
following such Closing Date,

23
<PAGE> 24

(a) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall not exceed 10% of the Shares
that all the Underwriters are obligated to purchase on such Closing
Date, then each of the nondefaulting Underwriters shall be obligated to
purchase such Shares on the terms herein set forth in proportion to
their respective obligations hereunder; provided, that in no event shall
the maximum number of Shares that any Underwriter has agreed to purchase
pursuant to Section 1 hereof be increased pursuant to this Section 10 by
more than one-ninth of such number of Shares without the written consent
of such Underwriter, or

(b) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall exceed 10% of the Shares that
all the Underwriters are obligated to purchase on such Closing Date,
then the Company shall be entitled to two additional business days
within which it may, but is not obligated to, find one or more
substitute underwriters reasonably satisfactory to the Representatives
to purchase such Shares upon the terms set forth in this Agreement.

In any such case, either the Representatives or the Company
shall have the right to postpone the applicable Closing Date for a
period of not more than five business days in order that necessary
changes and arrangements (including any necessary amendments or
supplements to the Registration Statement or Prospectus) may be effected
by the Representatives and the Company. If the number of Shares to be
purchased on such Closing Date by such defaulting Underwriter or
Underwriters shall exceed 10% of the Shares that all the Underwriters
are obligated to purchase on such Closing Date, and none of the
nondefaulting Underwriters or the Company shall make arrangements
pursuant to this Section within the period stated for the purchase of
the Shares that the defaulting Underwriters agreed to purchase, this
Agreement shall terminate with respect to the Shares to be purchased on
such Closing Date without liability on the part of any nondefaulting
Underwriter to the Company and without liability on the part of the
Company, except in both cases as provided in Sections 6(b), 7, 8 and 9.
Notwithstanding the foregoing, if any default occurs with respect to the
Option Shares Closing Date, this Agreement will not terminate with
respect to the Firm Shares purchased prior to such time. The provisions
of this Section 10 shall not in any way affect the liability of any
defaulting Underwriter to the Company or the nondefaulting Underwriters
arising out of such default. A substitute underwriter hereunder shall
become an Underwriter for all purposes of this Agreement.

11. Miscellaneous. The respective agreements, representations,
warranties, indemnities and other statements of the Company, or its officers,
and of the Underwriters set forth in or made pursuant to this Agreement shall
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter or the Company or any of the officers, directors or
controlling persons referred to in Sections 7 and 8 hereof, and shall survive
delivery of and payment for the Shares. The provisions of Sections 6(b), 7, 8
and 9 hereof shall survive the termination or cancellation of this Agreement.

This Agreement has been and is made for the benefit of the Underwriters,
the Company and their respective successors and assigns, and, to the extent
expressed herein, for the benefit of persons controlling any of the
Underwriters, or the Company, and directors and officers of the Company, and
their respective successors and assigns, and no other person shall acquire or

24
<PAGE> 25

have any right under or by virtue of this Agreement. The term "successors and
assigns" shall not include any purchaser of Shares from any Underwriter merely
because of such purchase.

All notices and communications hereunder shall be in writing and mailed
or delivered or by telephone or telegraph if subsequently confirmed in writing,
(a) if to the Representatives, c/o CIBC World Markets Corp., One World Financial
Center, New York, New York 10281 Attention: Michael Fekete, with a copy to
McDermott, Will & Emery, 2049 Century Park East, Suite 3400, Los Angeles,
California 90067, Attention: Mark J. Mihanovic, Esq. and (b) if to the Company,
to its agent for service as such agent's address appears on the cover page of
the Registration Statement with a copy Cooley Godward LLP, 4365 Executive Drive,
Suite 1100, San Diego, California 92121, Attention: Fredrick T. Muto, Esq.

This Agreement shall be governed by and construed in accordance with the
laws of the State of New York without regard to principles of conflict of laws.

This Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.

25
<PAGE> 26

Please confirm that the foregoing correctly sets forth the agreement
among us.

Very truly yours,

VIROLOGIC, INC.

By:
---------------------------------
Title:

Confirmed:

CIBC WORLD MARKETS CORP.
ING BARINGS LLC
PRUDENTIAL SECURITIES INCORPORATED
Acting severally on behalf of itself
and as representative of the several
Underwriters named on Schedule I
attached hereto

By: CIBC WORLD MARKETS CORP.

By:
--------------------------------
Title:

26
<PAGE> 27

SCHEDULE I

<TABLE>
<CAPTION>
Number of
Firm Shares to
Name Be Purchased
- ---- --------------
<S> <C>
CIBC World Markets Corp.
ING Barings LLC
Prudential Securities Incorporated

--------------
TOTAL
</TABLE>

<PAGE> 28

EXHIBIT 5(h) TO UNDERWRITING AGREEMENT

LEGAL OPINION OF COOPER & DUNHAM LLP

STATEMENTS:

We have acted as patent counsel to the Company with respect to the
patent matters reflected on Schedule A attached hereto (the "Relevant
Patent Matters").

We have read the Registration Statement and the Prospectus, including in
particular the portions of the Registration Statement and the Prospectus
under the captions "Risk Factors - The intellectual property underlying
our PhenoSense technology may not be adequate, allowing third parties to
use our PhenoSense technology and thus reducing our ability to compete
in the market" and "Business - Background, Our Solution, Our Strategy
and Patents and Proprietary Rights" (such portions being referred to
herein, collectively, as the "Technology Portions").

OPINIONS:

1. The statements in the Technology Portions are accurate and fairly
present the matters of law and legal conclusions stated therein.

2. Nothing has come to our attention which has caused us to believe that
the Technology Portions contain any untrue statement of a material
fact with respect to the patent position of the Company, or omit to
state any material fact relating to the patent position of the
Company.

3. Nothing has come to our attention which has caused us to believe that
(a) any patent application referred to in the Relevant Patent Matters
was not properly prepared and filed, in accordance with all
applicable legal and procedural requirements, or is not in good
standing, (b) the issued patent (the "Issued Patent") referred to in
the Relevant Patent Matters was not properly obtained, in accordance
with all applicable legal and procedural requirements, or is not in
good standing, (c) that any invention described in any patent
application or the issued patent is not held by the Company, or (d)
any [relevant] prior art has not been disclosed promptly to the
appropriate governmental agency.

4. To our knowledge, the Company has not received any notice asserting
any ownership rights contrary to those of the Company in any of the
Relevant Patent Matters.

5. To our knowledge, the Company has not received any notice challenging
the validity or enforceability of any Relevant Patent Matter.

6. To our knowledge, the Company has not received any notice of
infringement of, or conflict with, rights or claims of others with
respect to any patent, trademark, service mark, trade name, copyright
or know-how.

<PAGE> 29

7. To our knowledge, other than proceedings (except re-examination,
reissue or interference proceedings) of the various patent and
trademark offices, there are no legal or governmental proceedings
pending relating to any patent, patent application, trade secret,
trademark, service mark or other proprietary information or materials
of the Company and, to our knowledge, no such proceedings are
threatened or contemplated by governmental authorities or others.

<PAGE> 1

EXHIBIT 4.2

VLG

INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE

SEE REVERSE FOR CERTAIN DEFINITIONS

This Certifies that

is the record holder of

FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.001 PAR VALUE, OF
VIROLOGIC, INC.

transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate is not valid until countersigned by the Transfer
Agent and registered by the Registrar. WITNESS the facsimile seal of the
Corporation and the facsimile signatures of its duly authorized officers.
Dated

CORPORATE SECRETARY

CHIEF EXECUTIVE OFFICER

COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT
AND REGISTRAR,

AUTHORIZED OFFICER
<PAGE> 2

The Corporation will furnish without charge to each stockholder who so requests
a statement of the powers, designations, preferences and relative,
participating, optional, or other special rights of each class of stock of the
Corporation or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Such requests shall be made to
the Corporation's Secretary at the principal office of the Corporation.

The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

- - as tenants in common

- - as tenants by the entireties

- - as joint tenants with right of survivorship and not as tenants in common

UNIF GIFT MIN ACT_..........................Custodian...........................
(Cust)

(Minor)
under Uniform Gifts to Minors
Act.................................
.......................
(State)

UNIF TRF MIN ACT_...........................Custodian (until age.............)
(Cust)

.......................under Uniform
Transfers
(Minor)

to Minors

Act.........................................

(State)

Additional abbreviations may also be used though not in the above list.

For Value Received,
hereby sell(s), assign(s) and transfer(s) unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE

(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)

of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint Attorney to transfer the said stock on the
books of the within named Corporation with full power of substitution in the
premises. Dated

NOTICE:

THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.

Signature(s) Guaranteed
By

THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE
17Ad-15.

<PAGE> 1
EXHIBIT 4.15

VIROLOGIC, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN

ADOPTED BY BOARD OF DIRECTORS FEBRUARY 21 , 2000
APPROVED BY STOCKHOLDERS _______________ , 2000
TERMINATION DATE: NONE

1. PURPOSE.

(a) The purpose of the Plan is to provide a means by which Employees of
the Company and certain designated Affiliates may be given an opportunity to
purchase Shares of the Company.

(b) The Company, by means of the Plan, seeks to retain the services of
such Employees, to secure and retain the services of new Employees and to
provide incentives for such persons to exert maximum efforts for the success of
the Company and its Affiliates.

(c) The Company intends that the Rights to purchase Shares granted under
the Plan be considered options issued under an "employee stock purchase plan,"
as that term is defined in Section 423(b) of the Code.

2. DEFINITIONS.

(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f), respectively, of the Code.

(b) "BOARD" means the Board of Directors of the Company.

(d) "COMMITTEE" means a Committee appointed by the Board in accordance
with subparagraph 3(c) of the Plan.

(e) "COMPANY" means ViroLogic, Inc., a Delaware corporation.

(f) "DIRECTOR" means a member of the Board.

(g) "ELIGIBLE EMPLOYEE" means an Employee who meets the requirements set
forth in the Offering for eligibility to participate in the Offering.

(h) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or an Affiliate of the Company. Neither service as a
Director nor payment of a director's fee shall be sufficient to constitute
"employment" by the Company or the Affiliate.

-1-

<PAGE> 2
(i) "EMPLOYEE STOCK PURCHASE PLAN" means a plan that grants rights
intended to be options issued under an "employee stock purchase plan," as that
term is defined in Section 423(b) of the Code.

(j) "EXCHANGE ACT" means the United States Securities Exchange Act of
1934, as amended.

(k) "FAIR MARKET VALUE" means the value of a security, as determined in
good faith by the Board. If the security is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market,
then, except as otherwise provided in the Offering, the Fair Market Value of the
security shall be the closing sales price (rounded up where necessary to the
nearest whole cent) for such security (or the closing bid, if no sales were
reported) as quoted on such exchange or market (or the exchange or market with
the greatest volume of trading in the relevant security of the Company) on the
trading day prior to the relevant determination date, as reported in The Wall
Street Journal or such other source as the Board deems reliable.

(l) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
("Regulation S-K")), does not possess an interest in any other transaction as to
which disclosure would be required under Item 404(a) of Regulation S-K, and is
not engaged in a business relationship as to which disclosure would be required
under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a
"non-employee director" for purposes of Rule 16b-3.

(m) "OFFERING" means the grant of Rights to purchase Shares under the
Plan to Eligible Employees.

(n) "OFFERING DATE" means a date selected by the Board for an Offering
to commence.

(o) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
the Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.

(p) "PARTICIPANT" means an Eligible Employee who holds an outstanding
Right granted pursuant to the Plan or, if applicable, such other person who
holds an outstanding Right granted under the Plan.

-2-

<PAGE> 3
(q) "PLAN" means this 2000 Employee Stock Purchase Plan.

(r) "PURCHASE DATE" means one or more dates established by the Board
during an Offering on which Rights granted under the Plan shall be exercised and
purchases of Shares carried out in accordance with such Offering.

(s) "RIGHT" means an option to purchase Shares granted pursuant to the
Plan.

(t) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any successor
to Rule 16b-3 as in effect with respect to the Company at the time discretion is
being exercised regarding the Plan.

(u) "SECURITIES ACT" means the United States Securities Act of 1933, as
amended.

(v) "SHARE" means a share of the common stock of the Company.

3. ADMINISTRATION.

(a) The Board shall administer the Plan unless and until the Board
delegates administration to a Committee, as provided in subparagraph 3(c).
Whether or not the Board has delegated administration, the Board shall have the
final power to determine all questions of policy and expediency that may arise
in the administration of the Plan.

(b) The Board (or the Committee) shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:

(i) To determine when and how Rights to purchase Shares shall be
granted and the provisions of each Offering of such Rights (which need not be
identical).

(ii) To designate from time to time which Affiliates of the
Company shall be eligible to participate in the Plan.

(iii) To construe and interpret the Plan and Rights granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan, in a manner and to the extent it
shall deem necessary or expedient to make the Plan fully effective.

(iv) To amend the Plan as provided in paragraph 14.

(v) Generally, to exercise such powers and to perform such acts
as it deems necessary or expedient to promote the best interests of the Company
and its Affiliates and to carry out the intent that the Plan be treated as an
Employee Stock Purchase Plan.

(c) The Board may delegate administration of the Plan to a Committee of
the Board composed of two (2) or more members, all of the members of which
Committee may be, in the discretion of the Board, Non-Employee Directors and/or
Outside Directors. If administration is delegated to a Committee, the Committee
shall have, in connection with the administration of the

-3-

<PAGE> 4
Plan, the powers theretofore possessed by the Board, including the power to
delegate to a subcommittee of two (2) or more Outside Directors any of the
administrative powers the Committee is authorized to exercise (and references in
this Plan to the Board shall thereafter be to the Committee or such a
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.

4. SHARES SUBJECT TO THE PLAN.

(a) Subject to the provisions of paragraph 13 relating to adjustments
upon changes in securities, the Shares that may be sold pursuant to Rights
granted under the Plan shall not exceed in the aggregate five hundred thousand
(500,000) Shares. If any Right granted under the Plan shall for any reason
terminate without having been exercised, the Shares not purchased under such
Right shall again become available for the Plan.

(b) The Shares subject to the Plan may be unissued Shares or Shares that
have been bought on the open market at prevailing market prices or otherwise.

5. GRANT OF RIGHTS; OFFERING.

(a) The Board may from time to time grant or provide for the grant of
Rights to purchase Shares of the Company under the Plan to Eligible Employees in
an Offering on an Offering Date or Dates selected by the Board. Each Offering
shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate, which shall comply with the requirements of Section
423(b)(5) of the Code that all Employees granted Rights to purchase Shares under
the Plan shall have the same rights and privileges. The terms and conditions of
an Offering shall be incorporated by reference into the Plan and treated as part
of the Plan. The provisions of separate Offerings need not be identical, but
each Offering shall include (through incorporation of the provisions of this
Plan by reference in the document comprising the Offering or otherwise) the
period during which the Offering shall be effective, which period shall not
exceed twenty-seven (27) months beginning with the Offering Date, and the
substance of the provisions contained in paragraphs 6 through 9, inclusive.

(b) If a Participant has more than one Right outstanding under the Plan,
unless he or she otherwise indicates in agreements or notices delivered
hereunder: (i) each agreement or notice delivered by that Participant will be
deemed to apply to all of his or her Rights under the Plan, and (ii) an
earlier-granted Right (or a Right with a lower exercise price, if two Rights
have identical grant dates) will be exercised to the fullest possible extent
before a later-granted Right (or a Right with a higher exercise price if two
Rights have identical grant dates) will be exercised.

6. ELIGIBILITY.

(a) Rights may be granted only to Employees of the Company or, as the
Board may designated as provided in subparagraph 3(b), to Employees of an
Affiliate.

-4-

<PAGE> 5
(i) Except as provided in subparagraph 6(b), an Employee shall
not be eligible to be granted Rights under the Plan unless, on the Offering
Date, such Employee has been in the employ of the Company or the Affiliate, as
the case may be, for such continuous period preceding such grant as the Board
may require in the Offering, but in no event shall the required period of
continuous employment be equal to or greater than two (2) years.

(ii) The Board may provide in an Offering that Employees whose
customary employment is twenty (20) hours or less per week shall not be eligible
to participate.

(iii) The Board may provide in an Offering that Employees whose
customary employment is for not more than five (5) months in any calendar year
shall not be eligible to participate.

(iv) The Board may provide in an Offering that Employees who are
highly compensated Employees within the meaning of Section 423(b)(4)(D) of the
Code shall not be eligible to participate.

(b) The Board may provide that each person who, during the course of an
Offering, first becomes an Eligible Employee will, on a date or dates specified
in the Offering which coincides with the day on which such person becomes an
Eligible Employee or which occurs thereafter, receive a Right under that
Offering, which Right shall thereafter be deemed to be a part of that Offering.
Such Right shall have the same characteristics as any Rights originally granted
under that Offering, as described herein, except that:

(i) the date on which such Right is granted shall be the
"Offering Date" of such Right for all purposes, including determination of the
exercise price of such Right;

(ii) the period of the Offering with respect to such Right shall
begin on its Offering Date and end coincident with the end of such Offering; and

(iii) the Board may provide that if such person first becomes an
Eligible Employee within a specified period of time before the end of the
Offering, he or she will not receive any Right under that Offering.

(c) No Employee shall be eligible for the grant of any Rights under the
Plan if, immediately after any such Rights are granted, such Employee owns stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Affiliate. For purposes of this
subparagraph 6(c), the rules of Section 424(d) of the Code shall apply in
determining the stock ownership of any Employee, and stock which such Employee
may purchase under all outstanding rights and options shall be treated as stock
owned by such Employee.

(d) An Eligible Employee may be granted Rights under the Plan only if
such Rights, together with any other Rights granted under all Employee Stock
Purchase Plans of the Company and any Affiliates, as specified by Section
423(b)(8) of the Code, do not permit such Eligible Employee's rights to purchase
Shares of the Company or any Affiliate to accrue at a rate which

-5-

<PAGE> 6
exceeds twenty five thousand dollars ($25,000) of the fair market value of such
Shares (determined at the time such Rights are granted) for each calendar year
in which such Rights are outstanding at any time.

7. RIGHTS; PURCHASE PRICE.

(a) On each Offering Date, each Eligible Employee, pursuant to an
Offering made under the Plan, shall be granted the Right to purchase up to the
number of Shares purchasable either:

(i) with a percentage designated by the Board not exceeding
fifteen percent (15%) of such Employee's Earnings (as defined by the Board in
each Offering) during the period which begins on the Offering Date (or such
later date as the Board determines for a particular Offering) and ends on the
date stated in the Offering, which date shall be no later than the end of the
Offering; or

(ii) with a maximum dollar amount designated by the Board that,
as the Board determines for a particular Offering, (1) shall be withheld, in
whole or in part, from such Employee's Earnings (as defined by the Board in each
Offering) during the period which begins on the Offering Date (or such later
date as the Board determines for a particular Offering) and ends on the date
stated in the Offering, which date shall be no later than the end of the
Offering and/or (2) shall be contributed, in whole or in part, by such Employee
during such period.

(b) The Board shall establish one or more Purchase Dates during an
Offering on which Rights granted under the Plan shall be exercised and purchases
of Shares carried out in accordance with such Offering.

(c) In connection with each Offering made under the Plan, the Board may
specify a maximum amount of Shares that may be purchased by any Participant as
well as a maximum aggregate amount of Shares that may be purchased by all
Participants pursuant to such Offering. In addition, in connection with each
Offering that contains more than one Purchase Date, the Board may specify a
maximum aggregate amount of Shares which may be purchased by all Participants on
any given Purchase Date under the Offering. If the aggregate purchase of Shares
upon exercise of Rights granted under the Offering would exceed any such maximum
aggregate amount, the Board shall make a pro rata allocation of the Shares
available in as nearly a uniform manner as shall be practicable and as it shall
deem to be equitable.

(d) The purchase price of Shares acquired pursuant to Rights granted
under the Plan shall be not less than the lesser of:

(i) an amount equal to eighty-five percent (85%) of the fair
market value of the Shares on the Offering Date; or

(ii) an amount equal to eighty-five percent (85%) of the fair
market value of the Shares on the Purchase Date.

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<PAGE> 7
8. PARTICIPATION; WITHDRAWAL; TERMINATION.

(a) An Eligible Employee may become a Participant in the Plan pursuant
to an Offering by delivering a participation agreement to the Company within the
time specified in the Offering, in such form as the Company provides. Each such
agreement shall authorize payroll deductions of up to the maximum percentage
specified by the Board of such Employee's Earnings during the Offering (as
defined in each Offering). The payroll deductions made for each Participant
shall be credited to a bookkeeping account for such Participant under the Plan
and either may be deposited with the general funds of the Company or may be
deposited in a separate account in the name of, and for the benefit of, such
Participant with a financial institution designated by the Company. To the
extent provided in the Offering, a Participant may reduce (including to zero) or
increase such payroll deductions. To the extent provided in the Offering, a
Participant may begin such payroll deductions after the beginning of the
Offering. A Participant may make additional payments into his or her account
only if specifically provided for in the Offering and only if the Participant
has not already had the maximum permitted amount withheld during the Offering.

(b) At any time during an Offering, a Participant may terminate his or
her payroll deductions under the Plan and withdraw from the Offering by
delivering to the Company a notice of withdrawal in such form as the Company
provides. Such withdrawal may be elected at any time prior to the end of the
Offering except as provided by the Board in the Offering. Upon such withdrawal
from the Offering by a Participant, the Company shall distribute to such
Participant all of his or her accumulated payroll deductions (reduced to the
extent, if any, such deductions have been used to acquire Shares for the
Participant) under the Offering, without interest unless otherwise specified in
the Offering, and such Participant's interest in that Offering shall be
automatically terminated. A Participant's withdrawal from an Offering will have
no effect upon such Participant's eligibility to participate in any other
Offerings under the Plan but such Participant will be required to deliver a new
participation agreement in order to participate in subsequent Offerings under
the Plan.

(c) Rights granted pursuant to any Offering under the Plan shall
terminate immediately upon cessation of any participating Employee's employment
with the Company or a designated Affiliate for any reason (subject to any
post-employment participation period required by law) or other lack of
eligibility. The Company shall distribute to such terminated Employee all of his
or her accumulated payroll deductions (reduced to the extent, if any, such
deductions have been used to acquire Shares for the terminated Employee) under
the Offering, without interest unless otherwise specified in the Offering. If
the accumulated payroll deductions have been deposited with the Company's
general funds, then the distribution shall be made from the general funds of the
Company, without interest. If the accumulated payroll deductions have been
deposited in a separate account with a financial institution as provided in
subparagraph 8(a), then the distribution shall be made from the separate
account, without interest unless otherwise specified in the Offering.

(d) Rights granted under the Plan shall not be transferable by a
Participant otherwise than by will or the laws of descent and distribution, or
by a beneficiary designation as provided

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<PAGE> 8
in paragraph 15 and, otherwise during his or her lifetime, shall be exercisable
only by the person to whom such Rights are granted.

9. EXERCISE.

(a) On each Purchase Date specified therefor in the relevant Offering,
each Participant's accumulated payroll deductions and other additional payments
specifically provided for in the Offering (without any increase for interest)
will be applied to the purchase of Shares up to the maximum amount of Shares
permitted pursuant to the terms of the Plan and the applicable Offering, at the
purchase price specified in the Offering. No fractional Shares shall be issued
upon the exercise of Rights granted under the Plan unless specifically provided
for in the Offering.

(b) Unless otherwise specifically provided in the Offering, the amount,
if any, of accumulated payroll deductions remaining in any Participant's account
after the purchase of Shares that is equal to the amount required to purchase
one or more whole Shares on the final Purchase Date of the Offering shall be
distributed in full to the Participant at the end of the Offering, without
interest. If the accumulated payroll deductions have been deposited with the
Company's general funds, then the distribution shall be made from the general
funds of the Company, without interest. If the accumulated payroll deductions
have been deposited in a separate account with a financial institution as
provided in subparagraph 8(a), then the distribution shall be made from the
separate account, without interest unless otherwise specified in the Offering.

(c) No Rights granted under the Plan may be exercised to any extent
unless the Shares to be issued upon such exercise under the Plan (including
Rights granted thereunder) are covered by an effective registration statement
pursuant to the Securities Act and the Plan is in material compliance with all
applicable state, foreign and other securities and other laws applicable to the
Plan. If on a Purchase Date in any Offering hereunder the Plan is not so
registered or in such compliance, no Rights granted under the Plan or any
Offering shall be exercised on such Purchase Date, and the Purchase Date shall
be delayed until the Plan is subject to such an effective registration statement
and such compliance, except that the Purchase Date shall not be delayed more
than twelve (12) months and the Purchase Date shall in no event be more than
twenty-seven (27) months from the Offering Date. If, on the Purchase Date of any
Offering hereunder, as delayed to the maximum extent permissible, the Plan is
not registered and in such compliance, no Rights granted under the Plan or any
Offering shall be exercised and all payroll deductions accumulated during the
Offering (reduced to the extent, if any, such deductions have been used to
acquire Shares) shall be distributed to the Participants, without interest
unless otherwise specified in the Offering. If the accumulated payroll
deductions have been deposited with the Company's general funds, then the
distribution shall be made from the general funds of the Company, without
interest. If the accumulated payroll deductions have been deposited in a
separate account with a financial institution as provided in subparagraph 8(a),
then the distribution shall be made from the separate account, without interest
unless otherwise specified in the Offering.

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<PAGE> 9
10. COVENANTS OF THE COMPANY.

(a) During the terms of the Rights granted under the Plan, the Company
shall ensure that the amount of Shares required to satisfy such Rights are
available.

(b) The Company shall seek to obtain from each federal, state, foreign
or other regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell Shares upon exercise of the
Rights granted under the Plan. If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of Shares under the Plan, the Company shall be relieved from any liability for
failure to issue and sell Shares upon exercise of such Rights unless and until
such authority is obtained.

11. USE OF PROCEEDS FROM SHARES.

Proceeds from the sale of Shares pursuant to Rights granted under the
Plan shall constitute general funds of the Company.

12. RIGHTS AS A STOCKHOLDER.

A Participant shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, Shares subject to Rights granted under
the Plan unless and until the Participant's Shares acquired upon exercise of
Rights under the Plan are recorded in the books of the Company.

13. ADJUSTMENTS UPON CHANGES IN SECURITIES.

(a) If any change is made in the Shares subject to the Plan, or subject
to any Right, without the receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, reincorporation, stock
dividend, dividend in property other than cash, stock split, liquidating
dividend, combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of consideration by the
Company), the Plan will be appropriately adjusted in the class(es) and maximum
number of Shares subject to the Plan pursuant to subparagraph 4(a), and the
outstanding Rights will be appropriately adjusted in the class(es), number of
Shares and purchase limits of such outstanding Rights. The Board shall make such
adjustments, and its determination shall be final, binding and conclusive. (The
conversion of any convertible securities of the Company shall not be treated as
a transaction that does not involve the receipt of consideration by the
Company.)

(b) In the event of: (i) a dissolution, liquidation, or sale of all or
substantially all of the assets of the Company; (ii) a merger or consolidation
in which the Company is not the surviving corporation; or (iii) a reverse merger
in which the Company is the surviving corporation but the Shares outstanding
immediately preceding the merger are converted by virtue of the merger into
other property, whether in the form of securities, cash or otherwise, then: (1)
any surviving or acquiring corporation shall assume Rights outstanding under the
Plan or shall substitute similar rights (including a right to acquire the same
consideration paid to Stockholders

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<PAGE> 10
in the transaction described in this subparagraph 13(b)) for those outstanding
under the Plan, or (2) in the event any surviving or acquiring corporation
refuses to assume such Rights or to substitute similar rights for those
outstanding under the Plan, then, as determined by the Board in its sole
discretion such Rights may continue in full force and effect or the
Participants' accumulated payroll deductions (exclusive of any accumulated
interest which cannot be applied toward the purchase of Shares under the terms
of the Offering) may be used to purchase Shares immediately prior to the
transaction described above under the ongoing Offering and the Participants'
Rights under the ongoing Offering thereafter terminated.

14. AMENDMENT OF THE PLAN.

(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 13 relating to adjustments upon changes
in securities and except as to minor amendments to benefit the administration of
the Plan, to take account of a change in legislation or to obtain or maintain
favorable tax, exchange control or regulatory treatment for Participants or the
Company or any Affiliate, no amendment shall be effective unless approved by the
stockholders of the Company to the extent stockholder approval is necessary for
the Plan to satisfy the requirements of Section 423 of the Code, Rule 16b-3
under the Exchange Act and any Nasdaq or other securities exchange listing
requirements. Currently under the Code, stockholder approval within twelve (12)
months before or after the adoption of the amendment is required where the
amendment will:

(i) Increase the amount of Shares reserved for Rights under the
Plan;

(ii) Modify the provisions as to eligibility for participation in
the Plan to the extent such modification requires stockholder approval in order
for the Plan to obtain employee stock purchase plan treatment under Section 423
of the Code or to comply with the requirements of Rule 16b-3; or

(iii) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to obtain employee stock
purchase plan treatment under Section 423 of the Code or to comply with the
requirements of Rule 16b-3.

(b) It is expressly contemplated that the Board may amend the Plan in
any respect the Board deems necessary or advisable to provide Employees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to Employee Stock Purchase Plans
and/or to bring the Plan and/or Rights granted under it into compliance
therewith.

(c) Rights and obligations under any Rights granted before amendment of
the Plan shall not be impaired by any amendment of the Plan, except with the
consent of the person to whom such Rights were granted, or except as necessary
to comply with any laws or governmental regulations, or except as necessary to
ensure that the Plan and/or Rights granted under the Plan comply with the
requirements of Section 423 of the Code.

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<PAGE> 11
15. DESIGNATION OF BENEFICIARY.

(a) A Participant may file a written designation of a beneficiary who is
to receive any Shares and/or cash, if any, from the Participant's account under
the Plan in the event of such Participant's death subsequent to the end of an
Offering but prior to delivery to the Participant of such Shares and cash. In
addition, a Participant may file a written designation of a beneficiary who is
to receive any cash from the Participant's account under the Plan in the event
of such Participant's death during an Offering.

(b) The Participant may change such designation of beneficiary at any
time by written notice. In the event of the death of a Participant and in the
absence of a beneficiary validly designated under the Plan who is living at the
time of such Participant's death, the Company shall deliver such Shares and/or
cash to the executor or administrator of the estate of the Participant, or if no
such executor or administrator has been appointed (to the knowledge of the
Company), the Company, in its sole discretion, may deliver such Shares and/or
cash to the spouse or to any one or more dependents or relatives of the
Participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.

16. TERMINATION OR SUSPENSION OF THE PLAN.

(a) The Board in its discretion may suspend or terminate the Plan at any
time. Unless sooner terminated, the Plan shall terminate at the time that all of
the Shares subject to the Plan's reserve, as increased and/or adjusted from time
to time, have been issued under the terms of the Plan. No Rights may be granted
under the Plan while the Plan is suspended or after it is terminated.

(b) Rights and obligations under any Rights granted while the Plan is in
effect shall not be impaired by suspension or termination of the Plan, except as
expressly provided in the Plan or with the consent of the person to whom such
Rights were granted, or except as necessary to comply with any laws or
governmental regulation, or except as necessary to ensure that the Plan and/or
Rights granted under the Plan comply with the requirements of Section 423 of the
Code.

17. EFFECTIVE DATE OF PLAN.

The Plan shall become effective as determined by the Board, but no
Rights granted under the Plan shall be exercised unless and until the Plan has
been approved by the stockholders of the Company within twelve (12) months
before or after the date the Plan is adopted by the Board, which date may be
prior to the effective date set by the Board.

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<PAGE> 12

VIROLOGIC, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
OFFERING

ADOPTED FEBRUARY 21, 2000

1. GRANT OF RIGHTS.

(a) The Board of Directors ("Board") of ViroLogic, Inc., a Delaware
corporation (the "Company"), pursuant to the Company's 2000 Employee Stock
Purchase Plan (the "Plan"), hereby authorizes the grant of Rights to purchase
Shares of the Company to all Eligible Employees (an "Offering"). Defined terms
not explicitly defined in this Offering but defined in the Plan shall have the
same definitions as in the Plan. In the event of any conflict between the
provisions of an Offering and those of the Plan (including interpretations,
amendments, rules and regulations that may from time to time be promulgated and
adopted pursuant to the Plan), the provisions of the Plan shall control.

(b) An "Offering Date" is the first day of an Offering. An Offering may
consist of one purchase period or may be divided into shorter purchase periods
("Purchase Periods"). A "Purchase Date" is the last day of a Purchase Period or
the Offering, as the case may be.

(c) Except as otherwise provided, each Offering hereunder shall be
twenty-four (24) months long and shall be divided into four (4) shorter Purchase
Periods approximately six (6) months in length. Offerings shall be consecutive.
A new Offering shall start the day after the current Offering ends.

(d) The first Offering shall begin on the effective date of the initial
public offering of the Shares and end on April 30, 2002 (the "Initial
Offering"); provided, however, that the Initial Offering cannot exceed
twenty-seven (27) months. The Initial Offering will be divided into four (4)
shorter Purchase Periods, with the initial Purchase Period ending on October 31,
2000, the second Purchase Period ending on April 30, 2001, the third Purchase
Period ending on October 31, 2001 and the fourth Purchase Period ending on April
30, 2002.

(e) Thereafter consecutive 24-month Offerings shall begin on May 1, 2002
and on each subsequent second anniversary of the most recent Offering Date;
provided, however, that if on the first day of a new Purchase Period during the
Offering the fair market value of the Shares is less than it was on the Offering
Date for that Offering, that day shall become the next Offering Date, and the
Offering that would otherwise have continued in effect shall immediately
terminate. Each Offering after the Initial Offering shall end on the day prior
to the second anniversary of its Offering Date unless sooner terminated as
provided above.

(f) Prior to the commencement of any Offering, the Board may change any
or all terms of such Offering and any subsequent Offerings. The granting of
Rights pursuant to each Offering hereunder shall occur on each respective
Offering Date unless, prior to such date (i) the

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<PAGE> 13
Board (or such Committee) determines that such Offering shall not occur, or (ii)
no Shares remain available for issuance under the Plan in connection with the
Offering.

(g) Notwithstanding any other provisions of an Offering, if the terms of
an Offering as previously established by the Board of Directors of the Company
would, as a result of a change to applicable accounting standards, generate a
charge to earnings, such Offering shall terminate effective as of the day prior
to the date such change to accounting standards would otherwise first apply to
the Offering (the "Offering Termination Date"), and such Offering Termination
Date shall be the final Purchase Date of such Offering. A subsequent Offering
shall commence on such date and on such terms as shall be provided by the Board
of Directors of the Company.

2. ELIGIBLE EMPLOYEES.

(a) All employees of the Company and each of its Affiliates incorporated
in the United States shall be granted Rights to purchase Shares under each
Offering on the Offering Date of such Offering, provided that each such employee
otherwise meets the employment requirements of subparagraph 6(a) of the Plan and
has been continuously employed for at least ten (10) days on the Offering Date
of such Offering (an "Eligible Employee"); however, the ten- (10-) day
eligibility requirement shall be waived with respect to the Initial Offering
only.

(b) Notwithstanding the foregoing, the following employees shall not be
Eligible Employees or be granted Rights under an Offering: (i) part-time or
seasonal employees whose customary employment is twenty (20) hours or less per
week or five (5) months or less per calendar year or (ii) 5% stockholders
(including ownership through unexercised options) described in subparagraph 6(c)
of the Plan.

(c) Notwithstanding the foregoing, each person who first becomes an
Eligible Employee during any Offering will, on the next August 1, November 1,
February 1 or May 1 during that Offering, receive a Right under such Offering,
which Right shall thereafter be deemed to be a part of the Offering. Such Right
shall have the same characteristics as any Rights originally granted under the
Offering except that:

(i) the date on which such Right is granted shall be the
"Offering Date" of such Right for all purposes, including determination of the
exercise price of such Right; and

(ii) the Offering for such Right shall begin on its Offering Date
and end coincident with the end of the ongoing Offering.

3. RIGHTS.

(a) Subject to the limitations contained herein and in the Plan, on each
Offering Date each Eligible Employee shall be granted the Right to purchase the
number of Shares purchasable with up to fifteen percent (15%) of such Eligible
Employee's Earnings paid during such Offering after the Eligible Employee first
commences participation; provided, however, that no employee may purchase Shares
on a particular Purchase Date that would result in more than fifteen percent

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<PAGE> 14
(15%) of such employee's Earnings in the period from the Offering Date to such
Purchase Date having been applied to purchase Shares under all ongoing Offerings
under the Plan and all other Company plans intended to qualify as "employee
stock purchase plans" under Section 423 of the Internal Revenue Code of 1986, as
amended (the "Code").

(b) For this Offering, "Earnings" means the total compensation paid to
an employee, including all salary, wages (including amounts elected to be
deferred by the employee, that would otherwise have been paid, under any cash or
deferred arrangement established by the Company), overtime pay, commissions,
bonuses, and other remuneration paid directly to the employee, but excluding
profit sharing, the cost of employee benefits paid for by the Company, education
or tuition reimbursements, imputed income arising under any Company group
insurance or benefit program, traveling expenses, business and moving expense
reimbursements, income received in connection with stock options, contributions
made by the Company under any employee benefit plan, and similar items of
compensation.

(c) Notwithstanding the foregoing, the maximum number of Shares an
Eligible Employee may purchase on any Purchase Date in an Offering shall be such
number of Shares as has a fair market value (determined as of the Offering Date
for such Offering) equal to (x) $25,000 multiplied by the number of calendar
years in which the Right under such Offering has been outstanding at any time,
minus (y) the fair market value of any other Shares (determined as of the
relevant Offering Date with respect to such Shares) which, for purposes of the
limitation of Section 423(b)(8) of the Code, are attributed to any of such
calendar years in which the Right is outstanding. The amount in clause (y) of
the previous sentence shall be determined in accordance with regulations
applicable under Section 423(b)(8) of the Code based on (i) the number of Shares
previously purchased with respect to such calendar years pursuant to such
Offering or any other Offering under the Plan, or pursuant to any other Company
plans intended to qualify as "employee stock purchase plans" under Section 423
of the Code, and (ii) the number of Shares subject to other Rights outstanding
on the Offering Date for such Offering pursuant to the Plan or any other such
Company plan.

(d) The maximum aggregate number of Shares available to be purchased by
all Eligible Employees under an Offering shall be the number of Shares remaining
available under the Plan on the Offering Date. If the aggregate purchase of
Shares upon exercise of Rights granted under the Offering would exceed the
maximum aggregate number of Shares available, the Board shall make a pro rata
allocation of the Shares available in a uniform and equitable manner.

4. PURCHASE PRICE.

(a) The purchase price of the Shares under the Offering shall be the
lesser of eighty-five percent (85%) of the fair market value of the Shares on
the Offering Date or eighty-five percent (85%) of the fair market value of the
Shares on the Purchase Date, in each case rounded up to the nearest whole cent
per Share.

(b) For the Initial Offering, the fair market value of the Shares at the
time when the Offering commences shall be the price per Share at which Shares
are first sold to the public in

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<PAGE> 15
the Company's initial public offering as specified in the final prospectus with
respect to that offering.

5. PARTICIPATION.

(a) An Eligible Employee may elect to participate in an Offering only at
the beginning of the Offering or such later date specified in subparagraph 2(c).

(b) A Participant who is enrolled in an Offering automatically will be
enrolled in the next Offering that commences after the current Offering ends.

(c) An Eligible Employee shall become a Participant in an Offering by
delivering an agreement authorizing payroll deductions. Such deductions must be
in whole percentages, with a minimum percentage of one percent (1%) and a
maximum percentage of fifteen percent (15%) of Earnings. A Participant may not
make additional payments into his or her account. The agreement shall be made on
such enrollment form as the Company provides, and must be delivered to the
Company at least ten (10) days before the Offering Date, or before such later
date specified in subparagraph 2(c), in advance of the date of participation to
be effective, unless a later time for filing the enrollment form is set by the
Board for all Eligible Employees with respect to a given Offering Date. For the
Initial Offering, the time for filing an enrollment form and commencing
participation for individuals who are Eligible Employees on the Offering Date
for the Initial Offering may be after the Offering Date, as determined by the
Company and communicated to such Eligible Employees.

(d) If the agreement authorizing payroll deductions is required to be
delivered to the Company or designated Affiliate a specified number of days
before the Offering Date to be effective, then an employee who becomes eligible
during the required delivery period shall not be considered to be an Eligible
Employee at the beginning of the Offering but may elect to participate during
the Offering as provided in subparagraph 2(c).

6. CHANGING PARTICIPATION LEVEL DURING OFFERING; WITHDRAWAL FROM OFFERING.

(a) A Participant may not increase his or her deductions during the
course of a Purchase Period. A Participant may increase or decrease his or her
deductions prior to the beginning of a new Purchase Period or a new Offering, to
be effective at the beginning of such new Purchase Period or new Offering. A
Participant shall make a change in the his or her participation level by
delivering a notice to the Company in such form as the Company provides and up
to ten (10) days before the start of such new Purchase Period or new Offering
(or such shorter period of time determined by the Company and communicated to
Participants).

(b) A Participant may reduce (including to zero) his or her deductions
once (and only once) during a Purchase Period, effective as soon as
administratively practicable. A Participant shall make a change in the his or
her participation level by delivering a notice to the Company in such form as
the Company provides up to ten (10) days before the end of such Purchase Period
(or such shorter period of time determined by the Company and communicated to
Participants).

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<PAGE> 16
(c) Except as otherwise specifically provided herein, a Participant may
not increase or decrease his or her participation level during the course of an
Offering.

(d) Notwithstanding the foregoing, a Participant may withdraw from an
Offering and receive his or her accumulated payroll deductions from the Offering
(reduced to the extent, if any, such deductions have been used to acquire Shares
for the Participant on any prior Purchase Dates), without interest, or reduce
his or her participation percentage to zero (0), at any time prior to the end of
the Offering, excluding only each ten (10) day period immediately preceding a
Purchase Date (or such shorter period of time determined by the Company and
communicated to Participants) by delivering a withdrawal notice to the Company
in such form as the Company provides.

7. PURCHASES.

Subject to the limitations contained herein, on each Purchase Date, each
Participant's accumulated payroll deductions (without any increase for interest)
shall be applied to the purchase of whole Shares, up to the maximum number of
Shares permitted under the Plan and the Offering.

8. NOTICES AND AGREEMENTS.

Any notices or agreements provided for in an Offering or the Plan shall
be given in writing, in a form provided by the Company, and unless specifically
provided for in the Plan or this Offering shall be deemed effectively given upon
receipt or, in the case of notices and agreements delivered by the Company, five
(5) days after deposit in the United States mail, postage prepaid.

9. EXERCISE CONTINGENT ON STOCKHOLDER APPROVAL.

The Rights granted under an Offering are subject to the approval of the
Plan by the Shareholders as required for the Plan to obtain treatment as a
tax-qualified employee stock purchase plan under Section 423 of the Code.

10. OFFERING SUBJECT TO PLAN.

Each Offering is subject to all the provisions of the Plan, and its
provisions are hereby made a part of the Offering, and is further subject to all
interpretations, amendments, rules and regulations which may from time to time
be promulgated and adopted pursuant to the Plan.

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<PAGE> 1
Exhibit 5.1

[COOLEY GODWARD LLP LETTERHEAD]

March 27, 2000

ViroLogic, Inc.
270 East Grand Avenue
South San Francisco, CA 94080

Ladies and Gentlemen:

You have requested our opinion with respect to certain matters in connection
with the filing by ViroLogic, Inc. (the "Company") of a Registration Statement
on Form S-1 (the "Registration Statement"), with the Securities and Exchange
Commission (the "Commission"), including a related prospectus to be filed with
the Commission pursuant to Rule 424(b) of Regulation C (the "Prospectus")
promulgated under the Securities Act of 1933, as amended, and public offering of
up to 5,750,000 shares of the Company's common stock including: (i) 5,000,000
underwritten shares and (ii) up to 750,000 shares for which the underwriters
have been granted an over-allotment option (collectively, the "Common Stock").

In connection with this opinion, we have (i) examined and relied upon the
Registration Statement and related Prospectus, the Company's Amended and
Restated Certificate of Incorporation and Bylaws and the originals or copies
certified to our satisfaction of such records, documents, certificates,
memoranda and other instruments as in our judgment are necessary or appropriate
to enable us to render the opinion expressed below, (ii) assumed that the
Amended and Restated Certificate of Incorporation, in the form attached here to
as Exhibit A, shall have been filed and become effective, and (iii) assumed that
the shares of the Common Stock will be sold by the Company and the underwriters
at a price established by the Pricing Committee of the Company's Board of
Directors.

On the basis of the foregoing, and in reliance thereon, we are of the opinion
that the Common Stock, when sold and issued in accordance with the Registration
Statement and related Prospectus, will be validly issued, fully paid and
nonassessable.

We consent to the reference to our firm under the caption "Legal Matters" in the
Prospectus included in the Registration Statement and to the filing of this
opinion as an exhibit to the Registration Statement.

Very truly yours,

/s/ CHRIS KEARNS

COOLEY GODWARD LLP

By: Christopher J. Kearns
<PAGE> 2
EXHIBIT A

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
VIROLOGIC, INC.

ViroLogic, Inc., a corporation organized and existing under the General
Corporation Law of the State of Delaware (the "CORPORATION"), does hereby
certify:

FIRST: The name of this corporation is ViroLogic, Inc. The original
Certificate of Incorporation of the Corporation was filed with the Secretary of
State of Delaware on November 14, 1995.

SECOND: The Amended and Restated Certificate of Incorporation of the
Corporation in the form attached hereto as Exhibit A has been duly adopted in
accordance with the provisions of Sections 245 and 242 of the General
Corporation Law of the State of Delaware by the directors and stockholders of
the Corporation.

THIRD: The text of the Certificate of Incorporation as heretofore
amended or supplemented is hereby amended and restated by the Amended and
Restated Certificate of Incorporation as set forth in Exhibit A attached hereto.
The Amended and Restated Certificate of Incorporation is hereby incorporated
herein by this reference.

IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by the President this ______ day of February, 2000.

VIROLOGIC, INC.

By:
-------------------------------------
Martin H. Goldstein, President

<PAGE> 3
EXHIBIT A

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
VIROLOGIC, INC.

FIRST: The name of the corporation (hereinafter called the
"CORPORATION") is Virologic, Inc.

SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, City of Wilmington, County of New
Castle, and the name of the registered agent of the Corporation in the State of
Delaware at such address is The Corporation Trust Company.

THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware (the "DGCL").

FOURTH:

A. This Corporation is authorized to issue two classes of shares to be
designated respectively Preferred Stock ("PREFERRED STOCK") and Common Stock
("COMMON STOCK"). The total number of shares of capital stock that the
Corporation is authorized to issue is 59,094,095. The total number of shares of
Common Stock, par value $0.001, this Corporation shall have authority to issue
is 40,000,000. The total number of shares of Preferred Stock, par value $0.001,
this Corporation shall have authority to issue is 19,094,095, of which 4,500,000
is designated Series B Preferred Stock (the "SERIES B PREFERRED STOCK") and
14,594,595 is designated Series C Preferred Stock (the "SERIES C PREFERRED
STOCK"). Effective at the time of filing with the Secretary of State of the
State of Delaware of this Amended and Restated Certificate of Incorporation (the
"EFFECTIVE TIME"), each two shares of the Corporation's Common Stock, par value
$0.001 per share, issued and outstanding shall, automatically and without any
action on the part of the respective holders thereof, be split into one share of
Common Stock, par value $0.001 per share, of the Corporation.

B. The powers, preferences, rights, restrictions, and other matters
relating to the Series B Preferred Stock and Series C Preferred Stock are as
follows:

1. DIVIDENDS.

a. The holders of the Series B Preferred Stock and Series C
Preferred Stock shall be entitled to receive dividends, on a pari passu basis,
at the rate of $0.256 per share and $0.148 per share (as adjusted for any stock
dividends, combinations or splits with respect to such shares) per annum,
respectively, payable out of funds legally available therefor. Such dividends
shall be payable only when, as, and if declared by the Board of Directors and
shall be noncumulative.

1.
<PAGE> 4
No dividends (other than those payable solely in the Common Stock of the
Corporation) shall be paid on any Common Stock of the Corporation during any
fiscal year of the Corporation until dividends in the total amount of $0.256 per
share and $0.148 per share (as adjusted for any stock dividends, combinations or
splits with respect to such shares) on the Series B Preferred Stock and Series C
Preferred Stock, respectively, shall have been paid or declared and set apart
during that fiscal year and any prior year in which dividends were declared but
remain unpaid, and no dividends shall be paid on any share of Common Stock
unless a dividend (including the amount of any dividends paid pursuant to the
above provisions of this Section B.1) is paid with respect to all outstanding
shares of Series B Preferred Stock and Series C Preferred Stock in an amount for
each such share equal to or greater than the aggregate amount of such dividends
for all shares of Common Stock into which each such share of Series B Preferred
Stock or Series C Preferred Stock could then be converted.

Except as otherwise provided herein, no right shall accrue to holders of
shares of Series B Preferred Stock or Series C Preferred Stock by reason of the
fact that dividends on said shares are not declared in any prior year, nor shall
any undeclared or unpaid dividend bear or accrue any interest.

b. In the event the Corporation shall declare a distribution
(other than any distribution described in Section B.2) payable in securities of
other persons (including, but not limited to, a spin-off from the Corporation),
evidences of indebtedness issued by the Corporation or other persons, assets
(excluding cash dividends) or options or rights to purchase any such securities
or evidences of indebtedness, then, in each such case the holders of the Series
B Preferred Stock and Series C Preferred Stock shall be entitled to a
proportionate share of any such distribution as though the holders of the Series
B Preferred Stock and Series C Preferred Stock were the holders of the number of
shares of Common Stock of the Corporation into which their respective shares of
Series B Preferred Stock or Series C Preferred Stock, as applicable, are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the Corporation entitled to receive such distribution.

2. LIQUIDATION PREFERENCE.

a. In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the holders of the Series B
Preferred Stock and Series C Preferred Stock shall be entitled to receive, prior
and in preference to any distribution of any of the assets or surplus funds of
the Corporation to the holders of the Common Stock by reason of their ownership
thereof, the amount of $3.20 per share and $1.85 per share, respectively (as
adjusted for any stock dividends, combinations or splits with respect to such
shares), plus all declared but unpaid dividends on such shares for each share of
Series B Preferred Stock and Series C Preferred Stock then held by them (the
"SERIES B PREFERENCE" and "SERIES C PREFERENCE," respectively). If upon the
occurrence of such event, the assets and funds thus distributed among the
holders of the Series B Preferred Stock and Series C Preferred Stock shall be
insufficient to permit the payment to such holders of the full Series B
Preference and Series C Preference then the entire assets and funds of the
Corporation legally available for distribution shall be distributed ratably
among the holders of the Series B Preferred Stock and Series C Preferred Stock
based on the aggregate amount of the full Series B Preference and full Series C
Preference payable to each such holder pursuant to this paragraph.

2.
<PAGE> 5
b. After payment to the holders of the Series B Preferred Stock
and Series C Stock of the amounts set forth in Section B.2(a) above, the entire
remaining assets and funds of the Corporation legally available for
distribution, if any, shall be distributed among the holders of the Common
Stock.

c. For purposes of this Section B.2, (i) any acquisition of the
Corporation by means of merger or other form of corporate reorganization in
which outstanding shares of the Corporation are exchanged for securities or
other consideration issued, or caused to be issued, by the acquiring corporation
or its subsidiary in which the stockholders of the Corporation immediately prior
to the transaction possess less than 50% of the voting power of the acquiring
entity (or its parent), (ii) a sale of all or substantially all of the assets of
the Corporation in which the stockholders of the Corporation immediately prior
to the transaction possess less than 50% of the voting power of the acquiring
entity (or its parent), or (iii) a transaction or series of related transactions
in which more than fifty percent (50%) of the voting power of the Company is
disposed, shall be treated as a liquidation, dissolution or winding up of the
Corporation. In the event the consideration payable to the Corporation or to the
holders of its outstanding stock in connection with any such sale, merger or
consolidation (the "TRANSACTION CONSIDERATION") does not consist entirely of
cash, then the Corporation may satisfy its obligations under this Section B.2 by
paying to the holders of Preferred Stock a portion of the Transaction
Consideration with a fair market value equal to the amount required to be
distributed pursuant to this Section B.2. The fair market value of the
Transaction Consideration shall be determined by mutual agreement of the
Corporation and the holders of a majority of the outstanding shares of Preferred
Stock. If the Transaction Consideration consists of more than one type of
consideration, then each type of consideration shall be distributed to each
holder of Preferred in the same proportions as such type of consideration
represents of the total Transaction Consideration.

3. VOTING RIGHTS; DIRECTORS.

a. Each holder of shares of the Preferred Stock shall be entitled
to the number of votes equal to the number of shares of Common Stock into which
such shares of Preferred Stock could be converted and shall have voting rights
and powers equal to the voting rights and powers of the Common Stock (except as
otherwise expressly provided herein or as required by law, voting together with
the Common Stock as a single class) and shall be entitled to notice of any
stockholders' meeting in accordance with the Bylaws of the Corporation.
Fractional votes shall not, however, be permitted and any fractional voting
rights resulting from the above formula (after aggregating all shares into which
shares of Preferred Stock held by each holder could be converted) shall be
rounded to the nearest whole number (with one-half being rounded upward). Each
holder of Common Stock shall be entitled to one (1) vote for each share of
Common Stock held.

b. So long as 2,000,000 shares of Series B Preferred Stock remain
outstanding, the holders of Series B Preferred Stock, voting together as a
separate class, shall be entitled to elect two (2) members of the Board of
Directors. The holders of the Common Stock, voting together as a separate class,
shall be entitled to elect three (3) members of the Board of Directors. All
remaining members, if any, shall be elected by the holders of Common Stock and
Preferred Stock voting together as a single class.

3.
<PAGE> 6
c. In the case of any vacancy in the office of a director
occurring among the directors elected solely by the holders of the Series B
Preferred Stock or Common Stock pursuant to the first and second sentences of
Section B.3(b) hereof, the remaining director or directors so elected by the
holders of the Series B Preferred Stock or Common Stock may (or if there are no
remaining directors, by the affirmative vote of the holders of a majority of the
shares of that class) elect a successor or successors to hold the office for the
unexpired term of the director whose place shall be vacant. Any director who
shall have been elected solely by the holders of the Series B Preferred Stock or
Common Stock or any director so elected as provided in the preceding sentence
hereof, may be removed during the aforesaid term of office, whether with or
without cause, only by the affirmative vote of the holders of a majority of the
Series B Preferred Stock or Common Stock, as the case may be.

4. CONVERSION. The holders of the Preferred Stock shall have conversion
rights as follows (the "CONVERSION RIGHTS"):

a. RIGHT TO CONVERT. Each share of Series B Preferred Stock and
Series C Preferred Stock shall be convertible, at the option of the holder
thereof, at any time after the date of issuance of such share, at the office of
the Corporation or any transfer agent for such stock, into such number of fully
paid and nonassessable shares of Common Stock as is determined by dividing
$3.20, in the case of the Series B Preferred Stock, or $1.85, in the case of the
Series C Preferred Stock, by the Conversion Price applicable to such share,
determined as hereinafter provided, in effect on the date the certificate is
surrendered for conversion. The price at which shares of Common Stock shall be
deliverable upon conversion of shares of the Series B Preferred Stock (the
"SERIES B CONVERSION PRICE") shall initially be $3.20 per share of Common Stock.
The price at which shares of Common Stock shall be deliverable upon conversion
of shares of the Series C Preferred Stock (the "SERIES C CONVERSION PRICE")
shall initially be $1.85 per share of Common Stock. Such initial Series B
Conversion Price and Series C Conversion Price shall be subject to adjustment as
hereinafter provided.

b. AUTOMATIC CONVERSION. Each share of Preferred Stock shall
automatically be converted into shares of Common Stock at the then-effective
Conversion Price applicable to such share upon the earlier of (i) the date
specified by vote or written consent or agreement of holders of a majority of
the shares of Preferred Stock then outstanding or (ii) immediately upon the
closing of the sale of the Corporation's Common Stock in a firm commitment,
underwritten public offering registered under the Securities Act of 1933, as
amended (the "SECURITIES ACT"), other than a registration relating solely to a
transaction under Rule 145 under such Act (or any successor thereto) or to an
employee benefit plan of the Corporation, at a public offering price (prior to
underwriters' discounts and expenses) equal to or exceeding $7.00 per share of
Common Stock (as adjusted for any stock dividends, combinations or splits with
respect to such shares) and the aggregate gross proceeds to the Corporation
and/or any selling stockholders (before deduction for underwriters' discounts
and expenses relating to the issuance) of which exceed $15,000,000.

C. MECHANICS OF CONVERSION.

(i) Before any holder of Preferred Stock shall be entitled
voluntarily to convert the same into shares of Common Stock, he shall surrender
the certificate or certificates

4.
<PAGE> 7
therefor, duly endorsed, at the office of the Corporation or of any transfer
agent for such stock, and shall give written notice to the Corporation at such
office that he elects to convert the same and shall state therein the number of
shares to be converted and the name or names in which he wishes the certificate
or certificates for shares of Common Stock to be issued. The Corporation shall,
as soon as practicable thereafter, issue and deliver at such office to such
holder of Preferred Stock, a certificate or certificates for the number of
shares of Common Stock to which he shall be entitled. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of surrender of the shares of Preferred Stock to be converted, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on such date.

(ii) If the conversion is in connection with an
underwritten offering of securities pursuant to the Securities Act, the
conversion may, at the option of any holder tendering shares of Preferred Stock
for conversion, be conditioned upon the closing with the underwriters of the
sale of securities pursuant to such offering, in which event the person(s)
entitled to receive the Common Stock upon conversion of the Preferred Stock
shall not be deemed to have converted such Preferred Stock until immediately
prior to the closing of such sale of securities.

d. ADJUSTMENTS TO CONVERSION PRICE FOR CERTAIN DILUTING ISSUES.

(i) SPECIAL DEFINITIONS. For purposes of this Section
B.4(d), the following definitions apply:

(1) "OPTIONS" shall mean rights, options, or
warrants to subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities (defined below).

(2) "ORIGINAL ISSUE DATE" for a series of Preferred
Stock shall mean the date on which the first share of such series of Preferred
Stock was first issued.

(3) "CONVERTIBLE SECURITIES" shall mean any
evidences of indebtedness, shares (other than Common Stock) or other securities
convertible into or exchangeable for Common Stock.

(4) "ADDITIONAL SHARES OF COMMON STOCK" shall mean
all shares of Common Stock issued (or, pursuant to Section B.4(d)(iii), deemed
to be issued) by the Corporation after the applicable Original Issue Date, other
than shares of Common Stock issued or issuable:

(A) upon conversion of shares of Preferred
Stock;

(B) to employees, officers, directors,
consultants, or advisors under stock option, stock bonus or stock purchase plans
or agreements or similar plans or agreements approved by the Board of Directors
or an authorized committee thereof;

5.
<PAGE> 8
(C) pursuant to agreements to license
technology or to lending or leasing institutions upon approval by the Board of
Directors;

(D) as a dividend or distribution on
Preferred Stock; or

(E) for which adjustment of the Conversion
Price is made pursuant to Section B.4(e); or

(F) upon exercise of warrants that were
issued pursuant to approval of the Board of Directors prior to the such Original
Issue Date.

(ii) NO ADJUSTMENT OF CONVERSION PRICE. Any provision
herein to the contrary notwithstanding, no adjustment in the Conversion Price
for any series of Preferred Stock shall be made in respect of the issuance of
Additional Shares of Common Stock unless the consideration per share (determined
pursuant to Section B.4(d)(v) hereof) for an Additional Share of Common Stock
issued or deemed to be issued by the Corporation is less than the Conversion
Price for such series of Preferred Stock in effect on the date of, and
immediately prior to, such issue.

(iii) DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON STOCK.
In the event the Corporation, at any time or from time to time after the
Original Issue Date for a series of Preferred Stock, shall issue any Options or
Convertible Securities or shall fix a record date for the determination of
holders of any class of securities then entitled to receive any such Options or
Convertible Securities, then the maximum number of shares (as set forth in the
instrument relating thereto without regard to any provisions contained therein
designed to protect against dilution) of Common Stock issuable upon the exercise
of such Options or, in the case of Convertible Securities and Options therefor,
the conversion or exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the time of such issue or, in
case such a record date shall have been fixed, as of the close of business on
such record date, provided that in any such case in which Additional Shares of
Common Stock are deemed to be issued:

(1) no further adjustments in the Conversion Price
for such series of Preferred Stock shall be made upon the subsequent issue of
Convertible Securities or shares of Common Stock upon the exercise of such
Options or conversion or exchange of such Convertible Securities;

(2) if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise, for any increase or
decrease in the consideration payable to the Corporation, or decrease or
increase in the number of shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof, the Conversion Price for such series of
Preferred Stock computed upon the original issue thereof (or upon the occurrence
of a record date with respect thereto), and any subsequent adjustments based
thereon, shall, upon any such increase or decrease becoming effective, be
recomputed to reflect such increase or decrease insofar as it affects such
Options or the rights of conversion or exchange under such Convertible
Securities (provided, however, that no such adjustment of the Conversion Price
for such series of

6.
<PAGE> 9
Preferred Stock shall affect Common Stock previously issued upon conversion of
shares of such series of Preferred Stock);

(3) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible Securities which shall
not have been exercised, the Conversion Price for such series of Preferred Stock
computed upon the original issue thereof (or upon the occurrence of a record
date with respect thereto), and any subsequent adjustments based thereon, shall,
upon such expiration, be recomputed as if:

(A) in the case of Convertible Securities or
Options for Common Stock, the only Additional Shares of Common Stock issued were
the shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
Corporation for the issue of all such Options, whether or not exercised, plus
the consideration actually received by the Corporation upon such exercise, or
for the issue of all such Convertible Securities, whether or not converted or
exchanged, plus the additional consideration, if any, actually received by the
Corporation upon such conversion or exchange and

(B) in the case of Options for Convertible
Securities only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received by
the Corporation for the issue of all such Options, whether or not exercised,
plus the consideration deemed to have been received by the Corporation
(determined pursuant to Section B.4(d)) upon the issue of the Convertible
Securities with respect to which such Options were actually exercised;

(4) no readjustment pursuant to clause (2) or (3)
above shall have the effect of increasing the Conversion Price for such series
of Preferred Stock to an amount which exceeds the lower of (a) the Conversion
Price for such series of Preferred Stock on the original adjustment date or (b)
the Conversion Price for such series of Preferred Stock that would have resulted
from any issuance of Additional Shares of Common Stock between the original
adjustment date and such readjustment date.

(5) in the case of any Options which expire by
their terms not more than thirty (30) days after the date of issue thereof, no
adjustment of the Conversion Price for such series of Preferred Stock shall be
made until the earlier of the expiration or exercise of all such Options or
immediately prior to the automatic conversion of shares of such series of
Preferred Stock into Common Stock pursuant to Section B.4(a), whereupon such
adjustment shall be made in the same manner provided in clause (3) above.

(iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF
ADDITIONAL SHARES OF COMMON STOCK. In the event this Corporation, at any time
after the Original Issue Date for any series of Preferred Stock, shall issue
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to Section B.4(d)(iii)) without consideration or
for a consideration per share less than the

7.
<PAGE> 10
Conversion Price with respect to such series of Preferred Stock in effect on the
date of and immediately prior to such issue, then and in such event, the
Conversion Price for such series of Preferred Stock shall be reduced,
concurrently with such issue, to a price (calculated to the nearest cent)
determined by multiplying such Conversion Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such issue plus the number of shares of Common Stock which the
aggregate consideration received by the Corporation for the total number of
Additional Shares of Common Stock so issued would purchase at such Conversion
Price in effect immediately prior to such issuance, and the denominator of which
shall be the number of shares of Common Stock outstanding immediately prior to
such issue plus the number of such Additional Shares of Common Stock so issued.
For the purpose of the above calculation, the number of shares of Common Stock
outstanding immediately prior to such issue shall include the outstanding shares
of Common Stock, the shares of Common Stock issuable upon conversion of the
outstanding shares of Preferred Stock and all outstanding Convertible Securities
and Options.

(v) DETERMINATION OF CONSIDERATION. For purposes of this
Section B.4(d), the consideration received by the Corporation for the issue of
any Additional Shares of Common Stock shall be computed as follows:

(1) CASH AND PROPERTY. Such consideration shall:

(A) insofar as it consists of cash, be
computed at the aggregate amount of cash received by the Corporation excluding
amounts paid or payable for accrued interest or accrued dividends;

(B) insofar as it consists of property other
than cash, be computed at the fair value thereof at the time of such issue, as
mutually determined in good faith by the Board and the holders of a majority of
the Preferred Stock; and

(C) in the event Additional Shares of Common
Stock are issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above, as
mutually determined in good faith by the Board and the holders of a majority of
the Preferred Stock.

(2) OPTIONS AND CONVERTIBLE SECURITIES. The
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to Section B.4(d)(iii),
relating to Options and Convertible Securities shall be determined by dividing:

(A) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein designed to protect against dilution) payable
to the Corporation upon the exercise of such Options or the conversion or
exchange of such Convertible Securities, or in the case of Options for
Convertible Securities, the exercise of

8.
<PAGE> 11
such Options for Convertible Securities and the conversion or exchange of such
Convertible Securities by

(B) the maximum number of shares of Common
Stock (as set forth in the instruments relating thereto, without regard to any
provision contained therein designed to protect against the dilution) issuable
upon the exercise of such Options or conversion or exchange of such Convertible
Securities.

e. ADJUSTMENTS TO CONVERSION PRICES FOR STOCK DIVIDENDS AND FOR
COMBINATIONS OR SUBDIVISIONS OF COMMON STOCK. In the event that this Corporation
at any time or from time to time after the Original Issue Date for any series of
Preferred Stock shall declare or pay, without consideration, any dividend on the
Common Stock payable in Common Stock or in any right to acquire Common Stock for
no consideration, or shall effect a subdivision of the outstanding shares of
Common Stock into a greater number of shares of Common Stock (by stock split,
reclassification or otherwise than by payment of a dividend in Common Stock or
in any right to acquire Common Stock), or in the event the outstanding shares of
Common Stock shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of shares of Common Stock, then the Conversion
Price for such series of Preferred Stock in effect immediately prior to such
event shall, concurrently with the effectiveness of such event, be
proportionately decreased or increased, as appropriate. In the event that this
Corporation shall declare or pay, without consideration, any dividend on the
Common Stock payable in any right to acquire Common Stock for no consideration,
then the Corporation shall be deemed to have made a dividend payable in Common
Stock in an amount of shares equal to the maximum number of shares issuable upon
exercise of such rights to acquire Common Stock.

f. ADJUSTMENTS FOR RECLASSIFICATION AND REORGANIZATION. If the
Common Stock issuable upon conversion of any series of Preferred Stock shall be
changed into the same or a different number of shares of any other class or
classes of stock, whether by capital reorganization, reclassification or
otherwise (other than a subdivision or combination of shares provided for in
Section B.4(e) above or a sale, merger or other reorganization referred to in
Section B.2(d) above), the applicable Conversion Price then in effect for such
series of Preferred Stock shall, concurrently with the effectiveness of such
reorganization or reclassification, be proportionately adjusted so that shares
of such series of Preferred Stock shall be convertible into, in lieu of the
number of shares of Common Stock which the holders would otherwise have been
entitled to receive, a number of shares of such other class or classes of stock
equivalent to the number of shares of Common Stock that would have been subject
to receipt by the holders upon conversion of shares of such series of Preferred
Stock immediately before that change.

g. NO IMPAIRMENT. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation, but will at
all times in good faith assist in the carrying out of all the provisions of this
Section B.4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Preferred Stock against impairment.

9.
<PAGE> 12
h. CERTIFICATES AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of any Conversion Price pursuant to this Section B.4,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Preferred Stock a certificate executed by the Corporation's President
or Chief Financial Officer setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any holder of
shares of any series of Preferred Stock, furnish or cause to be furnished to
such holder a like certificate setting forth (i) such adjustments and
readjustments, (ii) the Conversion Price for such series of Preferred Stock at
the time in effect, and (iii) the number of shares of Common Stock and the
amount, if any, of other property which at the time would be received upon the
conversion shares of such series of Preferred Stock.

i. NOTICES OF RECORD DATE. In the event that the Corporation
shall propose at any time: (i) to declare any dividend or distribution upon its
Common Stock, whether in cash, property, stock or other securities, whether or
not a regular cash dividend and whether or not out of earnings or earned
surplus; (ii) to offer for subscription pro rata to the holders of any class or
series of its stock any additional shares of stock of any class or series or
other rights; (iii) to effect any reclassification or recapitalization of its
Common Stock outstanding involving a change in the Common Stock; or (iv) to
merge or consolidate with or into any other corporation, or sell, lease or
convey all or substantially all of its assets, or to liquidate, dissolve or wind
up; then, in connection with each such event, the Corporation shall send to the
holders of Preferred Stock:

(1) at least twenty (20) days' prior written notice
of the date on which a record shall be taken for such dividend, distribution or
subscription rights (and specifying the date on which the holders of Common
Stock shall be entitled thereto) or for determining rights to vote, if any, in
respect of the matters referred to in (iii) and (iv) above; and

(2) in the case of the matters referred to in (iii)
and (iv) above, at least twenty (20) days' prior written notice of the date when
the same shall take place (and specifying the date on which the holders of
Common Stock shall be entitled to exchange their Common Stock for securities or
other property deliverable upon the occurrence of such event).

j. ISSUE TAXES. The Corporation shall pay any and all issue and
other taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of Preferred Stock pursuant hereto; provided,
however, that the Corporation shall not be obligated to pay any transfer taxes
resulting from any transfer requested by any holder in connection with any such
conversion.

k. RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Preferred Stock, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Preferred Stock, the
Corporation will take such corporate

10.
<PAGE> 13
action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose, including, without limitation, engaging in best
efforts to obtain the requisite stockholder approval of any necessary amendment
to this Certificate.

l. FRACTIONAL SHARES. No fractional share shall be issued upon
the conversion of any share or shares of Preferred Stock. All shares of Common
Stock (including fractions thereof) issuable upon conversion of more than one
share of Preferred Stock by a holder thereof shall be aggregated for purposes of
determining whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion would
result in the issuance of a fraction of a share of Common Stock, the Corporation
shall, in lieu of issuing any fractional share, either (i) pay the holder
otherwise entitled to such fraction a sum in cash equal to the fair market value
of such fraction on the date of conversion (as determined in good faith by the
Board of Directors) or (ii) round such fractional share up to a whole share.

m. NOTICES. Any notice required by the provisions of this Section
B.4 to be given to the holders of shares of Preferred Stock shall be deemed
given if deposited in the United States mail, postage prepaid, and addressed to
each holder of record at his address appearing on the books of the Corporation.

5. RESTRICTIONS AND LIMITATIONS. So long as 2,000,000 shares of
Preferred Stock remain outstanding, the Corporation shall not, without the vote
or written consent by the holders of a majority of the then outstanding shares
of the Preferred Stock:

a. alter or change the rights, preferences or privileges of the
Preferred Stock materially or adversely;

b. authorize, create or issue a new class or series of shares
having rights, preferences or privileges senior to or on parity with any series
of outstanding Preferred Stock, or increase the number of authorized shares of
any class or series having rights, preferences or privileges senior to or on
parity any series of outstanding Preferred Stock;

c. sell, convey or otherwise dispose of all or a substantially
all of its property or business, or merge into or effect a reorganization with
any other corporation or effect any transfer or series of related transfers
(other than to a wholly owned subsidiary corporation) in which the stockholders
of the Corporation immediately prior to the transaction possess less than 50% of
the voting power of the surviving entity (or its parent) immediately after the
transaction;

d. pay or declare any dividend or make any other distribution on
shares of Common Stock or Preferred Stock (payable other than in Common Stock or
other securities and rights convertible into or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock of this
Corporation);

e. redeem, purchase or otherwise acquire any shares or shares of
the Corporation's Preferred Stock or Common Stock; provided, however, that this
restriction shall not apply to the repurchase of shares of Common Stock from
employees, officers, directors, consultants or other persons performing services
for the Corporation pursuant to agreements

11.
<PAGE> 14
under which the Corporation has the option to repurchase such shares at cost or
at cost upon the occurrence of certain events, such as the termination of
employment;

f. liquidate or dissolve the Corporation; or

g. issue third party debt, whether or not secured, including,
without limitation, off balance sheet financings, capital leases or operating
leases which, in aggregate, would exceed $10,000,000 subsequent to the Original
Issue Date.

6. NO REISSUANCE OF PREFERRED STOCK. No share or shares of Preferred
Stock acquired by the Corporation by reason of redemption, purchase, conversion
or otherwise shall be reissued, and all such shares shall be cancelled, retired
and eliminated from the shares which the Corporation shall be authorized to
issue.

FIFTH: For the management of the business and for the conduct of the
affairs of the Corporation, and in further definition, limitation and regulation
of the powers of the Corporation, of its directors and of its stockholders or
any class thereof, as the case may be, it is further provided that:

A. BOARD OF DIRECTORS.

1. CONDUCT OF BUSINESS; NUMBER OF DIRECTORS. The management of the
business and the conduct of the affairs of the Corporation shall be vested in
its Board of Directors. The number of directors which shall constitute the whole
Board of Directors shall be fixed exclusively by one or more resolutions adopted
by the Board of Directors.

2. CLASSIFIED BOARD. Subject to the rights of the holders of any series
of Preferred Stock to elect additional directors under specified circumstances,
following the closing of the initial public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "1933
ACT"), covering the offer and sale of Common Stock to the public (the "INITIAL
PUBLIC OFFERING"), the directors shall be divided into three classes designated
as Class I, Class II and Class III, respectively. Directors shall be assigned to
each class in accordance with a resolution or resolutions adopted by the Board
of Directors. At the first annual meeting of stockholders following the closing
of the Initial Public Offering, the term of office of the Class I directors
shall expire and Class I directors shall be elected for a full term of three
years. At the second annual meeting of stockholders following the closing of the
Initial Public Offering, the term of office of the Class II directors shall
expire and Class II directors shall be elected for a full term of three years.
At the third annual meeting of stockholders following the closing of the Initial
Public Offering, the term of office of the Class III directors shall expire and
Class III directors shall be elected for a full term of three years. At each
succeeding annual meeting of stockholders, directors shall be elected for a full
term of three years to succeed the directors of the class whose terms expire at
such annual meeting.

Notwithstanding the foregoing provisions of this section, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.

12.
<PAGE> 15
3. VACANCIES

a. Subject to the rights of the holders of any series of
Preferred Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.

b. If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Delaware Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in offices as aforesaid, which election shall be governed by Section 211 of the
DGCL.

c. At any time or times that the Corporation is subject to
Section 2115(b) of the California General Corporation Law (the "CGCL"), if,
after the filling of any vacancy by the directors then in office who have been
elected by stockholders shall constitute less than a majority of the directors
then in office, then

(i) Any holder or holders of an aggregate of five percent
(5%) or more of the total number of shares at the time outstanding having the
right to vote for those directors may call a special meeting of stockholders; or

(ii) The Superior Court of the proper county shall, upon
application of such stockholder or stockholders, summarily order a special
meeting of stockholders, to be held to elect the entire board, all in accordance
with Section 305(c) of the CGCL. The term of office of any director shall
terminate upon that election of a successor.

B. BYLAWS

1. Subject to paragraph (h) of Section 42 of the Bylaws, the Bylaws may
be altered or amended or new Bylaws adopted by the affirmative vote of at least
sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the
then-outstanding shares of the voting stock of the Corporation entitled to vote.
The Board of Directors shall also have the power to adopt, amend, or repeal
Bylaws.

2. The directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.

13.
<PAGE> 16
3. No action shall be taken by the stockholders of the Corporation
except at an annual or special meeting of stockholders called in accordance with
the Bylaws or by written consent of stockholders in accordance with the Bylaws
prior to the closing of the Initial Public Offering and following the closing of
the Initial Public Offering no action shall be taken by the stockholders by
written consent.

4. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the Corporation shall be given in the manner provided in the
Bylaws of the Corporation.

SIXTH:

1. The liability of the directors for monetary damages shall be
eliminated to the fullest extent under applicable law.

2. This Corporation is authorized to provide indemnification of agents
(as defined in Section 317 of the CGCL) for breach of duty to the Corporation
and its shareholders through bylaw provisions or through agreements with the
agents, or through shareholder resolutions, or otherwise, in excess of the
indemnification otherwise permitted by Section 317 of the CGCL, subject, at any
time or times the Corporation is subject to Section 2115(b) to the limits on
such excess indemnification set forth in Section 204 of the CGCL.

3. Any repeal or modification of this Article Sixth shall be prospective
and shall not affect the rights under this Article Sixth in effect at the time
of the alleged occurrence of any act or omission to act giving rise to liability
or indemnification.

SEVENTH:

1. The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, except as provided herein, and all rights
conferred upon the stockholders herein are granted subject to this reservation.

2. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the voting stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all of the then-outstanding shares of the voting stock, voting together
as a single class, shall be required to alter, amend or repeal Articles Fifth,
Sixth and Seventh.

3. Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provisions contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.

14.

<PAGE> 1
EXHIBIT 10.7

ViroLogic, Inc.
90 Woodridge Road
Hillsborough, CA 94010

Mr. Martin H. Goldstein
840 Longview Road
Hillsborough, CA 94010

Dear Martin:

We are pleased to confirm our offer to you to join ViroLogic, Inc.
("ViroLogic" or the "Company") as Senior Vice President of Corporate Development
and Operations. This letter is to confirm the terms of your employment with the
Company.

1. Employment and Duties. Beginning as of the date the Company
successfully completes its first financing of at least $1,000,000 (the "First
Financing"), you shall be employed as Senior Vice President of Corporate
Development and Operations, with responsibility for the Company's legal, patent,
business development, finance, administration and operations matters. You shall
report to the Chief Executive Officer of the Company. In addition, as of the
date of this Agreement (the "Effective Date"), you shall be nominated to serve
as a director of the Company.

2. Base Salary. Beginning on the date of completion of the First
Financing, you shall be paid a minimum base salary at the rate of one hundred
eighty thousand dollars ($180,000.00) per year while employed by the Company,
to be paid in twice-monthly installments according to the Company's standard
payroll practices.

3. Stock Purchase Rights. As of the Effective Date, the Company shall
grant you two rights to purchase an aggregate total of 800,000 shares of Common
Stock of the Company in accordance with the Company's Stock Plan (the "Plan")
and subject to the terms of stock purchase agreements between you and the
Company. The Stock purchase agreements shall include such terms as the Board of
Directors may specify that are not inconsistent with the terms of the Plan and
the terms hereof, as follows:

(a) First Stock Purchase Right. The first stock purchase right (the "First
Right") shall be a right to purchase two hundred thousand (200,000) shares of
Common Stock of the Company at a purchase price of $.001 per share, the current
per share fair market value. The First Right is hereby granted to you in
consideration of the consulting services you are to render the Company under
your December 1, 1995 Consulting Agreement. All of the shares covered by the
First Right shall be fully vested and shall not be subject to a repurchase
option of the Company.

(b) Second Stock Purchase Right. The second stock purchase right (the
"Second Right") shall be a right to purchase six hundred thousand (600,000)
shares of Common Stock of the Company at a purchase price of $.001 per share.
The shares covered by the Second Right shall be subject to a repurchase option
of the Company exercisable upon your termination of employment with the
Company, except as described below. Such repurchase option shall lapse at the
rate of one forty-eighth of the shares covered by the Second Right per month,
with a vesting measurement date

<PAGE> 2
Mr. Martin H. Goldstein
Page 2

calculated retroactively to December 1, 1995, so that, subject to your continued
employment with the Company, all of the shares covered by the Second Right
shall become fully vested on December 1, 1999.

(c) Vesting and Severance Benefits Upon Termination Without Cause. In the
event you are terminated without Cause (defined below) within four years after
the date of completion of the First Financing, the Company's repurchase option
with respect to the shares covered by the Second Right shall lapse immediately
upon such termination as to such additional shares as would otherwise have
vested had your employment with the Company continued for an additional six
months. In addition, within thirty (30) days of the date of such termination,
the Company shall pay you a lump sum equal to six (6) months of your then base
salary. For purposes of this Agreement, "Cause" shall mean (i) a willful failure
to perform substantially your duties hereunder after having been given written
notice of a failure to perform and an opportunity to cure; or (ii) a material
and willful commission of a felony or fraud against, or the misappropriation of
property belonging to, the Company. Any termination of the Agreement prior to
the First Financing shall be deemed a "termination without Cause within four
years after the date of completion of the first financing."

(d) Vesting Upon Death or Disability. In the event that your employment
with the Company terminates as a result of death or total and permanent
disability (as defined in Section 22(e)(3) of the Internal Revenue Code of
1986, as amended (the "Code")), the Company's repurchase option with respect
to the Second Right shall lapse as to such additional shares as would otherwise
have vested had your employment with the Company continued for an additional
six months.

(e) Vesting Upon Merger or Asset Sale. In the event of a Merger or
Consolidation of the Company with or into any other corporation, or the sale of
all or substantially all of the assets of the Company, the repurchase option of
the Company with respect to any unvested shares covered by the Second Right
shall lapse immediately upon the effective date of such transaction. For
purposes of this Agreement, "Merger" and "Consolidation" shall not include a
merger or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into young securities of the
surviving entity) more than 50% of the total voting power represented by the
voting securities of the Company or such surviving entity outstanding
immediately after such Merger or Consolidation.

(f) Vesting Upon Termination Following a Major Acquisition. In the event
you are terminated without Cause within two (2) years after the effective date
of a Major Acquisition, the repurchase option of the Company with respect to any
unvested shares covered by the Second Right shall lapse immediately upon such
termination. For purposes of this Agreement, a "Major Acquisition" shall be an
acquisition by the Company of another company which results in the voting
<PAGE> 3
Mr. Martin H. Goldstein
Page 3

securities of the Company outstanding immediately prior thereto representing, as
in Section 4(d), less than 75% but more than majority of the total voting power
of the voting securities of the Company outstanding immediately after such
acquisition.

(g) In the event that any benefit provided hereunder shall be an
"excess parachute payment," as defined in Section 280G of the Code, and such
benefit is conferred upon you at such time as the Company is not publicly
traded, the Company shall with its best efforts seek shareholder approval
satisfying the requirements of Section 280G(b)(5)(B).

4. Vacation. You shall be entitled to paid vacation and Company holidays
in accordance with the Company's policies in effect from time to time for its
senior executive officers.

5. Benefits. You shall be permitted, to the extent eligible, to
participate in the employee benefit plans and programs maintained by the Company
and offered to employees of comparable position, including (without limitation)
retirement plans, savings and profit sharing plans, stock option, incentive or
other bonus plans, group medical, dental, life, disability and other insurance
plans and similar plans of the Company, subject in each case to the generally
applicable terms and conditions of the applicable plan or program and to the
determination of any committee administering such plan or program.

6. Expenses. The Company shall reimburse you for all reasonable business
and travel expenses actually incurred or paid by you in the performance of his
services on behalf of the Company, in accordance with the Company's expense
reimbursement policy as from time to time in effect.

7. Assignment. This Agreement and all rights under this Agreement shall
be binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective personal or legal representatives, executors,
administrators, heirs, distributees, devisees, legatees, successors and
assigns. You shall not, without the written consent of the Company, assign or
transfer this Agreement or any right or obligation under this Agreement to any
other person or entity. If you should die while any amounts are still payable
to you hereunder, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement at your's devisee, legatee,
or other designee, or if there be no such designee, to your estate.

8. Company's Successors. The Company shall require any successor or
assignee, in connection with any sale, transfer or other disposition of all or
substantially all of the Company assets or business, whether by purchase,
merger, consolidation or otherwise, expressly to assume and agree to perform
the Company's obligations under this Agreement in the same manner and to the
same extent that the Company would be required to perform if no such succession
or assignment had taken place. In such event, the term "Company," as used in
this Agreement, shall mean the Company as defined above and any successor or
assignee to the business and assets which by reason hereof becomes bound by the
terms and provisions of this Agreement.

<PAGE> 4
Mr. Martin H. Goldstein
Page 4

9. Arbitration. Any claim, dispute or controversy arising out of this
Agreement, the interpretation, validity or enforceability of this Agreement or
the alleged breach thereof shall be submitted by the parties to arbitration
pursuant to the rules then in effect of the American Arbitration Association in
San Mateo County, California. The fees and expenses of the arbitrators for any
arbitration under this Agreement shall be paid by the Company. The fees and
expenses of counsel of the prevailing party shall be paid by the other party.
Judgment may be entered on the award of the arbitration in any court having
jurisdiction.

10. At-Will Employment. Your employment with the Company shall be
employment on an "at-will" basis and may be terminated at any time, with or
without cause, at the option of either you or the Company upon thirty (30) days
notice. No provision of this Agreement shall be construed as conferring upon you
a right to continue as an employee of the Company.

11. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California applicable to agreements
made and to be performed entirely within such state.

12. Integration. This Agreement and any written Company plans that are
referenced herein represent the entire agreement and understanding between the
parties as to the subject matter hereof and supersede all prior or
contemporaneous agreements, whether written or oral. No waiver, alteration, or
modification, if any, of the provisions of this Agreement shall be binding
unless in writing and signed by duly authorized representatives of the parties
hereto.

13. Voluntary Execution; Conflict Waiver. You have had the opportunity to
receive independent legal counsel regarding this Agreement. You are entering
into this Agreement knowingly and voluntarily.

14. Counterparts. This Agreement may be executed in counterparts, which
together will constitute one instrument.

Martin, we are excited about having you join us at ViroLogic. Please
acknowledge acceptance of this offer by signing and returning the enclosed copy
of this letter, whereupon it shall become a binding agreement. The Effective
Date of this Agreement shall be the date of acceptance by the parties hereto.

Accepted by: VIROLOGIC, INC.

/s/ MARTIN H. GOLDSTEIN By: /s/ DAN CAPON
- ------------------------------- --------------------------------------
Martin H. Goldstein Dan Capon
Chief Executive Officer

Dated: 2/7/96 Dated: 2/7/96
------------------------ --------------------------------

<PAGE> 1
EXHIBIT 23.1

CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the references to our firm under the captions "Selected Financial
Data" and "Experts" and to the use of our report dated February 4, 2000, except
as to Notes 1 and 9, for which the date is March _____, 2000, in Amendment No. 1
to the Registration Statement (Form S-1, No. 333-30896) and related Prospectus
of ViroLogic, Inc. for the registration of 5,750,000 shares of its common stock.

Palo Alto, California
March 27, 2000

___________________________
The foregoing consent is in the form that will be signed upon the completion of
the 1-for-2 reverse stock split described in Note 1 and Note 9 to the
financial statements.

/s/ ERNST & YOUNG LLP

Palo Alto, California
March 27, 2000

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<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 DEC-31-1999
<CASH> 9,564 2,208
<SECURITIES> 0 0
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