BIOSITE DIAGNOSTICS INC, 424B4, 1997-02-12

BIOSITE DIAGNOSTICS INC
424B4, 1997-02-12
IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES

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<PAGE> 1
Filed Pursuant to Rule 424(b)4
Registration Statement No. 333-17657

PROSPECTUS

2,400,000 SHARES

LOGO

COMMON STOCK

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

All of the 2,400,000 shares of Common Stock, $.01 par value per share (the
"Common Stock"), offered hereby are being sold by Biosite Diagnostics
Incorporated ("Biosite" or the "Company"). Prior to this offering, there has
been no public market for the Common Stock of the Company. See "Underwriting"
for a discussion of the factors considered in determining the initial public
offering price. The Common Stock has been approved for quotation on the Nasdaq
National Market under the symbol "BSTE."

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

THIS OFFERING INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

Underwriting
Price to Discounts and Proceeds to
Public Commissions(1) Company(2)
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share......................... $12.00 $0.84 $11.16
Total (3)......................... $28,800,000 $2,016,000 $26,784,000
- -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------
</TABLE>

(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."

(2) Before deducting expenses payable by the Company, estimated to be $700,000.

(3) The Company has granted the Underwriters an option, exercisable within 30
days of the date hereof, to purchase an aggregate of up to 360,000
additional shares at the Price to Public less Underwriting Discounts and
Commissions to cover over-allotments, if any. If all such additional shares
are purchased, the total Price to Public, Underwriting Discounts and
Commissions and Proceeds to Company will be $33,120,000, $2,318,400 and
$30,801,600, respectively. See "Underwriting."

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

The Common Stock is offered by the several Underwriters named herein when,
as and if received and accepted by them, subject to their right to reject orders
in whole or in part and subject to certain other conditions. It is expected that
delivery of certificates for the shares will be made at the offices of Cowen &
Company, New York, New York on or about February 18, 1997.

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

COWEN & COMPANY ALEX. BROWN & SONS
INCORPORATED

February 12, 1997

<PAGE> 2

LOGO

IMMEDIATE RESPONSE DIAGNOSTICS(TM)

TRIAGE(R) PANEL
FOR DRUGS OF ABUSE
EMERGENCY ROOM SCREENING

TRIAGE(R) PLUS TCA
TRIAGE(R) EMERGENCY ROOM SCREENING
PANEL FOR TRIAGE(R) INTERVENTION
DRUGS OF ABUSE WORKPLACE SCREENING

MERCK TRIAGE(R)
INTERNATIONAL MARKETS

[PHOTOGRAPHS SHOWING TRIAGE DOA TEST DEVICE AND VARIOUS TRIAGE DOA PRODUCT
CONFIGURATIONS]

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

Biosite(R) and Triage(R) are registered trademarks of the Company.
Immediate Response Diagnostics(TM), ExpressTest(SM), Triage CareLink(TM) and the
Company's logo are servicemarks or trademarks of the Company. This Prospectus
also includes trade names and trademarks of companies other than Biosite.

<PAGE> 3

IMMEDIATE RESPONSE DIAGNOSTICS(TM) BIOSITE'S TRIAGE
PANELS AND TRIAGE CARELINK SYSTEM
PRODUCT ATTRIBUTES

TRIAGE(R)
PANEL FOR DRUGS OF ABUSE
IS USED IN A VARIETY OF
SETTINGS FOR RAPID DRUG SCREENING

RAPID RESULTS

EASE OF USE

HIGH ANALYTICAL ACCURACY

MULTIPLE ANALYTE DETECTION

RELIABILITY

COST EFFECTIVENESS

[PHOTOGRAPHS OF CERTAIN SETTINGS IN WHICH TRIAGE DOA IS USED (HOSPITAL
LABORATORIES, EMERGENCY ROOMS AND WORKPLACE SCREENING)]
<PAGE> 4

PRODUCTS UNDER DEVELOPMENT

TRIAGE(R) PANELS

TRIAGE(R) O & P
(PARASITE SCREENING)
TRIAGE(R) C.DIFF
(PATHOGEN DETECTION)
TRIAGE(R) ENTERIC
(PATHOGEN SCREENING)

TRIAGE(R) CARELINK SYSTEM

TRIAGE(R) CARDIAC
(ACUTE MYOCARDIAL
INFARCTION DETECTION)
TRIAGE(R) TRANSPLANT
(CYCLOSPORINE MONITORING)

[PHOTOGRAPHS SHOWING THE COMPANY'S PRODUCTS UNDER DEVELOPMENT]

THE COMPANY'S PRODUCTS IN DEVELOPMENT ARE IN VARIOUS STAGES OF RESEARCH OR
DEVELOPMENT AND HAVE NOT BEEN APPROVED BY THE UNITED STATES FOOD AND DRUG
ADMINISTRATION FOR COMMERCIAL SALE. THERE CAN BE NO ASSURANCE THAT THE COMPANY'S
PRODUCTS IN DEVELOPMENT WILL BE SUCCESSFULLY DEVELOPED OR APPROVED BY REGULATORY
AUTHORITIES FOR COMMERCIAL SALE.
<PAGE> 5

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements and notes appearing elsewhere in this
Prospectus. Except as set forth in the financial statements and notes thereto or
otherwise as specified herein, all information in this Prospectus (i) assumes no
exercise of the Underwriters' over-allotment option, (ii) reflects the
conversion of all outstanding shares of Preferred Stock of the Company into
shares of Common Stock upon the closing of this offering and (iii) includes
92,575 shares which will be issued upon conversion of a $1.0 million debenture
and accrued interest thereon into shares of Common Stock upon the closing of
this offering. See "Description of Capital Stock," "Underwriting" and Notes 1, 6
and 7 of Notes to Financial Statements.

THE COMPANY

Biosite Diagnostics Incorporated ("Biosite" or the "Company") develops,
manufactures and markets rapid, accurate and cost-effective diagnostic products
that improve the quality of patient care and simplify the practice of laboratory
medicine. The Company believes that its Immediate Response Diagnostics can have
an important impact on medical decisions, patient care and the cost of medical
treatment. The Company's first product, Triage Panel for Drugs of Abuse ("Triage
DOA"), a small self-contained test capable of detecting a broad spectrum of
commonly overdosed prescription and illicit drugs in approximately 10 minutes,
is used by over 2,600 hospitals and emergency departments. Since its
introduction in 1992, over 4.2 million Triage DOA panels have been sold
worldwide for use in hospital emergency department screening and workplace
testing. The Company is developing several additional products for applications
where the Company believes its Immediate Response Diagnostics can play an
important role in improving patient care. Products under development include
tests that are intended to aid in the diagnosis of heart attacks, the dosing of
certain therapeutic drugs, the management of certain chronic diseases and the
detection of certain bacterial and parasitic infections.

In 1995, the worldwide market for immunoassay tests exceeded $5.1 billion.
Although early manual immunoassay tests provided high levels of sensitivity for
analyte detection, these tests suffered from short shelf lives, long reaction
times, a need for radioactive labels and inconsistent results. In response to
these limitations, automated immunoassay analyzers have been developed to
simplify the performance of antibody-based tests. However, these machines are
large and complex, have lengthy turnaround times and require high volumes of
sample throughput to justify the significant investment in equipment and
technical staff.

In recent years, there has been a continuing shift from the use of such
analyzers to more technologically advanced point-of-care tests that can be
performed in a matter of minutes. Although certain simple single analyte
diagnostic tests have been developed, such tests have remained incapable of
precise, multi-analyte detection or highly sensitive quantitative measurements.
As a result, medical tests that require multiple analytes or precise
quantitation of the target analyte have remained the domain of immunoassay
analyzers. The Company believes that there is significant market potential for
advanced point-of-care diagnostic products that provide quick and accurate
diagnosis during a patient visit, shortening the decision time to medical
intervention and minimizing the need for additional patient follow-up, thereby
reducing overall health care delivery costs.

Biosite's Immediate Response Diagnostics technology is based on proprietary
advances in several core scientific and engineering disciplines, including
antibody development and engineering, analyte cloning and synthesis, signaling
chemistry and micro capillary fluidics, which make possible the development and
manufacture of rapid, accurate and cost-effective point-of-care diagnostics. The
Company has utilized its core technologies to develop two distinct product
platforms: the Triage Panel for qualitative visual readings and the Triage
CareLink System for quantitative measurements. The Company's products are
designed to measure either a single analyte or multiple analytes simultaneously
and to allow for the qualitative or quantitative analysis of various samples,
including urine, serum, plasma, whole blood and stool. Both of the Company's
product platforms are designed to provide rapid results, ease of use, high
analytical accuracy and the capability of performing multiple analyses in a
reliable and cost-effective testing device.

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<PAGE> 6

Triage DOA, based on the Company's Triage Panel platform, is a qualitative,
single sample urine screen that identifies eight commonly abused prescription
and illicit drugs or drug classes and provides results in approximately 10
minutes. Emergency physicians have estimated that drug abuse is implicated in 5%
to 10% of the emergency department visits in the United States each year. The
Company believes that it is a leading provider of immunoassays for drug
screening in hospitals. In 1995, sales of Triage DOA product lines exceeded
$25.1 million. The Company has additional Triage Panel products under
development for the qualitative detection of bacterial and parasitic infections.

The Triage CareLink System under development is designed to provide rapid,
quantitative results for immunoassay tests. The Triage CareLink System consists
of two parts: a small single-use test cartridge and a proprietary portable
fluorescent meter designed to read the sample at the point-of-care. The Company
currently is developing two applications using this technology: Triage Cardiac,
to quantify a panel of cardiac markers implicated in acute myocardial infarction
("AMI"), and Triage Transplant, to monitor the concentration of cyclosporine, an
immunosuppressant drug prescribed for organ transplant recipients to prevent
organ rejection.

The Company has entered into several strategic arrangements with major
pharmaceutical and diagnostic companies, including Novartis Pharma Inc.
("Novartis," formerly Sandoz Pharma Ltd.) for the development of Triage
Transplant; LRE Relais + Electronik GmbH ("LRE") for the development of the
fluorescent meter used in the Triage CareLink System; and Merck KGaA ("Merck")
and ARKRAY KDK Corporation, formerly known as Kyoto Dai-ichi Kagaku Co., Ltd.
("KDK"), for the development of Triage Cardiac. The products covered by such
arrangements are currently under development and have not generated any revenue
for the Company. In addition, the Company uses the Curtin Matheson Scientific
division of Fisher Scientific Company ("CMS"), to distribute Triage DOA to U.S.
hospital-based laboratories and emergency departments and has built a small
direct sales force to address the workplace testing segment of the market for
Triage DOA. Merck is the exclusive distributor of Triage DOA in certain
countries in Europe, Latin America, the Middle East, Asia and Africa.

The Company was incorporated in Delaware in 1988. The Company's executive
offices are located at 11030 Roselle Street, San Diego, California 92121, and
its telephone number is (619) 455-4808.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company.......... 2,400,000 shares
Common Stock to be outstanding after the
offering................................... 12,294,995 shares(1)
Use of proceeds.............................. For expansion of sales and marketing
activities, research and development,
expansion and development of manufacturing
capabilities, working capital and general
corporate purposes.
Nasdaq symbol................................ BSTE
</TABLE>

- ---------------
(1) Excludes 1,280,180 shares reserved for issuance upon exercise of stock
options outstanding at December 31, 1996. See "Capitalization,"
"Management -- Executive Compensation" and Note 7 of Notes to Financial
Statements.

4
<PAGE> 7

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

<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30,
----------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales............................... $ -- $ 2,920 $ 9,866 $16,320 $25,147 $18,236 $20,225
Cost of sales........................... -- 1,612 3,268 4,416 5,649 3,781 4,318
------- ------- ------- ------- ------- ------- -------
Gross profit............................ -- 1,308 6,598 11,904 19,498 14,455 15,907
Research and development................ 2,793 2,593 2,796 3,836 6,553 4,602 6,515
Selling, general and administrative..... 1,771 3,622 4,841 5,960 7,134 5,203 6,116
Settlement of patent matters............ -- -- -- 338 1,217 743 2,368
------- ------- ------- ------- ------- ------- -------
Total operating expenses................ 4,564 6,215 7,637 10,134 14,904 10,548 14,999
Income (loss) from operations........... (4,564) (4,907) (1,039) 1,770 4,594 3,907 908
Interest and other income, net.......... 260 630 613 649 1,647 1,253 1,441
------- ------- ------- ------- ------- ------- -------
Income (loss) before benefit (provision)
for income taxes...................... (4,304) (4,277) (426) 2,419 6,241 5,160 2,349
Benefit (provision) for income taxes.... -- -- -- (63) 1,667 (132) 264
------- ------- ------- ------- ------- ------- -------
Net income (loss)....................... $(4,304) $(4,277) $ (426) $ 2,356 $ 7,908 $ 5,028 $ 2,613
======= ======= ======= ======= ======= ======= =======
Net income (loss) per share............. $ (0.61) $ (0.49) $ (0.04) $ 0.22 $ 0.74 $ 0.47 $ 0.24
======= ======= ======= ======= ======= ======= =======
Common and common equivalent shares used
in computing per share amounts(1)..... 7,058 8,754 10,098 10,553 10,766 10,721 10,832
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------
ACTUAL AS ADJUSTED(2)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments.............................. $10,169 $ 36,253
Working capital................................................................ 13,967 40,131
Total assets................................................................... 28,968 55,052
Notes payable and capital lease obligations, less current portion.............. 3,234 2,234
Stockholders' equity........................................................... 21,181 48,345
</TABLE>

- ---------------
(1) Computed on the basis described in Note 1 of Notes to Financial Statements.

(2) Adjusted to reflect the sale by the Company of 2,400,000 shares of Common
Stock offered hereby and the application of the estimated net proceeds
therefrom. See "Use of Proceeds" and "Capitalization."

5
<PAGE> 8

The discussion in this Prospectus contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those discussed here. Factors that could cause or contribute to
such differences include, but are not limited to, those discussed in the
sections entitled "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business," as well as those
discussed elsewhere in this Prospectus.

RISK FACTORS

In evaluating the Company's business, prospective investors should consider
carefully the following risk factors in addition to the other information
presented in this Prospectus.

DEPENDENCE ON DEVELOPMENT AND INTRODUCTION OF NEW PRODUCTS FOR REVENUE GROWTH
AND PROFITABILITY

Except for Triage DOA, all of the Company's products are still under
development, and there can be no assurance that such products will be
successfully developed or commercialized on a timely basis, if at all. The
Company believes that its revenue growth and profitability will substantially
depend upon its ability to complete development of and successfully introduce
these new products. In addition, the successful development of some of these new
products will depend on the development of new technologies, including the
Triage CareLink System's fluorescent meter and assay devices. The Company will
be required to undertake time-consuming and costly development activities and
seek regulatory approval for these new products. There can be no assurance that
the Company will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of these new products, that
regulatory clearance or approval of any new products will be granted by the U.S.
Food and Drug Administration ("FDA") or foreign regulatory authorities on a
timely basis, if at all, or that the new products will be successfully
commercialized. The Company has limited resources to devote to the development
of all its products and consequently a delay in the development of one product
may delay the development of other products. In order to successfully
commercialize any new products, the Company will be required to establish and
maintain reliable, cost-efficient, high-volume manufacturing capacity for such
products. If the Company is unable, for technological or other reasons, to
complete the development, introduction or scale-up of manufacturing of any new
product or if any new product is not approved for marketing or does not achieve
a significant level of market acceptance, the Company's business, financial
condition and results of operations would be materially and adversely affected.
See "Business -- Products and Products Under Development," "-- Manufacturing"
and "-- Government Regulation."

LIMITED HISTORY OF PROFITABILITY; POTENTIAL QUARTERLY FLUCTUATIONS IN FUTURE
OPERATING RESULTS

The Company first achieved profitability in fiscal 1994 and prior to that
time incurred significant operating losses. There can be no assurance that the
Company will remain profitable on a quarterly or annual basis in the future. The
Company believes that future operating results will be subject to quarterly
fluctuations due to a variety of factors, including whether and when new
products are successfully developed and introduced by the Company, market
acceptance of current or new products, regulatory delays, product recalls,
manufacturing delays, shipment problems, seasonal customer demand, the timing of
significant orders, changes in reimbursement policies, competitive pressures on
average selling prices, changes in the mix of products sold and patent
conflicts. Operating results would also be adversely affected by a downturn in
the market for the Company's current and future products, if any, order
cancelations or order rescheduling. Because the Company is continuing to
increase its operating expenses for personnel and new product development, the
Company's operating results would be adversely affected if its sales did not
correspondingly increase or if its product development efforts are unsuccessful
or subject to delays. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

NEAR-TERM DEPENDENCE OF THE COMPANY ON TRIAGE DOA

Sales of Triage DOA have to date accounted for all of the Company's sales.
The Company expects its revenue and profitability will substantially depend on
the sale of Triage DOA for the foreseeable future. A

6
<PAGE> 9

reduction in demand for Triage DOA would have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
believes that growth in sales of Triage DOA will slow as the available U.S.
market becomes saturated. Competitive pressures could also erode the Company's
profit margins for Triage DOA. The Company's continued growth will depend on its
ability to successfully develop and commercialize other products and to gain
additional acceptance of Triage DOA. There can be no assurance that the Company
will be able to successfully develop and commercialize new products or that the
Company will be able to maintain or expand its share of the drug testing market.
Technological change or the development of new or improved diagnostic
technologies could result in the Company's products becoming obsolete or
noncompetitive. See "Business -- Products and Products Under Development."

DEPENDENCE ON KEY DISTRIBUTORS; LIMITED DIRECT SALES EXPERIENCE

The Company relies upon distributors and its own sales force to distribute
Triage DOA and may rely upon distributors to distribute products under
development. Triage DOA is currently marketed pursuant to exclusive distribution
agreements in the U.S. medical market by CMS (which accounted for 80% of product
sales in the first nine months of 1996) and in certain countries in Europe,
Latin America, the Middle East, Asia and Africa by Merck. The loss or
termination of either of these distributors could have a material adverse effect
on the Company's sales unless suitable alternatives can be arranged. The CMS
distribution agreement has minimum quarterly sales milestones which, if the
milestones are not met allows the Company to terminate the agreement, obligates
CMS to pay Biosite a portion of a penalty CMS incurred in 1996 and allows the
Company to appoint a new distributor or to sell Triage DOA directly in the U.S.
medical market.

If any of the Company's distribution or marketing agreements are terminated
and the Company is unable to enter into replacement agreements or if the Company
elects to distribute new products directly, the Company would have to invest in
additional sales and marketing resources, including additional field sales
personnel, which would significantly increase future sales and marketing
expenses. The Company currently has limited experience in direct sales,
marketing and distribution of its products. There can be no assurance that the
Company's direct sales, marketing and distribution efforts would be successful
or that revenue from such efforts would exceed expenses. Further, there can be
no assurance that Biosite would be able to enter into new distribution or
marketing agreements on satisfactory terms, if at all.

Biosite currently has an agreement with Merck regarding distribution of
Triage Cardiac in certain countries in Europe and Latin America and in South
Africa. As part of its decision to refocus away from certain aspects of the
human diagnostics business, Merck has informed the Company that Merck is
considering assigning its rights concerning the marketing of Triage Cardiac
either to a third party or back to the Company. There can be no assurance that a
suitable third party will be found or if the rights are returned to the Company,
that the Company can make successful alternative distribution arrangements. The
Company anticipates that it may enter into additional distribution agreements
with respect to its products currently under development and products that it
develops in the future, if any of such products receive the requisite regulatory
clearance or approvals. There can be no assurance that the Company will be able
to enter into such agreements on acceptable terms, if at all, or if the Company
elects to distribute new products directly that the Company's direct sales,
marketing and distribution efforts would be successful. See
"Business -- Strategic and Distribution Arrangements."

DEPENDENCE ON OTHERS FOR THE DEVELOPMENT OF NEW PRODUCTS

Biosite has entered into agreements with, among others, Merck, Novartis and
KDK for the development and marketing of products. The agreements are subject to
certain rights of termination, and there can be no assurance that any such
agreement will not be terminated. There also can be no assurance that the
Company's

7
<PAGE> 10

collaborators will abide by their contractual obligations or will not
discontinue or sell their current lines of business. There also can be no
assurance that any of the research for which the Company receives or provides
funding will lead to the development of products. The Company intends to enter
into additional development and marketing agreements. However, there can be no
assurance that the Company will be able to enter into such agreements on
acceptable terms, if at all.

The Company is developing with LRE a hand-held point-of-care fluorescent
meter for use in Triage CareLink System products. The meter will be programmed
to run a specific test through the use of changeable proprietary software which
is also under development by LRE. There can be no assurance that LRE will
develop the hardware or software on schedule, if at all, or that new software
will be developed to permit the meter to be used for another Triage CareLink
System product. See "Business -- Strategic and Distribution Arrangements."

INTENSELY COMPETITIVE INDUSTRY; RAPID TECHNOLOGICAL CHANGE

The market in which the Company competes is intensely competitive.
Biosite's competitors include health care companies that manufacture
laboratory-based tests and analyzers, as well as clinical and hospital-based
laboratories. Currently, the majority of diagnostic tests used by physicians and
other health care providers are performed by independent clinical and
hospital-based laboratories. The Company expects that these laboratories will
compete vigorously to maintain their dominance of the testing market. In order
to achieve market acceptance for its products, the Company will be required to
demonstrate that its products are an attractive alternative to testing performed
by clinical and hospital-based laboratories. This will require physicians to
change their established means of having such tests performed. There can be no
assurance that the Company's products will be able to compete with the testing
services provided by these laboratories. In addition, companies with a
significant presence in the diagnostic market, such as Abbott Laboratories,
Boehringer Mannheim GmbH ("Boehringer Mannheim"), Chiron Diagnostics, Clinical
Diagnostic Systems, a division of Johnson & Johnson, DADE International, and
Roche Biosciences, Inc., have developed or are developing diagnostic products
that do or will compete with the Company's products. These competitors have
substantially greater financial, technical, research and other resources and
larger, more established marketing, sales, distribution and service
organizations than the Company. Moreover, such competitors offer broader product
lines and have greater name recognition than the Company, and offer discounts as
a competitive tactic. In addition, several smaller companies are currently
making or developing products that compete with or will compete with those of
the Company. There can be no assurance that the Company's competitors will not
succeed in developing or marketing technologies or products that are more
effective or commercially attractive than the Company's current or future
products, or that would render the Company's technologies and products obsolete.
Moreover, there can be no assurance that the Company will have the financial
resources, technical expertise or marketing, distribution or support
capabilities to compete successfully in the future. In addition, there can be no
assurance that competitors, many of which have made substantial investments in
competing technologies that may be more effective than the Company's
technologies, will not prevent, limit or interfere with the Company's ability to
make, use or sell its products either in the United States or in international
markets. See "Business -- Technology," " -- Products and Products Under
Development" and "-- Competition."

UNCERTAINTY OF PATENT AND PROPRIETARY TECHNOLOGY PROTECTION; POTENTIAL INABILITY
TO LICENSE TECHNOLOGY FROM THIRD PARTIES

The Company's ability to compete effectively will depend in part on its
ability to develop and maintain proprietary aspects of its technology, and to
operate without infringing the proprietary rights of others or to obtain rights
to such proprietary rights. Biosite has U.S. and foreign issued patents and is
currently prosecuting patent applications in the United States and with certain
foreign patent offices. There can be no assurance that any of the Company's
pending patent applications will result in the issuance of any patents, that the
Company's patent applications will have priority over others' applications, or
that, if issued, any of the Company's patents will offer protection against
competitors with similar technologies. There can be no

8
<PAGE> 11

assurance that any patents issued to the Company will not be challenged,
invalidated or circumvented in the future or that the rights created thereunder
will provide a competitive advantage.

Litigation may be necessary to enforce any patents issued to the Company,
to protect trade secrets or know-how owned by the Company or to determine the
enforceability, scope and validity of the proprietary rights of others. In March
1996, the Company settled a potential patent infringement claim by obtaining a
license to the contested patent in return for a one-time payment of $2.2
million. In September 1996, the Company settled a patent infringement lawsuit
filed by Abbott Laboratories and obtained a license to the contested patent in
return for the payment of $5.5 million and the agreement to pay certain
royalties. There can be no assurance that the Company will not in the future
become subject to patent infringement claims and litigation or interference
proceedings conducted in the U.S. Patent and Trademark Office ("USPTO") to
determine the priority of inventions.

The Company recently received a letter from Becton Dickinson and Company
("B-D"), a major manufacturer of medical supplies, devices and diagnostic
systems, offering to license a U.S. patent held by B-D to the Company. B-D did
not propose any license terms in its letter. The Company has reviewed such
patent and believes that it has defenses to any infringement claim under such
patent. In addition, Biosite recently received a letter from Spectral
Diagnostics Incorporated ("Spectral"), a manufacturer of rapid-format
cardiac-diagnostic panels, informing the Company that Spectral holds a U.S.
patent covering a kit for diagnosing and distinguishing chest pain and that it
recently received a notice of allowance from the USPTO with respect to a second
patent application. This letter states that Spectral has not yet determined its
position with respect to the licensing of its technology. The Company is
currently reviewing the issued patent cited in this letter and the materials
provided by Spectral with respect to the allowed patent application and is
evaluating their potential impact on Triage Cardiac. There can be no assurance
that B-D or Spectral will not initiate litigation alleging that Triage DOA or
Triage Cardiac, respectively, infringe claims under such manufacturer's patents.
Such litigation, if initiated, could seek to recover damages as a result of any
sales of such products and to enjoin further such sales. The outcome of
litigation is inherently uncertain and there can be no assurance that a court
would not find such claims valid and that the Company had no successful defense
to such claims. An adverse outcome in litigation or the failure to obtain a
necessary license could subject the Company to significant liability and could
prevent Biosite from selling Triage DOA or Triage Cardiac which could have a
material adverse effect on the Company's business, financial condition and
results of operations.

The defense and prosecution of intellectual property suits, USPTO
interference proceedings, and related legal and administrative proceedings will
result in substantial expense to the Company and significant diversion of effort
by the Company's technical and management personnel. An adverse determination in
litigation or interference proceedings to which the Company may become a party
could subject the Company to significant liabilities to third parties. Further,
either as the result of such litigation or proceedings or otherwise, the Company
may be required to seek licenses from third parties which may not be available
on commercially reasonable terms, if at all.

Triage DOA and products under development may incorporate technologies that
are the subject of patents issued to, and patent applications filed by, others.
The Company has obtained licenses for certain technologies. However, there can
be no assurance that the Company will be able to obtain licenses for technology
patented by others on commercially reasonable terms, if at all, that it will be
able to develop alternative approaches if unable to obtain licenses or that the
Company's current and future licenses will be adequate for the operation of
Biosite's business. The failure to obtain necessary licenses or to identify and
implement alternative approaches would prevent the Company from commercializing
certain of its products under development and would have a material adverse
effect on the Company's business, financial condition and results of operations.

Biosite is aware of a U.S. patent owned by Celltech Limited ("Celltech")
relating to the manufacture of antibodies, such as those developed or being
developed by Biosite for several products, including Triage Cardiac. Biosite is
also aware that this patent is the subject of an interference proceeding in the
USPTO which was initiated in February 1991 with a patent application filed by
Genentech, Inc. ("Genentech"). In June 1996, the European Patent Office ("EPO")
invalidated, following an opposition, certain claims under

9
<PAGE> 12

Celltech's corresponding EPO-granted patent which may be relevant to Biosite's
products and products under development. Celltech has indicated that it will
appeal such decision. If Celltech does appeal, such claims can be reinstated, at
least until a final decision is rendered. If it is determined that aspects of
the manufacturing of Biosite's antibodies are covered by patent claims stemming
from the interference or if Celltech were to have such claims upheld on appeal,
or if patent infringement litigation is brought against the Company by either
Celltech or Genentech Biosite may be required to obtain a license under such
patents and corresponding patents in other countries. There can be no assurance
that a license would be made available to Biosite on commercially reasonable
terms, if at all. If such license is required and not obtained the Company might
be prevented from using certain of its manufacturing technologies. The Company's
failure to obtain any required licenses could have a material adverse effect on
the Company's business, financial condition and results of operations.

The Company also relies upon trade secrets, technical know-how and
continuing invention to develop and maintain its competitive position. There can
be no assurance that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
the Company's trade secrets or disclose such technology, that the Company can
meaningfully protect its trade secrets, or that the Company will be capable of
protecting its rights to its trade secrets.

Others may have filed and in the future are likely to file patent
applications that are similar or identical to those of the Company. To determine
the priority of inventions, the Company may have to participate in interference
proceedings declared by the USPTO that could result in substantial cost to the
Company. No assurance can be given that any patent application of another will
not have priority over patent applications filed by the Company.

The commercial success of the Company also depends in part on the Company
neither infringing patents or proprietary rights of third parties nor breaching
any licenses that may relate to the Company's technologies and products. The
Company is aware of several third-party patents that may relate to the Company's
technology. There can be no assurance that the Company does not or will not
infringe these patents, or other patents or proprietary rights of third parties.
In addition, the Company has received and may in the future receive notices
claiming infringement from third parties as well as invitations to take licenses
under third party patents. Any legal action against the Company or its
collaborative partners claiming damages and seeking to enjoin commercial
activities relating to the Company's products and processes affected by third
party rights, in addition to subjecting the Company to potential liability for
damages may require the Company or its collaborative partner to obtain a license
in order to continue to manufacture or market the affected products and
processes. There can be no assurance that the Company or its collaborative
partners would prevail in any such action or that any license (including
licenses proposed by third parties) required under any such patent would be made
available on commercially acceptable terms, if at all. There are a significant
number of U.S. and foreign patents and patent applications in the Company's
areas of interest, and the Company believes that there may be significant
litigation in the industry regarding patent and other intellectual property
rights. If the Company becomes involved in such litigation, it could consume a
substantial portion of the Company's managerial and financial resources, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business -- Proprietary Technology and
Patents."

GOVERNMENT REGULATION; NO ASSURANCE OF OBTAINING REGULATORY APPROVALS

The testing, manufacture and sale of the Company's products are subject to
regulation by numerous governmental authorities, principally the FDA and
corresponding state and foreign regulatory agencies. Pursuant to the Federal
Food, Drug, and Cosmetic Act, and the regulations promulgated thereunder, the
FDA regulates the preclinical and clinical testing, manufacture, labeling,
distribution and promotion of medical devices. The Company will not be able to
commence marketing or commercial sales in the United States of new products
under development until it receives clearance or approval from the FDA, which
can be a lengthy, expensive and uncertain process. Noncompliance with applicable
requirements can result in, among other things, fines, injunctions, civil
penalties, recall or seizure of products, total or partial suspension of
production, failure of the government to grant premarket clearance or premarket
approval for devices, withdrawal of marketing clearances or approvals, and
criminal prosecution. The FDA also has the authority to

10
<PAGE> 13

request recall, repair, replacement or refund of the cost of any device
manufactured or distributed by the Company.

Any devices manufactured or distributed by the Company pursuant to FDA
clearance or approvals are subject to pervasive and continuing regulation by the
FDA and certain state agencies. Before a new device can be introduced in the
market, the manufacturer must generally obtain FDA clearance of a 510(k)
notification or FDA approval of a pre-market approval ("PMA") application. The
PMA approval process is more expensive, uncertain and lengthy than the 510(k)
clearance process. The Company is uncertain of the regulatory path to market
that the FDA will ultimately apply to the Company's products currently in
development. Although Triage DOA received 510(k) clearance, a PMA may be
required for Triage Cardiac and Triage Transplant products now in development.
There can be no assurance that with respect to any of the Company's products in
development, the FDA will not determine that the Company must adhere to the more
costly, lengthy and uncertain PMA approval process. Modifications to a device
that is the subject of an approved PMA application, its labeling or
manufacturing process may require approval by the FDA of a PMA supplement or a
new PMA application. For any devices that are cleared through the 510(k)
process, modifications or enhancements that could significantly affect safety or
effectiveness, or constitute a major change in the intended use of the device,
will require new 510(k) submissions.

There can be no assurance that the Company will be able to obtain necessary
regulatory approvals or clearances for its products on a timely basis, if at
all, and delays in receipt of or failure to receive such approvals or
clearances, the loss of previously received approvals or clearances, limitations
on intended use imposed as a condition of such approvals or clearances, or
failure to comply with existing or future regulatory requirements would have a
material adverse effect on the Company's business, financial condition and
results of operations.

Before the manufacturer of a device can submit the device for FDA clearance
or approval, it generally must conduct a clinical investigation of the device.
Although clinical investigations of most devices are subject to the
investigational device exemption ("IDE") requirements, clinical investigations
of in vitro diagnostic ("IVD") tests, such as all of the Company's products and
products under development, are exempt from the IDE requirements, including the
need to obtain the FDA's prior approval, provided the testing is noninvasive,
does not require an invasive sampling procedure that presents a significant
risk, does not intentionally introduce energy into the subject, and is not used
as a diagnostic procedure without confirmation by another medically established
test or procedure. In addition, the IVD must be labeled for research use only
("RUO") or investigational use only ("IUO"), and distribution controls must be
established to assure that IVDs distributed for research or clinical
investigation are used only for those purposes.

The Company intends to conduct clinical investigations of its products
under development, which will entail distributing them in the United States on
an IUO basis. There can be no assurance that the FDA would agree that the
Company's IUO distribution of its IVD products under development will meet the
requirements for IDE exemption. Furthermore, failure by the Company or the
recipients of its products under development to maintain compliance with the IDE
exemption requirements could result in enforcement action by the FDA, including,
among other things, the loss of the IDE exemption or the imposition of other
restrictions on the Company's distribution of its products under development,
which would adversely affect the Company's ability to conduct the clinical
investigations necessary to support marketing clearance or approval.

Manufacturers of medical devices for marketing in the United States are
required to adhere to applicable regulations setting forth detailed current Good
Manufacturing Practices ("cGMP") requirements, which include testing, control
and documentation requirements. Manufacturers must also comply with Medical
Device Reporting ("MDR") requirements that a manufacturer report to the FDA any
incident in which its product may have caused or contributed to a death or
serious injury, or in which its product malfunctioned and would be likely to
cause or contribute to a death or serious injury upon recurrence. Labeling and
promotional activities are subject to scrutiny by the FDA and, in certain
circumstances, by the Federal Trade Commission. Current FDA enforcement policy
prohibits the marketing of approved medical devices for unapproved uses.

11
<PAGE> 14

changes to the cGMP requirements, including the addition of design controls,
that will likely increase the cost of compliance. There can be no assurance that
the Company will not incur significant costs to comply with laws and regulations
in the future or that such laws and regulations will not have a material adverse
effect upon the Company's business, financial condition and results of
operation.

The use of Biosite's products is also affected by the Clinical Laboratory
Improvement Amendments of 1988 ("CLIA") and related federal and state
regulations which provide for regulation of laboratory testing. The scope of
these regulations includes quality control, proficiency testing, personnel
standards and federal inspections. CLIA categorizes tests as "waived,"
"moderately complex" or "highly complex," on the basis of specific criteria.
There can be no assurance that any future amendment of CLIA or the promulgation
of additional regulations impacting laboratory testing would not have a material
adverse effect on the Company's ability to market its products or on its
business, financial condition and results of operations.

CONTROL BY DIRECTORS, EXECUTIVE OFFICERS, PRINCIPAL STOCKHOLDERS AND AFFILIATED
ENTITIES

The Company's directors, executive officers, principal stockholders and
entities affiliated with them will, in the aggregate, beneficially own
approximately 62.1% of the Company's outstanding Common Stock following the
completion of this offering. These stockholders, if acting together, would be
able to control substantially all matters requiring approval by the stockholders
of the Company, including the election of directors and the approval of mergers
or other business combination transactions. See "Principal Stockholders."

DEPENDENCE ON SOLE-SOURCE SUPPLIERS

Certain key components and raw materials used in the manufacture of Triage
DOA are currently provided by single-source vendors. Although the Company
believes that alternative sources for such components and raw materials are
available, any supply interruption in a sole-sourced component of raw material
would have a material adverse effect on the Company's ability to manufacture
Triage DOA until a new source of supply is qualified and, as a result, would
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, an uncorrected impurity or supplier's
variation in a raw material, either unknown to the Company or incompatible with
the Company's Triage DOA manufacturing process, could have a material adverse
effect on the Company's ability to manufacture products. The Company currently
has under development products other than Triage DOA which, if developed, may
require that the Company enter into additional supplier arrangements. There can
be no assurance that the Company will be able to enter into additional supplier
arrangements on commercially reasonable terms, if at all. Failure to obtain a
supplier for the manufacture of its future products, if any, would have a
material adverse effect on the Company's business, financial condition and
results of operations.

If successfully developed, the Company expects to rely upon LRE for
production of the fluorescent meter to be used in connection with its Triage
CareLink System platform of products currently under development. The Company's
dependence upon LRE for the manufacture of such a meter may adversely affect the
Company's profit margins, its ability to develop and manufacture products on a
timely and competitive basis, the timing of market introductions and subsequent
sales of products incorporating the LRE meter. See "Business -- Strategic and
Distribution Arrangements."

LIMITED MANUFACTURING EXPERIENCE; POTENTIAL INABILITY TO SCALE-UP MANUFACTURING

To be successful, the Company must manufacture its current and future
products in compliance with regulatory requirements, in sufficient quantities
and on a timely basis, while maintaining product quality and acceptable
manufacturing costs. The Company has limited experience manufacturing products
other than Triage DOA. To achieve the level of production necessary for
commercialization of Biosite's products under development, the Company will need
to scale-up current manufacturing capabilities. Significant additional work will
be required for the scaling-up of each potential Biosite product prior to
commercialization, and there can be no assurance that such work can be completed
successfully. In addition, although the Company expects that certain of its
products under development will share certain production attributes with Triage
DOA,

12
<PAGE> 15

production of such products may require the development of new manufacturing
technologies and expertise. There can be no assurance that such products can be
manufactured by the Company or any other party at a cost or in quantities to
make such products commercially viable. If the Company is unable to develop or
contract for manufacturing capabilities on acceptable terms for its products
under development, the Company's ability to conduct preclinical and clinical
testing will be adversely affected, resulting in the delay of submission of
products for regulatory clearance or approval and initiation of new development
programs, which would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business -- Manufacturing."

The Company anticipates making significant expenditures to develop high
volume manufacturing capabilities required for each of its products currently
under development, if such products are successfully developed. There can be no
assurance that manufacturing and quality control problems will not arise as the
Company attempts to scale-up its manufacturing or that such scale-up can be
achieved in a timely manner or at a commercially reasonable cost, if at all.

The Company's manufacturing facilities and those of its contract
manufacturers are or will be subject to periodic regulatory inspections by the
FDA and other federal and state regulatory agencies and such facilities are
subject to cGMP requirements of the FDA. There can be no assurance that the
Company or its contractors will satisfy such regulatory requirements, and any
failure to do so would have a material adverse effect on the Company's business,
financial condition and results of operations.

UNCERTAINTY RELATING TO THIRD PARTY REIMBURSEMENT AND POTENTIAL COST CONSTRAINTS

In the United States, health care providers that purchase Triage DOA and
other diagnostic products, such as hospitals and physicians, generally rely on
third party payors, principally private health insurance plans, federal Medicare
and state Medicaid, to reimburse all or part of the cost of the procedure. Such
third party payors can affect the pricing or the relative attractiveness of the
Company's products by regulating the maximum amount of reimbursement provided by
such payors for testing services. In addition, the tests performed by public
health departments, corporate wellness programs and other large volume users in
the drug screening market are generally not subject to reimbursement. Further,
certain health care providers are moving towards a managed care system in which
such providers contract to provide comprehensive health care for a fixed cost
per patient. The Company is unable to predict what changes will be made in the
reimbursement methods utilized by third party payors. The Company could be
adversely affected by changes in reimbursement policies of governmental or
private health care payors, particularly to the extent any such changes affect
reimbursement for procedures in which the Company's products are used. Third
party payors are increasingly scrutinizing and challenging the prices charged
for medical products and services. Decreases in reimbursement amounts for tests
performed using the Company's products may decrease amounts physicians and other
practitioners are able to charge patients, which in turn may adversely affect
the Company's ability to sell its products on a profitable basis. Failure by
physicians and other users to obtain reimbursement from third party payors, or
changes in government and private third party payors' policies toward
reimbursement of tests utilizing the Company's products could have a material
adverse effect on the Company's business, financial condition or results of
operation. Given the efforts to control and reduce health care costs in the
United States in recent years, there can be no assurance that currently
available levels of reimbursement will continue to be available in the future
for the Company's existing products or products under development.

In addition, market acceptance of the Company's products in international
markets is dependent, in part, upon the availability of reimbursement within
prevailing health care payment systems. Reimbursement and health care payment
systems in international markets vary significantly by country, and include both
government sponsored health care and private insurance.

The Company believes that the overall escalating cost of medical products
and services has led to and will continue to lead to increased pressures on the
health care industry, both foreign and domestic, to reduce the cost of products
and services, including products offered by the Company. There can be no
assurance that third party reimbursement and coverage will be available or
adequate in either U.S. or foreign markets, that

13
<PAGE> 16

current reimbursement amounts will not be decreased in the future or that future
legislation, regulation or reimbursement policies of third party payors will not
otherwise adversely affect the demand for the Company's products or its ability
to sell its products on a profitable basis.

POSSIBLE FUTURE CAPITAL REQUIREMENTS; UNCERTAINTY OF ADDITIONAL FUNDING

While the Company believes that its available cash, cash from operations
and funds from existing credit arrangements, together with the proceeds of this
offering, will be sufficient to satisfy its funding needs for at least the next
24 months, there can be no assurance the Company will not require additional
capital. The Company's future liquidity and capital funding requirements will
depend on numerous factors, including the extent to which the Company's products
under development are successfully developed and gain market acceptance, the
timing of regulatory actions regarding the Company's potential products, the
costs and timing of expansion of sales, marketing and manufacturing activities,
procurement and enforcement of patents important to the Company's business,
results of clinical investigations and competition. There can be no assurance
that such additional capital, if needed, will be available on terms acceptable
to the Company, if at all. Certain funding arrangements may require the Company
to relinquish its rights to certain of its technologies, products or marketing
territories. Furthermore, any additional equity financing may be dilutive to
stockholders, and debt financing, if available, may include restrictive
covenants. The failure by the Company to raise capital on acceptable terms when
needed could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

POTENTIAL INABILITY TO MANAGE GROWTH; DEPENDENCE ON KEY PERSONNEL

The Company anticipates increased growth in the number of its employees,
the scope of its operating and financial systems and the geographic area of its
operations as new products are developed and commercialized. This growth will
result in an increase in responsibilities for both existing and new management
personnel. The Company's ability to manage growth effectively will require it to
continue to implement and improve its operational, financial and management
information systems and to train, motivate and manage its employees. There can
be no assurance that the Company will be able to manage its expansion, and a
failure to do so could have a material adverse effect on the Company's business,
financial condition and results of operations.

The Company's future success depends in part on the continued service of
its key technical, sales, marketing and executive personnel, and its ability to
identify and hire additional qualified personnel. Competition for such personnel
is intense and there can be no assurance that the Company can retain existing
personnel or identify or hire additional personnel.

PRODUCT LIABILITY EXPOSURE; INADEQUACY OR UNAVAILABILITY OF INSURANCE COVERAGE

The testing, manufacturing and marketing of medical diagnostic devices such
as Triage DOA, as well as the Company's products currently under development,
entail an inherent risk of product liability claims. To date, the Company has
not experienced any material product liability claims, but any such claims
arising in the future could have a material adverse effect on the Company's
business, financial condition and results of operations. Potential product
liability claims may exceed the amount of the Company's insurance coverage or
may be excluded from coverage under the terms of the policy. There can be no
assurance that the Company's existing insurance can be renewed at a cost and
level of coverage comparable to that presently in effect, if at all. In the
event that the Company is held liable for a claim against which it is not
indemnified or for damages exceeding the limits of its insurance coverage, such
claim could have a material adverse effect on the Company's business, financial
condition and result of operations.

LACK OF PRIOR PUBLIC MARKET AND POSSIBLE VOLATILITY OF STOCK PRICE

Prior to this offering, there has been no public market for the Common
Stock and there can be no assurance that an active public market for the Common
Stock will develop or be sustained after this offering.

14
<PAGE> 17

The initial public offering price has been determined through negotiations
between the Company and the Underwriters. See "Underwriting." In addition, the
securities markets have from time to time experienced significant price and
volume fluctuations that are unrelated to the operating performance of
particular companies. The market prices of the common stock of many publicly
held medical device companies have in the past been, and can in the future be
expected to be, especially volatile. Announcements of technological innovations
or new products by the Company or its competitors, clinical investigation
results, release of reports by securities analysts, developments or disputes
concerning patents or proprietary rights, regulatory developments, changes in
regulatory or medical reimbursement policies, economic and other external
factors, as well as period-to-period fluctuations in the Company's financial
results, may have a significant impact on the market price of the Common Stock.

SHARES ELIGIBLE FOR FUTURE SALE; POTENTIAL ADVERSE EFFECT ON STOCK PRICE

Future sales of Common Stock by existing stockholders under Rules 144 and
701 of the Securities Act of 1933, as amended (the "Securities Act") or through
the exercise of outstanding registration rights or otherwise could have an
adverse effect on the price of the Common Stock. The 2,400,000 shares offered
hereby will be eligible for resale in the public market immediately following
this offering. Upon the commencement of this offering, an additional 257,661
shares will be eligible for resale in the public market, in reliance upon Rule
144(k) under the Securities Act. In addition, 236,130 shares of Common Stock
will be eligible for resale in the public market 90 days from the effective date
of the Registration Statement of which this Prospectus is a part (the "Effective
Date"), in reliance upon Rule 144 or Rule 701 under the Securities Act.
Additionally, 970,107 and 8,338,522 shares of Common Stock will be eligible for
sale in the public market 120 days and 180 days, respectively, from the
Effective Date, upon expiration of lockup agreements, in reliance on Rule 144 or
Rule 701 under the Securities Act. The Company intends to register approximately
2,206,486 shares of Common Stock reserved for issuance under its stock plans as
soon as practicable following the date of this Prospectus. Stockholders who,
after consummation of this offering, will hold over 8,400,000 shares of Common
Stock have rights to require the Company to register their shares for future
sale. See "Description of Capital Stock -- Registration Rights" and "Shares
Eligible for Future Sale."

BROAD DISCRETION OF MANAGEMENT TO ALLOCATE OFFERING PROCEEDS

The Company anticipates that the proceeds of this offering will be used to
fund expansion of sales and marketing activities, to fund research and
development activities, to expand and develop manufacturing capabilities, and to
finance working capital and general corporate requirements. The amounts
identified for the foregoing uses under "Use of Proceeds" in this Prospectus are
estimates, and the amounts actually expended for each such purpose and the
timing of such expenditures may vary depending upon numerous factors. The
Company's management will have broad discretion in determining the amount and
timing of expenditures and in allocating the proceeds of this offering. Such
discretion will be particularly broad with respect to that portion of the
proceeds available for working capital and general corporate purposes. See "Use
of Proceeds."

POTENTIAL ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER AND BYLAW PROVISIONS AND
DELAWARE LAW

Certain provisions of the Company's Certificate of Incorporation and Bylaws
may have the effect of making it more difficult for a third party to acquire, or
of discouraging a third party from attempting to acquire control of the Company.
Such provisions could limit the price that certain investors might be willing to
pay in the future for shares of the Company's Common Stock. Certain of these
provisions allow the Company to issue Preferred Stock without any vote or
further action by the stockholders, provide for a classified board of directors,
eliminate the right of stockholders to call special meetings of stockholders or
to act by written consent without a meeting. These provisions may make it more
difficult for stockholders to take certain corporate actions and could have the
effect of delaying or preventing a change in control of the Company. See
"Management" and "Description of Capital Stock."

15
<PAGE> 18

ABSENCE OF DIVIDENDS; IMMEDIATE AND SUBSTANTIAL DILUTION

The Company has never paid cash dividends on its capital stock and does not
anticipate paying any cash dividends in the foreseeable future. The initial
public offering price will be substantially higher than the net tangible book
value per share of Common Stock. Purchasers of shares of Common Stock in this
offering will incur immediate and substantial dilution of $8.43 per share. See
"Dividend Policy" and "Dilution."

USE OF PROCEEDS

The proceeds to the Company from the sale of the shares of Common Stock
offered by the Company hereby are estimated to be approximately $26,084,000
($30,102,000 if the Underwriters' over-allotment option is exercised in full),
after deducting underwriting discounts and commissions and estimated offering
expenses.

The Company anticipates that it will use approximately $7.0 million of the
net proceeds of this offering to expand sales and marketing activities (which
are expected to include the development of direct sales capabilities in selected
markets), approximately $2.0 million to fund the Company's research and
development efforts, and approximately $4.0 million for expansion and
development of manufacturing capabilities in connection with the launch of the
Company's products currently under development. The Company anticipates using
the remaining net proceeds of approximately $13.1 million for working capital
and general corporate purposes. The Company also may use a portion of the net
proceeds to acquire businesses, technologies or products complementary to the
Company's business, although the Company currently has no specific plans or
commitments in this regard.

The amounts actually expended for each purpose may vary significantly
depending upon numerous factors, including the progress of the Company's
research and development, and the costs and timing of expansion of marketing,
sales and manufacturing activities, and hence the Company's management will
retain broad discretion in the allocation of a substantial portion of the net
proceeds. In addition, the Company's management may need to change the
allocation of net proceeds (i) to further expand direct sales capabilities, in
the event of termination of any distribution agreement, or (ii) to obtain
licenses to third party intellectual property, if the Company believes such
licenses are in the Company's best interest. Pending such uses, the Company
intends to invest the net proceeds of this offering in interest-bearing,
investment grade securities. The Company believes that its available cash, cash
from operations and funds from existing credit arrangements, together with the
proceeds of this offering, will be sufficient to satisfy its funding needs for
at least the next 24 months.

DIVIDEND POLICY

The Company has never declared or paid dividends on its capital stock and
does not anticipate paying any dividends in the foreseeable future. The Company
currently intends to retain its earnings, if any, for the operation of its
business.

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<PAGE> 19

CAPITALIZATION

The following table sets forth as of September 30, 1996 (i) the
capitalization of the Company, (ii) the pro forma capitalization of the Company,
after giving effect to the conversion of all series of Preferred Stock into
Common Stock and the conversion of a $1.0 million debenture and accrued interest
thereon into 92,575 shares of Common Stock upon the closing of this offering,
and (iii) the pro forma capitalization of the Company, as adjusted to give
effect to the receipt of the net proceeds from the sale of the 2,400,000 shares
of Common Stock offered hereby and the application of the estimated net proceeds
therefrom.

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
---------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Notes payable, less current portion(1)......................... $ 3,234 $ 2,234 $ 2,234
------- ------- -------
Stockholders' equity:
Preferred Stock, $.01 par value; 8,328,847 shares authorized
and 8,328,847 shares outstanding actual; 5,000,000 shares
authorized and no shares outstanding, pro forma and pro
forma as adjusted......................................... 83 -- --
Common Stock, $.01 par value; 12,000,000 shares authorized
and 1,460,093 outstanding actual; 25,000,000 shares
authorized and 9,881,515 shares outstanding pro forma;
25,000,000 shares authorized and 12,281,515 shares
outstanding pro forma as adjusted(2)...................... 15 99 123
Additional paid-in capital................................... 21,686 22,796 48,856
Unrealized net loss on marketable securities, net of related
tax....................................................... (10) (10) (10)
Deferred compensation........................................ (48) (48) (48)
Accumulated deficit.......................................... (545) (576) (576)
------- ------- -------
Total stockholders' equity........................... $21,181 $22,261 $48,345
------- ------- -------
Total capitalization................................. $24,415 $24,495 $50,579
======= ======= =======
</TABLE>

- ---------------
(1) See Note 6 of Notes to Financial Statements for a description of the
Company's long-term commitments.

(2) Excludes 1,280,180 shares of Common Stock reserved for issuance upon
exercise of stock options outstanding at December 31, 1996. See
"Management -- Executive Compensation" and Note 7 of Notes to Financial
Statements.

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<PAGE> 20

DILUTION

The pro forma net tangible book value of the Company's Common Stock as of
September 30, 1996 was approximately $17,803,000, or $1.80 per share. Pro forma
net tangible book value per share represents the amount of the Company's total
tangible assets less total liabilities, divided by the number of shares of
Common Stock outstanding, after giving effect to the conversion of all series of
Preferred Stock into Common Stock and the conversion of a $1.0 million debenture
and accrued interest thereon into 92,575 shares of Common Stock upon the closing
of this offering. After giving effect to the sale of the 2,400,000 shares of
Common Stock offered hereby by the Company and after deducting underwriting
discounts and commissions and estimated offering expenses payable by the
Company, the pro forma net tangible book value of the Company at September 30,
1996 would have been approximately $43,887,000 or $3.57 per share. This
represents an immediate increase in pro forma net tangible book value of $1.77
per share to existing stockholders and an immediate dilution of $8.43 per share
to new investors purchasing shares of Common Stock in this offering, as
illustrated in the following table:

<TABLE>
<S> <C> <C>
Initial public offering price per share.............................. $12.00
Pro forma net tangible book value per share at September 30,
1996............................................................ $ 1.80
Increase per share attributable to investors in the offering....... 1.77
-----
Pro forma net tangible book value per share after the offering....... 3.57
------
Dilution per share to new investors.................................. $ 8.43
======
</TABLE>

The following table summarizes, on a pro forma basis as of September 30,
1996, the number of shares of Common Stock purchased from the Company, the total
consideration paid, and the average price per share by existing stockholders and
by purchasers of shares offered by the Company hereby (before deducting the
underwriting discounts and commissions and estimated offering expenses):

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders................ 9,881,515 80.5% $22,961,121 44.4% $ 2.32
New investors........................ 2,400,000 19.5 28,800,000 55.6 12.00
---------- ------ ---------- ------
Total.............................. 12,281,515 100.0% $51,761,121 100.0%
========== ====== ========== ======
</TABLE>

The foregoing calculations assume no exercise of outstanding options. As of
December 31, 1996, there were outstanding options to purchase an aggregate of
1,280,180 shares of Common Stock at a weighted average exercise price of $3.45
per share. To the extent such options are exercised, there will be further
dilution to investors in this offering. See "Management -- Executive
Compensation" and Note 7 of Notes to Financial Statements.

18
<PAGE> 21

SELECTED FINANCIAL DATA

The selected financial data set forth below with respect to the Company's
statement of income data for each of the three years in the period ended
December 31, 1995 and the nine months ended September 30, 1996 and the balance
sheet data at December 31, 1994 and 1995 and September 30, 1996 are derived from
the financial statements audited by Ernst & Young LLP, independent auditors,
which are included elsewhere in this Prospectus and are qualified by reference
to such financial statements. The selected financial data with respect to the
statement of income data for the two years ended December 31, 1992 and the
balance sheet data at December 31, 1991, 1992 and 1993 are derived from the
financial statements audited by Ernst & Young LLP which are not included in this
Prospectus. The selected financial data with respect to the statement of income
for the nine months ended September 30, 1995 are derived from unaudited
financial statements included elsewhere in this Prospectus. The unaudited
financial statements include all adjustments, consisting only of normal
recurring adjustments, that the Company considers necessary for a fair
presentation of the financial position and results of operations for these
periods. Operating results for the nine months ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 1996. The data set forth below should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's financial statements and notes thereto included
elsewhere in this Prospectus.

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

<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
------------------------------------------------- ---------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net sales........................................... $ -- $ 2,920 $ 9,866 $ 16,320 $ 25,147 $ 18,236 $ 20,225
Cost of sales....................................... -- 1,612 3,268 4,416 5,649 3,781 4,318
-------- -------- -------- --------- --------- --------- ---------
Gross profit........................................ -- 1,308 6,598 11,904 19,498 14,455 15,907

Research and development............................ 2,793 2,593 2,796 3,836 6,553 4,602 6,515
Selling, general and administrative................. 1,771 3,622 4,841 5,960 7,134 5,203 6,116
Settlement of patent matters........................ -- -- -- 338 1,217 743 2,368
-------- -------- -------- --------- --------- --------- ---------
Total operating expenses............................ 4,564 6,215 7,637 10,134 14,904 10,548 14,999

Income (loss) from operations....................... (4,564) (4,907) (1,039) 1,770 4,594 3,907 908
Interest and other income, net...................... 260 630 613 649 1,647 1,253 1,441
-------- -------- -------- --------- --------- --------- ---------
Income (loss) before benefit (provision) for income
taxes............................................. (4,304) (4,277) (426) 2,419 6,241 5,160 2,349
Benefit (provision) for income taxes................ -- -- -- (63) 1,667 (132) 264
-------- -------- -------- --------- --------- --------- ---------
Net income (loss)................................... $(4,304) $(4,277) $ (426) $ 2,356 $ 7,908 $ 5,028 $ 2,613
======== ======== ======== ========= ========= ========= =========
Net income (loss) per share......................... $ (0.61) $ (0.49) $ (0.04) $ 0.22 $ 0.74 $ 0.47 $ 0.24
======== ======== ======== ========= ========= ========= =========
Common and common equivalent shares used in
computing per share amounts(1).................... 7,058 8,754 10,098 10,553 10,766 10,721 10,832
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------- SEPTEMBER 30,
1991 1992 1993 1994 1995 1996
------ ------- ------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities................. $4,869 $ 6,435 $ 5,129 $ 5,916 $13,979 $10,169
Working capital.................................................. 4,746 7,049 6,407 7,974 14,428 13,967
Total assets..................................................... 6,725 10,287 10,269 14,364 27,935 28,968
Long-term obligations............................................ 237 668 634 772 2,739 3,234
Stockholders' equity............................................. 5,887 8,573 8,155 10,512 18,526 21,181
</TABLE>

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

(1) Computed on the basis described in Note 1 of Notes to Financial Statements.

19
<PAGE> 22

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

The discussion in this Prospectus contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
materially from those discussed here. Factors that could cause or contribute to
such differences include, but are not limited to, those discussed in the
sections entitled "Risk Factors" and "Business," as well as those discussed
elsewhere in this Prospectus.

OVERVIEW

Since the Company's inception in 1988, the Company has been primarily
involved in the research, development, manufacturing and marketing of
point-of-care diagnostic tests. The Company began commercial sales of Triage DOA
in February 1992 and currently markets the product worldwide primarily through
distributors supported by a small direct sales force. The Company is engaged in
research and development of additional point-of-care diagnostic products in the
microbiology, cardiology and therapeutic drug monitoring fields. See "Business."

Funding for operations was provided primarily from equity financings from
the Company's inception through launch of Triage DOA in 1992. Additional funding
has come from corporate partners in the form of debt and equity financing,
license fees and other corporate funding. The Company has a limited history of
operations and first achieved profitability in fiscal 1994. All of the Company's
sales to date have been due to sales of the Triage DOA product line.

Triage DOA is currently marketed pursuant to exclusive distribution
agreements in the U.S. medical market by CMS (which accounted for 80% of product
sales in the first nine months of 1996) and in certain countries in Europe,
Latin America, the Middle East, Asia and Africa by Merck. The CMS distribution
agreement has minimum quarterly sales milestones which, if the milestones are
not met, allows the Company to terminate the agreement, obligates CMS to pay
Biosite a penalty and allows the Company to appoint a new distributor or to sell
Triage DOA directly in the U.S. medical market. If the Company chooses to
terminate the CMS distribution agreement, the Company may appoint a new
distributor or it may have to invest in additional sales and marketing resources
including additional field sales personnel which could significantly increase
future sales and marketing expenses and may adversely affect sales of Triage
DOA.

Since the launch of Triage DOA in fiscal 1992, the Company has experienced
significant revenue growth primarily as a result of greater demand and more
recently, the introduction of Triage Plus TCA Panel for Drugs of Abuse ("Triage
DOA Plus TCA"). In order to support increased levels of sales in the future and
to augment its long-term competitive position, the Company anticipates that it
will be required to make significant additional expenditures in manufacturing,
research and development, sales and marketing and administration, both in
absolute dollars and as a percentage of sales. In addition, the Company
anticipates higher administrative expenses resulting from its obligations as a
public reporting company upon completion of this offering.

The Company anticipates that its results of operations may fluctuate for
the foreseeable future due to several factors, including whether and when new
products are successfully developed and introduced by the Company, market
acceptance of current or new products, regulatory delays, product recalls,
manufacturing delays, shipment problems, seasonal customer demand, the timing of
significant orders, changes in reimbursement policies, competitive pressures on
average selling prices, changes in the mix of products sold and patent
conflicts. Operating results would also be adversely affected by a downturn in
the market for the Company's current and future products, if any, order
cancelations or order rescheduling. Because the Company is continuing to
increase its operating expenses for personnel and new product development, the
Company's operating results would be adversely affected if its sales did not
correspondingly increase or if its product development efforts are unsuccessful
or are subject to delays. The Company's limited operating history makes accurate
prediction of future operating results difficult or impossible. Although the
Company has experienced growth in recent years, there can be no assurance that,
in the future, the Company will sustain revenue growth

20
<PAGE> 23

or remain profitable on a quarterly or annual basis or that its growth will be
consistent with predictions made by securities analysts.

The Company currently manufactures and ships product shortly after receipt
of orders and anticipates that it will do so in the future. Accordingly, the
Company has not developed a significant backlog and does not anticipate it will
develop a material backlog in the future.

RESULTS OF OPERATIONS

The following table sets forth certain operating data as a percentage of
net sales:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------- ----------------------
1993 1994 1995 1995 1996
---- ---- ---- ----------- ----
<S> <C> <C> <C> <C> <C>
Net sales.............................. 100% 100% 100% 100% 100%
Cost of sales.......................... 33 27 22 21 21
---- ---- ---- ---- ----
Gross profit........................... 67 73 78 79 79
Operating expenses:
Research and development............... 28 24 26 25 32
Selling, general and administrative.... 49 37 29 29 30
Settlement of patent matters........... -- 2 5 4 12
---- ---- ---- ---- ----
Total operating expenses............... 77 63 60 58 74
Income (loss) from operations.......... (10) 10 18 21 5
Other income, net...................... 6 4 7 7 7
---- ---- ---- ---- ----
Income (loss) before benefit
(provision) for income taxes......... (4) 14 25 28 12
Benefit (provision) for income taxes... -- -- 7 -- 1
---- ---- ---- ---- ----
Net income (loss)...................... (4)% 14% 32% 28% 13%
==== ==== ==== ==== ====
</TABLE>

Nine months ended September 30, 1996 and 1995

Revenues. Revenues increased 11% to $20.2 million in the first nine months
of 1996 from $18.2 million in the first nine months of 1995. The increase is
primarily attributable to the Company's expansion of the Triage DOA product line
to include the higher-priced Triage DOA Plus TCA product, which was launched in
February 1995. Sales of Triage DOA Plus TCA increased 48% to $9.4 million in the
first nine months of 1996 from $6.3 million in the first nine months of 1995. As
a result of the market acceptance of the Triage DOA Plus TCA, a shift in sales
from other Triage DOA products occurred as customers converted their orders to
the Triage DOA Plus TCA product.

Gross Profit. Gross profit increased 10% to $15.9 million in the first
nine months of 1996 as a result of increased sales for the Triage DOA product
line. Gross margins were constant at 79% in the first nine months of 1996 and
1995. Included in cost of sales for the nine months ended September 30, 1996 is
amortization related to technology license agreements entered into in 1996,
totaling $470,000. This increase in the cost of sales was offset by continued
improvements in the Company's manufacturing efficiency.

Research and Development Expenses. Research and development expenses
increased 42% to $6.5 million in the first nine months of 1996 from $4.6 million
in the first nine months of 1995. This increase resulted from the expansion of
the Company's research and development and manufacturing scale-up efforts on its
microbiology, cardiac and therapeutic drug monitoring assays under development.
The Company expects its research and development expenses to increase
significantly in 1996 and 1997, reflecting increased expenditures primarily
related to hiring additional personnel.

21
<PAGE> 24

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 18% to $6.1 million in the first nine months
of 1996. This increase was a result of the cost of expanding the Company's
direct sales force and in-house marketing and administrative functions to
support the Company's expanded operations. The Company expects selling, general
and administrative costs to increase in absolute dollars as the Company's level
of sales and manufacturing operations increase and as the Company increases its
finance and administrative expenditures to meet its obligations as a public
reporting entity.

Settlement of Patent Matters. In September 1996, the Company reached a
settlement with Abbott Laboratories, with respect to all claims set forth in a
lawsuit filed by Abbott Laboratories in May 1994. The lawsuit alleged that
Triage DOA infringed a patent licensed to Abbott Laboratories. The Company
vigorously defended the lawsuit. However, to avoid protracted litigation, the
Company settled the patent matter in September 1996, paid $2.0 million as a
settlement of the litigation and, for an additional $3.5 million and the
agreement to pay certain royalties, obtained a license to certain technology.
Future amortization of the license fee will be charged to cost of sales over the
life of the license. The $2.0 million litigation settlement payment, as well as
the amortization related to prior fiscal years and related legal defense costs
were charged to Settlement of Patent Matters in the nine months ended September
30, 1996. Settlement of Patent Matters expenses for the first nine months of
1995 consisted solely of legal expenses associated with the defense of the
patent litigation.

Other Income. Contract revenues from a related party increased $469,000 in
the first nine months of 1996 as compared to the first nine months of 1995. This
increase was primarily due to higher expenditures relating to the Triage Cardiac
development program with Merck which resulted in higher revenues to the Company.
Contract revenues from an unrelated party decreased $300,000 in the first nine
months of 1996. The decrease was attributable to the timing of the achievement
of milestones under the Company's development agreement with KDK.

Benefit (Provision) for Income Taxes. The Company's benefit for income
taxes increased to $264,000 for the nine months ended September 30, 1996 from a
provision for income taxes of $132,000 for the nine months ended September 30,
1995. The increase in the benefit for income taxes resulted primarily from a
reduction in the valuation allowance for deferred taxes of $1.1 million in the
nine months ended September 30, 1996, as the realization of such assets became
probable.

Years ended December 31, 1995 and 1994

Revenues. Revenues increased 54% to $25.1 million for the year ended
December 31, 1995 from $16.3 million in 1994. This increase is primarily
attributable to the Company's continued acceptance and the introduction of
Triage DOA Plus TCA, which was launched in February 1995. Sales of Triage DOA
Plus TCA totaled approximately $9.6 million in 1995.

Gross Profit. Gross profit increased $7.6 million to $19.5 million for the
year ended December 31, 1995 primarily as a result of the introduction of the
higher priced Triage DOA Plus TCA. Gross margin increased to 78% for the year
ended December 31, 1995 from 73% in 1994. The Company increased its
manufacturing efficiency during 1995 resulting in a reduction of per unit cost
of sales. This reduction was partially offset by an increase in cost of sales of
$405,000 in license amortization for 1995 relating to the technology license
agreement signed in March 1996.

Research and Development Expenses. Research and development expenses
increased 71% to $6.6 million for the year ended December 31, 1995 from $3.8
million in 1994. This increase resulted from the expansion of the Company's
research and development and manufacturing scale-up efforts on the microbiology,
cardiac and therapeutic drug monitoring assays.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 20% to $7.1 million for the year ended
December 31, 1995 from $6.0 million in 1994. During the year ended December 31,
1995, the Company expanded its direct sales force and its in-house marketing and
administrative functions to support the Company's higher level of operations as
compared to 1994.

22
<PAGE> 25

Settlement of Patent Matters. Settlement of patent matters expenses
increased primarily due to increased legal defense costs related to the patent
litigation described above. Additionally, in December 1995, the Company accrued
a one-time payment of $2.2 million for a worldwide license to technology related
to the Triage Panel products. Amortization of this license payment related to
fiscal years prior to 1995 of $440,000 was charged to settlement of patent
matters in 1995.

Other Income. Contract revenues from related parties increased $217,000 as
a result of progress in the development of Triage Cardiac. Contract revenues
from unrelated parties increased by $300,000 for the year ended December 31,
1995 from 1994. The increase was attributable to the timing of the achievement
of milestones under the Company's development agreement with KDK which was
signed in February 1995. Interest income increased $366,000 as a result of
income received on increased cash balances in 1995.

Benefit (Provision) for Income Taxes. The Company's benefit for income
taxes increased to $1.7 million for the year ended December 31, 1995 from a
provision for income taxes of $63,000 in 1994. The increase in the benefit for
income taxes resulted primarily from a reduction in the valuation allowance for
deferred tax assets in 1995 of $1.8 million. The Company utilized $11.6 million
in net operating loss carryforwards in fiscal 1995. As of December 31, 1995, the
Company had net operating loss carryforwards of approximately $3.1 million for
federal income tax purposes. The Company's ability to utilize its net operating
loss carryforwards and tax credit carryforwards in future years will be subject
to an annual limitation pursuant to the "change in ownership rules" under
Section 382 of the Internal Revenue Code of 1986, as amended. However, any
annual limitation is not expected to have a material adverse effect on the
Company's ability to utilize its net operating loss and tax credit
carryforwards.

Years ended December 31, 1994 and 1993

Revenues. Revenues increased 65% to $16.3 million for the year ended
December 31, 1994 from $9.9 million in 1993. The increase was primarily
attributable to the continued acceptance of the Company's Triage DOA product
line.

Gross Profit. Gross profit increased $5.3 million to $11.9 million for the
year ended December 31, 1994 from gross profit levels for the year ended
December 31, 1993 as a result of increased sales of Triage DOA. Gross margin
increased to 73% for the year ended December 31, 1994 from 67% in 1993. The
Company increased its manufacturing efficiency during 1994 and, with increased
manufacturing volumes, covered its fixed overhead expenses more efficiently.

Research and Development Expenses. Research and development expenses
increased 37% to $3.8 million for the year ended December 31, 1994 from $2.8
million in 1993. This increase resulted from the expansion of the Company's
research and development and manufacturing scale-up efforts on Triage DOA Plus
TCA and research and development on Triage Cardiac.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 23% to $6.0 million for the year ended
December 31, 1994 from $4.8 million in 1993. During the year ended December 31,
1994, the Company's expanded the direct sales force and the in-house marketing
and administrative functions to support the Company's higher level of operations
as compared to 1993.

Settlement of Patent Matters. Settlement of patent matters expense in 1994
consisted solely of legal defense costs related to the patent litigation
described above.

Other Income. Contract revenues from related parties increased $344,000 in
1994 as compared to such revenues in 1993 as a result of entering into a
collaborative agreement in June 1994 with Merck, which is sharing in the
development expenses of Triage Cardiac. Decreases in licensing fee income in
1994 as compared to such income in 1993 resulted from the completion of a
license agreement with a third party during 1994.

Benefit (Provision) for Income Taxes. The Company utilized $5.4 million in
net operating loss carryforwards in fiscal 1994 which reduced the provision for
income taxes to $63,000.

23
<PAGE> 26

UNAUDITED RECENT FINANCIAL RESULTS

The Company's revenue, income before provision for income taxes and net
income for the three months ended December 31, 1996 were $8.0 million, $1.5
million and $936,000, respectively, which constituted a $1.1 million increase in
revenue, a $379,000 increase in pre-tax income and a $1.9 million decrease in
net income from the three months ended December 31, 1995.

The increase in revenue and gross margins during this period was primarily
attributable to the continued market acceptance of the Company's products and a
shift in sales from other Triage DOA products to the Triage DOA Plus TCA
product. Included in cost of sales for the fourth quarter of 1995 was $405,000
of amortization for the year ended December 31, 1995 related to a license right
obtained in December 1995. Operating expenses for the three months ended
December 31, 1996 increased $903,000 as compared to the three months ended
December 31, 1995. Sales and marketing expenses increased $430,000 as a result
of the expansion of sales efforts and marketing programs. Research and
development expenses increased approximately $801,000 primarily as a result of
the acquisition of licenses to certain in-process technology. The increase in
operating expenses was partially offset by a decrease in settlement of patent
matters expenses of $474,000. The decrease in net income during the three months
ended December 31, 1996 over the comparable period in the prior year resulted
primarily from the reduction of the valuation allowance for deferred tax assets
of $1.8 million during the fourth quarter of 1995 as the realization of such
assets became probable.

The Company has experienced, and expects to continue to experience,
significant fluctuations in its quarterly results. The Company believes that
future operating results will be subject to quarterly fluctuations due to a
variety of factors, including whether and when new products are successfully
developed and introduced by the Company, market acceptance of current or new
products, regulatory delays, product recalls, manufacturing delays, shipment
problems, seasonal customer demand, the timing of significant orders, changes in
reimbursement policies, competitive pressures on average selling prices, changes
in the mix of products sold and patent conflicts.

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically financed its operations through private
placements of equity securities, revenues from operations, debt and capital
lease financing and interest income earned on the net proceeds from the private
placements. Since its inception, the Company has raised over $21.7 million in
net cash proceeds from the private placement of equity securities and $1.0
million from the issuance of convertible debentures.

During the nine months ended September 30, 1996, the Company generated $1.1
million in cash from operating activities. Cash generated from net sales was
reduced primarily by the payment of $2.2 million for a license right accrued as
of December 31, 1995 and the payment of $2.0 million to settle patent litigation
with Abbott Laboratories. Cash generated from operating activities was offset by
cash used in investing activities, primarily the acquisition of license rights
from Abbott Laboratories for $3.5 million. Additionally, other significant
business activities affecting cash included the generation of $2.9 million in
cash as a result of maturing marketable securities which were not reinvested,
the expenditure of $1.4 million for capital equipment and leasehold improvements
and the receipt of $1.4 million in proceeds from equipment financing.

During 1995 and 1994, the Company generated $7.9 million and $1.9 million
of cash from operating activities, respectively. In 1995, the Company used $8.5
million in cash for investing activities, which primarily consisted of increased
investment in marketable securities of $6.2 million and the purchase of capital
equipment for $2.7 million. Additionally, the Company generated $2.5 million in
cash from financing activities which consisted primarily of proceeds from the
issuance of a $1.0 million convertible debenture and proceeds of capital
equipment financing of $2.3 million.

The Company's primary short-term needs for capital, which are subject to
change, are for expansion of its manufacturing capacity to adequately deliver
new products, expansion of its direct sales force and marketing programs related
to new products and the continued advancement of research and development
efforts. The Company currently plans to expend approximately $4.0 million for
the expansion and development of its

24
<PAGE> 27

manufacturing capabilities in connection with the anticipated launch of the
Company's products currently under development. The Company utilizes credit
arrangements with financing companies and leasing companies for financing the
purchase of capital equipment. As of December 31, 1996, the Company had a $2.5
million equipment financing arrangement with a financial institution, of which
approximately $2,223,000 was available for future borrowing. The line of credit
expires on December 31, 1997. Additionally, the Company utilizes cash generated
from operating activities to meet its capital requirements.

The Company expects its capital requirements to increase over the next
several years as it expands its research and development efforts, sales and
administration infrastructure, manufacturing capabilities and facilities. The
Company's future liquidity and capital funding requirements will depend on
numerous factors, including the extent to which the Company's products under
development are successfully developed and gain market acceptance, the timing of
regulatory actions regarding the Company's potential products, the costs and
timing of expansion of sales, marketing and manufacturing activities,
procurement and enforcement of patents important to the Company's business,
results of clinical investigations and competition.

The Company believes that its available cash, cash from operations and
funds from existing credit arrangements, together with the proceeds of this
offering, will be sufficient to satisfy its funding needs for at least the next
24 months. Thereafter, if cash generated from operations is insufficient to
satisfy the Company's working capital and capital expenditure requirements, the
Company may be required to sell additional equity or debt securities or obtain
additional credit facilities. There can be no assurance that such financing, if
required, will be available on satisfactory terms, if at all.

25
<PAGE> 28

BUSINESS

BACKGROUND

Biosite develops, manufactures and markets rapid, accurate and
cost-effective diagnostic products that improve the quality of patient care and
simplify the practice of laboratory medicine. The Company believes that its
Immediate Response Diagnostics can have an important impact on medical
decisions, patient care and the cost of medical treatment. The Company's first
product, Triage DOA, a small self-contained test capable of detecting a broad
spectrum of commonly overdosed prescription and illicit drugs in approximately
10 minutes, is used by over 2,600 hospitals and emergency departments. Since its
introduction in 1992, over 4.2 million Triage DOA panels have been sold
worldwide for use in hospital emergency department screening and workplace
testing. The Company is developing several additional products for applications
where the Company believes its Immediate Response Diagnostics can play an
important role in improving patient care. Products under development include
tests that are intended to aid in the diagnosis of heart attacks, the dosing of
certain therapeutic drugs, the management of certain chronic diseases and the
detection of certain bacterial and parasitic infections.

The Company has two product platforms that are designed to provide rapid
results through either qualitative visual readings or quantitative meter
readings. These platforms are based upon the Company's proprietary technologies
in the areas of reagent development, signaling chemistry and micro capillary
fluidics. The Company's testing formats are designed to measure single or
multiple analyte targets simultaneously, and to allow for the analysis of
various sample sources, including urine, serum, plasma, whole blood and stool.
The Company has entered into strategic arrangements with major pharmaceutical
and diagnostic companies, including Novartis for the development of a product to
monitor the concentrations of the immunosuppressant drug, cyclosporine; Merck
and KDK for the development of a cardiac marker product used in the diagnosis of
heart attacks; and LRE for the development of a fluorescent meter. The products
covered by such arrangements are currently under development and have not
generated any revenue for the Company. In addition, the Company uses CMS to
distribute Triage DOA to hospital-based laboratories and emergency departments
in the United States and Merck to distribute Triage DOA in certain countries in
Europe, Latin America, the Middle East, Asia and Africa.

INDUSTRY OVERVIEW

In 1995, the worldwide market for immunoassay tests exceeded $5.1 billion,
consisting primarily of testing related to infectious disease, endocrinology,
therapeutic drug monitoring, drugs of abuse testing, immunology/allergy, tumor
markers and blood typing. The global market for immunoassay tests continues to
expand as new disease states are identified, new therapies become available, and
worldwide standards of living and access to health care improve. Such tests are
performed primarily in hospital-based laboratories and commercial laboratories,
which account for approximately 80% of all diagnostic tests performed annually.
In recent years, diagnostic tests that can be performed nearer to the point of
patient care have emerged as an important tool in disease diagnosis and
management. It has been estimated that the market for point-of-care tests,
primarily hospitals and physician office/satellite facilities, will grow at
approximately 27% annually through the year 2000.

Immunoassay tests were first developed based on technology developed in the
1960s. Although early immunoassay tests offered unprecedented levels of
sensitivity for the detection of low concentration analytes, they suffered from
relatively short shelf-lives, long reaction times, a need for radioactive labels
to detect completed reactions and lack of consistent results among products from
different suppliers. Over time, technological advancements such as the
introduction of monoclonal antibodies, enzyme and fluorescent labels and various
solid phase mechanisms shortened immunoassay test reaction times, provided
higher specificity and allowed development of tests with longer shelf-lives and
greater consistency.

Such advancements also led to the development of immunoassay analyzers,
testing systems utilizing automated liquid handling mechanisms and
reagent-adding pipetting systems. Modern immunoassay analyzers are capable of
storing and selecting multiple reagents for a variety of analytes, including
drugs, hormones

26
<PAGE> 29

and cancer antigens. They also provide accurate and highly sensitive test
results and help to simplify the performance of antibody-based tests. However,
immunoassay analyzers are large and complex, have lengthy turnaround times and
require high volumes of sample throughput to justify the investment in
equipment, training, staffing and the costs required to operate and support the
system.

In recent years, there has been a continuing shift from the use of such
conventional analyzer systems to more technologically advanced point-of-care
tests that can be performed in minutes by less highly trained personnel. Simple,
rapid immunoassay tests are capable of detecting a single analyte target with a
color change that can be visually interpreted. Formats such as dipsticks, test
tubes and wicking membrane test cartridges have been used to provide fast
non-instrument read results for conditions where a single analyte target is
present in high concentrations and where a simple yes/no non-numeric answer is
clinically relevant. Rapid color change test formats are widely available for
pregnancy, strep throat and ovulation prediction. Until recently, simple test
formats have remained incapable of precise, multi-analyte detection or highly
sensitive, quantitative measurements. As a result, medical conditions where the
detection of one or more analytes is required or where the precise quantitation
of the target analyte is required have remained the domain of immunoassay
analyzers.

The Company believes that there is significant market potential for
advanced point-of-care diagnostic products. Point-of-care testing helps to
reduce overall health care delivery costs and can improve patient outcomes by
providing diagnosis during the patient visit, thereby minimizing the time to
medical intervention and reducing the need for additional patient follow-up.
Patients undergoing emergency procedures can benefit from more timely and
accurate testing results, both to ensure correct decision making and to avoid
unnecessary use of costly inpatient care. Disease management programs such as
therapeutic drug monitoring programs can benefit from real-time, point-of-care
evaluations that enable care-givers to optimize drug dosing. Quicker diagnosis
of infectious agents can also permit earlier prescription of appropriate
medications, shortening the duration of illness.

TECHNOLOGY

Biosite's Immediate Response Diagnostics technology is based on several
proprietary advances in the biological and physical sciences that make practical
the development and manufacture of rapid, accurate and cost-effective
point-of-care diagnostics. The Company's products integrate its expertise in
several core scientific and engineering disciplines, including antibody
development and engineering, analyte cloning and synthesis, signaling chemistry
and micro capillary fluidics, each of which is described below. Biosite's
research and development program is supported by 60 full time professionals,
including 15 Ph.D.s with expertise in the Company's core technologies. By
combining research capabilities in each of these areas, Biosite is able to
create novel single and multi-analyte diagnostics which overcome the limitations
of traditional rapid diagnostic technologies and seek to address the significant
unmet need for effective point-of-care diagnostic information.

Antibody Development and Engineering

Biosite believes that its internal antibody development and engineering
capabilities allow rapid identification and development of antibodies with
optimal specificity, affinity and stability characteristics. The Company
initially utilized hybridoma technology for the selection and production of its
novel antibodies. Two disadvantages of hybridoma technology are the length of
time required to develop antibody candidates and the need to restart the
antibody development process when unwanted characteristics such as cross
reactivities are discovered. The Company has developed a proprietary process
that enables the selection and production of antibodies more rapidly and
efficiently than is possible using hybridoma technology. In addition, Biosite
has isolated the genes encoding the antibodies that permit the genetic
engineering of antibodies. As a result, Biosite can alter or add specific amino
acids or polypeptides in an antibody in order to improve the antibody's
specificity and to facilitate purification of the antibody. This technology
accelerates the antibody selection process by rapidly eliminating unwanted cross
reactivities discovered in product development.

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<PAGE> 30

Analyte Cloning and Synthesis

The Company has molecular biology capabilities that include the cloning and
identification of specific proteins useful in the development of immunoassays.
Biosite has developed proprietary expression vectors that enable the production
and purification of these proteins for the development of antibodies and for use
as calibrators and controls in its immunoassay products. In addition, the
Company has considerable expertise in synthetic organic chemistry which allows
the synthesis of targets and useful derivatives. The Company develops products
for which the targeted analyte can be small (i.e., haptens, such as drugs) or
large (i.e., proteins, such as cardiac enzymes). The Company believes that the
ability to develop, stabilize and manufacture the target analyte or its
analogues is key to the development of highly accurate immunoassays.

Color/Photochemical Signaling

Immunoassays require the attachment of a detectable label to an antibody or
target analyte. The Company has developed a variety of labels for the
development of its products. For yes/no tests, a visual label that produces
color is attached to antibodies or analytes through either non-covalent or
covalent chemical methods. For its quantitative products, the Company has
developed novel fluorescent dyes which are attached to antibodies or analytes
using both noncovalent and covalent chemical means. Although fluorescence is a
potentially powerful label for use in immunoassays, its potential has been
limited by the lack of available dyes that are stable and have no sample
interference, and the requirement of a complex instrument for detection. The
Company's novel fluorescent dyes are stable and exhibit properties that permit
their use in complex biological samples such as serum, plasma and whole blood
without interference from the sample. Furthermore, these novel dyes absorb light
at wavelengths where a simple instrument can be used to excite and detect
fluorescence for quantitative measurements.

Micro Capillary Test Device Technology

Biosite has developed proprietary technology to design, develop and
manufacture devices containing micro capillaries to control the flow of fluids
in immunoassay processes. The qualitative device format uses micro capillaries
to draw fluids through a membrane that contains immobilized antibody zones for
the detection of specific substances. The quantitative device format uses
several different micro capillary designs to control the contact of sample with
reagents and to control the flow of fluid throughout the device. When sample is
added to the quantitative device, a filter contained within the device separates
blood cells from plasma which is further directed by capillary forces into a
chamber that contains dried immunoassay reagents. After an incubation time that
is determined by another micro capillary element of the device, the volume of
sample that contacted the reagents flows down a capillary path that brings it
into contact with immobilized antibody zones. The binding of fluorescent
reagents at these zones is detected by an instrument and is related to the
concentration of the substance being tested for in the sample. The Company has
also developed the engineering capability to design unique micro capillary
structures in plastic parts and to fabricate them in commercial scale quantities
using injection molding processes.

Sample Handling

The Company has developed proprietary technology relating to sample
handling and preparation, including technology that allows whole blood to be
passively separated into its plasma component or to be passively lysed to
release the target analyte. The Company has also developed technologies for the
handling of stool samples which concentrate and purify the target analytes or
organisms from solid stool materials. In addition, the Triage Panel platform can
be used to assay urine samples.

PRODUCT PLATFORMS

The Company has used its core technologies to develop two product
platforms: the Triage Panel and the Triage CareLink System. Both of the
Company's product platforms utilize the Company's expertise in antibody
engineering, analyte cloning, signaling chemistry, micro capillary fluidics and
sample handling technologies.

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<PAGE> 31

Triage Panel

The Triage Panel platform is designed for rapid, qualitative screening of
multiple analytes in a small single-use hand-held device. The Triage Panel has a
visual (yes/no) display containing simultaneous tests for up to eight analytes
and two control standards, can be performed in a simple multi-step process, and
is capable of performing tests on both urine and stool. Triage DOA, the first
product developed on this platform, tests for up to eight drugs of abuse in
approximately 10 minutes. Triage Panel products under development include tests
for the detection of microorganisms which cause severe gastrointestinal disease.

Triage CareLink System

The Triage CareLink System platform is designed to provide rapid
quantitative results for immunoassay tests of whole blood, serum and plasma. The
Triage CareLink System consists of two parts: a small single-use disposable test
cartridge and a proprietary hand-held point-of-care fluorescent meter. After
blood is applied to the cartridge, the cartridge is inserted into the meter,
which is designed to automatically detect up to six analytes simultaneously and
display the results on a numerical electronic read-out. The meter incorporates
proprietary software in erasable programmable read-only memory ("EPROM") chips
which are intended to be plugged into each meter to perform multiple types of
tests and automatically determine which test is being run. In addition, the
EPROM chips are designed to automatically calibrate the meter on a lot specific
basis. The software may also provide important information regarding the analyte
measured, such as normal or abnormal levels of a marker which could then be used
to initiate therapy or manage patient disease. The Company believes that the
analyte measuring sensitivity of the Triage CareLink System products under
development will match or exceed the sensitivity levels of the conventional
immunoassay analyzers. The Company is currently developing two applications for
this platform, Triage Cardiac, a device for the quantification of three cardiac
markers associated with AMI, and Triage Transplant, a product for the monitoring
of the concentration of cyclosporine, an immunosuppressant drug prescribed for
organ transplant recipients to prevent transplant rejection.

PRODUCT ATTRIBUTES

Although the current products and products under development are based upon
the Triage Panel and Triage CareLink System platforms and utilize different
technologies, they share common attributes which the Company believes make them
superior to conventional immunoassay analyzers:

- RAPID RESULTS: Triage DOA and the Company's products under development
are designed to offer complete results in a STAT timeframe, and to have
room temperature stability, making them immediately available for use.

- EASE OF USE: Triage DOA and the Company's products under development are
designed to be simple to use. Triage DOA has only three steps while
Triage Cardiac and Triage Transplant are expected to require only one
step.

- HIGH ANALYTICAL ACCURACY: The Company develops and uses high quality
biological and chemical reagents to yield highly specific, accurate and
reproducible analytical results.

- CAPABILITY OF PERFORMING MULTIPLE ANALYSES: Triage DOA and the Company's
products under development are designed to measure one or more target
analytes simultaneously, including reagent controls, without sacrificing
the quality of the individual analysis. This simultaneous detection
capability can provide significant time and cost savings compared to
current technologies.

- RELIABILITY: Biosite's use of internal thresholds, built-in controls,
lockouts and other controlling mechanisms are intended to make its
current and future products extremely reliable in any hospital or
clinical laboratory setting.

- COST EFFECTIVENESS: Triage DOA and the Company's products under
development are designed to eliminate the need for highly trained
technicians and significant outlays for testing equipment acquisition and
maintenance, making them cost-effective alternatives to conventional
immunoassay analyzers.

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<PAGE> 32

PRODUCTS AND PRODUCTS UNDER DEVELOPMENT

Triage DOA was introduced in 1992 and has been used by hospital emergency
departments to screen for up to eight commonly abused prescription and illicit
drugs or drug classes. The Company is developing five additional products which
apply the Company's Immediate Response Diagnostics technologies to a variety of
other medical testing needs. Triage DOA and the Company's five products under
development are described in the table below. The table also indicates the
Company's corporate partners with respect to Triage DOA and products under
development. The Company intends, where appropriate, to enter into additional
collaborative arrangements to develop and commercialize future products. There
can be no assurance that the Company will be able to negotiate collaborative
arrangements on favorable terms, if at all, in the future, or that its current
or future collaborative arrangements will be successful.

<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
STATUS/EXPECTED
U.S. REGULATORY CORPORATE
PRODUCTS APPLICATION ANALYTE TARGETS PATHWAY(1) PARTNER(2)
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TRIAGE Triage Panel Drug Screening Phencyclidine On the Market/ CMS, Merck
PANELS for Drugs of Benzodiazepines 510(k) cleared
Abuse Cocaine
(Triage DOA) Amphetamine
Tetrahydrocannabinol
Opiates
Barbiturates
Tricyclic
antidepressants
Methadone
----------------------------------------------------------------------------------------------------------
Triage Panel Parasite Giardia lamblia In Development/ --
for Parasitology Screening Entamoeba 510(k)
(Triage O&P) histolytica
Cryptosporidium
parvum
----------------------------------------------------------------------------------------------------------
Triage Panel for Pathogen C. difficile Antigen In Development/ --
Clostridium Detection C. difficile Toxin A 510(k)
difficile
(Triage C. diff)
----------------------------------------------------------------------------------------------------------
Triage Panel Pathogen Salmonella In Development/ --
for Enteric Screening Shigella 510(k)
Pathogens Campylobacter
(Triage Enteric) jejuni/coli
- ---------------------------------------------------------------------------------------------------------------------
Triage Acute CK-MB In Development/ Merck(3),
TRIAGE Cardiac Myocardial Troponin I 510(k) KDK, LRE
CARELINK Infarction Myoglobin
SYSTEMS Detection
----------------------------------------------------------------------------------------------------------
Triage Drug Monitoring Cyclosporine In Development/ Novartis,
Transplant PMA LRE
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) The FDA regulatory approval process requires many steps before a product can
be approved for marketing. The terms "510(k)" and "PMA" indicate the
regulatory approval pathway the Company believes will be applicable to a
product, although there can be no assurance that the FDA will agree that the
pathway noted is the appropriate pathway for the specific product. See "Risk
Factors -- Government Regulation." For a description of the terms 510(k) and
PMA see "-- Government Regulation."

(2) For a description of the Company's collaboration arrangements, see
"-- Strategic and Distribution Arrangements."

(3) As part of its decision to refocus away from certain aspects of the human
diagnostics business, Merck has informed the Company that Merck is
considering assigning its rights under its agreements with the Company
concerning the marketing of Triage Cardiac either to a third party or back
to the Company.
<PAGE> 33

Triage Panel for Drugs of Abuse

The Company believes the worldwide market for abused drug testing is
approximately $350 million annually, the majority of which is accounted for by
testing performed in the United States. The U.S. market can be divided into
three major categories:

- MEDICAL TESTING: The medical testing segment represents testing
typically performed in a hospital laboratory. Such tests have the highest
need for rapid turnaround of results, and generally have the highest cost
per result. The results are generally reported to emergency physicians
and psychiatrists.

- NON-MEDICAL TESTING: The non-medical testing market consists of testing
performed for industry, as well as in the criminal justice setting and
drug rehabilitation centers. Testing may be performed on-site but
generally samples are sent to independent reference laboratories.
Typically, the demands for a rapid result are not quite as great as in
the medical segment. Additionally, the cost per result is slightly
reduced.

- REFERENCE LABORATORY TESTING: The reference laboratory testing market
accounts for a sizable portion of the total drug testing market. The
majority of samples come from the non-medical testing market, although
some smaller hospitals in the medical testing market also send their
samples to reference laboratories. In general, results are not available
for at least 24 hours from the time the specimen is collected. Despite
relatively long turnaround times, the reference laboratory market has
remained substantial because of its ability to produce results on a low
cost per panel basis.

Emergency Department Screening

A 1988 Substance Abuse and Mental Health Services Administration ("SAMHSA")
survey concluded that over 14.5 million Americans had used an illicit drug at
least once in the prior month. Emergency physicians have indicated that drug
abuse plays a role in 5% to 10% of the emergency medicine cases occurring
annually in the United States, either as a primary cause such as an overdose, or
as a contributing factor such as in the case of an accident. A diagnostic
dilemma confronts physicians when a patient is presented with symptoms that
could either be drug related or non-drug related. A patient brought to a
hospital emergency department in a coma may be under the influence of narcotics
or sedatives, which may require one type of treatment or intervention.
Conversely, the same patient may have had a stroke or suffered some form of
trauma, requiring a completely different type of care. The ability to have a
differential diagnosis in a timely manner greatly aids the course of treatment.

Prior to the introduction of Triage DOA, drug or toxicology screening was
accomplished by several technologies, primarily Gas Chromatography/Mass
Spectroscopy ("GC/MS") and automated immunoassays. Although GC/MS is the most
specific identification method commercially available, it is time consuming
(requiring an average of approximately three hours per test), complex and
expensive, and is generally reserved for final confirmation of specimens that
have been screened positive by an immunoassay. Automated immunoassay tests,
although less expensive than those performed by GC/MS, also require significant
amounts of time (approximately one to two hours) because of the necessity of
performing analyses of several drugs sequentially on each patient specimen.
Additionally, in many cases the equipment required to perform an immunoassay is
not accessible on an immediate or STAT basis.

Triage DOA is a rapid qualitative urine screen that analyzes a single test
sample for up to eight different illicit and prescription drugs or drug classes
and provides results in approximately 10 minutes. Triage DOA is instrument
independent, contains built-in controls for accuracy and is capable of a high
degree of specificity. Illicit drugs tested for by Triage DOA include
Amphetamines/Methamphetamines (speed, crystal), Cocaine (crack), Opiates
(heroin), Phencyclidine (angel dust), Tetrahydrocannabinol (pot, marijuana),
while prescription drugs tested by Triage DOA include Barbiturates
(Phenobarbital), Benzodiazepines (Valium, Librium, Halcion), Tricyclic
Antidepressants (Elavil, Tofranil) and Methadone. Triage DOA can be configured
to test various combinations of the foregoing drugs. In February 1995, the
Company launched Triage DOA Plus TCA, a configuration which includes a test for
Tricyclic Antidepressants ("TCA") that otherwise requires a separate blood test.
Since its introduction in February 1992, the Company has sold over

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<PAGE> 34

4.2 million Triage DOA panels worldwide, and over 2,600 hospitals and emergency
departments in the United States are users of the product. The graphic below
summarizes Triage DOA testing process:

[GRAPHIC]

The Company distributes Triage DOA and Triage DOA Plus TCA to the U.S.
medical market through CMS. Merck is the exclusive distributor of Triage DOA and
Triage DOA Plus TCA in certain countries in Europe, Latin America, the Middle
East, Asia and Africa.

Workplace Screening

It is estimated that in 1996 over 33% of new hires in the U.S. workforce
will be screened for drug usage as part of pre-employment physicals. The
majority of these test samples are sent to centralized reference laboratories
that can provide both the initial immunoassay screening result and the
confirmation of presumptive positive results by an alternate method, such as
GC/MS. Testing of government and certain government regulated employees and
contractors must be performed at SAMHSA certified reference laboratories.
Employers that are not government contractors send their drug screens to their
laboratory of choice or perform on-site testing. Non-SAMHSA testing is estimated
to account for over eight million tests performed annually.

The majority of employers with drug screening programs have chosen not to
implement "on-site" testing in their facilities due to costly personnel and
regulatory burdens on an employer's in-house testing laboratory. These
industrial testers, however, still have a need for rapid results since many
employment decisions hinge on an employee's ability to pass physical and other
examinations that include a test for illegal drugs. Despite this need for rapid
results, there is a 24 to 48 hour wait based on the sample transportation and
testing process used by all major reference laboratories. Additionally, it is
estimated that approximately 90% of all employee tests have negative results.
Therefore, an immunoassay test that provides rapid results, such as Triage DOA,
can get employees back to work quickly and save employers money.

In January 1996, the Company established the ExpressTest One-Hour Drug
Screen service, a marketing program in conjunction with regional suppliers of
occupational health services, as a means of expanding the market for Triage DOA.
The ExpressTest program incorporates the Company's "near-site" testing strategy
of providing the benefits of rapid drug test results using Triage Intervention
(a test for five illicit drugs or drug classes) without the burdens that would
be imposed on employers setting up an on-site laboratory. Participating
occupational health clinics provide rapid results to industrial clients that
send prospective employees to them for pre-employment physicals and drug
screens. Biosite's sales force actively supports these selected occupational
health clinics in their marketing of the ExpressTest program to potential
industrial

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<PAGE> 35

clients in their regional area. Biosite currently has six sales professionals
actively establishing select providers to be a part of the ExpressTest program.

Triage Cardiac

In 1992, over 6.0 million people in the United States visited hospital
emergency departments exhibiting symptoms of a heart attack. Of those,
approximately 650,000 were diagnosed with AMI and approximately 800,000 were
diagnosed with unstable angina. In total, approximately 1.9 million of the
patients who presented with chest pain were admitted to coronary care units. Of
these, approximately 30,000 to 60,000 patients were misdiagnosed as not having
an AMI. Additionally, approximately 500,000 of these patients who had not had an
AMI were admitted to hospitals and ultimately released within two days. The
Company believes that rapid, quantitative results for multiple cardiac markers
provided at the point-of-care may have a positive impact on misdiagnosed AMI,
and may provide substantial benefits to patients and savings to the hospital.

AMI is generally caused by the blocking or "occlusion" of an artery
providing oxygen-carrying blood to the heart. Without oxygen, the heart muscle
is destroyed, and a prolonged occlusion results in additional muscle damage. The
destruction of such cells in the heart muscle results in the release of several
markers into the bloodstream, including creatinine kinase ("CK-MB"), Troponin I
and Myoglobin.

In general, for early diagnosis of AMI clinicians rely on
electrocardiograms and on the measurement, over time, of CK-MB. Troponin I and
Myoglobin are also emerging as useful adjuncts to CK-MB in the detection of
heart attacks. The Company believes that the concentrations of these three
markers typically peak and fall over different time periods and that the
simultaneous measurement of these markers is a more accurate diagnostic
technique for AMI than the measurement of any one single marker. Studies have
shown that serum concentrations of Myoglobin are elevated most quickly post-AMI.
Additionally, serial quantitative measurement of Myoglobin has demonstrated a
significantly higher sensitivity in diagnosing AMI than CK-MB in patients
presenting within 12 hours of AMI symptom onset. Troponin I has been shown to
maintain an elevated concentration for a longer period of time than CK-MB and
Myoglobin.

Several diagnostic tests have recently been developed to quantitatively
measure the blood levels of such markers. Unfortunately, the measurement of
multiple markers currently requires large, centralized immunoassay systems that
cannot directly analyze whole blood and are not always available on a STAT
basis. Additionally, these systems require multiple reagent packs, frequent
standardization and quality control. Since turnaround time for such test results
is critical, current immunoassay systems may not satisfy physician needs.

The Company believes that a point-of-care test capable of quantitatively
measuring multiple markers of an AMI would have a positive impact on patient
care. Accordingly, the Company's Triage Cardiac product under development is
being designed to quantitatively measure the level of CK-MB, Troponin I and
Myoglobin in a single test device from a sample consisting of two drops of whole
blood. The hand-held Triage CareLink meter under development is being designed
to provide quantitative results of such measurements at or near the
point-of-care. Triage Cardiac may aid in the detection of AMI by providing
point-of-care quantitative results in approximately 10 minutes, providing
physicians with the ability to make treatment decisions in a timely manner.

Triage Cardiac is in the late stages of development with clinical
investigations expected to begin in the first half of 1997. If successfully
developed and cleared for marketing, the Company anticipates selling Triage
Cardiac directly in the United States and through KDK in Japan. The Company
currently has an agreement with Merck regarding distribution of Triage Cardiac
in certain countries in Europe and Latin America and in South Africa. However,
as part of its decision to refocus away from certain aspects of the human
diagnostics business, Merck has informed the Company that Merck is considering
assigning its rights concerning the marketing of Triage Cardiac either to a
third party or back to the Company.

Triage C. diff

Clostridium difficile ("C. difficile") is an opportunistic pathogen of the
intestinal tract that may thrive as a result of broad spectrum antibiotic
treatment. The bacteria may be found in asymptomatic carriers or may

33
<PAGE> 36

be spread among hospital patients that are immunocompromised or receiving
antibiotics. Cytotoxins produced by the bacteria mediate C. difficile-associated
disease ("CDAD"), which may include antibiotic-associated diarrhea and
antibiotic-associated pseudo-membranous colitis. Due to the contagiousness of
CDAD, patients identified as possibly having CDAD are usually placed in
isolation until the infection is controlled. Symptoms of CDAD include diarrhea
as well as fluid and weight loss. It has been estimated that in 1995,
approximately 3.0 million rapid tests for C. difficile were performed in the
United States. This number is expected to continue to rise due to the expected
increase in the number of patients who are immunocompromised.

Until recently, the use of a cytotoxic test, which takes 48 to 72 hours to
produce diagnostic results, was the only means to identify the toxin associated
with C. difficile. More recently, in response to the need for more rapid
identification of the C. difficile toxin, several manufacturers have developed
and marketed enzyme-linked immunosorbent assay ("ELISA") tests that can be
performed in one to two hours. These ELISA test formats are used by the majority
of the hospitals testing for the toxin.

Although the ELISA technology has been a great improvement over the
cytotoxic test, it still requires several precisely timed steps as well as
multiple standards every time the test is performed, making it unlikely the
testing will be done whenever an individual specimen is sent to the laboratory.
The multiple standards and quality controls required with each run make the
processing of individual specimens expensive. As a result, specimens are
generally only processed in "batch" mode, delaying the time to a diagnostic
result, and the time by which a physician receiving the information can take
therapeutic measures.

Triage C. diff is designed to simplify the laboratory procedure and improve
time to result to the physician by enabling laboratories to complete testing for
the bacteria and toxin in approximately 10 minutes. Because the test is being
designed with built-in controls and standards, the test may be able to be
performed individually or in batches, by any laboratory technician, without
compromising the quality of the result. Triage C. diff may thus reduce time to
initiate therapy and minimize time in isolation. Rapid, accurate diagnosis of
the bacteria and toxin should enable earlier treatment, which may reduce length
of stay in the hospital and reduce cost.

Triage C. diff is in the late stages of development with clinical
investigations expected to begin in the first half of 1997. If successfully
developed and cleared for marketing, the Company expects to market this product
directly in the United States.

Triage O&P

Parasitic infection is a common cause of gastrointestinal disease and
diarrhea. Some of the more common parasites responsible for such infection are
Giardia lamblia ("Giardia"), Cryptosporidium parvum ("C. parvum"), Entamoeba
histolytica and Microsporidia species. According to the U.S. Centers for Disease
Control and Prevention ("CDC"), more than 900,000 people in the United States
become ill each year from waterborne parasites. Additionally, with the increase
in world travel, it is probable that the number of cases diagnosed in the United
States will rise. Further, parasites frequently infect immunocompromised
patients, especially HIV infected patients, which has lead to an increase in the
incidence of infection by Microsporidia species.

The most commonly employed method of detecting parasites from stool samples
is by manual ova and parasite ("O&P") microscopic examination, typically of
three consecutive stool specimens from the patient. The preparation of the
sample by a laboratory technologist involves stool specimen dilution and the
preparation of multiple microscope slides. Each slide must then be observed via
microscope by a technologist trained in the identification of parasites. The
time to diagnose parasitic infection is prolonged due to the need for manual
microscopic examination of multiple stool specimens per patient. The prolonged
time to obtain results may delay the treatment of patients, and ultimately
increase the cost of health care for such patients.

It is estimated that in 1995 over four million O&P microscopic examinations
were performed in the United States. Because of the cumbersome procedure and
limited test menu of the current ELISA test formats, these tests have had
limited success in hospitals that perform larger volumes of tests in batches.
Recently, several manufacturers have developed and marketed ELISA tests for the
more rapid identification

34
<PAGE> 37

of two of the more common parasites Giardia and C. parvum. Such tests are,
however, subject to numerous limitations, including the requirement of multiple
timed steps, two hour time to result, a need to run additional standards and
controls with patient specimen and availability of tests for two parasites only.

Triage O&P is designed to replace the standard O&P microscopic detection
method for three of the most commonly encountered parasites: Giardia, C. parvum
and Entamoeba histolytica in a single test device. Future versions of Triage O&P
may include a test for Microsporidia species. Because each test device includes
standards and controls, the product may be able to be used for any volume of
tests. If successfully developed and approved for marketing, Triage O&P may make
rapid results (approximately 10 minutes) available to hospitals of any size,
including facilities that previously sent such testing to a reference lab. The
Company expects that Triage O&P will have sensitivity comparable to the current
O&P microscopic examination, but will require only a single patient specimen.
This should greatly reduce the collection burden for the patient, and reduce the
amount of labor for the laboratory technician, thereby reducing costs.
Additionally, the length of time physicians wait for results may be reduced.

Triage O&P is in the late stages of preclinical development.

Triage Enteric

Gastroenteritis, commonly described as "food poisoning," often occurs among
individuals who have consumed contaminated foods or been exposed to stool
contaminated with microorganisms such as Salmonella, Campylobacter jejuni/coli,
Shigella and E. coli 0157. Eight to 24 hours after such exposure, individuals
may experience abdominal pain, nausea and diarrhea. It is estimated that in the
United States over 14 million stool cultures are performed annually for the
diagnosis of food poisoning. Microorganisms are often implicated in such cases.
According to the CDC, there are over six million cases of foodborne disease
annually in the United States.

Stool culture, currently the primary method of diagnosing food poisoning,
involves the inoculation of multiple culture plates with stool specimen. After
24 to 48 hours, culture plates that exhibit bacterial growth are subjected to
biochemical tests that typically take an additional 24 hours. As a result of
such a prolonged testing procedure, physicians generally wait 48 to 72 hours for
test results.

Triage Enteric is being developed for identification of three of the most
common enteric bacteria responsible for food poisoning, Salmonella,
Campylobacter jejuni/coli and Shigella. Future versions of Triage Enteric may
include a test for E. coli 0157. Triage Enteric would enable the laboratory
technician to rapidly detect from a stool specimen the presence of such enteric
bacteria. This should greatly reduce the amount of labor required of laboratory
technicians, thereby reducing costs. Additionally, the length of time by which
results can be returned to the physician would be improved.

Triage Enteric is in the development stage.

Triage Transplant

Transplants of human organs generally require suppression of the immune
system of the organ recipient. Cyclosporine is the most widely used
pharmaceutical for such purposes, with annual worldwide sales in excess of $1.0
billion. Novartis is the developer and leading supplier of cyclosporine, and is
involved in several collaborations in the organ transplant field that include
health care management, xenotransplantation, and near-patient testing in an
effort to support the use of organ transplantation. Cyclosporine is chronically
administered to patients who have received an organ transplant. Over 18,000
patients undergo organ transplantation in the United States annually. In excess
of 200,000 organ recipients worldwide take immunosuppressant drugs on a daily
basis.

The blood level of cyclosporine must be monitored to ensure that a patient
receives the appropriate therapeutic dose while minimizing toxicity. Patients
receiving cyclosporine must maintain a minimum concentration of the drug for it
to be effective, yet maintain a level that is low enough not to be toxic. This
range is often referred to as the therapeutic window. Physicians primarily rely
on large, centralized laboratories to measure cyclosporine blood levels. The
physician typically does not receive test results for at least 24 to 48

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hours, requiring a call back to the patient if the dose of the drug needs to be
adjusted. A smaller share of cyclosporine testing is performed by high
performance liquid chromatography ("HPLC"). The current worldwide market for
cyclosporine testing by immunoassay is estimated to be over 4.0 million tests
per year. Patients are monitored frequently in the immediate post-transplant
time-frame with reduced but continued testing, an average of four times per
year, for the remainder of the patient's lifetime.

Triage Transplant is designed to utilize the Triage CareLink meter to
enable a physician to easily, rapidly and accurately measure cyclosporine
levels. Triage Transplant is being developed to provide physicians with a
cost-effective means of determining cyclosporine levels at the point-of-care
which provides the physician with the ability to optimize drug therapy during
the patient's visit. As part of its research and development collaboration with
Novartis, Biosite has obtained licenses to certain technology that makes rapid
analysis of cyclosporine levels possible. See "-- Strategic and Distribution
Arrangements."

Triage Transplant is in the preclinical development stage. If successfully
developed and approved for marketing, the Company expects Novartis to support
the promotion of Triage Transplant worldwide.

RESEARCH AND DEVELOPMENT

As of December 31, 1996, the Company had 68 employees in research and
development, of which 15 have Ph.D.s. The Company's research and development
organization is dedicated to the discovery and development of new technologies
which can be applied to future products and the development of new products in
its existing platform technologies.

The Company has research staff dedicated to the development and production
of antibodies through a variety of techniques. Recombinant techniques are used
to express proteins for use as diagnostic targets. The Company's staff of
chemists and biochemists synthesize drug targets and compounds for use as
diagnostic labels as well as seek to perfect techniques for coupling these
compounds to biological reagents such as antibodies. The Company's development
engineering staff is involved in the design and development of new diagnostic
device technologies as well as processes for their fabrication and interface
with biological and chemical reagents. The Company's product development group
completes final optimization of assays and the Company's regulatory affairs
group controls all in-house and external clinical trials of the Company's
products and prepares applications to the FDA for pre-market clearance or
approval.

MANUFACTURING

As of December 31, 1996, the Company had 46 employees in manufacturing
involved in reagent production, device assembly, engineering, quality
assurance/quality control and materials management.

Biosite maintains worldwide manufacturing rights to all current and future
products. A key strategy of the Company is to provide high quality analytical
results in an efficient manner. To this end, the Company invests in the design
and development of manufacturing systems and technologies that can produce a
high quality product using controlled, cost-effective manufacturing processes
and equipment. Triage C. diff, Triage O&P, and Triage Enteric are being
developed to utilize the same or similar processes and equipment as Triage DOA.
The Company believes that the experience it has acquired in manufacturing Triage
DOA will provide benefits in product quality and cost in manufacturing for its
products under development. The Company expects its manufacturing capacities
will allow such potential products and Triage DOA to be manufactured
concurrently in the same facility.

All raw materials required to manufacture Triage DOA are obtained from
outside suppliers. All antibodies used in the manufacture of Triage DOA were
developed by Biosite and the cell lines are owned by Biosite. Production
quantities of most of the antibodies are produced by two vendors. In addition,
Biosite maintains its own in-house antibody production capability.

The Company manufactures Triage DOA at its facility in San Diego,
California. The facility has received its registration as a diagnostic product
manufacturer from the FDA and from the California Department of Health Services.
The Company has also been licensed and certified to manufacture products using
controlled substances by the U.S. Drug Enforcement Agency. There can be no
assurance that the Company can continue

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to comply with all government requirements and regulations which may lead to the
suspension or revocation of its right to manufacture. See "Risk
Factors -- Government Regulation" and "-- Government Regulation."

The Company is also developing novel and sophisticated processes and
equipment for the future production of its Triage Cardiac and Triage Transplant
products. LRE will manufacture and supply the meter used in conjunction with the
Company's Triage CareLink System platform products. The Company is increasing
its manufacturing space at its San Diego facility to accommodate production of
Triage Cardiac.

SALES AND MARKETING

As of December 31, 1996, the Company has 32 employees in various sales and
marketing functions. The Company markets its Triage DOA to hospital laboratories
and emergency departments in the United States through CMS, a laboratory
products distributor, and in certain countries in Europe, Latin America, the
Middle East, Asia and Africa through Merck. The Company anticipates it may
directly market in the United States its cardiac, microbiology and therapeutic
drug monitoring products under development. In geographic markets outside the
United States, the Company intends to establish relationships with marketing
partners, where appropriate, for these potential products. The Company believes
it has the management resources necessary to significantly expand its sales
force for the promotion of its potential products. There can be no assurance
that any of the Company's products under development will be successfully
developed and approved for marketing.

STRATEGIC AND DISTRIBUTION ARRANGEMENTS

Biosite's strategy for the research, development, commercialization and
distribution of certain of its products entails entering into various
arrangements with corporate partners, licensors, licensees and others, and is
dependent upon the success of these parties in performing their
responsibilities. There can be no assurance that such parties will perform their
obligations as expected or that any revenue will be derived from such
arrangements. Under the provisions of Biosite's existing arrangements, Biosite
is not obligated to make any material capital expenditures. Biosite does
currently plan to expend approximately $4.0 million for the expansion and
development of its manufacturing capabilities in connection with the anticipated
launch of the Company's products currently under development. If products are
successfully developed under certain of the Company's existing arrangements,
royalties will be payable by the Company at rates up to 8% of sales of products
which incorporate licensed technology.

Curtin Matheson Scientific division of Fisher Scientific Company

In November 1991, the Company entered into a distribution agreement (the
"CMS Agreement") with CMS pursuant to which the Company granted to CMS an
exclusive right to distribute Triage DOA to hospitals, non-industrial
laboratories and certain other health and medical organizations within the
United States. Under certain circumstances, the Company is obligated to make a
one-time payment to CMS in the event that the Company elects to terminate the
CMS Agreement without cause or to engage in a merger, reorganization or transfer
or sale of substantially all of its stock or assets to which the CMS Agreement
relates, provided that CMS gives timely notice of objection to such merger,
reorganization or transfer or sale of stock or assets. CMS purchases Triage DOA
on a monthly basis through firm purchase orders on a per device fixed price
basis. CMS accounted for 88%, and 80% of Biosite's product sales for the year
ended December 31, 1995 and the nine months ended September 30, 1996,
respectively. In March 1996, the parties executed an amendment to the CMS
Agreement, setting forth certain purchase and cumulative sales targets for the
first half of 1996 and third and fourth quarters of 1996 which if not met gave
Biosite the option to terminate the CMS Agreement and further obligated CMS to
pay to Biosite a penalty if it failed to meet such purchase and cumulative sales
targets for 1996. CMS missed the first half of 1996 purchase and cumulative
sales targets by 18% and consequently incurred a penalty. In August 1996,
Biosite agreed to continue the distribution agreement and to forgive a portion
of the penalty each year that CMS meets additional sales milestones commencing
with the fourth quarter of 1996 and continuing through 1999. The August 1996
agreement eliminated the 1996 third quarter purchase and cumulative sales
targets, and the 1996 fourth quarter purchase and cumulative sales targets were
replaced by revised milestones. The revised milestones are based upon quarterly
average monthly kit sales of Triage DOA (each kit consisting of 25 Triage DOA
devices). CMS achieved the initial sales target for the fourth quarter of 1996
and consequently a portion of the penalty has been forgiven. There can be no
assurance that the additional targets will be met. The CMS Agreement provides
for a six-month transition period in the

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event of termination. If Biosite elects to terminate the CMS Agreement, it may
appoint a new distributor or expand its own sales force to sell Triage DOA
directly in the United States.

Merck KGaA

In July 1992, the Company entered into a distribution agreement with Merck,
pursuant to which the Company granted to Merck an exclusive right to market and
distribute Triage DOA in certain countries in Europe, Latin America, the Middle
East, Asia and Africa. Merck purchases Triage DOA in U.S. dollars on a quarterly
basis through firm purchase orders on a per device fixed price basis. The
distribution agreement provides for minimum annual purchase quantities. Merck
accounted for $1,345,000 and $1,652,000 of Biosite's product sales for the year
ended December 31, 1995 and the nine months ended September 30, 1996,
respectively.

In June 1994, the Company entered into two additional agreements with
Merck, a collaborative development agreement and a supply and distribution
agreement, in connection with the Company's development of Triage Cardiac. Under
the terms of such agreements, the Company and Merck agreed to jointly develop,
perform clinical testing of, and obtain regulatory approval for Triage Cardiac.
The agreement further provides that the Company is to be responsible for the
design, development and manufacturing scale-up of Triage Cardiac and the
reagents used in connection therewith, and for the clinical trials and
regulatory approval of Triage Cardiac for use in the AMI diagnosis field in
Japan and the United States. Merck is obligated to perform clinical trials and
obtain regulatory approval for the product for use in the AMI diagnosis field in
certain countries in Europe and Latin America and in South Africa. Additionally,
Biosite is obligated to fund 60% and Merck is obligated to fund the remaining
40% of the costs incurred by both parties in developing, manufacturing and
obtaining regulatory approval for the product, subject to certain maximum
aggregate expenditure limitations and subject further to a reduction in Merck's
funding obligations of 40% of payments which Biosite receives from KDK in
connection with the development and commercialization of Triage Cardiac in
Japan. The agreements further specify that Merck is to be the exclusive
distributor of Triage Cardiac for use in the AMI diagnosis field in certain
countries in Europe and Latin America and in South Africa, while the Company is
to retain distribution rights to the product in the remainder of the world and
for uses other than the diagnosis of AMI. The total cost of the development of
Triage Cardiac is estimated to be approximately $10.0 million. If Triage Cardiac
is approved for commercial sale, Merck will purchase the Triage Cardiac test
cartridges from Biosite in U.S. dollars on a quarterly basis through firm
purchase orders on a per device formula price basis. Merck will purchase the
Triage CareLink meter directly from LRE. Under certain circumstances, if the
Company is unable to supply forecasted quantities of Triage Cardiac to Merck,
Merck can obtain a license to manufacture Triage Cardiac for its requirements in
return for a royalty payable to Biosite. As part of its decision to refocus away
from certain aspects of the human diagnostics business, Merck has informed the
Company that Merck is considering assigning its rights under its agreements with
the Company concerning the marketing of Triage Cardiac either to a third party
or back to the Company.

LRE Relais + Elektronik GmbH

In September 1994, the Company entered into an agreement with LRE (the "LRE
Agreement") for the development of a hand-held meter to be used in all Triage
CareLink System products currently under development, including Triage Cardiac
and Triage Transplant. Under the terms of the LRE Agreement, LRE is obligated to
develop and produce the fluorescent meter according to specifications provided
by Biosite. In return, the Company agreed to compensate LRE for certain
development and tooling expenses incurred in connection therewith, based upon
LRE's successful completion of certain feasibility, prototype and preproduction
milestones. Under the terms of the LRE Agreement, the Company's obligations for
development expenses and costs are not to exceed approximately $1.9 million, of
which approximately $470,000 is for prototype and preproduction tooling costs.
As of September 30, 1996, the Company had paid or accrued expenses and costs
under the LRE Agreement of approximately $1.77 million. In addition, the
agreement specifies that LRE is to be the Company's exclusive supplier of the
Triage CareLink meter during the term of the LRE Agreement, unless LRE is
incapable of satisfying Biosite's needs or is prohibited from producing such
meters for a specific immunoassay application. Biosite will purchase the Triage
CareLink meter from LRE in Deutsche Marks on a quarterly basis through firm
purchase orders on a per device price basis which varies according to sales
volume. Biosite has the right to designate third parties, including Merck, who
can purchase Triangle CareLink meters directly from LRE.

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ARKRAY KDK Corporation

In February 1995, the Company entered into a development, supply and
distribution agreement with KDK, pursuant to which the parties agreed to
collaborate in the development and marketing of Triage Cardiac. Under the terms
of the agreement, KDK is obligated to provide certain funding of up to $2.0
million for the Company's development of Triage Cardiac, $500,000 of which has
been paid and the remainder of which is to be paid based upon the Company's
achievement of certain milestones. In exchange for this funding, the Company has
granted KDK the exclusive right to distribute Triage Cardiac in Japan and in
certain countries of Asia, the Middle East and Pacific Island countries. The
Company is responsible for costs associated with performing clinical trials on
and obtaining regulatory approval of Triage Cardiac in the United States, while
KDK is responsible for such costs in Japan and in certain countries of Asia, the
Middle East and Pacific Island countries. If Triage Cardiac is approved for
commercial sale, KDK will purchase Triage Cardiac test cartridges from Biosite
in U.S. dollars on a quarterly basis through firm purchase orders on a per
device fixed price basis. KDK will also purchase the Triage CareLink meter from
the Company on a per device fixed price basis. The distribution agreement
provides for minimum annual purchase quantities. KDK can terminate this
agreement at any time.

Novartis Pharma Inc.

In September 1995, the Company entered into two license agreements with
Novartis relating to the Company's development of Triage Transplant. The first
license is for cyclosporine antibodies and the second license is for certain
antibody-based assays. Under the terms of the agreements, and upon the Company's
successful completion of certain feasibility requirements, the Company has the
right to make, have made, use and sell Triage Transplant using the licensed
Novartis antibodies and related technologies. The agreements contemplate that
the Company is to be responsible for all costs associated with the development
of Triage Transplant. Additionally, upon entering into the two licenses, the
Company made certain initial payments (aggregating approximately $325,000) to
Novartis and is obligated to make additional payments of up to approximately
$225,000 to Novartis based upon the achievement of certain product development
milestones, and to pay royalties on sales of products developed by the Company
using such antibodies or related technologies. In connection with the agreement,
Novartis purchased $1.0 million of five-year 8% convertible debentures which
convert into 92,575 shares of Common Stock of the Company upon the closing of
this offering. The Company is obligated to sell to Novartis up to $1.0 million
in additional five-year 8% convertible debentures upon the attainment of certain
milestones. The debentures will be convertible, at the sole option of the
Company, into shares of Biosite Common Stock at the initial offering price.

PROPRIETARY TECHNOLOGY AND PATENTS

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The Company recently received a letter from B-D, a major manufacturer of
medical supplies, devices and diagnostic systems, offering to license a U.S.
patent held by B-D to the Company. B-D did not propose any license terms in its
letter. The Company has reviewed such patent and believes that it has defenses
to any infringement claim under such patent. In addition, Biosite recently
received a letter from Spectral, a manufacturer of rapid-format
cardiac-diagnostic panels, informing the Company that Spectral holds a U.S.
patent covering a kit for diagnosing and distinguishing chest pain and that it
recently received a notice of allowance from the USPTO with respect to a second
patent application. This letter states that Spectral has not yet determined its
position with respect to the licensing of its technology. The Company is
currently reviewing the issued patent cited in this letter and the materials
provided by Spectral with respect to the allowed patent application and is
evaluating their potential impact on Triage Cardiac. There can be no assurance
that B-D or Spectral will not initiate litigation alleging that Triage DOA or
Triage Cardiac, respectively, infringe claims under such manufacturer's patents.
Such litigation, if initiated, could seek to recover damages as a result of any
sales of such products and to enjoin further such sales. The outcome of
litigation is inherently uncertain and there can be no assurance that a court
would not find such claims valid and that the Company had no successful defense
to such claims. An adverse outcome in litigation or the failure to obtain a
necessary license could subject the Company to significant liability and could
prevent Biosite from selling Triage DOA or Triage Cardiac which could have a
material adverse effect on the company's business, financial condition and
results of operations.

Biosite is aware of a U.S. patent owned by Celltech relating to the
manufacture of antibodies, such as those developed or being developed by Biosite
for Triage Cardiac, Triage O&P, Triage C. diff and Triage Enteric. Biosite is
also aware that this patent is the subject of an interference proceeding in the
USPTO which was initiated in February 1991 with a patent application filed by
Genentech. In June 1996, the EPO invalidated, following an opposition, certain
claims under Celltech's corresponding EPO-granted patent which may be relevant
to Biosite's products and products under development. Celltech has indicated
that it will appeal such decision. If Celltech does appeal, such claims can be
reinstated, at least until a final decision is rendered. If it is determined
that aspects of the manufacturing of Biosite's antibodies are covered by patent
claims stemming from the interference or if Celltech were to have such claims
upheld on appeal, or if patent infringement litigation is brought against the
Company by either Celltech or Genentech, Biosite may be required to obtain a
license under such patents and corresponding patents in other countries. There
can be no assurance that a license would be made available to Biosite on
commercially reasonable terms, if at all. If such license is required and not
obtained the Company might be prevented from using certain of its manufacturing
technologies. The Company's failure to obtain any required licenses could have a
material adverse effect on the Company's business, financial condition and
results of operations.

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trade secrets or disclose such technology, or that the Company can meaningfully
protect its trade secrets, or that the Company will be capable of protecting its
rights to its trade secrets.

The commercial success of the Company also depends in part on the Company
neither infringing patents or proprietary rights of third parties nor breaching
any licenses that may relate to the Company's technologies and products. The
Company is aware of several third-party patents that may relate to the Company's
technology. There can be no assurance that the Company does not or will not
infringe these patents, or other patents or proprietary rights of third parties.
In addition, the Company has received and may in the future receive notices
claiming infringement from third parties as well as invitations to take licenses
under third party patents. Any legal action against the Company or its
collaborative partners claiming damages and seeking to enjoin commercial
activities relating to the Company's products and processes affected by third
party rights, in addition to subjecting the Company to potential liability for
damages, may require the Company or its collaborative partner to obtain a
license in order to continue to manufacture or market the affected products and
processes. There can be no assurance that the Company or its collaborative
partners would prevail in any such action or that any license (including
licenses proposed by third parties) required under any such patent would be made
available on commercially acceptable terms, if at all. There are a significant
number of U.S. and foreign patents and patent applications in the Company's
areas of interest, and the Company believes that there may be significant
litigation in the industry regarding patent and other intellectual property
rights. If the Company becomes involved in such litigation, it could consume a
substantial portion of the Company's managerial and financial resources, which
could have a material adverse effect on the Company's business, financial
condition and results of operations.

COMPETITION

The market in which the Company competes is intensely competitive.
Biosite's competitors include health care companies that manufacture
laboratory-based tests and analyzers, as well as clinical and hospital-based
laboratories. Currently, the majority of diagnostic tests used by physicians and
other health care providers are performed by independent clinical and
hospital-based laboratories. The Company expects that these laboratories will
compete vigorously to maintain their dominance of the testing market. In order
to achieve market acceptance for its products, the Company will be required to
demonstrate that its products are an attractive alternative to testing performed
by clinical and hospital-based laboratories. This will require physicians to
change their established means of having such tests performed. There can be no
assurance that the Company's products will be able to compete with the testing
services provided by these laboratories. In addition, companies with a
significant presence in the diagnostic market, such as Abbott Laboratories,
Boehringer Mannheim, Chiron Diagnostics, Clinical Diagnostic Systems, a division
of Johnson & Johnson, DADE International, and Roche Biosciences, Inc., have
developed or are developing diagnostic products that do or will compete with the
Company's products. These competitors have substantially greater financial,
technical, research and other resources and larger, more established marketing,
sales, distribution and service organizations than the Company. Moreover, such
competitors offer broader product lines and have greater name recognition than
the Company, and offer discounts as a competitive tactic. In addition, several
smaller companies are currently making or developing products that compete with
or will compete with those of the Company. There can be no assurance that the
Company's competitors will not succeed in developing or marketing technologies
or products that are more effective or commercially attractive than the
Company's current or future products, or that would render the Company's
technologies and products obsolete. Moreover, there can be no assurance that the
Company will have the financial resources, technical expertise or marketing,
distribution or support capabilities to compete successfully in the future. In
addition, there can be no assurance that competitors, many of which have made
substantial investments in competing technologies that may be more effective
than the Company's technologies will not prevent, limit or interfere with the

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Company's ability to make, use or sell its products either in the United States
or in international markets. See " -- Technology and "-- Products and Products
under Development."

GOVERNMENT REGULATION

The testing, manufacture and sale of the Company's products are subject to
regulation by numerous governmental authorities, principally the FDA and
corresponding state and foreign regulatory agencies. Pursuant to the Federal
Food, Drug, and Cosmetic Act, and the regulations promulgated thereunder, the
FDA regulates the preclinical and clinical testing, manufacture, labeling,
distribution and promotion of medical devices. The Company will not be able to
commence marketing or commercial sales in the United States of new products
under development until it receives clearance or approval from the FDA, which
can be a lengthy, expensive and uncertain process. Noncompliance with applicable
requirements can result in, among other things, fines, injunctions, civil
penalties, recall or seizure of products, total or partial suspension of
production, failure of the government to grant premarket clearance or premarket
approval for devices, withdrawal of marketing clearances or approvals and
criminal prosecution. The FDA also has the authority to request recall, repair,
replacement or refund of the cost of any device manufactured or distributed by
the Company.

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

Before a new device can be introduced in the market, the manufacturer must
generally obtain FDA clearance or approval through either clearance of a 510(k)
notification or approval of a PMA application. A PMA application must be filed
if a proposed device is a new device not substantially equivalent to a legally
marketed Class I or Class II device, or if it is a preamendment Class III device
for which the FDA has called for PMAs. A PMA application must be supported by
valid scientific evidence to demonstrate the safety and effectiveness of the
device, typically including the results of clinical investigations, bench tests,
laboratory and animal studies. The PMA application must also contain a complete
description of the device and its components and a detailed description of the
methods, facilities and controls used to manufacture the device. In addition,
the submission must include the proposed labeling, advertising literature and
any training materials. The PMA approval process can be expensive, uncertain and
lengthy, and a number of devices for which FDA approval has been sought by other
companies have never been approved for marketing.

Upon receipt of a PMA application, the FDA makes a threshold determination
as to whether the application is sufficiently complete to permit a substantive
review. If the FDA determines that the PMA application is complete, the FDA will
accept the application for filing. Once the submission is accepted, the FDA
begins an in-depth review of the PMA. The FDA review of a PMA application
generally takes one to three years from the date the application is accepted,
but may take significantly longer. The review time is often significantly
extended by the FDA asking for more information or clarification of information
already provided in the submission. During the review period, an advisory
committee, typically a panel of clinicians, will likely be convened to review
and evaluate the application and provide recommendations to the FDA as to
whether the device should be approved. The FDA is not bound by the
recommendation of the advisory panel. Toward the end of the PMA review process,
the FDA generally will conduct an inspection of the manufacturer's facilities to
ensure that the facilities are in compliance with applicable cGMP requirements.
If FDA evaluations of both the PMA application and the manufacturing facilities
are favorable, the FDA may issue either an approval letter or an approvable
letter, which usually contains a number of conditions that must be met in order
to secure final approval of the PMA. When and if those conditions have been
fulfilled to the satisfaction of the FDA, the agency will issue a PMA approval
letter, authorizing commercial marketing of the device for certain indications.
If the FDA's evaluation of the PMA application or manufacturing facilities is
not favorable, the FDA will deny approval of the PMA application or issue a
non-approvable letter. The FDA

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may determine that additional clinical investigations are necessary, in which
case the PMA may be delayed for one or more years while additional clinical
investigations are conducted and submitted in an amendment to the PMA.
Modifications to a device that is the subject of an approved PMA, its labeling
or manufacturing process may require approval by the FDA of PMA supplements or
new PMAs. Supplements to an approved PMA often require the submission of the
same type of information required for an initial PMA, except that the supplement
is generally limited to that information needed to support the proposed change
from the product covered by the original PMA.

A 510(k) clearance will be granted if the submitted information establishes
that the proposed device is "substantially equivalent" to a legally marketed
Class I or Class II medical device or a preamendment Class III medical device
for which the FDA has not called for PMAs. The FDA recently has been requiring
more rigorous demonstration of substantial equivalence than in the past,
including in some cases requiring submission of clinical data. It generally
takes from four to 12 months from submission to obtain 510(k) premarket
clearance but may take longer. The FDA may determine that a proposed device is
not substantially equivalent to a legally marketed device or that additional
information is needed before a substantial equivalence determination can be
made. A "not substantially equivalent" determination, or a request for
additional information, could prevent or delay the market introduction of new
products that fall into this category. For any devices that are cleared through
the 510(k) process, modifications or enhancements that could significantly
affect safety or effectiveness, or constitute a major change in the intended use
of the device, will require new 510(k) submissions.

The Company has made modifications to Triage DOA since receipt of initial
510(k) clearance. With respect to several of these modifications, the Company
has filed new 510(k) notices describing the modifications, and has received FDA
clearance of those 510(k) notices. The Company has made other modifications to
Triage DOA which the Company believes do not require the submission of new
510(k) notices. There can be no assurance, however, that the FDA would agree
with any of the Company's determinations not to submit a new 510(k) notice for
any of these modifications, or would not require the Company to submit a new
510(k) notice for any of these modifications made to Triage DOA. If the FDA
requires the Company to submit a new 510(k) notice for any device modification,
the Company may be prohibited from marketing the modified Triage DOA until the
510(k) notice is cleared by the FDA.

The Company is uncertain of the regulatory path to market that the FDA will
ultimately apply to the Company's products currently in development. Although
Triage DOA received 510(k) clearance, a PMA may be required for Triage
Transplant or other products now in development. There can be no assurance that
the FDA will not determine that the Company must adhere to the more costly,
lengthy and uncertain PMA approval process for any of the Company's products in
development.

Before the manufacturer of a device can submit the device for FDA approval
or clearance, it generally must conduct a clinical investigation of the device.
Although clinical investigations of most devices are subject to the IDE
requirements, clinical investigations of IVD tests, such as all of the Company's
products and products under development, are exempt from the IDE requirements,
including the need to obtain the FDA's prior approval, provided the testing is
noninvasive, does not require an invasive sampling procedure that presents a
significant risk, does not intentionally introduce energy into the subject, and
is not used as a diagnostic procedure without confirmation by another medically
established test or procedure. In addition, the IVD must be labeled for RUO or
IUO, and distribution controls must be established to assure that IVDs
distributed for research or clinical investigation are used only for those
purposes.

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for IDE exemption. Furthermore, failure by the Company or the recipients of its
products under development to maintain compliance with the IDE exemption
requirements could result in enforcement action by the FDA, including, among
other things, the loss of the IDE exemption or the imposition of other
restrictions on the Company's distribution of its products under development,
which would adversely affect the Company's ability to conduct the clinical
investigations necessary to support marketing clearance or approval.

Any devices manufactured or distributed by the Company pursuant to FDA
clearance or approvals are subject to pervasive and continuing regulation by FDA
and certain state agencies. Manufacturers of medical devices for marketing in
the United States are required to adhere to applicable regulations setting forth
detailed cGMP requirements, which include testing, control and documentation
requirements. Manufacturers must also comply with MDR requirements that a
manufacturer report to the FDA any incident in which its product may have caused
or contributed to a death or serious injury, or in which its product
malfunctioned and, if the malfunction were to recur, it would be likely to cause
or contribute to a death or serious injury. Labeling and promotional activities
are subject to scrutiny by the FDA and, in certain circumstances, by the Federal
Trade Commission. Current FDA enforcement policy prohibits the marketing of
approved medical devices for unapproved uses.

The Company is subject to routine inspection by the FDA and certain state
agencies for compliance with cGMP requirements, MDR requirements and other
applicable regulations. The FDA has recently finalized changes to the cGMP
requirements, including the addition of design controls that will likely
increase the cost of compliance. Changes in existing requirements or adoption of
new requirements could have a material adverse effect on the Company's business,
financial condition and results of operation. There can be no assurance that the
Company will not incur significant costs to comply with laws and regulations in
the future or that laws and regulations will not have a material adverse effect
upon the Company's business, financial condition and results of operations.

The Company also is subject to numerous federal, state and local laws
relating to such matters as safe working conditions, manufacturing practices,
environmental protection, fire hazard control and disposal of hazardous or
potentially hazardous substances. There can be no assurance that the Company
will not incur significant costs to comply with laws and regulations in the
future or that such laws or regulations will not have a material adverse effect
upon the Company's business, financial condition and results of operations.

The use of Biosite's products is also affected by CLIA and related federal
and state regulations which provide for regulation of laboratory testing. The
scope of these regulations includes quality control, proficiency testing,
personnel standards and federal inspections. CLIA categorizes tests as "waived,"
"moderately complex" or "highly complex," on the basis of specific criteria.
There can be no assurance that any future amendment of CLIA or the promulgation
of additional regulations impacting laboratory testing will not have a material
adverse effect on the Company's ability to market its products or on its
business, financial condition or results of operations.

EMPLOYEES

As of December 31, 1996, Biosite employed 176 individuals. Of these, 18
hold Ph.D.s and 13 hold other advanced degrees. None of the Company's employees
is covered by collective bargaining agreement. The Company believes that it
maintains good relations with its employees.

FACILITIES

The Company currently leases approximately 83,000 square feet of space in
five buildings in the Sorrento Valley area in San Diego under leases that expire
from September 1997 through September 1998 with renewal options through 2001.
The Company believes these facilities are adequate for its current needs and
that suitable additional or alternative space will be available in the future on
commercially reasonable terms as needed. The Company's current facilities are
used for its administrative offices, research and development facilities and
manufacturing operations.

LEGAL PROCEEDINGS

The Company is not a party to any material legal proceedings.

44
<PAGE> 47

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of the Company, their positions with
the Company and ages as of December 31, 1996 are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- ---------------------------------------------------------
<S> <C> <C>
Kim D. Blickenstaff................. 44 President, Chief Executive Officer, Treasurer, Secretary
and Director
Gunars E. Valkirs, Ph.D. ........... 44 Vice President, Research and Development, Chief
Technical Officer and Director
Thomas M. Watlington................ 41 Senior Vice President
Charles W. Patrick.................. 42 Vice President, Sales and Marketing
Christopher J. Twomey............... 37 Vice President, Finance and Chief Financial Officer
S. Nicholas Stiso, Ph.D. ........... 52 Vice President, Operations
Kenneth F. Buechler, Ph.D. ......... 43 Vice President, Research
Timothy J. Wollaeger(1)(2).......... 53 Chairman of the Board
Thomas H. Adams, Ph.D. ............. 53 Director
Frederick J. Dotzler(1)(2).......... 51 Director
Howard E. Greene, Jr. .............. 53 Director
Stephen K. Reidy.................... 46 Director
Jesse I. Treu, Ph.D. ............... 49 Director
</TABLE>

- ---------------
(1) Member of Compensation Committee.

(2) Member of Audit Committee.

KIM D. BLICKENSTAFF, a founder of the Company, has been a director and the
Company's President, Chief Executive Officer, Treasurer and Secretary since
April 1988. He previously held various positions in finance, operations,
research management, sales management, strategic planning, and marketing with
Baxter Travenol, National Health Laboratories, and Hybritech Incorporated
("Hybritech"). Mr. Blickenstaff holds an M.B.A. from the Graduate School of
Business, Loyola University, Chicago.

GUNARS E. VALKIRS, PH.D., a founder of Biosite and a co-inventor of certain
of its proprietary technology has been a director since April 1988 and Vice
President, Research and Development and Chief Technical Officer since 1988.
Prior to forming Biosite, he was a Scientific Investigator with the Diagnostics
Research & Development Group at Hybritech, where he was the primary inventor of
Hybritech's patented ICON technology. Dr. Valkirs holds a Ph.D. in Physics from
the University of California at San Diego.

THOMAS M. WATLINGTON joined the Company as Senior Vice President in
December 1996. He was formerly Vice President, Marketing for the Diabetes Care
Division for Boehringer Mannheim. From 1982 to December 1996, Mr. Watlington
held various positions in marketing, strategic analysis and product development
with Boehringer Mannheim. Mr. Watlington holds a B.S. degree from the University
of Maryland.

CHARLES W. PATRICK joined the Company in August 1990 as Vice President,
Sales and Marketing. From 1978 to August 1990, Mr. Patrick held various
positions in sales, sales management and product and marketing management with
Abbott. From 1987 to August 1990, he was Group Marketing Manager for the Abused
Drug Business Unit of Abbott where he managed the worldwide product launch of
Abbott's TDx and ADx bench top testing systems. Mr. Patrick holds a B.A. from
the University of Central Florida.

CHRISTOPHER J. TWOMEY joined the Company as Director of Finance in March
1990 and was promoted to Vice President of Finance and Chief Financial Officer
in 1993. From 1981 to March 1990, Mr. Twomey was employed by Ernst & Young LLP,
where from October 1985 to March 1990, he served as Audit Manager. Mr. Twomey
holds a B.A. in Business Economics from the University of California at Santa
Barbara.

45
<PAGE> 48

S. NICHOLAS STISO, PH.D. joined the Company as Vice President, Operations
in November 1989. Prior to joining Biosite, he was with Syntex Medical
Diagnostics, a division of SYVA Co., where from April 1980 to April 1989, he was
Manufacturing Director for the AccuLevel line of quantitative, non-instrumented,
therapeutic drug assays. Dr. Stiso holds a Ph.D. in Physical Chemistry from
Michigan State University in East Lansing, Michigan.

KENNETH F. BUECHLER, PH.D., a founder of Biosite and a co-inventor of
certain of Biosite's proprietary technology, has been Vice President, Research
since January 1994. From April 1988 to January 1994, he was Director of
Chemistry. Prior to forming Biosite, he was a Senior Scientist in the
Diagnostics Research and Development Group at Hybritech. Dr. Buechler holds a
Ph.D. in Biochemistry from Indiana University.

TIMOTHY J. WOLLAEGER has served as Chairman of the Board of Directors since
the Company's inception. He is the general partner of Kingsbury Associates,
L.P., a venture capital firm he founded in December 1993. From May 1990 until
December 1993, he was Senior Vice President and a director of Columbia Hospital
Corporation (now Columbia/HCA Healthcare Corporation). From October 1986 until
July 1993, he was a general partner of the general partner of Biovest Partners,
A California Limited Partnership ("Biovest"), a seed venture capital firm. From
1983 to 1986, Mr. Wollaeger served as Senior Vice President and Chief Financial
Officer of Hybritech. He is a director of Amylin Pharmaceuticals, Inc.
("Amylin") and Phamis, Inc., and a founder and director of several privately
held medical products companies. He received an M.B.A. from Stanford University.

THOMAS H. ADAMS, PH.D. joined the Board of Directors in September 1988. Dr.
Adams was a founder of Genta Incorporated, a biotechnology company, and has been
Chairman of the Board and Chief Executive Officer of Genta since February 1989.
He previously served as Chairman of the Board and Chief Executive Officer of
Gen-Probe Incorporated ("Gen-Probe"), which he co-founded in 1984. Prior to
joining Gen-Probe, he held the positions of Senior Vice President of Research &
Development and Chief Technical Officer at Hybritech. He had previously held
senior scientific management positions with Technicon Instruments Corp., the
Hyland Laboratories Division of Baxter Travenol, and DuPont. Dr. Adams is a
director of Genta Incorporated, Life Technologies, Inc., La Jolla Pharmaceutical
Company and two private biotechnology companies. He received his Ph.D. in
Biochemistry from the University of California at Riverside.

FREDERICK J. DOTZLER joined the Board of Directors in July 1989. Mr.
Dotzler is General Partner of Medicus Venture Partners, a venture capital firm
he founded in 1989. Prior to founding Medicus, Mr. Dotzler was a general partner
of Crosspoint Venture Partners. Previously he held management positions with
Millipore Corporation, G.D. Searle & Co., and IBM. He is a director of several
privately held companies. Mr. Dotzler received a B.S. in Industrial Engineering
from Iowa State University, an M.B.A. from the University of Chicago, and a
degree in Economics from the University of Louvain, Belgium.

HOWARD E. GREENE, JR. joined the Board of Directors in June 1989. Mr.
Greene is a founder and Chairman of the Board of Amylin, a biotechnology company
in late stage development of a drug candidate for diabetes, and he was Chief
Executive Officer of Amylin from inception in September 1987 to July 1996. From
October 1986 until July 1993, Mr. Greene was a general partner of the general
partner of Biovest. From March 1979 to March 1986, he was Chief Executive
Officer of Hybritech, and he was a co-inventor of Hybritech's monoclonal
antibody assay technology. Prior to joining Hybritech, he was an executive with
the medical diagnostics division of Baxter Healthcare Corporation from 1974 to
1979 and a consultant with McKinsey & Company from 1967 to 1974. He is Chairman
of the Board of Cytel Corporation, a director of Allergan, Inc., Neurex
Corporation and The International Biotechnology Trust plc, a foreign
biotechnology investment company. Mr. Greene received an M.B.A. from Harvard
University.

STEPHEN K. REIDY joined the Board of Directors in July 1989. Since 1987,
Mr. Reidy has been affiliated with Euclid Partners Corporation, a company
engaged in venture capital investments in the health care and information
technology industries. Mr. Reidy is a general partner of the General Partner of
Euclid Partners III, L.P. and Euclid Partners IV, L.P. He is a director of
Zynaxis, Inc., a drug delivery company, Chairman of the Board of a privately
held neurological company and a director of a privately-held hospital software
company. Mr. Reidy has an M.B.A. from Columbia University.

46
<PAGE> 49

JESSE I. TREU, PH.D. joined the Board of Directors in June 1990. He has
been a general partner of Domain Associates, a venture capital firm specializing
in life sciences, since 1986. Before joining Domain Associates in 1986, he was a
principal of Channing, Weinberg and Company, Inc., and its venture capital
spin-off CW Ventures, and was a director of Technicon Corporation responsible
for marketing strategy and new product development in immunology and
histopathology and previously held research and development, management and
corporate staff positions at General Electric Company. Dr. Treu is a director of
DNX Corporation, a pharmaceutical testing company, Geltex Pharmaceuticals, Inc.,
a developer of polymer based pharmaceuticals, and Lumisys, Inc., an
electro-optical systems company. Dr. Treu received a Ph.D. in Physics from
Princeton University.

The Company currently has authorized eight directors. Upon the closing of
this offering, the Company will have three classes of directors serving
staggered three-year terms. All directors are elected to hold office until the
next annual meeting of stockholders of the Company in which their three-year
term expires and until their successors have been elected. The Company's
officers are appointed by the directors and serve at the discretion of the Board
of Directors. There are no family relationships among any of the directors or
executive officers of the Company.

BOARD COMMITTEES

The Board of Directors has established an Audit Committee and a
Compensation Committee. The Audit Committee, which consists of Mr. Dotzler and
Mr. Wollaeger, reviews the results and scope of the annual audit and the
services provided by the Company's independent accountants. The Compensation
Committee, which consists of Mr. Dotzler and Mr. Wollaeger, makes
recommendations to the Board of Directors with respect to general and specific
compensation policies and practices of the Company and administers the Amended
and Restated 1989 Stock Plan of Biosite (the "1989 Stock Plan"), the 1996 Stock
Incentive Plan of Biosite (the "1996 Stock Plan") and the Biosite Employee Stock
Purchase Plan (the "ESPP").

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The members of the Company's Compensation Committee during 1995 were Mr.
Dotzler and Mr. Wollaeger. There were no interlocks or other relationships among
the Company's executive officers and directors that are required to be disclosed
under applicable executive compensation disclosure regulations.

COMPENSATION OF DIRECTORS

Directors do not receive any fees for service on the Board of Directors.
Directors are reimbursed for their expenses for each meeting attended. Directors
are eligible to participate in the 1996 Stock Plan described below, although as
of the date of this Prospectus, no options have been granted to non-employee
directors.

47
<PAGE> 50

EXECUTIVE COMPENSATION

The following table sets forth compensation paid or awarded by the Company
during the fiscal years ended December 31, 1995 and 1996 to the Company's Chief
Executive Officer and the Company's four most highly compensated executive
officers other than the Chief Executive Officer whose salary and bonus exceeded
$100,000 during 1996.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------------------- SECURITIES
OTHER UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY ($)(1) BONUS ($) COMPENSATION ($)(2) OPTIONS
- ------------------------------------- ---- ------------- --------- ------------------- ------------
<S> <C> <C> <C> <C> <C>
Kim D. Blickenstaff.................. 1996 $ 189,242 $92,991 $ 980 100,000(4)
President and Chief Executive 1995 169,633 78,462 900 40,000
Officer
Charles W. Patrick................... 1996 157,409 29,086 540 50,000(4)
Vice President, Sales and Marketing 1995 151,000 27,002 59,290(3) 5,000
Gunars E. Valkirs.................... 1996 151,545 60,450 844 50,000(4)
Vice President, Research and 1995 139,208 36,244 793 25,000
Development
Kenneth F. Buechler.................. 1996 140,466 60,450 768 50,000(4)
Vice President, Research 1995 125,823 36,244 709 25,000
S. Nicholas Stiso.................... 1996 146,033 26,042 1,980 50,000(4)
Vice President, Operations 1995 134,554 27,002 1,787 20,000
</TABLE>

- ---------------
(1) Includes amounts deferred by each individual under the Company's 401(k)
Plan.
(2) Except where noted amounts represent payments on behalf of each individual
for group term life insurance and separate term life insurance.
(3) Amount also includes forgiveness of a $36,000 relocation loan made in August
1990 which was forgiven in August 1995 and $22,776 related to income taxes
associated with the forgiveness of the loan.
(4) On September 6, 1996, one half of these options were cancelled.

The following tables set forth certain information as of December 31, 1996
and for the fiscal year then ended with respect to stock options granted to and
exercised by the individuals named in the Summary Compensation Table above.

OPTION GRANTS IN FISCAL YEAR 1996
INDIVIDUAL GRANTS

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL RATE
PERCENTAGE OF OF STOCK PRICE
TOTAL OPTIONS APPRECIATION
GRANTED TO EXERCISE OR FOR OPTION TERM(5)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -----------------------
NAME GRANTED (1) FISCAL YEAR ($/SH)(4) DATE 5% ($) 10% ($)
- ---------------------------------- ----------- ------------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Kim D. Blickenstaff............... 50,000(2) 5.2319% $8.25 5/17/06 $259,419 $657,419
50,000(3) 5.2319% $5.50 9/6/06 $172,946 $438,279
Charles W. Patrick................ 25,000(2) 2.6111% $8.25 5/17/06 $129,710 $328,709
25,000(3) 2.6111% $5.50 9/6/06 $ 86,473 $219,140
Gunars E. Valkirs................. 25,000(2) 2.6111% $8.25 5/17/06 $129,710 $328,709
25,000(3) 2.6111% $5.50 9/6/06 $ 86,473 $219,140
Kenneth F. Buechler............... 25,000(2) 2.6111% $8.25 5/17/06 $129,710 $328,709
25,000(3) 2.6111% $5.50 9/6/06 $ 86,473 $219,140
S. Nicholas Stiso................. 25,000(2) 2.6111% $8.25 5/17/06 $129,710 $328,709
25,000(3) 2.6111% $5.50 9/6/06 $ 86,473 $219,140
</TABLE>

- ---------------
(1) These options vest daily over a four-year period commencing on the date of
grant, except that no options are exercisable for the first six months after
the date of grant. The number of shares which have vested under an option
grant is determined by ascertaining the number of days subsequent to the
date of the option grant, multiplying that number of days by the number of
shares subject to the option grant, and in turn multiplying that product by
0.000684931 (one divided by the product of 365 days and four years).

48
<PAGE> 51

(2) These options were granted on May 17, 1996 and would have become exercisable
commencing November 17, 1996, but they were cancelled on September 6, 1996
prior to becoming exercisable.
(3) These options were granted on September 6, 1996, vest daily through
September 6, 2000 and vested options are exercisable from March 6, 1997 to
September 6, 2006.
(4) The exercise price of each option was equal to 100% of the fair market value
of the Common Stock on the date of grant, as determined by the Compensation
Committee of the Board of Directors.
(5) The potential realizable value of each grant of options has been calculated,
pursuant to the regulations promulgated by the Securities and Exchange
Commission, assuming that the market price of the Common Stock appreciates
in value from the date of grant to the end of the option term at the
annualized rates of 5% and 10%, respectively. These values do not represent
the Company's estimate or projection of future Common Stock value. There can
be no assurance that any of the value reflected in the table will be
achieved.

AGGREGATED OPTION EXERCISES IN FISCAL YEAR 1996
AND OPTION VALUES AT END OF FISCAL 1996

<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT
OPTIONS AT FISCAL
FISCAL YEAR-END(#) YEAR-END($)
------------------ -----------------
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($) UNEXERCISABLE UNEXERCISABLE
- ----------------------------------- --------------- ----------- ------------------ -----------------
<S> <C> <C> <C> <C>
Kim D. Blickenstaff................ 20,000 $59,000 60,716/72,484 $298,906/$128,694
Charles W. Patrick................. -- -- 44,589/27,811 259,862/ 34,839
Gunars E. Valkirs.................. 10,000 29,500 54,147/39,053 275,915/ 74,186
Kenneth F. Buechler................ 2,000 12,400 62,680/44,520 317,713/ 98,787
S. Nicholas Stiso.................. -- -- 14,320/36,242 61,244/ 64,347
</TABLE>

- ---------------
(1) Calculated on the basis of the fair market value of the underlying
securities at December 31, 1996, the fiscal year-end, minus the exercise
price.

Amended and Restated 1989 Stock Plan

In July 1989, the Company's Board of Directors adopted the 1989 Stock Plan.
The 1989 Stock Plan was amended at various times from its adoption to the date
of this Prospectus to increase the number of shares available under the 1989
Stock Plan. A total of 1,692,000 shares of Common Stock is currently reserved
for issuance under the 1989 Stock Plan pursuant to the direct award or sale of
shares or the exercise of options granted under the 1989 Stock Plan. If any
option granted under the 1989 Stock Plan expires or terminates for any reason
without having been exercised in full, then the unpurchased shares subject to
that option will once again be available for additional option grants.
Unpurchased shares pursuant to options that expire or terminate under the 1989
Stock Plan shall be available for awards under the 1996 Stock Plan.

Under the 1989 Stock Plan, all employees (including officers) and directors
of the Company or any subsidiary and any independent contractor or advisor who
performs services for the Company or a subsidiary are eligible to purchase
shares of Common Stock and to receive awards of shares or grants of nonstatutory
options. Employees are also eligible to receive grants of incentive stock
options ("ISOs") intended to qualify under Section 422 of the Internal Revenue
Code. The 1989 Stock Plan is administered by a committee of the Board of
Directors of the Company, which selects the persons to whom shares will be sold
or awarded or options will be granted, determines the number of shares to be
made subject to each sale, award or grant, and prescribes other terms and
conditions, including the type of consideration to be paid to the Company upon
sale or exercise and vesting schedules, in connection with each sale, award or
grant.

The exercise price under the nonstatutory options generally must be at
least 85% of the fair market value of the Common Stock on the date of grant. The
exercise price under ISOs cannot be lower than 100% of the

49
<PAGE> 52

fair market value of the Common Stock on the date of grant and, in the case of
ISOs granted to holders of more than 10% of the voting power of the Company, not
less than 110% of such fair market value. The term of an option cannot exceed 10
years, and the term of an ISO granted to a holder of more than 10% of the voting
power of the Company cannot exceed five years. Options generally expire not
later than 90 days following a termination of employment or six months following
the optionee's death or permanent disability. The purchase price of shares sold
under the 1989 Stock Plan generally must be at least 85% of the fair market
value of the Common Stock and, in the case of a holder of more than 10% of the
voting power of the Company, not less than 110% of such fair market value. Under
the 1989 Stock Plan, options granted pursuant to the 1989 Stock Plan will
generally vest ratably over a period of four years.

As of December 31, 1996, the Company had outstanding options to purchase an
aggregate of 1,170,730 shares of Common Stock at exercise prices ranging from
$0.24 to $8.25 per share, or a weighted average per share exercise price of
$3.26. At December 1, 1996, a total of 35,756 shares of Common Stock was
available for future issuance under the 1989 Stock Plan and became available for
grant under the 1996 Stock Plan.

1996 Stock Incentive Plan

The 1996 Stock Plan was adopted by the Board of Directors on December 5,
1996, to be effective December 1, 1996, and was approved by the stockholders in
December 1996. The 1996 Stock Plan replaces the Company's 1989 Stock Plan.
Although all future awards will be made under the 1996 Stock Plan, awards made
under the 1989 Stock Plan will continue to be administered in accordance with
the 1989 Stock Plan. However, except as otherwise noted, the outstanding options
under the 1989 Plan contain substantially the same terms and conditions
specified below for option grants under the 1996 Stock Plan.

The 1996 Stock Plan is administered by the Board of Directors or its
delegate. The Board, or its delegate, selects the employees of the Company who
will receive awards, determines the size of any award and establishes any
vesting or other conditions. Employees, directors, consultants and advisors of
the Company (or any subsidiary of the Company) are eligible to participate in
the 1996 Stock Plan, although incentive stock options may be granted only to
employees. No individual may receive options or stock appreciation rights
("SARs") covering more than 250,000 shares in any calendar year. The
participation of the outside directors of the Company is limited to 20% of
shares available under the 1996 Stock Plan.

The 1996 Stock Plan provides for awards in the form of restricted shares,
stock units, options or SARs, or any combination thereof. No payment is required
upon receipt of an award, except that a recipient of newly issued restricted
shares must pay the par value of such restricted shares to the Company.

Restricted shares are shares of Common Stock that are subject to repurchase
by the Company at the employee's purchase price in the event that the applicable
vesting conditions are not satisfied, and they are nontransferable prior to
vesting (except for certain transfers to a trustee). Restricted shares have the
same voting and dividend rights as other shares of Common Stock.

A stock unit is an unfunded bookkeeping entry representing the equivalent
of one share of Common Stock, and is nontransferable prior to the holder's
death. A holder of a stock unit has no voting rights or other privileges as a
stockholder but may be entitled to receive dividend equivalents equal to the
amount of dividends paid on the same number of shares of Common Stock. Dividend
equivalents may be converted into additional stock units or settled in the form
of cash, Common Stock or a combination of both. Stock units, when vested, may be
settled by distributing shares of Common Stock or by a cash payment
corresponding to the fair market value of an equivalent number of shares of
Common Stock, or a combination of both. Vested stock units will be settled at
the time determined by the Compensation Committee. If the time of settlement is
deferred, interest or additional dividend equivalents may be credited on the
deferred payment.

The recipient of restricted shares or stock units may pay all projected
withholding taxes relating to the award with Common Stock rather than cash.

Options may include nonstatutory stock options ("NSOs") as well as ISOs
intended to qualify for special tax treatment. The term of an ISO cannot exceed
10 years (five years for 10% stockholders), and the exercise price of an ISO
must be equal to or greater than the fair market value of the Common Stock on
the date of grant (or 110% of fair market value at the date of grant for 10%
stockholders). The exercise price of an NSO must be equal to or greater than the
par value of the Common Stock on the date of grant.

50
<PAGE> 53

The exercise price of an option may be paid in any lawful form permitted by
the Compensation Committee, including (without limitation) the surrender of
shares of Common Stock or restricted shares already owned by the optionee. The
Compensation Committee may likewise permit optionees to satisfy their
withholding tax obligation upon exercise of an NSO by surrendering a portion of
their option shares to the Company. The 1996 Stock Plan also allows the optionee
to pay the exercise price of an option by giving "exercise/sale" or
"exercise/pledge" directions. If exercise/sale directions are given, a number of
option shares sufficient to pay the exercise price and any withholding taxes is
issued directly to a securities broker selected by the Company who, in turn,
sells these shares in the open market. The broker remits to the Company the
proceeds from the sale of these shares, and the optionee receives the remaining
option shares. If exercise/ pledge directions are given, the option shares are
issued directly to a securities broker or other lender selected by the Company.
The broker or other lender will hold the shares as security and will extend
credit for up to 50% of their market value. The loan proceeds will be paid to
the Company to the extent necessary to pay the exercise price and any
withholding taxes. Any excess loan proceeds may be paid to the optionee. If the
loan proceeds are insufficient to cover the exercise price and withholding
taxes, the optionee will be required to pay the deficiency to the Company at the
time of exercise.

An SAR permits the participant to elect to receive any appreciation in the
value of the underlying stock from the Company, either in shares of Common Stock
or in cash or a combination of the two, with the Compensation Committee having
the discretion to determine the form in which such payment will be made. The
amount payable on exercise of an SAR is measured by the difference between the
market value of the underlying stock at exercise and the exercise price. SARs
may, but need not, be granted in conjunction with options. Upon exercise of an
SAR granted in tandem with an option, the corresponding portion of the related
option must be surrendered and cannot thereafter be exercised. Conversely, upon
exercise of an option to which an SAR is attached, the SAR may no longer be
exercised to the extent that the corresponding option has been exercised. All
options and SARs are nontransferable prior to the optionee's death.

As noted above, the Compensation Committee determines the number of
restricted shares, stock units, options or SARs to be included in the award as
well as the vesting and other conditions. The vesting conditions may be based on
the employee's service, his or her individual performance, the Company's
performance or other appropriate criteria. In general, the vesting conditions
will be based on the employee's service after the date of grant. Vesting may be
accelerated in the event of the employee's death, disability or retirement or in
the event of a change in control with respect to the Company.

For purposes of the 1996 Stock Plan, the term "change in control" does not
include this Offering or the consequences of this Offering but thereafter means
that (i) any person is or becomes the beneficial owner, directly or indirectly,
of at least 50% of the combined voting power of the Company's outstanding
securities ordinarily having the right to vote at elections of directors (ii)
approval by the stockholders of the Company of a merger or consolidation of the
Company with or into another corporation or entity or any other corporate
reorganization in which over 50% of the combined voting power of the continuing
or surviving entity immediately after the merger, consolidation or
reorganization is owned by persons who were not stockholders of the Company
immediately prior to the merger, consolidation or reorganization; or (iii) a
change in the composition of the Board of Directors in which fewer than half of
the incumbent Directors had been Directors 24 months prior to the change or were
elected or nominated with the affirmative votes of Directors 24 months prior to
the change.

Awards under the 1996 Stock Plan may provide that if any payment (or
transfer) by the Company to a recipient would be nondeductible by the Company
for federal income tax purposes, then the aggregate present value of all such
payments (or transfers) will be reduced to an amount which maximizes such value
without causing any such payment (or transfer) to be nondeductible.

The Board is authorized, within the provisions of the 1996 Stock Plan, to
amend the terms of outstanding restricted shares or stock units, to modify or
extend outstanding options or SARs or to exchange new options for outstanding
options, including outstanding options with a higher exercise price than the new
options.

Members of the Company's Board of Directors who are not employees of the
Company are eligible for awards under the 1996 Stock Plan. However, such outside
directors are not eligible for ISO grants. Total shares available to outside
directors is limited to 20% of total shares available under the 1996 Stock Plan.

51
<PAGE> 54

As of December 31, 1996, the Company had outstanding options to purchase
109,450 shares of Common Stock at exercise prices of $5.50 and $6.50 per share,
or a weighted average per share exercise price of $5.54 under the 1996 Stock
Plan. The total number of restricted shares, stock units, options and SARs
available for grant under the 1996 Stock Plan is 900,000 (subject to
anti-dilution provisions), increased by the amount of all remaining shares
available for grant under the 1989 Stock Plan as of December 1, 1996. If any
restricted shares, stock units, options or SARs are forfeited, or if options or
SARs terminate for any other reason prior to exercise (other than the exercise
of a related SAR or option, and including any forfeiture or termination under
the 1989 Stock Plan), then they again become available for awards under the 1996
Stock Plan.

Employee Stock Purchase Plan

The ESPP was adopted by the Board of Directors on December 5, 1996,
effective upon the completion of this Offering. The ESPP provides employees of
the Company with an opportunity to purchase Common Stock at a discount and pay
for their purchases through payroll deductions. All expenses incurred in
connection with the implementation and administration of the ESPP will be paid
by the Company. A pool of 100,000 shares of Common Stock has been reserved for
issuance under the ESPP (subject to anti-dilution provisions). Each regular
full-time and part-time employee who works an average of over 20 hours per week
will be eligible to participate in the ESPP at the beginning of the first
participation period after the employee's date of hire.

Eligible employees may elect to contribute up to 15% of their cash
compensation under the ESPP. Each calendar year is divided into two six-month
"accumulation periods," except that the entire period from the date of this
offering to June 30, 1997, will be a single accumulation period. At the end of
each accumulation period, the Company will apply the amount contributed by the
participant during that period to purchase shares of Common Stock for him or
her. The purchase price will be equal to 85% of the lower of (a) the market
price of Common Stock immediately before the beginning of the applicable
"offering period" or (b) the market price of Common Stock on the last business
day of the accumulation period. In general each offering period is 24 months
long, but a new offering period begins every six months. Thus up to four
overlapping periods may be in effect at the same time. If the market price of
Common Stock is lower when a subsequent offering period begins, the subsequent
offering period automatically becomes the applicable offering period. No
participant may purchase more than 2,500 shares per accumulation period, and the
value of the Common Stock purchased each calendar year (measured at the
beginning of the offering periods) may not exceed $25,000 per participant.
Participants may withdraw their contributions at any time before the close of
the accumulation period.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

The Company has adopted provisions in its Certificate of Incorporation that
limit the liability of its directors for monetary damages for breach of their
fiduciary duty as directors, except for liability that cannot be eliminated
under the Delaware General Corporation Law (the "Delaware Law"). The Delaware
Law provides that directors of a company will not be personally liable for
monetary damages for breach of their fiduciary duty as directors, except for
liability (i) for any breach of their duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for unlawful payment
of dividend or unlawful stock repurchase or redemption, as provided in Section
174 of the Delaware Law, or (iv) for any transaction from which the director
derived an improper personal benefit.

The Company's Bylaws also provide that the Company shall indemnify its
directors and officers to the fullest extent permitted by the Delaware Law. The
Company intends to enter into separate indemnification agreements with its
directors and officers that could require the Company, among other things, to
indemnify them against certain liabilities that may arise by reason of their
status or service as directors and to advance their expenses incurred as a
result of any proceeding against them as to which they could be indemnified. The
Company believes that the limitation of liability provision in its Certificate
of Incorporation and the indemnification agreements will facilitate the
Company's ability to continue to attract and retain qualified individuals to
serve as directors and officers of the Company.

52
<PAGE> 55

CERTAIN TRANSACTIONS

In June 1994, the Company entered into two agreements with Merck, a
collaborative development agreement and a supply and distribution agreement, in
connection with the Company's development of Triage Cardiac. Merck beneficially
owns more than 5% of the Company's Common Stock and distributes the Triage DOA
in certain counties in Europe, Latin America, the Middle East, Asia and Africa.
See "Business -- Strategic and Distribution Arrangements" and Note 1 and 3 of
Notes to Financial Statements.

The Company believes that the foregoing transaction was in its best
interests. As a matter of policy this transaction was, and all future
transactions between the Company and its officers, directors or principal
shareholders will be, approved by a majority of the independent and
disinterested members of the Board of Directors, on terms no less favorable to
the Company than could be obtained from unaffiliated third parties and in
connection with bona fide business purposes of the Company.

53
<PAGE> 56

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of December 31, 1996 and as adjusted
to reflect the sale by the Company of the shares offered hereby, by: (i) each
person who is known by the Company to beneficially own more than 5% of the
Company's Common Stock, (ii) each of the Company's directors, (iii) each of the
Company's officers named under "Management -- Summary Compensation Table," and
(iv) all directors and executive officers of the Company as a group.

<TABLE>
<CAPTION>
PERCENT BENEFICIALLY
OWNED(1)
SHARES -----------------------
NAME AND ADDRESS BENEFICIALLY BEFORE AFTER
OF BENEFICIAL OWNER OWNED OFFERING OFFERING
- ---------------------------------------------------------- ------------ -------- --------
<S> <C> <C> <C>
Medicus Venture Partners(2)............................... 1,662,559 16.8% 13.5%
2180 Sand Hill Road
Suite 400
Menlo Park, CA 94025
Kleiner, Perkins, Caufield & Byers V(3)................... 1,485,476 15.0 12.1
2750 Sand Hill Road
Menlo Park, CA 94025
Merck KGaA................................................ 1,041,667 10.5 9.7(4)
Frankfurter Strasse 250
D-6100 Darmstadt 1
Federal Republic of Germany
Euclid Partners III, L.P. ................................ 1,005,869 10.2 8.2
50 Rockefeller Plaza
New York, NY 10020
Kingsbury Capital Partners, L.P. ......................... 635,417 6.4 5.2
3655 Nobel Drive, Suite 490
San Diego, CA 92122
Frederick J. Dotzler(2)................................... 1,662,559 16.8 13.5
Stephen K. Reidy(5)....................................... 1,005,869 10.2 8.2
Timothy J. Wollaeger(6)................................... 707,015 7.1 5.8
Jesse I. Treu, Ph.D.(7)................................... 329,167 3.3 2.7
Howard E. Greene, Jr.(8).................................. 297,927 3.0 2.4
Thomas H. Adams, Ph.D. ................................... 53,833 * *
Gunars E. Valkirs(9)(10).................................. 291,008 2.9 2.4
Kim D. Blickenstaff(9).................................... 289,026 2.9 2.3
Kenneth F. Buechler(9).................................... 283,378 2.9 2.3
S. Nicholas Stiso(9)...................................... 81,979 * *
Charles W. Patrick(9)..................................... 72,129 * *
Thomas M. Watlington(9)................................... -- * *
All directors and executive officers as a group (13
persons)(9)(11)......................................... 5,124,739 50.4% 40.8%
</TABLE>

- ---------------
* Less than 1%.

(1) To the Company's knowledge, the persons named in the table have sole voting
and investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property laws where
applicable and the information contained in the footnotes to this table.

54
<PAGE> 57

(2) Includes (i) 704,225 shares held by Medicus Venture Partners 1989, (ii)
520,833 shares held by Medicus Venture Partners 1990, (iii) 333,334 shares
held by Medicus Venture Partners 1991 and (iv) 104,167 shares held by
Medicus Venture Partners 1992 (collectively, the "Medicus Entities"). A
limited partnership affiliated with The Hillman Company and a limited
partnership with general partners Frederick J. Dotzler and John Reher are
each general partners of each of the Medicus Entities, and therefore may be
deemed to be the beneficial owner of these shares because they share the
power to vote and dispose of these shares. The Hillman Company is
controlled by Henry L. Hillman, Elsie Hilliard Hillman and C.G.
Grefenstette, trustees (the "HLH Trustees") of the Henry L. Hillman Trust
U/A dated November 18, 1985 (the "HLH Trust"), which three trustees share
the power to vote and dispose of shares representing a majority of the
voting shares of The Hillman Company. Does not include 50,409 shares held
directly by the HLH Trust or 134,423 shares held directly by Wilmington
Interstate Corporation, an indirect, wholly-owned subsidiary of The Hillman
Company. Also does not include an aggregate of 20,164 shares held by four
irrevocable trusts for the benefit of members of the Hillman family (the
"Family Trusts"), as to which shares the HLH Trustees (other than Mr.
Grefenstette) disclaim beneficial ownership. C.G. Grefenstette and Thomas
G. Bigley are trustees of the Family Trusts and share voting and
dispositive power over the assets of the Family Trusts.

(3) Includes 56,044 shares held by KPCB Zaibatsu Fund I.

(4) Includes 146,850 shares that Merck has indicated it will purchase in this
offering.

(5) Includes 1,005,869 shares held by Euclid Partners III, L.P. Mr. Reidy is a
general partner of the general partner of Euclid Partners III, L.P., and as
such, may be deemed to share voting and investment power with respect to
such shares. Mr. Reidy disclaims beneficial ownership of such shares except
to the extent of his pecuniary interest in such partnership.

(6) Includes 635,417 shares held by Kingsbury Capital Partners I, L.P. Mr.
Wollaeger is a general partner of the general partner of Kingsbury Capital
Partners I, L.P., and as such, may be deemed to share voting and investment
power with respect the shares held by the partnership. Mr. Wollaeger
disclaims beneficial ownership of such shares, except to the extent of his
pecuniary interest in such partnership. Includes 6,722 shares held in a
trust for the benefit of Mr. Wollaeger's family as to which Mr. Wollaeger
has shared voting and investment power.

(7) Includes 329,167 shares held by Domain Partners, L.P. Dr. Treu is a general
partner of the general partner of Domain Partners, L.P., and as such, may
be deemed to share voting and investment power with respect to such shares.
Dr. Treu disclaims beneficial ownership except to the extent of his
pecuniary interest in such partnership. Excludes 429,167 shares
beneficially held by Biotechnology Investments Ltd. ("BIL"). Dr. Treu is a
general partner of Domain Associates, the United States venture capital
advisor to BIL pursuant to a contractual arrangement. Domain Associates has
no voting or investment power over BIL. Dr. Treu disclaims beneficial
ownership of the shares held by BIL.

(8) Includes 297,927 shares held in a trust for the benefit of Mr. Greene's
family as to which Mr. Greene has shared voting and investment power.

(9) Includes shares which may be acquired pursuant to the exercise of options
within 60 days of December 31, 1996 as follows: Dr. Valkirs, 55,174, Mr.
Blickenstaff, 62,359, Dr. Buechler, 64,544, Dr. Stiso, 15,141, Mr. Patrick,
44,795, Mr. Watlington, none and all directors and executive officers as a
group (13 persons), 264,287.

(10) Includes 235,834 shares held of record by the Valkirs Family Trust.

(11) Includes shares held by entities referenced in footnotes 2, 5, 6, 7, 8 and
10 which are affiliated with certain directors, except for shares excluded
in footnote 7.

55
<PAGE> 58

DESCRIPTION OF CAPITAL STOCK

Upon the closing of this offering, the authorized capital stock of the
Company, after giving effect to the conversion of all outstanding Preferred
Stock into Common Stock, and the amendment of the Company's Certificate of
Incorporation, will consist of 25,000,000 shares of Common Stock, $.01 par
value, and 5,000,000 shares of Preferred Stock, $.01 par value.

COMMON STOCK

As of December 31, 1996 there were 9,894,995 shares of Common Stock
outstanding held by approximately 165 stockholders of record. Such figures
assume the conversion of each outstanding share of Preferred Stock and the
conversion of convertible debt issued to Novartis upon the closing of this
offering.

The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferences that may be applicable to any then outstanding Preferred Stock,
holders of Common Stock are entitled to receive ratably such dividends, if any,
as may be declared by the Board of Directors out of funds legally available
therefor. See "Dividend Policy." In the event of a liquidation, dissolution or
winding up of the Company, holders of the Common Stock and the Preferred Stock
are entitled to share ratably on an as-converted basis in all assets remaining
after payment of liabilities and the liquidation preference of any then
outstanding Preferred Stock. The Common Stock has no preemptive or conversion
rights or other subscription rights and there are no redemptive or sinking funds
provisions applicable to the Common Stock. All outstanding shares of Common
Stock are, and the Common Stock to be outstanding upon completion of this
offering will be, fully paid and nonassessable.

PREFERRED STOCK

Upon the closing of this offering, all outstanding shares of Preferred
Stock will be converted into Common Stock. See Note 7 of Notes to Financial
Statements for a description of the currently outstanding Preferred Stock.
Following the conversion, the Company's Certificate of Incorporation will be
restated to delete all references to the prior series of Preferred Stock, and
5,000,000 shares of undesignated Preferred Stock will be authorized. The Board
of Directors has the authority, without further action by the stockholders, to
issue from time to time the Preferred Stock in one or more series and to fix the
number of shares, designations, preferences, powers, and relative,
participating, optional or other special rights and the qualifications or
restrictions thereof. The preferences, powers, rights and restrictions of
different series of Preferred Stock may differ with respect to dividend rates,
amounts payable on liquidation, voting rights, conversion rights, redemption
provisions, sinking fund provisions, and purchase funds and other matters. The
issuance of Preferred Stock could decrease the amount of earnings and assets
available for distribution to holders of Common Stock or affect adversely the
rights and powers, including voting rights, of the holders of Common Stock, and
may have the effect of delaying, deferring or preventing a change in control of
the Company. The Company has no present plan to issue any shares of Preferred
Stock.

REGISTRATION RIGHTS

After this offering, the holders of 6,870,513 shares of Common Stock issued
upon conversion of the Company's Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock (collectively,
"Registrable Shares") or their permitted transferees, are entitled to certain
rights with respect to the registration of such shares under the Securities Act
of 1933, as amended (the "Securities Act"). If the Company proposes to register
any of its securities under the Securities Act, either for its own account or
for the account of other security holders, holders of Registrable Shares are
entitled to notice of such 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. Holders of the 1,458,334 shares of Common Stock issued upon
conversion of the Company's Series E Preferred Stock and holders of shares of
Common Stock issued upon conversion of the convertible debt issued to Novartis
are entitled to similar "piggyback" rights, on no more than two occasions,
commencing

56
<PAGE> 59

two years after the effective date of this offering. In addition, commencing 180
days after the effective date of this offering, holders of at least 30% of the
Registrable Shares may require the Company to prepare and file a registration
statement under the Securities Act, at the Company's expense covering at least
30% of the shares entitled to registration rights and with an offering price
(net of underwriting discounts and commissions) of more than $7,500,000, and the
Company is required to use its best efforts to effect such registration, subject
to certain conditions and limitations. The Company is not obligated to effect
more than two of these stockholder-initiated registrations. Further, holders of
Registrable Shares may require the Company to file additional registration
statements on Form S-3, subject to certain conditions and limitations.

DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS

The Company is subject to the provisions of Section 203 of the Delaware
Law, an anti-takeover law. In general, the statute prohibits a publicly held
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 "business combination"
includes a merger, asset sale or other transaction resulting in financial
benefit to the stockholder. An "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years prior, did
own) 15% or more of the corporation's voting stock.

Upon the closing of this offering, the Company's Certification of
Incorporation will be amended to require that any action permitted to be taken
by stockholders of the Company must be effected at a duly-called annual or
special meeting of stockholders and will not be able to be effected by a consent
in writing. The Board of Directors will be composed of a classified board where
only one-third of the directors are eligible for election in any given year. The
Company's Certificate of Incorporation will also be amended to require the
approval of at least two-thirds of the total number of authorized directors in
order to adopt, amend or repeal the Company's Bylaws. In addition, the Company's
Certificate of Incorporation will similarly be amended to permit the
stockholders to adopt, amend or repeal the Company's Bylaws only upon the
affirmative vote of the holders of at least two-thirds of the voting power of
all then outstanding shares of stock entitled to vote. Lastly, the foregoing
provisions of the Certificate of Incorporation and certain other provisions
pertaining to the limitation of liability and indemnification of directors will
be able to be amended or repealed only with the affirmative vote of the holders
of at least two-thirds of the voting power of all then outstanding shares of
stock entitled to vote. These provisions may have the effect to deterring
hostile takeovers or delaying changes in control or management of the Company.

Upon the closing of this offering, the Company's Bylaws will also be
amended to contain certain of the above provisions found in the Company's
Certificate of Incorporation. The Company's Bylaws, as amended (the "Restated
Bylaws"), will not permit stockholders to call a special meeting. In addition,
the Company's Restated Bylaws will establish an advance notice procedure with
regard to the nomination, other than by or at the direction of the Board of
Directors, of candidates for election as directors and with regard to certain
matters to be brought before an annual meeting of stockholders of the Company.
Also, a director will be removable only for cause. In addition, the Restated
Bylaws will provide that the business permitted to be conducted in any annual
meeting or special meeting of stockholders will be limited to business properly
brought before the meeting.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is The First National
Bank of Boston.

57
<PAGE> 60

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this offering there has been no public market for the Common Stock
of the Company, and no predictions can be made regarding the effect, if any,
that market sales of shares or the availability of shares for sale will have on
the market price prevailing from time to time. As described below, a limited
number of shares will be available for sale shortly after this offering due to
certain contractual and legal restrictions on resale. Nevertheless, sales of
substantial amounts of Common Stock of the Company in the public market after
the restrictions lapse could adversely affect the prevailing market price.

Upon completion of this offering, the Company will have outstanding
12,294,995 shares of Common Stock. The 2,400,000 shares of Common Stock being
sold hereby will be freely tradable (other than by an "affiliate" of the Company
as such term is defined in the Securities Act) without restriction or
registration under the Securities Act. All remaining shares were issued and sold
by the Company in private transactions ("Restricted Shares") and are eligible
for public sale if registered under the Securities Act or sold in accordance
with Rule 144 or Rule 701 thereunder.

Upon the commencement of this offering, an additional 257,661 shares will
be eligible for immediate sale without restriction under Rule 144(k). In
addition, approximately 236,130 shares will be eligible for resale under Rule
144 or Rule 701, beginning 90 days from the Effective Date. Certain
stockholders, who collectively hold an aggregate of 970,107 shares of Common
Stock, have agreed pursuant to certain agreements with the Company that they
will not sell such Common Stock for a period of 120 days from the Effective
Date. Following the expiration of such 120-day lockup period, all such shares
will be available for resale without restriction under Rule 144(k). The
Company's directors, executive officers and certain other stockholders, who
collectively hold an aggregate of 8,338,522 shares of Common Stock, have agreed
pursuant to certain agreements that they will not sell any Common Stock owned by
them without the prior written consent of the Representatives of the
Underwriters for a period of 180 days from the Effective Date. Following the
expiration of such lockup period, all such shares will be available for sale in
the public market subject to compliance with Rule 144 or Rule 701, including
approximately 3,467,770 shares eligible for the sale under Rule 144(k). See
"Underwriting."

In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, an affiliate of the Company, or a holder of
Restricted Shares who owns beneficially shares that were not acquired from the
Company or an affiliate of the Company within the previous two years, would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of 1% of the then outstanding shares of Common Stock
(approximately 122,950 shares immediately after this offering, assuming no
exercise of the Underwriters' over-allotment option) or the average weekly
trading volume of the Common Stock during the four calendar weeks preceding the
date on which notice of the sale is filed with the Securities and Exchange
Commission (the "Commission"). Sales under Rule 144 are subject to certain
requirements relating to manner of sale, notice and availability of current
public information about the Company. However, a person (or persons whose shares
are aggregated) who is not deemed to have been an affiliate of the Company at
any time during the 90 days immediately preceding the sale and who owns
beneficially Restricted Shares is entitled to sell such shares under Rule 144(k)
without regard to the limitations described above; provided that at least three
years have elapsed since the later of the date the shares were acquired from the
Company or from an affiliate of the Company. The foregoing is a summary of Rule
144 and is not intended to be a complete description of it.

Subject to certain limitations on the aggregate offering price of a
transaction and other conditions, Rule 701 may be relied upon with respect to
the resale of securities originally purchased from the Company by its employees,
directors, officers, consultants or advisers prior to the closing of this
offering, pursuant to written compensatory benefit plans or written contracts
relating to the compensation of such persons. In addition, the Commission has
indicated that Rule 701 will apply to stock options granted by the Company
before this offering, along with the shares acquired upon exercise of such
options. Securities issued in reliance on Rule 701 are deemed to be Restricted
Shares and, beginning 90 days after the Effective Date (unless subject to the
contractual restrictions described above), may be sold by persons other than
affiliates subject only to the

58
<PAGE> 61

manner of sale provisions of Rule 144 and by affiliates under Rule 144 without
compliance with its two-year minimum holding period requirements.

The Company intends to file a registration statement under the Securities
Act covering approximately 2,206,486 shares of Common Stock reserved for
issuance under the stock plans. Such registration statement is expected to be
filed soon after the date of this Prospectus and will automatically become
effective upon filing. Accordingly, shares registered under such registration
statement will be available for sale in the open market, unless such shares are
subject to vesting restrictions with the Company or the contractual restrictions
described above.

In addition, after this offering, the holders of approximately 6,870,513
shares of Common Stock will be entitled to certain rights to demand that the
Company to register the sale of such shares under the Securities Act. Such
holders and holders of 1,458,334 shares of Common Stock and 92,575 shares to be
issued upon the closing of this offering upon conversion of convertible debt
issued to Novartis are also entitled to be included in certain Company
registrations. Registration of such shares under the Securities Act would result
in such shares becoming freely tradable without restriction under the Securities
Act (except for shares purchased by affiliates of the Company) immediately upon
the effectiveness of such registration. See "Description of Capital
Stock -- Registration Rights."

59
<PAGE> 62

UNDERWRITING

Subject to the terms and conditions set forth in the Underwriting
Agreement, the Underwriters named below (the "Underwriters"), through their
representatives, Cowen & Company and Alex. Brown & Sons Incorporated, have
severally agreed to purchase from the Company the following respective number of
shares at the initial public offering price less the underwriting discounts and
commissions set forth on the cover page of this Prospectus:

<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
------------------------------------------------------------------ ---------
<S> <C>
Cowen & Company................................................... 787,500
Alex. Brown & Sons Incorporated................................... 787,500
Bear, Stearns & Co. Inc........................................... 50,000
Credit Suisse First Boston Corporation............................ 50,000
Dillon, Read & Co. Inc............................................ 50,000
Donaldson, Lufkin & Jenrette Securities Corporation............... 50,000
Goldman, Sachs & Co............................................... 50,000
Hambrecht & Quist LLC............................................. 50,000
J.P. Morgan Securities Inc........................................ 50,000
Morgan Stanley & Co. Incorporated................................. 50,000
Oppenheimer & Co., Inc............................................ 50,000
Prudential Securities Incorporated................................ 50,000
UBS Securities LLC................................................ 50,000
Brean Murray & Co., Inc........................................... 25,000
Crowell, Weedon & Co.............................................. 25,000
Dain Bosworth Incorporated........................................ 25,000
Furman Selz LLC................................................... 25,000
Gruntal & Co., Incorporated....................................... 25,000
Interstate/Johnson Lane Corporation............................... 25,000
Nesbitt Burns Securities Inc. .................................... 25,000
Raymond James & Associates, Inc. ................................. 25,000
Torrey Pines Securities, Inc. .................................... 25,000
Van Kasper & Company.............................................. 25,000
Wedbush Morgan Securities Inc. ................................... 25,000
--------
Total................................................... 2,400,000
========
</TABLE>

The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company and its counsel and
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Common Stock offered hereby if any
of such shares are purchased.

The Underwriters propose to offer the shares of Common Stock directly to
the public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $.47 per share. The Underwriters may allow and such dealers may
re-allow a concession not in excess of $.10 per share to certain other dealers.
The Underwriters have informed the Company that they do not intend to confirm
sales to any accounts over which they exercise discretionary authority. After
the initial public offering of the shares, the offering price and other selling
terms may from time to time be varied by the Underwriters.

The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the Effective Date, to purchase up to 360,000 additional
shares of Common Stock at the initial public offering price, less the
underwriting discounts and commissions, set forth on the cover page of this
Prospectus, to cover over-allotments, if any. If the Underwriters exercise such
over-allotment option, the Underwriters have

60
<PAGE> 63

severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares of Common Stock to be
purchased by each of them shown in the foregoing table bears to the total number
of shares of Common Stock offered hereby. The Underwriters may exercise such
option only to cover over-allotments made in connection with the sale of shares
of Common Stock offered hereby.

The Company's officers and directors and certain other stockholders of the
Company holding in the aggregate approximately 8,338,522 shares of Common Stock
have agreed that they will not, without the prior written consent of Cowen &
Company, offer, sell or otherwise dispose of any shares of Common Stock,
options, rights or warrants to acquire shares of Common Stock, or securities
exchangeable for or convertible into shares of Common Stock owned by them during
the 180-day period commencing on the Effective Date. Other stockholders of the
Company holding in the aggregate approximately 970,107 shares of Common Stock
have agreed that they will not sell or otherwise transfer or dispose of any such
shares of Common Stock owned by them during the 120-day period commencing on the
Effective Date. In addition, the Company has agreed that it will not, without
the prior written consent of Cowen & Company, offer, sell or otherwise dispose
of any shares of Common Stock options, rights or warrants to acquire shares of
Common Stock, or securities exchangeable for or convertible into shares of
Common Stock during such 180-day period except in certain limited circumstances.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments the Underwriters may be required to make in respect thereof.

Prior to this offering, there has been no public market for the Common
Stock. The initial public offering price for the Common Stock has been
determined by negotiation among the Company and the Representatives. Among the
factors considered in determining the initial public offering price were
prevailing market and economic conditions, market valuations of other companies
engaged in activities similar to the Company, estimates of the business
potential and prospects of the Company, the present state of the Company's
business operations, the Company's management and other factors deemed relevant.

LEGAL MATTERS

Certain legal matters with respect to the validity of the Common Stock
offered hereby will be passed upon for the Company by Pillsbury Madison & Sutro
LLP, San Francisco, California. A member of Pillsbury Madison & Sutro LLP owns
18,360 shares of Common Stock. Cooley Godward LLP, San Diego, California, is
acting as counsel for the Underwriters in connection with certain legal matters
relating to the sale of the Common Stock offered hereby. An investment
partnership affiliated with Cooley Godward LLP owns 6,722 shares of Common
Stock.

EXPERTS

The financial statements of Biosite at December 31, 1994 and 1995, and
September 30, 1996 and for each of the three years in the period ended December
31, 1995 and the nine months ending September 30, 1996, appearing in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement under
the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. For further information with
respect to the Company and the Common Stock offered hereby, reference is hereby
made to such Registration Statement, exhibits and schedules. Statements
contained in this Prospectus regarding the contents of any contract or other
document are not necessarily complete; with respect to each such contract or
document filed

61
<PAGE> 64

as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference. A copy of the
Registration Statement, including the exhibits and schedules thereto, may be
inspected without charge at the principal office of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, and copies of such material may be
obtained from such office upon payment of the fees prescribed by the Commission.
In addition, the Commission maintains a World Wide Web site on the Internet at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.

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

62
<PAGE> 65

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..................................... F-2
Balance Sheets at December 31, 1994 and 1995 and September 30, 1996................... F-3
Statements of Income for each of the three years in the period ended December 31, 1995
and the nine months ended September 30, 1995 (unaudited) and 1996................... F-4
Statements of Stockholders' Equity for each of the three years in the period ended
December 31, 1995 and the nine months ended September 30, 1996...................... F-5
Statements of Cash Flows for each of the three years in the period ended December 31,
1995 and the nine months ended September 30, 1995 (unaudited) and 1996.............. F-6
Notes to Financial Statements......................................................... F-7
</TABLE>

F-1
<PAGE> 66

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Biosite Diagnostics Incorporated

We have audited the accompanying balance sheets of Biosite Diagnostics
Incorporated as of December 31, 1994 and 1995 and September 30, 1996, and the
related statements of income, stockholders' equity and cash flows for each of
the three years in the period ended December 31, 1995 and the nine months ended
September 30, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Biosite Diagnostics
Incorporated at December 31, 1994 and 1995 and September 30, 1996, and the
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1995 and the nine months ended September 30, 1996 in
conformity with generally accepted accounting principles.

ERNST & YOUNG LLP

San Diego, California
November 12, 1996, except for Note 7,
as to which the date is December 5, 1996

F-2
<PAGE> 67

BIOSITE DIAGNOSTICS INCORPORATED

BALANCE SHEETS

<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, LIABILITIES AND
-------------------------- SEPTEMBER 30, STOCKHOLDERS'
1994 1995 1996 EQUITY AT
------------ ----------- ------------------ SEPTEMBER 30,
1996
------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 392,433 $ 2,276,403 $ 1,410,620
Marketable securities, available-for-sale......... 5,523,160 11,702,607 8,758,654
Accounts receivable............................... 3,175,899 3,801,755 4,153,326
Receivable from stockholder....................... 471,000 141,000 620,000
Inventory......................................... 1,137,830 1,689,124 1,709,016
Deferred income taxes............................. -- 1,073,000 1,279,000
Prepaid expenses and other current assets......... 353,302 413,917 589,675
------------ ----------- -----------
Total current assets........................ 11,053,624 21,097,806 18,520,291
Property, equipment and leasehold improvements,
net............................................... 1,859,573 3,599,969 3,941,520
Deferred income taxes............................... -- 754,000 884,000
Patents and license rights, net..................... 472,060 1,759,809 4,458,074
Deposits and other assets........................... 978,347 723,349 1,164,199
------------ ----------- -----------
$ 14,363,604 $27,934,933 $ 28,968,084
============ =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 608,085 $ 776,393 $ 1,345,799 $ 1,345,799
Accrued salaries and other........................ 591,393 912,259 898,320 818,320
Accrued contract payable.......................... 423,807 1,053,052 1,281,276 1,281,276
Accrued settlement of patent matters.............. -- 2,200,000 -- --
Contract advance.................................. 500,000 -- -- --
Deferred revenue from stockholder................. 316,330 615,282 -- --
Current portion of long-term obligations.......... 640,453 1,112,712 1,027,579 1,027,579
------------ ----------- ----------- -----------
Total current liabilities................... 3,080,068 6,669,698 4,552,974 4,472,974
Long-term obligations............................... 771,563 2,739,473 3,233,643 2,233,643
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock, $.01 par value,
8,328,847 shares authorized (5,000,000 pro
forma); 8,328,847 shares issued and outstanding
(no shares pro forma), liquidation value,
$21,662,030..................................... 83,288 83,288 83,288 --
Common stock, $.01 par value, 12,000,000 shares
authorized (25,000,000 shares pro forma);
1,154,066, 1,369,595, and 1,460,093 shares
issued and outstanding at December 31, 1994,
1995, and September 30, 1996, respectively
(9,881,515 shares pro forma).................... 11,541 13,696 14,601 98,815
Additional paid-in capital........................ 21,483,800 21,570,516 21,686,698 22,796,676
Unrealized net gain (loss) on marketable
securities, net of related tax effect of $11,058
and $(6,754) at December 31, 1995 and September
30, 1996, respectively.......................... -- 16,588 (10,131) (10,131)
Deferred compensation............................. -- -- (48,023) (48,023)
Accumulated deficit............................... (11,066,656) (3,158,326) (544,966) (575,870)
------------ ----------- ----------- -----------
Total stockholders' equity.................. 10,511,973 18,525,762 21,181,467 22,261,467
------------ ----------- ----------- -----------
$ 14,363,604 $27,934,933 $ 28,968,084 $ 28,968,084
============ =========== =========== ===========
</TABLE>

See accompanying notes.

F-3
<PAGE> 68

BIOSITE DIAGNOSTICS INCORPORATED

STATEMENTS OF INCOME

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------------------- -------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales....................... $ 9,866,297 $16,319,752 $25,146,540 $18,235,729 $20,224,976
Cost of sales................... 3,268,030 4,415,344 5,648,786 3,781,316 4,317,648
----------- ----------- ----------- ----------- -----------
Gross profit.................... 6,598,267 11,904,408 19,497,754 14,454,413 15,907,328
Operating expenses:
Research and development...... 2,796,248 3,835,649 6,553,454 4,601,467 6,515,097
Sales and marketing........... 3,390,201 3,851,933 4,943,392 3,625,541 3,894,885
General and administrative.... 1,450,755 2,109,150 2,190,246 1,577,951 2,221,599
Settlement of patent
matters.................... -- 338,004 1,217,065 743,173 2,368,282
----------- ----------- ----------- ----------- -----------
7,637,204 10,134,736 14,904,157 10,548,132 14,999,863
----------- ----------- ----------- ----------- -----------
Operating income (loss)......... (1,038,937) 1,769,672 4,593,597 3,906,281 907,465
Other income (expense):
Interest income............... 217,610 238,990 605,002 380,851 579,073
Contract revenue-related
party...................... -- 343,678 561,048 388,261 856,880
Contract revenue.............. -- -- 300,000 300,000 --
Licensing and other income.... 395,201 66,207 181,683 184,057 5,942
----------- ----------- ----------- ----------- -----------
612,811 310,871 430,668 509,996 (926,387)
Income (loss) before benefit
(provision) for income
taxes......................... (426,126) 2,418,547 6,241,330 5,159,450 2,349,360
Benefit (provision) for income
taxes......................... -- (63,000) 1,667,000 (132,000) 264,000
----------- ----------- ----------- ----------- -----------
Net income (loss)............... $ (426,126) $ 2,355,547 $ 7,908,330 $ 5,027,450 $ 2,613,360
=========== =========== =========== =========== ===========
Net income (loss) per share..... $ (.04) $ .22 $ .74 $ .47 $ .24
=========== =========== =========== =========== ===========
Shares used in calculating per
share amounts................. 10,098,000 10,553,000 10,766,000 10,721,000 10,832,000
=========== =========== =========== =========== ===========
</TABLE>

See accompanying notes.

F-4
<PAGE> 69

BIOSITE DIAGNOSTICS INCORPORATED

STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
UNREALIZED
PREFERRED STOCK COMMON STOCK ADDITIONAL NET GAIN (LOSS) TOTAL
------------------ ------------------ PAID-IN ON MARKETABLE DEFERRED ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL SECURITIES COMPENSATION DEFICIT EQUITY
--------- ------- --------- ------- ---------- -------------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1,
1993... 8,328,847 $83,288 1,138,069 $11,381 $21,474,142 $ -- $ -- $(12,996,077) $ 8,572,734
Issuance of
common stock.. -- -- 14,298 143 8,146 -- -- -- 8,289
Net loss....... -- -- -- -- -- -- -- (426,126) (426,126)
---------- ------- --------- ------- ----------- --------- --------- ------------ -----------
Balance at
December 31,
1993........... 8,328,847 83,288 1,152,367 11,524 21,482,288 -- -- (13,422,203) 8,154,897
Issuance of
common stock.. -- -- 1,699 17 1,512 -- -- -- 1,529
Net income.... -- -- -- -- -- -- -- 2,355,547 2,355,547
---------- ------- --------- ------- ----------- --------- ---------- ------------- -----------
Balance at
December 31,
1994........... 8,328,847 83,288 1,154,066 11,541 21,483,800 -- -- (11,066,656) 10,511,973
Issuance of
common stock.. -- -- 215,529 2,155 86,716 -- -- -- 88,871
Change in
unrealized net
gain (loss) on
marketable
securities,
net ofincome
taxes of
$11,058....... -- -- -- -- -- 16,588 -- -- 16,588
Net income..... -- -- -- -- -- -- -- 7,908,330 7,908,330
---------- ------- --------- ------- ---------- --------- ---------- ------------ -----------
Balance at
December 31,
1995........... 8,328,847 83,288 1,369,595 13,696 21,570,516 16,588 -- (3,158,326) 18,525,762
Issuance of
common stock.. -- -- 90,498 905 67,397 -- -- -- 68,302
Change in
unrealized net
gain (loss) on
marketable
securities,
net of income
taxes of
$6,754........ -- -- -- -- -- (26,719) -- -- (26,719)
Deferred
compensation
related to
issuance of
stock options. -- -- -- -- 48,785 -- (48,785) -- --
Amortization of
deferred
compensation.. -- -- -- -- -- -- 762 -- 762
Net income..... -- -- -- -- -- -- -- 2,613,360 2,613,360
---------- ------- --------- ------- ----------- --------- ---------- ------------ -----------
Balance at
September 30,
1996........... 8,328,847 $83,288 1,460,093 $14,601 $21,686,698 $ (10,131) $ (48,023) $ (544,966) $21,181,467
========== ======= ========= ======= =========== ========= ========== ============ ===========
</TABLE>

See accompanying notes.

F-5
<PAGE> 70

BIOSITE DIAGNOSTICS INCORPORATED

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------- ----------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)............................ $ (426,126) $ 2,355,547 $ 7,908,330 $ 5,027,450 $ 2,613,360
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization.............. 524,984 544,332 1,787,386 658,468 1,861,614
Amortization of deferred compensation...... -- -- -- -- 762
Deferred income taxes...................... -- -- (1,827,000) -- (336,000)
Changes in operating assets and
liabilities:
Accounts receivable...................... (535,453) (1,712,708) (625,856) (644,571) (351,571)
Receivable from stockholder.............. (59,000) (412,000) 330,000 211,660 (479,000)
Inventory................................ (161,701) (402,193) (551,294) (526,981) (19,892)
Prepaid expenses and other current
assets................................. (340,948) 147,309 (71,673) (19,764) (157,946)
Accounts payable......................... 216,486 50,979 168,308 (31,849) 569,406
Accrued liabilities...................... 282,026 487,385 950,111 853,692 (1,985,715)
Contract advance......................... -- 500,000 (500,000) (500,000) --
Deferred revenue from a stockholder...... -- 316,330 298,952 471,739 (615,282)
----------- ----------- ----------- ----------- ------------
Net cash provided by (used in) operating
activities................................. (499,732) 1,874,981 7,867,264 5,499,844 1,099,736
INVESTING ACTIVITIES
Proceeds from sales and maturities of
marketable securities...................... 4,373,730 4,531,676 8,189,035 6,041,413 11,605,384
Purchase of marketable securities............ (7,731,313) (5,712,424) (14,340,836) (8,968,435) (8,705,962)
Purchase of property, equipment and leasehold
improvements............................... (142,972) (1,063,418) (2,682,315) (2,061,707) (1,378,923)
Patents, license rights, deposits and other
assets..................................... (155,232) (409,423) 321,782 254,752 (3,963,357)
----------- ----------- ----------- ----------- ------------
Net cash used in investing activities........ (3,655,787) (2,653,589) (8,512,334) (4,733,977) (2,442,858)
FINANCING ACTIVITIES
Proceeds from issuance of convertible
debentures................................. -- -- 1,000,000 1,000,000 --
Proceeds from issuance of equipment loans
payable.................................... -- 919,988 2,290,561 1,832,653 1,364,137
Principal payments under long-term
obligations................................ (516,684) (536,769) (850,392) (596,714) (955,100)
Proceeds from issuance of stock, net......... 8,289 1,529 88,871 69,170 68,302
----------- ----------- ----------- ----------- ------------
Net cash provided by (used in) financing
activities................................. (508,395) 384,748 2,529,040 2,305,109 477,339
----------- ----------- ----------- ----------- ------------
Increase (decrease) in cash and cash
equivalents................................ (4,663,914) (393,860) 1,883,970 3,070,976 (865,783)
Cash and cash equivalents at beginning of
period..................................... 5,450,207 786,293 392,433 392,433 2,276,403
----------- ----------- ----------- ----------- ------------
Cash and cash equivalents at end of period... $ 786,293 $ 392,433 $ 2,276,403 $ 3,463,409 $ 1,410,620
========== ========== ========== ========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid.............................. $ 139,022 $ 172,512 $ 208,623 $ 145,593 $ 212,329
========== ========== ========== ========== ===========
Income taxes paid.......................... $ 987 $ 38,800 $ 171,243 $ 176,412 $ 103,874
========== ========== ========== ========== ===========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Accrued liability for license rights
acquired................................. $ -- $ -- $ 2,200,000 $ -- $ --
========== ========== ========== ========== ===========
Capital lease obligations entered into for
equipment................................ $ 417,260 $ -- $ -- $ -- $ --
========== ========== ========== ========== ===========
</TABLE>

See accompanying notes.

F-6
<PAGE> 71

BIOSITE DIAGNOSTICS INCORPORATED

NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED)

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT POLICIES

ORGANIZATION AND BUSINESS ACTIVITY

Biosite Diagnostics Incorporated (the "Company") was established in 1988.
The Company has been primarily involved in the research, development,
manufacturing and marketing of point-of-care assays. The Company's first product
is Triage DOA, a urine test for the rapid detection of common drugs of abuse.
The Company began commercial sales of Triage DOA in February 1992 and currently
markets the product worldwide primarily through distributors supported by a
small direct sales force. The principal markets of the Company are hospital
laboratories and emergency departments. The Company is also engaged in research
and development of several additional point-of-care diagnostic products in the
microbiology, cardiology and therapeutic drug monitoring fields.

REVENUE RECOGNITION AND SIGNIFICANT CUSTOMERS

The Company recognizes sales upon shipment. The Company's U.S. distributor
accounted for 87%, 85% and 88% of the product sales in 1993, 1994 and 1995,
respectively, and 88% and 80% for the nine months ended September 30, 1995 and
1996, respectively.

The Company's agreement with its U.S. distributor contains sales milestones
based on the U.S. distributor's sales performance that allows the Company, if
the milestones are not met by the U.S. distributor, to terminate the agreement,
collect a penalty payment based on sales levels actually achieved in 1996, and
appoint a new distributor or sell the product directly in the U.S. medical
market.

Export sales to international customers amounted to $943,000, $1,457,000
and $1,944,000 in 1993, 1994 and 1995, respectively, and $1,362,000 and
$2,248,000 for the nine months ended September 30, 1995 and 1996, respectively.
Sales to a stockholder amounted to approximately $838,000, $1,242,000 and
$1,345,000 in 1993, 1994 and 1995, respectively, and $978,000 and $1,652,000 for
the nine months ended September 30, 1995 and 1996, respectively. Accounts
receivable from a stockholder were approximately $471,000, $141,000, and
$378,000 at December 31, 1994 and 1995, and September 30, 1996, respectively.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of cash and highly liquid debt
investments with maturities of 90 days or less when purchased.

MARKETABLE SECURITIES

Effective January 1, 1994 the Company adopted Financial Accounting
Standards Board ("FASB") Statement No. 115, "Accounting for Certain Investments
in Debt and Equity Securities", which requires that investments in equity
securities that have readily determinable fair values and investments in debt
securities be classified in three categories: held-to-maturity, trading and
available-for-sale. Based on the nature of the assets held by the Company and
management's investment strategy, the Company's investments have been classified
as available-for-sale. Management determines the appropriate classification of
debt securities at the time of purchase and reevaluates such designation as of
each balance sheet date.

Securities classified as available-for-sale are carried at estimated fair
value, as determined by quoted market prices, with unrealized gains and losses,
net of tax, reported in a separate component of stockholders' equity. At
September 30, 1996, the Company had no investments that were classified as
trading or held-to-maturity as defined by the Statement.

The amortized cost of debt securities classified as available-for-sale is
adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization is included in interest income. Realized

F-7
<PAGE> 72

BIOSITE DIAGNOSTICS INCORPORATED

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED)

gains and losses are included in interest income. The cost of securities sold is
based on the specific identification method. Interest on securities classified
as available-for-sale is included in interest income.

INVENTORY

Inventories are carried at the lower of cost (first-in, first-out) or
market.

PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Property, equipment and leasehold improvements are stated at cost.

DEPRECIATION AND AMORTIZATION

Depreciation of property and equipment is computed using the straight-line
method over five years. Amortization of leased equipment is computed using the
straight-line method over the estimated useful lives of the assets or the lease
term. Amortization of leasehold improvements is computed using the straight-line
method over the shorter of the estimated useful lives of the assets or the
remaining lease term.

PATENTS AND LICENSE RIGHTS

The Company has been issued patents covering its threshold immunoassay and
other related technologies. Capitalized patent costs associated with issued
patents are amortized over five to seventeen years. License rights related to
products for sale are amortized to cost of sales over the life of the license,
ranging from four to twelve years, using a systematic method based on the
estimated revenues generated from products during such license period.

STOCK OPTIONS

In October 1995, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," effective
for fiscal years beginning after December 15, 1995. SFAS No. 123 establishes the
fair value-based method of accounting for stock-based compensation arrangements,
under which compensation is determined using the fair value of the stock option
at the grant date and the number of options vested, and is recognized over the
periods in which the related services are rendered. The Company has made the
decision to continue with the current intrinsic value-based method, as allowed
by SFAS No. 123, and will be required to disclose the pro forma effect of
adopting the fair value-based method in future fiscal years beginning with the
fiscal year ending December 31, 1996.

CONCENTRATION OF CREDIT RISK

The Company sells its products primarily to its U.S. distributor. Credit is
extended based on an evaluation of the customer's financial condition, and
generally collateral is not required. Credit losses have been minimal and within
management's expectations.

The Company invests its excess cash in debt instruments of financial
institutions and corporations with strong credit ratings. The Company has
established guidelines relative to diversification and maturities that maintain
safety and liquidity. These guidelines are periodically reviewed and modified to
take advantage of trends in yields and interest rates. The Company has not
experienced any realized losses on its marketable securities.

F-8
<PAGE> 73

BIOSITE DIAGNOSTICS INCORPORATED

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED)

ASSET IMPAIRMENT

In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," which
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the estimated
undiscounted cash flows to be generated by those assets are less than the
assets' carrying amount. SFAS No. 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The Company adopted the
provisions of SFAS No. 121 effective January 1, 1996. There was no effect of
such adoption on the Company's financial position or results of operations.

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 reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

RECLASSIFICATION

Certain amounts in the 1993, 1994 and 1995 financial statements have been
reclassified to conform to the September 30, 1996 presentation.

NET INCOME (LOSS) PER SHARE

Net income (loss) per share is computed using the weighted average number
of common shares and common equivalent shares outstanding during each period.
Common equivalent shares are computed using the treasury stock method and
consist of common stock which may be issuable upon exercise of outstanding
common stock options, when dilutive. Pursuant to the requirements of the
Securities and Exchange Commission, common stock issued by the Company during
the twelve months immediately preceding the initial public offering, plus the
number of common equivalent shares which became issuable during the same period
pursuant to the grant of stock options, have been included in the calculation of
the shares used in computing net income (loss) per share as if these shares were
outstanding for all periods presented using the treasury stock method. In
addition, the calculation of the shares used in computing net income (loss) per
share also includes the convertible preferred stock which will convert into
8,328,847 shares of common stock and an outstanding $1.0 million convertible
debenture and related accrued interest which will convert into 92,575 common
shares (based on the initial public offering price of $12.00 per share) upon the
completion of the initial public offering contemplated by this Prospectus, as if
they were converted into common stock as of the original dates of issuance.

INTERIM FINANCIAL INFORMATION

The accompanying financial statements for the nine months ended September
30, 1995 are unaudited but include all adjustments (consisting only of normal
recurring adjustments) which the Company considers necessary for a fair
statement of the financial position at such dates and the operating results and
cash flows for those periods. Results for the interim periods are not
necessarily indicative of results for the entire year or future periods.

F-9
<PAGE> 74

BIOSITE DIAGNOSTICS INCORPORATED

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED)

PRO FORMA LIABILITIES AND STOCKHOLDERS' EQUITY

In December 1996, the Board of Directors authorized management of the
Company to file a Registration Statement with the Securities and Exchange
Commission for the Company to sell shares of its common stock in an initial
public offering. If the initial public offering contemplated by this Prospectus
is consummated under the terms presently anticipated, all outstanding shares of
convertible preferred stock at September 30, 1996 will automatically convert
into 8,328,847 common shares and an outstanding $1.0 million convertible
debenture and accrued interest will convert into 92,575 common shares. Unaudited
pro forma stockholders' equity as of September 30, 1996, as adjusted for the
assumed conversion of the preferred stock and the convertible debenture, is
disclosed in the accompanying balance sheet.

2. LICENSING AGREEMENTS

The Company has entered into licensing agreements to utilize certain
antibodies and/or technologies in exchange for up-front, annual milestone, or
royalty payments or a combination thereof. Certain of the upfront and annual
payments are creditable towards future royalties payable. Royalties may be
payable at rates up to 8% of product sales derived from the licensed
technologies.

The Company purchased license rights for technologies utilized in products
for sale of $2.2 million and $3.5 million during the year ended December 31,
1995 and the nine months ended September 30, 1996, respectively. Accumulated
amortization of license rights at December 31, 1995, and September 30, 1996, was
$845,467 and $1,666,488 respectively.

3. COLLABORATIVE AGREEMENTS

In June 1994, the Company entered into a collaborative development
agreement and a distribution agreement with a preferred stockholder for the
development and marketing of a new diagnostic product (the "European development
and distribution agreement"). In exchange for distribution rights to the product
in Europe, the stockholder has agreed to fund 40% of the Company's product
development costs, subject to certain maximum limits, plus certain clinical
trial costs. The total cost of the project is estimated to be approximately
$10.0 million. The stockholder's obligation to fund its share of the development
costs of the product is reduced by 40% of the consideration received from other
parties for the development of the new product and marketing rights in Japan.
The stockholder paid $660,000 in 1994 and paid an additional $660,000 in 1995.
At September 30, 1996, the Company has a receivable from the stockholder of
$242,000 under the agreement. Additionally, the stockholder will directly incur
certain of the clinical trial costs. The Company recognizes revenue under this
agreement on the percentage of completion basis as costs are incurred. For the
years ended December 31, 1994 and 1995, the Company incurred $962,000 and
$2,453,000, respectively, in expenses under this agreement and recognized
$344,000 and $561,000, respectively, as contract revenue. For the nine months
ended September 30, 1995 and 1996, the Company incurred $1,781,000 and
$1,940,000, respectively, in expenses under the agreement and recognized
$388,000 and $857,000, respectively, as contract revenue.

In February 1995, the Company entered into a collaborative development and
distribution agreement that included the Asian marketing rights to a new
diagnostic product being developed. Under this agreement, the Company will
receive up to $2,000,000 upon the completion of certain milestones. Recognition
of revenue under this agreement will occur as the milestones are attained. As of
September 30 1996, the Company has received $500,000, of which $300,000 was
recognized as contract revenue in 1995 and in accordance with the European
development and distribution agreement, the remaining $200,000 was applied
against the stockholder's obligation to fund its share of the development costs.

F-10
<PAGE> 75

BIOSITE DIAGNOSTICS INCORPORATED

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED)

4. CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES

The following is a summary of cash, cash equivalents and available-for-sale
securities by balance sheet classification at December 31, 1994:

<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents:
Cash..................................... $ 119,646 $ -- $ -- $ 119,646
Money market fund........................ 22,729 -- -- 22,729
Corporate debt securities................ 250,058 -- -- 250,058
----------- ------- -------- -----------
392,433 -- -- 392,433
Marketable securities:
Commercial paper......................... 493,669 -- -- 493,669
Corporate debt securities................ 5,029,491 -- -- 5,029,491
----------- ------- -------- -----------
5,523,160 -- -- 5,523,160
----------- ------- -------- -----------
Total cash, cash equivalents and
marketable securities.......... $ 5,915,593 $ -- $ -- $ 5,915,593
=========== ======= ======== ===========
</TABLE>

The following is a summary of cash, cash equivalents and available-for-sale
securities by balance sheet classification at December 31, 1995:

<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents:
Cash..................................... $ 964,854 $ -- $ -- $ 964,854
Money market fund........................ 915,359 -- -- 915,359
Commercial paper......................... 396,190 -- -- 396,190
----------- ------- -------- -----------
2,276,403 -- -- 2,276,403
Marketable securities:
Commercial paper......................... 1,662,383 -- (1,337) 1,661,046
Corporate debt securities................ 10,012,578 52,109 (23,126) 10,041,561
----------- ------- -------- -----------
11,674,961 52,109 (24,463) 11,702,607
----------- ------- -------- -----------
Total cash, cash equivalents and
marketable securities.......... $13,951,364 $ 52,109 $ (24,463) $13,979,010
=========== ======= ======== ===========
</TABLE>

F-11
<PAGE> 76

BIOSITE DIAGNOSTICS INCORPORATED

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED)

The following is a summary of cash, cash equivalents and available-for-sale
securities by balance sheet classification at September 30, 1996:

<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Cash and cash equivalents:
Cash..................................... $ 341,948 $ -- $ -- $ 341,948
Money market fund........................ 1,068,672 -- -- 1,068,672
----------- ------ -------- -----------
1,410,620 -- -- 1,410,620
Marketable securities:
Certificates of deposit.................. 898,503 1,497 -- 900,000
Commercial paper......................... 386,683 -- (1,603) 385,080
Corporate debt securities................ 7,490,353 -- (16,779) 7,473,574
----------- ------ -------- -----------
8,775,539 1,497 (18,382) 8,758,654
----------- ------ -------- -----------
Total cash, cash equivalents and marketable
securities............................... $10,186,159 $1,497 $ (18,382) $10,169,274
=========== ====== ======== ===========
</TABLE>

The amortized cost and estimated fair value of available-for-sale
securities at September 30, 1996, by contractual maturity, are as follows:

<TABLE>
<CAPTION>
ESTIMATED
COST FAIR VALUE
---------- ----------
<S> <C> <C>
Marketable securities:
Due in one year or less................................... $7,581,858 $7,569,462
Due after one year through two years...................... 1,193,681 1,189,192
---------- ----------
$8,775,539 $8,758,654
========== ==========
</TABLE>

5. BALANCE SHEET INFORMATION

Inventories consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1994 1995 1996
---------- ---------- -------------
<S> <C> <C> <C>
Raw materials................................. $ 521,889 $ 645,097 $ 417,302
Work in process............................... 526,787 965,925 1,102,610
Finished goods................................ 89,154 78,102 189,104
---------- ---------- ----------
$1,137,830 $1,689,124 $ 1,709,016
========== ========== ==========
</TABLE>

F-12
<PAGE> 77

BIOSITE DIAGNOSTICS INCORPORATED

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED)

Property, equipment and leasehold improvements consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- SEPTEMBER 30,
1994 1995 1996
----------- ----------- -------------
<S> <C> <C> <C>
Machinery and equipment..................... $ 3,623,954 $ 5,666,978 $ 6,868,726
Furniture and fixtures...................... 376,084 548,824 631,570
Leasehold improvements...................... 185,784 652,335 746,764
----------- ----------- -----------
4,185,822 6,868,137 8,247,060
Less accumulated depreciation and
amortization.............................. (2,326,249) (3,268,168) (4,305,540)
----------- ----------- -----------
$ 1,859,573 $ 3,599,969 $ 3,941,520
=========== =========== ===========
</TABLE>

6. DEBT AND LEASE COMMITMENTS

Debt and capital lease obligations consist of the following:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------- SEPTEMBER 30,
1994 1995 1996
---------- ---------- -------------
<S> <C> <C> <C>
Convertible debenture, payable on September 29,
2000, including interest at 8% per annum..... $ -- $1,000,000 $1,000,000
Equipment financing notes, payable $122,687
monthly including interest at 8.1% to 11.8%,
due October 1996 to November 2001 secured by
equipment.................................... 963,538 2,648,272 3,261,222
Capital lease obligations...................... 448,478 203,913 --
---------- ---------- ----------
1,412,016 3,852,185 4,261,222
Less current portion........................... 640,453 1,112,712 1,027,579
---------- ---------- ----------
$ 771,563 $2,739,473 $3,233,643
========== ========== ==========
</TABLE>

At the sole option of the Company, the debenture is convertible into shares
of common stock of the Company upon consummation of a public offering of common
stock with aggregate proceeds in excess of $7,500,000 and at a price of not less
than $9.00 per share. The debenture is convertible at the public offering price.
In the event a public offering is not consummated on or before December 31,
1996, the debenture is convertible, at the sole option of the Company, into
shares of the Company's preferred stock, at the initial issue price for such
shares in connection with a private placement of the Company's preferred stock.
Under a licensing agreement, the Company is obligated to issue up to a maximum
of $1,000,000 of additional convertible debentures with five-year terms upon the
attainment of certain milestones. The debentures are convertible, at the option
of the Company, into shares of common stock at the initial public offering
price.

As of September 30, 1996, approximate future principal payments of the
equipment financing notes are due as follows: 1996 - $275,000; 1997 - $957,000;
1998 - $740,000; 1999 - $635,000; 2000 - $506,000 and 2001 - $148,000.

Interest charged to expense to arrive at operating income was approximately
$139,000, $173,000, and $228,000 for the years ended December 31, 1993, 1994,
and 1995, respectively and was approximately $146,000 and $272,000 for the nine
month period ended September 30, 1995 and 1996, respectively.

The Company leases its office and research facilities and certain equipment
under operating and capital leases. The minimum annual rent on the facilities is
subject to increases based on changes in the Consumer Price Index, taxes,
insurance and operating costs, subject to certain minimum and maximum annual
increases. The Company has options to renew certain of the facilities leases for
a period of two years. Included in deposits and other assets in the accompanying
balance sheets is approximately $728,000, $367,000 and

F-13
<PAGE> 78

BIOSITE DIAGNOSTICS INCORPORATED

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED)

$271,000 of security deposits in conjunction with operating lease and equipment
financing agreements at December 31, 1994, 1995 and September 30, 1996,
respectively.

Approximate annual future minimum lease payments as of September 30, 1996
are as follows:

<TABLE>
<CAPTION>
OPERATING
YEAR LEASES
----------------------------------------------------------------- ----------
<S> <C>
1996............................................................. $ 247,000
1997............................................................. 949,000
1998............................................................. 105,000
----------
Total minimum lease payments........................... $1,301,000
==========
</TABLE>

Rent expense for the years ended December 31, 1993, 1994 and 1995 was
approximately $392,000, $550,000 and $734,000, respectively. Rent expense for
the nine months ended September 30, 1995 and 1996 was $527,000 and $628,000,
respectively. Equipment under equipment financing notes and capital leases was
approximately $2,443,000, $4,407,000 and $4,832,000 at December 31, 1994 and
1995, and September 30, 1996, respectively. Accumulated depreciation of
equipment under equipment loans and capital leases at December 31, 1994 and 1995
and September 30, 1996 was approximately $945,000, $1,465,000 and $1,643,000,
respectively.

7. STOCKHOLDERS' EQUITY

CONVERTIBLE PREFERRED STOCK

A summary of the convertible preferred stock issued and outstanding is as
follows:

<TABLE>
<CAPTION>
SHARES PREFERENCE
ISSUED AND IN
OUTSTANDING PAR VALUE LIQUIDATION
---------- --------- -----------
<S> <C> <C> <C>
Series A......................................... 610,000 $ 6,100 $ 610,000
Series B......................................... 2,156,336 21,563 3,061,997
Series C......................................... 2,204,167 22,042 5,290,000
Series D......................................... 1,900,010 19,000 5,700,030
Series E......................................... 1,458,334 14,583 7,000,003
--------- ------- ------------
8,328,847 $ 83,288 $21,662,030
========= ======= ============
</TABLE>

The Series A, Series B, Series C, Series D and Series E preferred stock is
convertible on a one to one basis into a total of 8,328,847 shares of the
Company's common stock, respectively, subject to certain antidilution
adjustments. Additionally, outstanding preferred stock will automatically
convert into common stock immediately upon the closing of an underwritten public
offering of the common stock of the Company at an offering price of at least
$9.00 per share and having an aggregate offering price to the public of at least
$7.5 million. The holder of each share of preferred stock is entitled to one
vote for each share of common stock into which it would convert.

On or after September 7, 1997, upon consent of at least two thirds of the
existing Series A, Series B, Series C, Series D and Series E preferred
stockholders, the preferred stock may be redeemed, at the option of the Board of
Directors, for $1.10, $1.56, $2.64, $3.30 and $5.28 per share for the Series A,
Series B, Series C, Series D and Series E preferred stock, respectively, plus
any accrued and unpaid dividends.

Annual dividends of $.08, $.1278, $.216, $.27 and $.432 per share of Series
A, Series B, Series C, Series D and Series E preferred stock, respectively, are
payable whenever funds are legally available when and as declared by the Board
of Directors. No dividends have been declared to date.

F-14
<PAGE> 79

BIOSITE DIAGNOSTICS INCORPORATED

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED)

COMMON STOCK

1989 Stock Plan

The Company has adopted a stock plan which provides for both the direct
sale of common stock and for the grant of options to purchase common stock to
employees, directors, consultants and advisors of the Company. A total of
1,692,000 shares have been reserved for issuance under the plan. As of September
30, 1996, 144,476 shares have been sold directly under the plan.

Information with respect to the Company's option activity is as follows:

<TABLE>
<CAPTION>
SHARES PRICE
--------- -------------
<S> <C> <C>
Balance at December 31, 1992............................. 413,300 $0.24 -- 1.00
Granted................................................ 252,800 $1.00 -- 2.00
Exercised.............................................. (15,514) $0.24 -- 1.00
Cancelled.............................................. (37,686) $0.24 -- 1.00
--------- ------------
Balance at December 31, 1993............................. 612,900 $0.24 -- 2.00
Granted................................................ 109,150 $2.00
Exercised.............................................. (1,699) $0.50 -- 2.00
Cancelled.............................................. (5,701) $0.50 -- 2.00
--------- ------------
Balance at December 31, 1994............................. 714,650 $0.24 -- 2.00
Granted................................................ 300,750 $2.00 -- 3.25
Exercised.............................................. (215,529) $0.07 -- 2.00
Cancelled.............................................. (11,616) $0.24 -- 2.00
--------- ------------
Balance at December 31, 1995............................. 788,255 $0.24 -- 3.25
Granted................................................ 819,700 $3.25 -- 9.00
Exercised.............................................. (90,498) $0.24 -- 3.25
Cancelled.............................................. (353,590) $0.50 -- 9.00
--------- ------------
Balance at September 30, 1996............................ 1,163,867 $0.24 -- 8.25
========= ============
</TABLE>

The options are generally subject to four year vesting and expire ten years
from the date of grant. At September 30, 1996, 454,411 shares were exercisable
and 56,099 shares were available for future issuance of common stock or grant of
options to purchase common stock under the 1989 Stock Plan.

During the period of May 17, 1996 to September 6, 1996, the Company granted
options to purchase 331,950 shares of common stock at $8.25 to $9.00 per share.
On September 6, 1996, these stock options were repriced to $5.50 per share.

1996 Stock Incentive Plan

In December 1996, the Company adopted the 1996 Stock Incentive Plan (the
"1996 Stock Plan") effective as of December 1, 1996. The 1996 Stock Plan
replaces the Company's 1989 Stock Plan. Although all future awards will be made
under the 1996 Stock Plan, awards made under the 1989 Stock Plan will continue
to be administered in accordance with the 1989 Stock Plan. The 1996 Stock Plan
provides for awards in the form of restricted shares, stock units, options or
stock appreciation rights or any combination thereof. A pool of 900,000 shares,
increased by the amount of all unpurchased shares of common stock pursuant to
expired or terminated options, as of November 30, 1996, under the 1989 Stock
Plan, has been reserved for issuance under the 1996 Stock Plan.

F-15
<PAGE> 80

BIOSITE DIAGNOSTICS INCORPORATED

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED)

Deferred Compensation

The Company records and amortizes over the related vesting periods deferred
compensation representing the excess of the deemed value for accounting purposes
of the options granted over their aggregate exercise price.

In October, November and December 1996, the Company granted additional
options to purchase 128,350 shares of Common Stock at the exercise price of
$5.50 per share. The Company will record compensation expense of approximately
$390,225 over the vesting period of these options.

Employee Stock Purchase Plan

In December 1996, the Company adopted an Employee Stock Purchase Plan
("ESPP") which provides employees the opportunity to purchase common stock at a
discount and pay for such purchases through payroll deductions. A pool of
100,000 shares of common stock has been reserved for issuance under the ESPP
(subject to anti-dilution provisions).

8. INCOME TAXES

Significant components of the income tax benefit (provision) are as
follows:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------ NINE MONTHS ENDED
1993 1994 1995 SEPTEMBER 30, 1996
-------- -------- ---------- ------------------
<S> <C> <C> <C> <C>
Current:
Federal....................... $ -- $(63,000) $ (150,000) $ (69,000)
State......................... -- -- (10,000) (3,000)
-------- -------- ---------- ---------
-- (63,000) (160,000) (72,000)
Deferred:
Federal....................... -- -- 1,668,000 454,000
State......................... -- -- 159,000 (118,000)
-------- -------- ---------- ---------
-- -- 1,827,000 336,000
-------- -------- ---------- ---------
$ -- $(63,000) $1,667,000 $ 264,000
======== ======== ========== =========
</TABLE>

The provision for income taxes for the nine months ended September 30, 1996
was determined utilizing an effective tax rate based on the estimated operating
results for 1996, expected utilization of net operating loss carryforwards and
other tax credits and changes in deferred tax assets including a reduction of
the valuation allowance for deferred tax assets of $1,119,000.

As of December 31, 1995, the Company had a federal net operating loss
carryforward of approximately $3,058,000 and no tax loss carryforward for
California. The Company also had federal and California research and development
credit carryforwards of approximately $906,000 and $92,000, respectively. The
difference between the federal and California tax loss carryforwards is
primarily attributable to the capitalization of research and development
expenses for California tax purposes and the fifty percent limitation on
California loss carryforwards. The federal tax loss and research credit
carryforwards will begin expiring in 2003 unless previously utilized. In 1995,
the Company utilized federal and state net operating loss carryforwards of
approximately $7,108,000 and $4,473,000, respectively, to offset taxable income.

F-16
<PAGE> 81

BIOSITE DIAGNOSTICS INCORPORATED

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED)

Significant components of the Company's deferred tax assets as of December
31, 1994 and 1995 are shown below. For the year ended December 31, 1995, and the
nine months ended September 30, 1996, the Company decreased the valuation
allowance for deferred tax assets $1,827,000 and $1,119,000, respectively, as
the realization of such assets became probable.

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
Deferred tax assets:
Capitalized research expenses........................... $ 247,000 $ 154,000
Net operating loss carryforwards........................ 3,275,000 1,070,000
Research and development credits........................ 1,258,000 998,000
Other................................................... 338,000 854,000
---------- ----------
Total deferred tax assets....................... 5,118,000 3,076,000
Deferred tax liability:
Tax over book depreciation.............................. (80,000) (130,000)
---------- ----------
5,038,000 2,946,000
Valuation allowance for deferred tax assets............... (5,038,000) (1,119,000)
---------- ----------
Net deferred tax assets................................... $ -- $ 1,827,000
========== ==========
</TABLE>

The reconciliation of income tax computed at the federal statutory tax rate
to the (provision) benefit for income taxes is as follows:

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
1993 1994 1995 1996
---- ---- ---- -------------
<S> <C> <C> <C> <C>
Tax at federal statutory rate..................... (35)% 35% 35% 35%
Permanent tax differences......................... -- 5 1 1
Increase (decrease) of the valuation
allowance for deferred tax assets............... 35% (36) (63) (25)
Other............................................. -- (1) -- --
---- ---- ---- ---
Effective rate.................................... -- 3% (27)% 11%
==== ==== ==== ==========
</TABLE>

Pursuant to Internal Revenue Code Section 382, use of the Company's net
operating loss and tax credit carryforwards may be limited if a cumulative
change in ownership of more than 50% occurs within any three year period.
However, any annual limitation is not expected to have a material adverse effect
on the Company's ability to utilize its net operating loss and tax credit
carryforwards.

9. EMPLOYEE SAVINGS PLAN

In 1991, the Company implemented a 401(k) program which allows all
qualifying employees to contribute up to a maximum of 20% of their annual
salary, subject to annual limits. The Board of Directors may, at its sole
discretion, approve Company contributions. No such contributions have been
approved or made.

10. SETTLEMENT OF PATENT MATTERS

In September 1996, the Company reached a settlement with a competitor with
respect to all claims in a lawsuit filed by the competitor in May 1994. The
complaint alleged that the Company's Triage Panel for

F-17
<PAGE> 82

BIOSITE DIAGNOSTICS INCORPORATED

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 IS UNAUDITED)

Drugs of Abuse product infringed a patent licensed to the competitor. The
Company vigorously defended the lawsuit. However, to avoid protracted
litigation, the Company settled the patent matter in September 1996, and paid $2
million as a settlement of the litigation and, for an additional $3.5 million
and the agreement to pay certain royalties, obtained a license to certain
technology.

The Company has charged to settlement of patent matters in the accompanying
statements of income the $2 million litigation settlement, applicable license
costs related to prior years and the related legal defense costs. Legal defense
costs totaled $338,004 and $777,070 for the years ended December 31, 1994 and
1995, respectively, and $743,173 and $17,119 for the nine months ended September
30, 1995 and 1996, respectively.

Additionally, in December 1995, the Company was notified that it should
evaluate whether its current products infringe upon certain patent claims held
by another company. In March 1996, the Company settled this matter by obtaining
a world-wide license to the technology. The Company accrued the one-time license
fee of $2.2 million in December 1995. Amortization of this license related to
fiscal years prior to 1995 was charged to Settlement of Patent Matters in 1995.

F-18
<PAGE> 83

IMMEDIATE RESPONSE DIAGNOSTICS(TM)

BIOSITE(R)

DIAGNOSTICS

DEVELOPS,

MANUFACTURES

AND

MARKETS

IMMEDIATE

RESPONSE

DIAGNOSTICS(TM).

[PHOTOGRAPHS SHOWING TRIAGE DOA AND PERSONS PERFORMING TRIAGE DOA TESTING
PROCEDURE]
<PAGE> 84

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

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS OR BY ANY OTHER
PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY A SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED
HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY, TO ANY PERSON IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION TO SUCH PERSON. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 6
Use of Proceeds........................ 16
Dividend Policy........................ 16
Capitalization......................... 17
Dilution............................... 18
Selected Financial Data................ 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 20
Business............................... 26
Management............................. 45
Certain Transactions................... 53
Principal Stockholders................. 54
Description of Capital Stock........... 56
Shares Eligible for Future Sale........ 58
Underwriting........................... 60
Legal Matters.......................... 61
Experts................................ 61
Additional Information................. 61
Index to Financial Statements.......... F-1
</TABLE>

------------------------------
UNTIL MARCH 9, 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT
IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING
AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------

2,400,000 SHARES

LOGO

COMMON STOCK
------------------------------

PROSPECTUS
------------------------------
COWEN & COMPANY

ALEX. BROWN & SONS
INCORPORATED

FEBRUARY 12, 1997

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