##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
  þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended June 30, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the transition period from

to
 Commission file number 0-28194
 DIGENE CORPORATION
 
  Delaware
    
    52-1536128(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)1201 Clopper Road
    
    20878Gaithersburg, Maryland
    
    (Zip Code)(Address of principal executive offices)
 (301) 944-7000
 Common Stock, par value $.01 per share
 (Title of Class)
 þ o
 þ
 þ o
 o þ




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Table of Contents
 PagePART IItem 1.
    
    Business
    
    
    1Risk Factors
    
    
    25Item 2.
    
    Properties
    
    
    35Item 3.
    
    Legal Proceedings
    
    
    35Item 4.
    
    Submission of Matters to a Vote of Our Stockholders
    
    
    36PART IIItem 5.
    
    Market for Our Common Equity and Related Stockholder Matters
    
    
    39Item 6.
    
    Selected Consolidated Financial Data
    
    
    40Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    41Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    54Item 8.
    
    Financial Statements and Supplementary Data
    
    
    55Item 9.
    
    Changes In and Disagreements With Accountants On Accounting and Financial Disclosure
    
    
    82Item 9A.
    
    Controls and Procedures
    
    
    82Item 9B.
    
    Other Information
    
    
    82PART IIIItem 10.
    
    Directors and Executive Officers of the Registrant
    
    
    83Item 11.
    
    Executive Compensation
    
    
    83Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    83Item 13.
    
    Certain Relationships and Related Transactions
    
    
    83Item 14.
    
    Principal Accountant Fees and Services
    
    
    83PART IVItem 15.
    
    Exhibits and Financial Statement Schedules
    
    
    84




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PART I
 ITEM 1. BUSINESS
 Overview
    2 â â 2 2




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Ò
   Our Products
     2




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Product
    
    Infection
    
    Market
    
    Marketed SinceDigene HPV Test (hc2
High-RiskHPV DNA Test) (1)(2)
    
    HPV
    
    Worldwide, primarily U.S.,
Europe and Asia/Pacific
    
    2000 in U.S. (from
June 2003 as the
DNAwithPap Test
(also known as The
Digene HPV Test and
the hc2
High-Risk HPV DNA
Test))
July 2003 in Europehc2 HPV Test (3)
    
    HPV
    
    Worldwide, primarily Europe,
Canada, Asia/Pacific and
Latin/South America
    
    1995hc2CT Test
    
    Chlamydia
    
    Worldwide, primarily U.S.,
Europe, Japan, South America
and Canada
    
    1998 in Europe 1999
in U.S.hc2GC Test
    
    Gonorrhea
    
    Worldwide, primarily U.S.,
Europe, Japan, South America
and Canada
    
    1999hc2 CT/GC Test
    
    Chlamydia and Gonorrhea from
same sample
    
    Worldwide, primarily U.S.,
Europe, Japan, South America
and Canada
    
    1999 in Europe 2000
in U.S.hc1 CMV Test
    
    Cytomegalovirus
    
    U.S., Asia/Pacific (4)
    
    1998hc2HBV Test
    
    Hepatitis B virus
    
    Asia, primarily Korea; U.S. (4)
    
    1995Instrumentation and Accessories:Rapid Capture System
    
    HPV, Chlamydia and Gonorrhea
    
    U.S.
    
    May 2004 in U.S.
March 2005 in
EuropeHybrid Capture Microplate
System
    
    All hc2 assay targets
    
    Worldwide
    
    1995
 
 (1)
    
    Detects high-risk HPV types only.(2)
    
    Outside of the United States, this test is marketed under the name DNAPap and in this Form
10-K when we refer to The Digene HPV Test we also mean the DNAPap Test.(3)
    
    Detects high-risk and low-risk HPV types.(4)
    
    In December 2003 we ceased all marketing and sales in Europe and Canada of our diagnostic
test products for cytomegalovirus and Hepatitis B virus, and in June 2005 we ceased sales of
the hc2 HBV Test in the United States. Our HPV Tests.
 3




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2 2
   Our Chlamydia and Gonorrhea Tests.
 2 2 2
 4




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2 2 2
 Our Blood Virus Tests.
 1 2 2
 Our Instrumentation and Accessory Products. 1 2
 Cervical Cancer Screening
 Traditional Diagnostic Testing in Cervical Cancer Screening.
 5




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HPV Testing in Cervical Cancer Screening.
   6




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
    
    demonstrates increased clinical sensitivity for high-grade cervical disease,
reducing false negative diagnoses and increasing the number of women correctly
diagnosed with disease;
    
    detects the presence of the cancer-causing types of HPV and allows the clinician to
identify women who, despite no overt signs of cervical disease, are at higher risk for
developing cervical disease or cervical cancer in the future;
    
    is a reproducible and objective test method that reduces or eliminates the
subjectivity inherent with Pap testing; and
    
    with its increased clinical performance, may also permit the healthcare professional
to contain or reduce costs associated with cervical cancer screening by more accurately
identifying women with cervical disease, or those who are at increased risk for
cervical disease, permitting healthcare professionals to more accurately direct
diagnostic screening and follow-up medical intervention.
 Clinical Validation of HPV Testing in Cervical Cancer Screening
 Archives of Pathology and Laboratory Medicine
 The Lancet Cancer Causes and
Control British Journal of
Cancer Obstetrics & Gynecology
 7




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Our Markets and Competition
  in situ
   8




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9




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Sales and Marketing
   
    
    establishing and expanding a clinician sales organization dedicated to increasing the
knowledge base of healthcare professionals; in fiscal 2005 we increased the size of such
organization by 73% to 64 sales professionals;
    
    establishing widespread laboratory distribution for our HPV test products through
direct sales programs, strategic alliances with major diagnostic companies and
co-marketing programs with clinical reference laboratories;
    
    implementing a direct-to-consumer advertising campaign in the United States, designed
to create awareness of the HPV-cervical cancer link and the beneficial role of The
Digene HPV Test;
    
    investing in accredited continuing medical education (CME) programs and hospital
grand rounds to build understanding of the clinical utility of HPV testing among
clinicians;
    
    sponsoring, or participating in, major multi-center clinical trials to establish the
clinical utility and cost effectiveness of our tests;
    
    promoting the presentation and publication of clinical trial results at prestigious
meetings and in leading medical and healthcare journals, while communicating the results
to the public and healthcare professionals;
    
    working with managed care providers, national governments and reimbursement agencies
to establish reimbursement; and
    
    supporting womens health advocacy groups to call for widespread use of HPV testing
and to educate consumers about the benefits of such testing.
 10




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Significant Product Revenues and Assets
 Fiscal 2003
    
    
    

%
    
    
    Fiscal 2004
    
    
    

%
    
    
        Fiscal 2005
    
    
    
%($ in thousands)Product revenues from U.S. operations
    
    $
    45,603
    
    
    
    73
    %
    
    $
    65,655
    
    
    
    74
    %
    
    $
    86,928
    
    
    
    77
    %Product revenues from Non U.S. operations
    
    
    16,837
    
    
    
    27
    %
    
    
    23,160
    
    
    
    26
    %
    
    
    26,291
    
    
    
    23
    %Revenues from HPV test products worldwide
    
    
    51,114
    
    
    
    82
    %
    
    
    74,581
    
    
    
    84
    %
    
    
    97,437
    
    
    
    86
    %Assets located in U.S.
    
    
    50,843
    
    
    
    80
    %
    
    
    92,506
    
    
    
    90
    %
    
    
    92,654
    
    
    
    87
    %Assets located outside U.S.
    
    
    12,532
    
    
    
    20
    %
    
    
    10,764
    
    
    
    10
    %
    
    
    14,191
    
    
    
    13
    %
 North American Market
     11




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www.thehpvtest.com,
 International Markets
 2
   Europe.
 12




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
    
    Limited clinical guidelines and government funding for HPV primary screening;
    
    Strong resistance from some current participants in the pathology, cytology and
gynecology infrastructure;
    
    Limited reimbursement in certain countries;
    
    Competition from emerging, non-validated technologies; and
    
    Allocation of some Digene resources to fund our fiscal 2005 marketing focus in the
United States.
  2
 Central and South America.
  Asia/Pacific.
 13




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2 2
  Regulatory Approvals
  Product
    
    Regulatory Statushc2  High-RiskHPV DNA Test
    
    FDA approved in March 2003 for adjunctive screening with
Pap for women age 30 and older; FDA approved in March
2000 for follow-up to an equivocal Pap test for all
women; CE-marked for use either as an adjunctive or
stand-alone primary screen in the European Union;
registered for use in Japan, Canada, the Russian
Federation, Argentina, Chile, Colombia, Costa Rica and
Ecuador. Pending new distributor registration in
Mexico. Marketed under the name Digene HPV Test in the
United States and DNAPap in the rest of the world.hc2 HPV Test
    
    FDA approved in March 1999 for detection of high and low
risk HPV for follow-up to an equivocal Pap test for all
women (the preceding hc1 version of this test
was approved for this same indication in March 1995 and
use of Cytyc Corporations PreservCyt specimens was
approved in August 1997); CE-marked for use either as an
adjunctive or stand-alone primary screen in the European
Union; registered for use in Japan, Canada, the Russian
Federation, Argentina, Chile, Colombia, Costa Rica and
Ecuador. Pending new distributor registration in
Mexico.hc2CT Test
    
    FDA 510(k) marketing clearance granted in October 1999;
CE-marked for use in the European Union and the
additional indication for use of Cytyc Corporations
PreservCyt specimens in April 2005; marketing clearance
obtained in Brazil and Argentina (1999), and in Japan
(October 2001) and India (March 2001).hc2GC Test
    
    FDA 510(k) marketing clearance granted in November 1999;
CE-marked for use in the European Union and the
additional indication for use of Cytyc Corporations
PreservCyt specimens was attained in April 2005;
marketing clearance obtained in Brazil and Argentina
(1999), and in Japan (October 2001) and India (March
2001).
 14




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Product
    
    Regulatory Statushc2 CT/GC Test
    
    FDA 510(k) marketing clearance granted in February 2000;
CE-marked for use in the European Union and the
additional indication for use of Cytyc Corporations
PreservCyt specimens in April 2005; marketing clearance
obtained in Brazil and Argentina (1999), and in Japan
(October 2001) and India (March 2001).hc1 CMV Test
    
    FDA 510(k) marketing clearance granted in September 1998.Rapid Capture System
    
    FDA 510(k) marketing clearance for chlamydia and
gonorrhea testing granted in September 2001 and approved
for HPV testing in May 2004; CE-marking for use with
CT/GC testing was obtained March 2004 and for HPV
testing in January 2005.Hybrid Capture
Microplate System
    
    U.S. commercialization authority provided de factoas
part of the diagnostic test kit FDA approvals and clearances; original CE mark certification completed as
part of the diagnostic test kits.Hybrid Capture System
Multi-Specimen Tube
Vortexer 2
    
    CE-marking obtained in February 2005.
  
    
    We received FDA approval in 1997 for the use of our hc2 HPV Test using
Cytyc Corporations ThinPrep PapÒ Test sample collection system. In April 2005,
CE-mark approval was granted through Digenes European Notified Body (Lloyds Register
Quality Assurance) for use of Cytyc Corporations PreservCyt specimen media with our
hc2 CT/GC DNA Tests.
    
    In 2002, we submitted a pre-market approval supplement (PMA supplement) with the FDA
seeking approval of the use of our hc2 HPV Test with TriPath Imaging, Inc.s
SurePath Test Pack sample collection system. Also in 2002, we received notice from
the FDA that the PMA supplement was not approvable as submitted. We worked with
TriPath to complete additional clinical studies and submitted the results of these
studies to the FDA for pre-market approval in August 2004. In February 2005, Tripath
withdrew the PMA supplement after Tripath and the FDA agreed that additional clinical
information and analysis would be required. We continue to work with Tripath to submit
a PMA supplement containing this additional data and information.
    
    In December 2003, we submitted 510(k) pre-market notifications to the FDA for
clearance to use the Cytyc Corporation ThinPrepÒ vial as a specimen for testing
with our chlamydia and gonorrhea test products. During fiscal 2005, we continued to
work with the FDA, and worked to complete additional clinical studies that the FDA
indicated could lead to receipt of the desired marketing clearance. We do not,
however, expect to complete these 510(k)s for chlamydia and gonorrhea testing in the
immediate future.
 Research and Development
  15




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in vitro
   16




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Facilities and Manufacturing
      17




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Intellectual Property
  Hybrid Capture Technology
   Rights to HPV Types
  18




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HPV Type(s)
    
    Summary Description
    
    Status
    
    PatentsHPV 16, 18, 31, 45,
51, 59
    
    In public domain;
Digene has
ownership of unique
genetic material
    
    high-risk
    
    Not applicable.HPV 33, 39
    
    Institut Pasteur
issued patents;
cross-licensed to
Digene
    
    high-risk
    
    Cross-license rights under
multiple patents for HPV 33 and
HPV 39. U.S. and European
patents will expire between
2007 and 2017.HPV 35, 56
    
    Digene issued
patents;
cross-licensed to
Institut Pasteur
    
    high-risk
    
    Digene holds one U.S. patent to
HPV 35 (expires May 2007) and
multiple patents related to HPV
56 (expire between October 2007
and May 2008).HPV 52
    
    Georgetown-issued
patents,
exclusively
licensed to Digene
    
    high risk
    
    License under multiple issued
patents. U.S. patent expires
in 2014, European patents in
October 2009 and Japanese
patent in 2009.HPV 58
    
    Kanebo issued
patent; exclusively
licensed to Digene
    
    high-risk
    
    Patent expires in February 2009.HPV 68
    
    Institut Pasteur
issued U.S. patent,
exclusively
licensed to Digene
    
    high-risk
    
    Patent expires in February 2017.HPV 6, 11
    
    In public domain;
Digene has
ownership of unique
genetic material
    
    low-risk
    
    Not applicable.HPV 42
    
    Institut Pasteur
issued patents;
cross-licensed to
Digene
    
    low-risk
    
    Cross-license rights under
multiple issued patents. U.S.
patents will expire between
2012 and 2016 and European
patents will expire between
2007 and 2012.HPV 43, 44
    
    Digene issued
patents;
cross-licensed to
Institut Pasteur
    
    low-risk
    
    Digene holds one U.S. patent to
HPV 43 (expires June 2006) and
one patent to HPV 44 (expires
June 2007).
   19




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Other Intellectual Property
  20




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Registered Trademarks:
    
    DIGENEDIGENE DESIGNDNA WITH PAPHC2 HIGH-RISK HPV DNA TESTHYBRID CAPTURERAPID CAPTURESHARP SIGNALAdditional Trademarks:
    
    DNAPAPUCMHC2THE DIGENE HPV TEST & logoTHE HPV TEST & logo
 Government Regulation
    21




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i.e.
 in vitro in vitro in vitro
 22




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2 2 2 2
 
    
    the marketing of these tests is not contrary to the laws of the country to which
they are intended for import,
    
    they are manufactured in substantial conformance with the quality and safety
requirements, and
    
    we have valid marketing authorization by any member country of the European Union,
Australia, Canada, Israel, Japan, New Zealand, Switzerland or South Africa.
       23




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Employees
  Principal Executive Offices
  Available Information
 www.digene.com
 24




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RISK FACTORS
 Investing in our securities involves a material degree of risk. Before making an investment
decision, you should carefully consider the risk factors set forth below.
 We have incurred cumulative net losses to date and need to continue to spend substantial funds. We
may not remain profitable and may need to seek additional financing.
  
    
    expenses associated with our research and development programs;
    
    our sales and marketing activities in the United States and internationally;
    
    patent litigation costs and settlement and licensing expenses; and
    
    other expenses, including administrative and facilities costs.
  We will not be able to achieve significant increases in our revenues if our HPV testing products
and other diagnostic test products are not increasingly accepted by physicians and laboratories.
  25




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If more third-party health insurance payors do not adequately reimburse for our HPV test products,
the use of our HPV test products may not increase, thus negatively affecting our ability to grow
our revenues.
 2
 26




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We may incur more costs than expected in order to establish our own infrastructure in Europe to
market, sell, distribute and support our HPV test products, and we may not achieve the desired
increase in our profitability from such market.
   The time and expense needed to obtain regulatory approval and respond to changes in regulatory
requirements could adversely affect our ability to commercially distribute our products and
generate revenue therefrom.
  27




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in vitro 2
  
    
    fines, injunctions and civil penalties;
    
    recall or seizure of our products;
    
    operating restrictions, partial suspension or total shutdown of production;
    
    denial of our requests for 510(k) clearance or pre-market approval of product candidates;
    
    withdrawal of 510(k) clearance or pre-market approval already granted; and
    
    criminal prosecution.
  in vitro
 28




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We may be sued for product liability claims or face product recalls for which our insurance may be
inadequate.
   We are required to obtain and maintain royalty-bearing licenses to third party patents or patent
applications, and loss of such licenses, or the need to obtain additional licenses, could
materially adversely affect our ability to commercialize our products.
    29




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We may need to initiate lawsuits to protect or enforce our patents, which would be expensive and,
if we lose, may cause us to lose some, if not all, of our intellectual property rights, and thereby
impair our ability to compete.
  We may inadvertently infringe upon the intellectual property rights of third parties, which could
expose us to expensive intellectual property litigation, impose a significant strain on our
resources and prevent us from developing or marketing our products.
  We have the only fully commercialized and FDA-approved test for the detection of human
papillomavirus, which provides us with a competitive advantage that may be adversely impacted if
other companies develop and commercialize alternative human papillomavirus tests.
   30




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in situ
  Single suppliers or a limited number of suppliers provide key components of our products. If these
suppliers fail to supply these components, we may be unable to manufacture sufficient product to
satisfy demand which would negatively impact our revenues.
   We may encounter difficulties expanding our manufacturing operations as demand for our products
increases, which would negatively impact our revenues. We depend on a single facility for the
manufacture of all of our diagnostic test kits and any temporary stoppage at that site would have a
material adverse effect on our business.
   31




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We may not be able to successfully integrate future acquisitions.
  Future acquisitions may harm our operating results, dilute our stockholders equity and create
other financial difficulties for us.
   
    
    use of significant amounts of cash;
    
    potential dilutive issuances of equity securities;
    
    incurrence of debt or amortization expenses related to certain intangible assets; and
 32




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
    
    future impairment charges related to diminished fair value of businesses acquired as
compared to the price we pay for them.
  Our international sales are subject to currency, market and regulatory risks that are beyond our
control.
    Members of our management team together own a substantial interest in us, which may lead potential
acquirors to require their prior approval of proposed acquisition transactions.
  We are highly dependent on key personnel.
  33




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We have adopted anti-takeover provisions that may prevent or frustrate any attempt to replace or
remove our current management by the stockholders or discourage bids for our common stock. These
provisions may also affect the market price of our common stock.
   Compliance with changing corporate governance and public disclosure regulations result in
additional expenses.
  34




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ITEM 2. PROPERTIES
   ITEM 3. LEGAL PROCEEDINGS
 Digene Corporation v. Ventana Medical Systems, Inc. and Beckman Coulter, Inc.
   35




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Georgetown University v. Digene Corporation
    ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF OUR STOCKHOLDERS
  36




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EXECUTIVE OFFICERS OF DIGENE
 Name
    
    Age
    
    Positions with the CompanyEvan Jones(1)
    
    
    48
    
    
    Chief Executive Officer and Chairman of the BoardCharles M. Fleischman(2)
    
    
    47
    
    
    President, Chief Operating Officer and Chief Financial OfficerRobert McG. Lilley(3)
    
    
    60
    
    
    Senior Vice President, Global Sales and MarketingAttila T. Lorincz, Ph.D.(4)
    
    
    50
    
    
    Senior Vice President and Chief Scientific OfficerBelinda O. Patrick(5)
    
    
    49
    
    
    Senior Vice President, Manufacturing OperationsVincent J. Napoleon(6)
    
    
    45
    
    
    Senior Vice President, General Counsel and SecretaryJoseph P. Slattery(7)
    
    
    40
    
    
    Senior Vice President, Finance and Information SystemsDonna Marie Seyfried(8)
    
    
    47
    
    
    Vice President, Business Development
 
 (1)
    
    Mr. Jones joined Digene in July 1990 as Chief Executive Officer. He was elected to serve on
the Board of Directors in July 1990 and became Chairman of the Board in September 1995. He
served as our President from July 1990 to June 1999. From 1988 to September 1990, Mr. Jones
was President of Neomorphics, Inc. Between 1987 and 1990, he was first an associate and then
a partner with the CW Group, a health care venture capital firm. From 1983 to 1987, Mr. Jones
was employed by The Perkin-Elmer Corporation. Mr. Jones is a member of the Board of Directors
of the Childrens National Medical Center and Chairman of the Board of the Childrens Research
Institute at the Childrens National Medical Center. In June 2004, Mr. Jones became Chairman
of the Board of the Campaign for Public Health, an independent, not-for-profit organization
dedicated to conducting direct lobbying of the executive and legislative branches of the U.S.
government in support of the aggressive growth of the annual budget of the Center for Disease
Control and Prevention. Mr. Jones received a B.A. in Biochemistry from the University of
Colorado and an M.B.A. from The Wharton School at the University of Pennsylvania. Mr. Jones
is a stepbrother of Mr. Whitehead, a member of Digenes Board of Directors.(2)
    
    Mr. Fleischman has served as our President since June 1999, as Chief Financial Officer since
March 1996 and as Chief Operating Officer since September 1995. He also served as our
Executive Vice President from July 1990 to June 1999. From 1987 to 1990, he was a Vice
President and then Associate Director in the Investment Banking Group of Furman Selz (now ING
Group), New York, New York. From 1986 to 1987, Mr. Fleischman was a founder and Managing
Director of Intercapital Brokers, Ltd., London, England. Mr. Fleischman is a member of the
Board of Directors of the Advanced Medical Technology Association (AdvaMed). Mr. Fleischman
received an A.B. in History from Harvard University and an M.B.A. from The Wharton School at
the University of Pennsylvania.(3)
    
    Mr. Lilley has served as our Senior Vice President, Global Sales and Marketing since June
1999, and before that as our Vice President, Sales and Marketing from July 1998 until June
1999, and as General Manager for Digene Europe from March 1997 until July 1998. From
September 1994 to February 1997, Mr. Lilley was General Manager for Europe, Middle East &
Africa for Alltel Healthcare Information Services.(4)
    
    Dr. Lorincz has served as our Senior Vice President and Chief Scientific Officer since
January 2000. He previously served as our Vice President, Research and Development and
Scientific Director from January 1991 to January 2000. His research career includes
postdoctoral fellowships at the University of California. He also serves on a number of
advisory committees.(5)
    
    Ms. Patrick has served as our Senior Vice President, Manufacturing Operations since May 2001.
Prior to joining Digene, Ms. Patrick served as Vice President, Maryland Operations for
Invitrogen Corporation from September 2000 to January 2001 and for Life Technologies, Inc.
from February 1998 to September 2000. She previously served as Vice President, Regulatory
Affairs and Quality Assurance for Life Technologies, Inc. from January 1995 to February 1998.(6)
    
    Mr. Napoleon has served as our Senior Vice President, General Counsel and Secretary since
January 2005. Prior to joining Digene, Mr. Napoleon most recently served as Senior Vice
President, Secretary and General Counsel of Synavant Inc. In addition, Mr. Napoleon previously
served as Assistant General Counsel/Managing Director of PricewaterhouseCoopers LLP, Chair of
the Corporate Group of the City of Philadelphia Law Department, and General Counsel, Aerospace
Group Business Units of Lockheed Martin Corporation. Mr. Napoleon received a B.S. from
Georgetown University and a J.D. from the University of Pittsburgh School of Law. Mr.
Napoleon is a Colonel in the United States Air Force Reserves. 37




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(7)
    
    Mr. Slattery has served as our Senior Vice President, Finance and Information Systems since
September 2002. Previously, he served as our Vice President, Finance from July 1999 to
September 2002 and as Controller from February 1996 to July 2000.(8)
    
    Ms. Seyfried has served as our Vice President, Business Development since October 1996. Ms.
Seyfried served as Senior Director, Business Development of The Perkin-Elmer Corporation from
March 1993 to September 1996. 38




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PART II
 ITEM 5. MARKET FOR OUR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
  Fiscal 2005
    
    High
    
    
    LowFourth quarter
    
    $
    29.66
    
    
    $
    16.94Third quarter
    
    
    26.82
    
    
    
    20.46Second quarter
    
    
    27.45
    
    
    
    18.50First quarter
    
    
    36.25
    
    
    
    19.88
 Fiscal 2004
    
    High
    
    
    LowFourth quarter
    
    $
    40.86
    
    
    $
    33.02Third quarter
    
    
    48.50
    
    
    
    29.33Second quarter
    
    
    46.24
    
    
    
    32.59First quarter
    
    
    49.45
    
    
    
    25.71
   39




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ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
  Fiscal Year Ended June 30,2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005(in thousands, except per share income (loss))Consolidated Statement of Operations Data:Revenues:Product sales (1)
    
    $
    32,706
    
    
    $
    45,750
    
    
    $
    62,440
    
    
    $
    88,815
    
    
    $
    113,219Distribution contract (1)
    
    
    838
    
    
    
    2,357
    
    
    
    
    
    
    
    
    
    
    
    Other revenues
    
    
    653
    
    
    
    741
    
    
    
    662
    
    
    
    1,346
    
    
    
    1,923Total revenues
    
    
    34,197
    
    
    
    48,848
    
    
    
    63,102
    
    
    
    90,161
    
    
    
    115,142Costs and expenses:Cost of product sales (1)
    
    
    12,553
    
    
    
    12,938
    
    
    
    13,383
    
    
    
    16,717
    
    
    
    20,128Royalty and technology (1)
    
    
    1,283
    
    
    
    2,093
    
    
    
    2,814
    
    
    
    1,705
    
    
    
    5,394Research and development
    
    
    8,120
    
    
    
    9,265
    
    
    
    10,262
    
    
    
    10,744
    
    
    
    12,964Selling and marketing (1)
    
    
    11,265
    
    
    
    17,742
    
    
    
    25,099
    
    
    
    34,918
    
    
    
    45,933General and administrative
    
    
    8,336
    
    
    
    14,024
    
    
    
    16,642
    
    
    
    19,298
    
    
    
    20,265Abbott termination fee
    
    
    
    
    
    
    2,500
    
    
    
    
    
    
    
    
    
    
    
    Amortization of intangible assets
    
    
    150
    
    
    
    150
    
    
    
    
    
    
    
    
    
    
    
    Patent litigation settlements
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,500Total costs and expenses
    
    
    41,707
    
    
    
    58,712
    
    
    
    68,200
    
    
    
    83,382
    
    
    
    126,184Income (loss) from operations
    
    
    (7,510
    )
    
    
    (9,864
    )
    
    
    (5,098
    )
    
    
    6,779
    
    
    
    (11,042
    )Interest income
    
    
    1,194
    
    
    
    729
    
    
    
    593
    
    
    
    459
    
    
    
    808Interest expense
    
    
    (11
    )
    
    
    (32
    )
    
    
    (273
    )
    
    
    (184
    )
    
    
    (37
    )Other income (expense)
    
    
    (37
    )
    
    
    (20
    )
    
    
    678
    
    
    
    163
    
    
    
    (116
    )Income (loss) from operations before minority interest
and income taxes
    
    
    (6,364
    )
    
    
    (9,187
    )
    
    
    (4,100
    )
    
    
    7,217
    
    
    
    (10,387
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (353
    )Income (loss) from operations before income taxes
    
    
    (6,364
    )
    
    
    (9,187
    )
    
    
    (4,100
    )
    
    
    7,217
    
    
    
    (10,740
    )Provision for (benefit from) income taxes
    
    
    117
    
    
    
    210
    
    
    
    224
    
    
    
    (14,325
    )
    
    
    (2,573
    )Net income (loss)
    
    $
    (6,481
    )
    
    $
    (9,397
    )
    
    $
    (4,324
    )
    
    $
    21,542
    (3)
    
    $
    (8,167
    )Basic net income (loss) per share (2)
    
    $
    (0.39
    )
    
    $
    (0.54
    )
    
    $
    (0.24
    )
    
    $
    1.13
    
    
    $
    (0.41
    )Diluted net income (loss) per share (2)
    
    $
    (0.39
    )
    
    $
    (0.54
    )
    
    $
    (0.24
    )
    
    $
    1.04
    
    
    $
    (0.41
    )Basic weighted average shares
outstanding (2)
    
    
    16,557
    
    
    
    17,361
    
    
    
    18,136
    
    
    
    19,144
    
    
    
    19,965Diluted weighted average shares outstanding (2)
    
    
    16,557
    
    
    
    17,361
    
    
    
    18,136
    
    
    
    20,806
    
    
    
    19,965
 2001
    
    
    2002
    
    
    2003
    
    
    2004
    
    
    2005Consolidated Balance Sheet Data:Working capital
    
    $
    26,905
    
    
    $
    39,828
    
    
    $
    36,119
    
    
    $
    61,786
    
    
    $
    52,988Total assets
    
    
    48,195
    
    
    
    67,241
    
    
    
    63,375
    
    
    
    103,270
    
    
    
    106,845Long-term debt, less current maturities
    
    
    1,000
    
    
    
    3,690
    
    
    
    2,154
    
    
    
    686
    
    
    
    572Accumulated deficit
    
    
    (61,968
    )
    
    
    (71,365
    )
    
    
    (75,688
    )
    
    
    (54,146
    )
    
    
    (62,313
    )Total stockholders equity
    
    
    26,334
    
    
    
    39,639
    
    
    
    43,006
    
    
    
    86,063
    
    
    
    79,403
 
 (1)
    
    Certain amounts have been reclassified to conform to current presentation.(2)
    
    Computed on the basis described in Note 2 of Notes to Consolidated Financial Statements.(3)
    
    A portion of the increase in net income primarily relates to the partial reversal of the
deferred tax valuation allowance approximating $14.9 million. 40




---



##### 



ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
  Overview
      41




---



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42




---



##### 



Results of Operations
 Fiscal 2005
    
    
    % change
    
    
    
    
    
    
    Fiscal 2004
    
    
    % change
    
    
    Fiscal 2003(in thousands)Total revenue
    
    $
    115,142
    
    
    
    28
    %
    
    
    
    
    
    $
    90,161
    
    
    
    43
    %
    
    $
    63,102Product sales
    
    
    113,219
    
    
    
    28
    %
    
    
    
    
    
    
    88,815
    
    
    
    42
    %
    
    
    62,440HPV test product revenue
    
    
    97,437
    
    
    
    31
    %
    
    
    
    
    
    
    74,581
    
    
    
    46
    %
    
    
    51,114Cost of product sales
    
    
    20,128
    
    
    
    20
    %
    
    
    
    
    
    
    16,716
    
    
    
    25
    %
    
    
    13,383Gross margin (1)
    
    
    82
    %
    
    
    
    
    
    
    
    
    
    
    81
    %
    
    
    
    
    
    
    79
    %Royalty and technology expense
    
    $
    5,393
    
    
    
    216
    %
    
    
    
    
    
    $
    1,705
    
    
    
    (39
    )%
    
    $
    2,814
 
 (1)
    
    We calculate gross margin as the difference between product
sales and the cost of product sales, which exclude royalty and technology
expense, as a percentage of product sales for the period. Comparison of Fiscal Year Ended June 30, 2005 to Fiscal Year Ended June 30, 2004
 Ô Ò
   43




---



##### 



44




---



##### 



TM
 TM
     45




---



##### 



46




---



##### 



Comparison
of Fiscal Year Ended June 30, 2004 to Fiscal Year Ended
June 30, 2003
 Ò
     47




---



##### 



Ô
  
    
    developed and completed the clinical validation of our Rapid Capture System for
semi-automated processing of our hc2 High-Risk HPV DNA Tests. We
initially submitted the PMA supplement to the FDA on November 5, 2003. We provided
follow-up data and information on April 1, 2004 to facilitate completion of the
FDAs review. We received this approval on May 4, 2004. We expect this claim will
expand existing indications for our hc2 High-Risk HPV DNA Test to allow
high-volume, semi-automated human papillomavirus DNA testing.
    
    developed and completed the clinical validation of the use of chlamydia and
gonorrhea testing using our hc2 CT/GC Tests from Cytyc Corporations
ThinPrep PreservCyt Solution specimens. We submitted 510(k) pre-market
notifications for each of our test products for chlamydia and gonorrhea (each test
separately plus our combined hc2 CT/GC Test) between November 2003 and
January 2004. The FDAs review of these submissions is ongoing and we continue to
work with the FDA to provide the information needed to facilitate completion of its
review.
   48




---



##### 



49




---



##### 



Liquidity and Capital Resources
       50




---



##### 



51




---



##### 



Less than OneContractual
    
    
    
    
    
    Year
    
    
    One to Three Years
    
    
    Four to Five Years
    
    
    After Five YearsObligations
    
    Total
    
    
    (Fiscal 2006)
    
    
    (Fiscal 2007-2009)
    
    
    (Fiscal 2010-2011)
    
    
    (After Fiscal 2012)Long-term debt
    
    $
    687,660
    
    
    $
    116,036
    
    
    $
    356,827
    
    
    $
    214,797
    
    
    $
    Physician detailing
agreement
    
    
    342,246
    
    
    
    342,246
    
    
    
    
    
    
    
    
    
    
    
    Operating leases
    
    
    15,205,226
    
    
    
    3,566,728
    
    
    
    9,850,185
    
    
    
    1,748,749
    
    
    
    39,564Minimum royalty
payments
(1)
    
    
    15,454,377
    
    
    
    1,454,377
    
    
    
    10,500,000
    
    
    
    3,500,000
    
    
    
    Total contractual
cash obligations
    
    $
    31,689,509
    
    
    $
    5,479,387
    
    
    $
    20,707,012
    
    
    $
    5,463,546
    
    
    $
    39,564
 
 (1)
    
    On October 14, 2004, we paid Enzo $16 million under the terms of the
Agreement with Enzo. Of the $16 million payment, $2 million is being used to offset future
minimum royalty payments. CRITICAL ACCOUNTING POLICIES AND THE USE OF ESTIMATES
  52




---



##### 




    
    Inventory.Our inventories are stated at the lower of cost or market. Cost is
determined using a weighted-average approach, which approximates the first-in
first-out method of inventory management. We also record provisions for
inventories which may not be salable due to anticipated trends in sales volume
and/or pricing and our estimates of net realizable value. These provisions are
determined based on significant estimates.
    
    Revenue recognition.We recognize revenue from product sales when there is
persuasive evidence that an arrangement exists, delivery has occurred, the price is
fixed and determinable, and collectibility is reasonably assured. We establish
allowances for estimated uncollectible amounts, product returns and discounts based
on historical default rates and specifically identified problem accounts.
Additionally, we defer approximately two percent of product sales as a reserve for
future warranty costs.
    
    Accounting for employee stock options.We account for our employee stock-based
compensation in accordance with the provisions of APB No. 25, and related
interpretations, which allow us to recognize compensation costs for the excess of
the fair value of the stock at the grant date over the exercise price, if any. An
alternative method of accounting would apply the principles of SFAS No. 123, which
require the fair value of the stock option to be recognized at the date of grant
and amortized to compensation expense over the stock options vesting period. Had
we applied the principles of SFAS No. 123 for our employee options, our net loss
would have been approximately $17,381,000 and $27,519,000 during our fiscal years
ended June 30, 2003 and 2005, respectively, and our net income would have been
approximately $15,080,000 during our fiscal year ended June 30, 2004, instead of
our reported net loss which approximated $4,324,000 and $8,167,000 during our
fiscal years ended June 30, 2003 and 2005, respectively, and our reported net
income of approximately $21,542,000 during our fiscal year ended June 30, 2004.
    
    Income taxes.We provide for income taxes in accordance with the liability
method. Under this method, deferred tax assets and liabilities are determined
based on differences between financial reporting and tax basis of assets and
liabilities and are measured using the enacted tax rates and laws that will be in
effect when the differences are expected to reverse. We recognized an income tax
benefit of $14,325,000 for the year ended June 30, 2004, primarily related to the
reversal of a portion of the valuation allowance previously established for our
deferred tax asset. Realization of total deferred tax assets is contingent upon
the generation of future taxable income. Due to the uncertainty of realization of
these tax benefits, in fiscal 2004 and 2005 we have provided a valuation allowance
against the U.S. net operating loss carryforwards and research tax credits related
to the exercise of stock options as well as other U.S. net operating loss
carryforwards and tax credits expected to expire unused. We have also provided a
valuation allowance against foreign net operating loss carryforwards expected to
expire unused. We review our deferred tax asset on a quarterly basis to determine
if a valuation allowance is required, primarily based on recent historical
financial trends and our estimates of future taxable income. Changes in our
assessment of the need for a valuation allowance could give rise to a valuation
allowance and an expense in the period of change. A significant portion of the
remaining deferred tax asset valuation allowance, if released, will be reflected as
a direct increase to stockholders equity and will not impact the consolidated
statement of operations.The remaining valuation allowance, if released, will be
reflected as an increase to book income and will impact the consolidated statement
of operations.
 53




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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  54




---



##### 



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 DIGENE 2005 10-K EXCERPT
 DIGENE CORPORATION
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 Report of Independent Registered Public Accounting Firm
    
    
    56Managements Report on Internal Control Over
Financial Reporting
    
    
    57Report of Independent Registered Public Accounting Firm
on Internal Control Over Financial Reporting
    
    
    58Consolidated balance sheets at June 30, 2005 and 2004
    
    
    60Consolidated statements of operations for each of the
three years in the period ended June 30, 2005
    
    
    61Consolidated statements of cash flows for each of the
three years in the period ended June 30, 2005
    
    
    62Consolidated statements of stockholders equity for each of the
three years in the period ended June 30, 2005
    
    
    63Notes to consolidated financial statements for each of the
three years in the period ended June 30, 2005
    
    
    64
 55




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##### 



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     /s/ Ernst & Young LLP
 
 56




---



##### 



Managements Report on Internal Control Over Financial Reporting
  57




---



##### 



Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
 
      58




---



##### 



/s/ Ernst & Young LLP
 
 59




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##### 



DIGENE CORPORATION
 CONSOLIDATED BALANCE SHEETS
 June 30,2004
    
    
    2005ASSETSCurrent assets:Cash and cash equivalents
    
    $
    4,079,519
    
    
    $
    15,789,473Short-term investments
    
    
    44,653,599
    
    
    
    30,292,421Accounts receivable, less allowance of approximately $600,000
and $288,000 at June 30, 2004 and 2005, respectively
    
    
    17,545,133
    
    
    
    20,296,303Inventories, net
    
    
    8,109,987
    
    
    
    7,197,388Prepaid expenses and other current assets
    
    
    2,392,048
    
    
    
    3,129,382Deferred tax asset, current
    
    
    1,047,766
    
    
    
    2,037,718Total current assets
    
    
    77,828,052
    
    
    
    78,742,685Property and equipment, net
    
    
    9,561,794
    
    
    
    10,104,045Deposits and other assets
    
    
    2,150,486
    
    
    
    2,237,462Deferred tax asset, net
    
    
    13,729,916
    
    
    
    15,761,238Total assets
    
    $
    103,270,248
    
    
    $
    106,845,430LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    5,423,628
    
    
    $
    7,807,316Accrued expenses
    
    
    3,771,141
    
    
    
    11,996,460Accrued payroll
    
    
    5,387,129
    
    
    
    5,835,295Current portion of long-term debt
    
    
    1,459,890
    
    
    
    116,036Total current liabilities
    
    
    16,041,788
    
    
    
    25,755,107Deferred rent
    
    
    479,078
    
    
    
    763,112Long-term debt, less current portion
    
    
    685,940
    
    
    
    571,624Minority interest
    
    
    
    
    
    
    353,033Stockholders equity:Preferred Stock, $0.10 par value, 1,000,000 shares authorized,
no shares issued and outstanding
    
    
    
    
    
    
    Common Stock, $0.01 par value, 50,000,000 shares authorized,
19,883,918 and 20,037,253 shares issued and outstanding at
June 30, 2004 and 2005, respectively
    
    
    198,839
    
    
    
    200,373Additional paid-in capital
    
    
    139,637,245
    
    
    
    140,914,008Deferred stock compensation
    
    
    (164,031
    )
    
    
    Accumulated other comprehensive income
    
    
    537,688
    
    
    
    601,342Accumulated deficit
    
    
    (54,146,299
    )
    
    
    (62,313,169
    )Total stockholders equity
    
    
    86,063,442
    
    
    
    79,402,554Total liabilities and stockholders equity
    
    $
    103,270,248
    
    
    $
    106,845,430
 See accompanying notes.
 60




---



##### 



DIGENE CORPORATION
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Year Ended June 30,2003
    
    
    2004
    
    
    2005Revenues:Product sales
    
    $
    62,440,415
    
    
    $
    88,815,293
    
    
    $
    113,218,813Other
    
    
    661,481
    
    
    
    1,345,275
    
    
    
    1,922,790Total revenues
    
    
    63,101,896
    
    
    
    90,160,568
    
    
    
    115,141,603Costs and expenses:Cost of product sales
    
    
    13,383,086
    
    
    
    16,716,387
    
    
    
    20,127,590Royalty and technology
    
    
    2,813,556
    
    
    
    1,704,837
    
    
    
    5,393,343Research and development
    
    
    10,262,138
    
    
    
    10,743,763
    
    
    
    12,963,915Selling and marketing
    
    
    25,099,168
    
    
    
    34,918,406
    
    
    
    45,932,993General and administrative
    
    
    16,642,100
    
    
    
    19,297,782
    
    
    
    20,265,277Patent litigation settlements
    
    
    
    
    
    
    
    
    
    
    21,500,000Total costs and expenses
    
    
    68,200,048
    
    
    
    83,381,175
    
    
    
    126,183,118Income (loss) from operations
    
    
    (5,098,152
    )
    
    
    6,779,393
    
    
    
    (11,041,515
    )Other income (expense):Interest income
    
    
    593,331
    
    
    
    459,170
    
    
    
    807,576Interest expense
    
    
    (272,810
    )
    
    
    (183,945
    )
    
    
    (37,105
    )Other income (expense)
    
    
    677,585
    
    
    
    162,463
    
    
    
    (116,468
    )Total other income (expense)
    
    
    998,106
    
    
    
    437,688
    
    
    
    654,003Income (loss) from operations before minority interest and income taxes
    
    
    (4,100,046
    )
    
    
    7,217,081
    
    
    
    (10,387,512
    )Minority Interest
    
    
    
    
    
    
    
    
    
    
    (353,033
    )Income (loss) from operations before income taxes
    
    
    (4,100,046
    )
    
    
    7,217,081
    
    
    
    (10,740,545
    )Provision for (benefit from) income taxes
    
    
    223,465
    
    
    
    (14,324,947
    )
    
    
    (2,573,675
    )Net income (loss)
    
    $
    (4,323,511
    )
    
    $
    21,542,028
    
    
    $
    (8,166,870
    )Basic net income (loss) per share
    
    $
    (0.24
    )
    
    $
    1.13
    
    
    $
    (0.41
    )Diluted net income (loss) per share
    
    $
    (0.24
    )
    
    $
    1.04
    
    
    $
    (0.41
    )Weighted average shares outstandingBasic
    
    
    18,135,689
    
    
    
    19,144,021
    
    
    
    19,964,800Diluted
    
    
    18,135,689
    
    
    
    20,806,078
    
    
    
    19,964,800
 See accompanying notes.
 61




---



##### 



DIGENE CORPORATION
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 AccumulatedCommon Stock
    
    
    Additional
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    TotalPaid-In
    
    
    Deferred Stock
    
    
    Comprehensive
    
    
    Accumulated
    
    
    StockholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Compensation
    
    
    Income
    
    
    Deficit
    
    
    EquityBalance at June 30, 2002
    
    
    17,972,728
    
    
    
    179,727
    
    
    
    110,856,010
    
    
    
    (32,137
    )
    
    
    
    
    
    
    (71,364,816
    )
    
    
    39,638,784Comprehensive loss:Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    356,415
    
    
    
    
    
    
    
    356,415Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,323,511
    )
    
    
    (4,323,511
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,967,096
    )Exercise of Common Stock
options
    
    
    209,623
    
    
    
    2,096
    
    
    
    2,079,691
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,081,787Issuance of Common Stock to
Roche
    
    
    142,857
    
    
    
    1,429
    
    
    
    4,998,571
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,000,000Issuance of Common Stock
options to non-employees
    
    
    
    
    
    
    
    
    
    
    601,000
    
    
    
    (601,000
    )
    
    
    
    
    
    
    
    
    
    
    Compensatory stock options
earned by non-employees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    252,504
    
    
    
    
    
    
    
    
    
    
    
    252,504Balance at June 30, 2003
    
    
    18,325,208
    
    
    $
    183,252
    
    
    $
    118,535,272
    
    
    $
    (380,633
    )
    
    $
    356,415
    
    
    $
    (75,688,327
    )
    
    $
    43,005,979Comprehensive income:Foreign currency
translation, net of income
tax expense of $173,979
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    260,968
    
    
    
    
    
    
    
    260,968Unrealized loss on available
for-sale securities, net of
income tax benefit of $53,130
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (79,695
    )
    
    
    
    
    
    
    (79,695
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,542,028
    
    
    
    21,542,028Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,723,301Exercise of Common Stock
options
    
    
    1,558,710
    
    
    
    15,587
    
    
    
    20,882,723
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,898,310Compensatory stock options
earned by non-employees
    
    
    
    
    
    
    
    
    
    
    219,250
    
    
    
    216,602
    
    
    
    
    
    
    
    
    
    
    
    435,852Balance at June 30, 2004
    
    
    19,883,918
    
    
    $
    198,839
    
    
    $
    139,637,245
    
    
    $
    (164,031
    )
    
    $
    537,688
    
    
    $
    (54,146,299
    )
    
    $
    86,063,442Comprehensive loss:Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    36,291
    
    
    
    
    
    
    
    36,291Unrealized gain on available
for-sale securities, net of
income tax benefit of $33,402
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,363
    
    
    
    
    
    
    
    27,363Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,166,870
    )
    
    
    (8,166,870
    )Comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,103,216
    )Exercise of Common Stock
options
    
    
    153,335
    
    
    
    1,534
    
    
    
    1,530,013
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,531,547Compensatory stock options
earned by non-employees
    
    
    
    
    
    
    
    
    
    
    (253,250
    )
    
    
    164,031
    
    
    
    
    
    
    
    
    
    
    
    (89,219
    )Balance at June 30, 2005
    
    
    20,037,253
    
    
    $
    200,373
    
    
    $
    140,914,008
    
    
    $
    
    
    
    $
    601,342
    
    
    $
    (62,313,169
    )
    
    $
    79,402,554
 See accompanying notes.
 62




---



##### 



DIGENE CORPORATION
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Year Ended June 30,2003
    
    
    2004
    
    
    2005Operating activitiesNet income (loss)
    
    $
    (4,323,511
    )
    
    $
    21,542,028
    
    
    $
    (8,166,870
    )Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:Depreciation and amortization of property and equipment
    
    
    3,293,454
    
    
    
    3,914,062
    
    
    
    4,490,281Amortization of discount on note payable
    
    
    
    
    
    
    35,603
    
    
    
    Loss on disposal of fixed assets
    
    
    22,925
    
    
    
    178,036
    
    
    
    259,454Compensation expense related to stock options
    
    
    252,504
    
    
    
    435,852
    
    
    
    (89,219
    )Deferred tax benefit
    
    
    
    
    
    
    (14,898,531
    )
    
    
    (2,867,024
    )Minority interest
    
    
    
    
    
    
    
    
    
    
    353,033Changes in operating assets and liabilities:Accounts receivable
    
    
    (1,343,013
    )
    
    
    (7,200,536
    )
    
    
    (2,681,183
    )Inventories
    
    
    259,177
    
    
    
    (1,036,067
    )
    
    
    1,009,253Prepaid expenses and other current assets
    
    
    6,039
    
    
    
    (202,823
    )
    
    
    (781,609
    )Deposits and other assets
    
    
    (233,725
    )
    
    
    (190,305
    )
    
    
    (88,730
    )Accounts payable
    
    
    993,294
    
    
    
    (2,066,072
    )
    
    
    2,173,658Accrued expenses
    
    
    (2,161,077
    )
    
    
    303,512
    
    
    
    8,203,996Accrued payroll
    
    
    1,317,891
    
    
    
    1,204,802
    
    
    
    464,329Deferred rent
    
    
    81,832
    
    
    
    44,170
    
    
    
    284,034Net cash provided by (used in) operating activities
    
    
    (1,834,210
    )
    
    
    2,063,731
    
    
    
    2,563,403Investing activitiesPurchases of short-term investments
    
    
    (29,940,689
    )
    
    
    (52,712,116
    )
    
    
    (23,899,798
    )Sales and maturities of short-term investments
    
    
    33,671,809
    
    
    
    34,334,686
    
    
    
    38,308,066Capital expenditures
    
    
    (3,763,786
    )
    
    
    (6,138,788
    )
    
    
    (5,218,110
    )Net cash used in investing activities
    
    
    (32,666
    )
    
    
    (24,516,218
    )
    
    
    9,190,158Financing activitiesExercise of Common Stock options
    
    
    2,081,787
    
    
    
    20,898,310
    
    
    
    1,531,547Principal payments of long-term debt
    
    
    (1,428,492
    )
    
    
    (2,684,380
    )
    
    
    (1,458,172
    )Net cash provided by financing activities
    
    
    653,295
    
    
    
    18,213,930
    
    
    
    73,375Effect of currency translations
    
    
    (356,415
    )
    
    
    434,947
    
    
    
    (116,982
    )Net increase (decrease) in cash and cash equivalents
    
    
    (1,569,996
    )
    
    
    (3,803,610
    )
    
    
    11,709,954Cash and cash equivalents at beginning of year
    
    
    9,453,125
    
    
    
    7,883,129
    
    
    
    4,079,519Cash and cash equivalents at end of year
    
    $
    7,883,129
    
    
    $
    4,079,519
    
    
    $
    15,789,473Supplemental cash flow informationInterest paid
    
    $
    374,000
    
    
    $
    163,000
    
    
    $
    46,000Income taxes paid
    
    $
    149,000
    
    
    $
    345,000
    
    
    $
    202,000
 See accompanying notes.
 63




---



##### 



Notes to Consolidated Financial Statements
 1. Organization and Nature of Operations
 â
   2. Summary of Significant Accounting Policies
 Principles of Consolidation
  Use of Estimates
  Foreign Currencies
  Cash and Cash Equivalents
  64




---



##### 



Short-Term Investments
  Trade Receivables
  Segment Information
  Concentration of Credit Risk and Financial Instruments
  Fair Value of Financial Instruments
  Significant Suppliers
  65




---



##### 



Inventories
  Property and Equipment
  Intangible Assets
  Impairment of Long-Lived Assets and Recoverability of Intangibles
  Minority Interest
  Revenue Recognition
  66




---



##### 



Cost of Product Sales
  Shipping Costs
  Research and Development
  Selling and Marketing
  Advertising Costs
  67




---



##### 



Income Taxes
  Net Income (Loss) Per Share
   Comprehensive Income (Loss)
  Stock-Based Compensation
   68




---



##### 



Year Ended June 30,2003
    
    
    2004
    
    
    2005Net income (loss), as reported
    
    $
    (4,323,511
    )
    
    $
    21,542,028
    
    
    $
    (8,166,870
    )Add: Stock-based non-employee
compensation expense included
in reported net income
(loss), net of taxes
    
    
    252,504
    
    
    
    435,852
    
    
    
    (54,459
    )Deduct: Stock-based employee
compensation expense if SFAS
No. 123 had been applied to
all grants
    
    
    (13,310,256
    )
    
    
    (6,897,933
    )
    
    
    (19,298,093
    )Pro forma net income (loss)
    
    $
    (17,381,263
    )
    
    $
    15,079,947
    
    
    $
    (27,519,422
    )Net income (loss) per shareBasic  as reported
    
    $
    (0.24
    )
    
    $
    1.13
    
    
    $
    (0.41
    )Basic  pro forma
    
    $
    (0.96
    )
    
    $
    0.79
    
    
    $
    (1.38
    )Diluted  as reported
    
    $
    (0.24
    )
    
    $
    1.04
    
    
    $
    (0.41
    )Diluted pro forma
    
    $
    (0.96
    )
    
    $
    0.73
    
    
    $
    (1.38
    )
  Year Ended June 30,2003
    
    
    2004
    
    
    2005Dividend yield
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %Expected volatility
    
    
    80
    %
    
    
    78
    %
    
    
    76
    %Risk-free interest rate
    
    
    2.8
    %
    
    
    3.7
    %
    
    
    4.0
    %Expected life of the option term (in years)
    
    
    6.3
    
    
    
    5.9
    
    
    
    5.4
   69




---



##### 



Recent Accounting Pronouncements
    Reclassifications
  3. Other Balance Sheet Information
  Inventories
 June 30,2004
    
    
    2005Finished goods
    
    $
    5,516,411
    
    
    $
    4,642,294Work in process
    
    
    3,668,683
    
    
    
    3,343,499Raw materials
    
    
    1,207,415
    
    
    
    1,187,02110,392,509
    
    
    
    9,172,814Inventory reserve
    
    
    (2,282,522
    )
    
    
    (1,975,426
    )$
    8,109,987
    
    
    $
    7,197,388
 70




---



##### 



Property and Equipment
 June 30,2004
    
    
    2005Furniture, fixtures and office equipment
    
    $
    3,348,037
    
    
    $
    4,375,526Machinery and equipment
    
    
    4,700,011
    
    
    
    4,986,474Customer-use assets
    
    
    9,998,546
    
    
    
    9,665,519Construction in-process
    
    
    
    
    
    
    1,694,687Leasehold improvements
    
    
    2,005,455
    
    
    
    2,798,99920,052,049
    
    
    
    23,521,205Accumulated depreciation and amortization
    
    
    (10,490,255
    )
    
    
    (13,417,160
    )$
    9,561,794
    
    
    $
    10,104,045
  Short-term Investments
 June 30, 2005Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedAvailable-for-Sale
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueU.S. Treasury and agencies
    
    $
    22,190,931
    
    
    $
    1,287
    
    
    $
    (51,894
    )
    
    $
    22,140,324Corporate debt securities
    
    
    8,187,225
    
    
    
    
    
    
    
    (35,128
    )
    
    
    8,152,097Total Short-term investments
    
    $
    30,378,156
    
    
    $
    1,287
    
    
    $
    (87,022
    )
    
    $
    30,292,421
 June 30, 2004Amortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    EstimatedAvailable-for-Sale
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueU.S. Treasury and agencies
    
    $
    34,162,108
    
    
    $
    658
    
    
    $
    (86,409
    )
    
    $
    34,076,357Corporate debt securities
    
    
    10,624,316
    
    
    
    
    
    
    
    (47,074
    )
    
    
    10,577,242Total Short-term investments
    
    $
    44,786,424
    
    
    $
    658
    
    
    $
    (133,483
    )
    
    $
    44,653,599
   Amortized
    
    
    EstimatedMaturity
    
    Cost
    
    
    Fair ValueLess than one year
    
    $
    25,086,923
    
    
    $
    25,003,003Due in one to two years
    
    
    5,291,233
    
    
    
    5,289,418$
    30,378,156
    
    
    $
    30,292,421
 71




---



##### 



Year Ended June 30,2003
    
    
    2004
    
    
    2005Gross proceeds
    
    $
    5,410,773
    
    
    $
    89,827,194
    
    
    $
    30,511,560Realized gains
    
    
    640
    
    
    
    
    
    
    
    2,786Realized losses
    
    
    (32
    )
    
    
    (19
    )
    
    
    (123
    )
 Accounts Payable
 June 30,2004
    
    
    2005Trade payables
    
    $
    4,261,514
    
    
    $
    5,934,351Other
    
    
    1,162,114
    
    
    
    1,872,965$
    5,423,628
    
    
    $
    7,807,316
 Accrued Expenses
 June 30,2004
    
    
    2005Accrued expenses
    
    $
    3,771,141
    
    
    $
    4,496,460Georgetown settlement
    
    
    
    
    
    
    7,500,000$
    3,771,141
    
    
    $
    11,996,460
 4. Long-term Debt
    72




---



##### 



Fiscal
    
    
    2006
    
    
    $
    116,0362007
    
    
    
    118,0072008
    
    
    
    118,8002009
    
    
    
    120,0202010
    
    
    
    214,797Thereafter
    
    
    
    $
    687,660
 5. Income Taxes
  Year Ended June 30,2003
    
    
    2004
    
    
    2005Current:Federal
    
    $
    
    
    
    $
    
    
    
    $
    State
    
    
    
    
    
    
    397,780
    
    
    
    Foreign
    
    
    223,465
    
    
    
    175,804
    
    
    
    360,520Total current
    
    
    223,465
    
    
    
    573,584
    
    
    
    360,520Deferred:Federal
    
    
    
    
    
    
    (12,832,429
    )
    
    
    (2,636,522
    )State
    
    
    
    
    
    
    (2,066,102
    )
    
    
    (297,673
    )Foreign
    
    
    
    
    
    
    
    
    
    
    Total deferred
    
    
    
    
    
    
    (14,898,531
    )
    
    
    (2,934,195
    )Total provision for
(benefit from)
income taxes
    
    $
    223,465
    
    
    $
    (14,324,947
    )
    
    $
    (2,573,675
    )
    Year Ended June 30,2003
    
    
    2004
    
    
    2005United States
    
    $
    5,635,918
    
    
    $
    21,545,679
    
    
    $
    (7,414,728
    )Foreign
    
    
    (9,735,964
    )
    
    
    (14,328,598
    )
    
    
    (3,325,817
    )$
    (4,100,046
    )
    
    $
    7,217,081
    
    
    $
    (10,740,545
    )
  73




---



##### 



Year Ended June 30,2003
    
    
    2004
    
    
    2005Tax (benefit) expense at statutory rates
    
    $
    (1,394,000
    )
    
    $
    2,472,152
    
    
    $
    (3,759,190
    )Effect of:State income tax, net
    
    
    129,000
    
    
    
    685,712
    
    
    
    (193,832
    )Foreign tax
    
    
    223,465
    
    
    
    175,804
    
    
    
    (278,996
    )Stock options
    
    
    (708,000
    )
    
    
    
    
    
    
    Tax rate adjustments
    
    
    
    
    
    
    
    
    
    
    (1,831,081
    )Net operating losses and tax credits
    
    
    
    
    
    
    
    
    
    
    791,872Permanent and other differences
    
    
    (466,000
    )
    
    
    571,176
    
    
    
    750,782Change in valuation allowance
    
    
    2,439,000
    
    
    
    (18,229,791
    )
    
    
    1,946,770Provision for (benefit from) income taxes
    
    $
    223,465
    
    
    $
    (14,324,947
    )
    
    $
    (2,573,675
    )
   June 30,2004
    
    
    2005Net operating loss carryforwards
    
    $
    43,977,001
    
    
    $
    51,941,410Research and development credits
    
    
    2,808,099
    
    
    
    3,048,306Fixed assets and intangibles
    
    
    611,859
    
    
    
    899,577Reserves
    
    
    1,593,161
    
    
    
    1,359,687Patent litigation settlement
    
    
    
    
    
    
    2,954,063Alternative minimum tax credit
    
    
    41,920
    
    
    
    41,920Other
    
    
    2,389,122
    
    
    
    2,422,471Deferred tax assets
    
    
    51,421,162
    
    
    
    62,667,434Valuation allowance
    
    
    (36,643,480
    )
    
    
    (44,868,478
    )$
    14,777,682
    
    
    $
    17,798,956
   74




---



##### 



6. Stockholders Equity
 Common Stock
   Year Ended June 30,2003
    
    
    2004
    
    
    2005Numerator:Net income (loss)
    
    $
    (4,323,511
    )
    
    $
    21,542,028
    
    
    $
    (8,166,870
    )Denominator:Weighted average shares
outstanding  Basic
    
    
    18,135,689
    
    
    
    19,144,021
    
    
    
    19,964,800Dilutive securities  stock options
    
    
    
    
    
    
    1,662,057
    
    
    
    Weighted average shares
outstanding  Diluted
    
    
    18,135,689
    
    
    
    20,806,078
    
    
    
    19,964,800Basic net income (loss) per share
    
    $
    (0.24
    )
    
    $
    1.13
    
    
    $
    (0.41
    )Diluted net income (loss) per share
    
    $
    (0.24
    )
    
    $
    1.04
    
    
    $
    (0.41
    )
  75




---



##### 



Common Stock Options
       76




---



##### 



Year Ended June 30,2003
    
    
    2004
    
    
    2005Weighted-
    
    
    
    
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Average
    
    
    
    
    
    
    Average
    
    
    
    
    
    
    AverageExercise
    
    
    
    
    
    
    Exercise
    
    
    
    
    
    
    ExerciseShares
    
    
    Price
    
    
    Shares
    
    
    Price
    
    
    Shares
    
    
    PriceOutstanding at beginning of
year
    
    
    3,265,862
    
    
    $
    20.62
    
    
    
    4,051,013
    
    
    $
    17.95
    
    
    
    3,234,018
    
    
    $
    23.74Options granted
    
    
    1,096,000
    
    
    
    8.88
    
    
    
    888,200
    
    
    
    31.91
    
    
    
    662,750
    
    
    
    29.95Options exercised
    
    
    (209,623
    )
    
    
    9.93
    
    
    
    (1,558,710
    )
    
    
    13.41
    
    
    
    (153,335
    )
    
    
    9.99Options canceled or expired
    
    
    (101,226
    )
    
    
    22.64
    
    
    
    (146,485
    )
    
    
    23.12
    
    
    
    (225,553
    )
    
    
    28.44Outstanding at end of year
    
    
    4,051,013
    
    
    
    17.95
    
    
    
    3,234,018
    
    
    
    23.74
    
    
    
    3,517,880
    
    
    
    25.22Options exercisable at year-end
    
    
    2,119,687
    
    
    
    16.90
    
    
    
    1,322,233
    
    
    
    25.00
    
    
    
    2,607,335
    
    
    
    27.35
  Options Outstanding
    
    
    Options ExercisableAverage
    
    
    Weighted-
    
    
    
    
    
    
    Weighted-Remaining
    
    
    Average
    
    
    
    
    
    
    AverageRange of
    
    Number
    
    
    Contractual
    
    
    Exercise
    
    
    Number
    
    
    ExerciseExercise Prices
    
    Outstanding
    
    
    Life
    
    
    Price
    
    
    Exercisable
    
    
    Price$  0.00  $10.00
    
    
    688,806
    
    
    
    6.4
    
    
    $
    7.33
    
    
    
    396,396
    
    
    $
    7.55$10.01  $20.00
    
    
    339,108
    
    
    
    5.9
    
    
    
    14.61
    
    
    
    203,178
    
    
    
    13.61$20.01  $30.00
    
    
    845,683
    
    
    
    7.4
    
    
    
    26.30
    
    
    
    398,578
    
    
    
    26.01$30.01  $40.00
    
    
    1,593,283
    
    
    
    6.4
    
    
    
    33.95
    
    
    
    1,558,183
    
    
    
    33.88$40.01  $47.63
    
    
    51,000
    
    
    
    7.7
    
    
    
    46.97
    
    
    
    51,000
    
    
    
    46.973,517,880
    
    
    
    6.6
    
    
    
    25.22
    
    
    
    2,607,335
    
    
    
    27.35
   77




---



##### 



7. Commitments and Contingencies
 Lease Commitments
  2006
    
    $
    3,566,7282007
    
    
    3,456,9012008
    
    
    3,227,8842009
    
    
    3,165,4002010
    
    
    1,630,055Thereafter
    
    
    158,258$
    15,205,226
  Royalty and Technology Expenses
     78




---



##### 



Repurchase of Equipment under prior Marketing and Distribution Agreements
      Co-Promotion Agreement
 2 Ò 2
 79




---



##### 



Contingencies
  8. Warranties
  For the Year Ended June 30,2004
    
    
    2005Balance, beginning of period
    
    $
    633,430
    
    
    $
    896,626Warranties issued during the period
    
    
    1,776,057
    
    
    
    2,274,912Changes in liability for
pre-existing warranties during the
period, including expirations
    
    
    (1,512,861
    )
    
    
    (2,034,289
    )Balance, end of period
    
    $
    896,626
    
    
    $
    1,137,249
 9. Retirement Plan
  10. Significant Customers and Geographic Information
  80




---



##### 



2003
    
    
    2004
    
    
    2005Assets
    
    
    Revenues
    
    
    Assets
    
    
    Revenues
    
    
    Assets
    
    
    RevenuesNorth America
    
    $
    50,845,853
    
    
    $
    46,279,902
    
    
    $
    92,526,699
    
    
    $
    67,169,751
    
    
    $
    92,682,912
    
    
    $
    88,577,142Europe
    
    
    11,310,693
    
    
    
    11,174,822
    
    
    
    9,789,249
    
    
    
    15,841,533
    
    
    
    12,690,511
    
    
    
    18,221,949Latin America
    
    
    1,170,898
    
    
    
    2,703,297
    
    
    
    928,048
    
    
    
    3,292,641
    
    
    
    1,464,285
    
    
    
    3,973,103Pacific Rim
    
    
    47,706
    
    
    
    2,943,875
    
    
    
    26,252
    
    
    
    3,856,643
    
    
    
    7,722
    
    
    
    4,369,409$
    63,375,150
    
    
    $
    63,101,896
    
    
    $
    103,270,248
    
    
    $
    90,160,568
    
    
    $
    106,845,430
    
    
    $
    115,141,603
 11. Quarterly Results of Operations (Unaudited)
  First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter2005Revenues
    
    $
    26,211
    
    
    $
    26,953
    
    
    $
    29,667
    
    
    $
    32,311Net income (loss)
    
    $
    (6,273
    )
    
    $
    304
    
    
    $
    1,565
    
    
    $
    (3,763
    )Basic net income (loss) per share
    
    $
    (0.32
    )
    
    $
    0.02
    
    
    $
    0.08
    
    
    $
    (0.19
    )Diluted net income per share
    
    $
    (0.32
    )
    
    $
    0.01
    
    
    $
    0.08
    
    
    $
    (0.19
    )2004Revenues
    
    $
    19,618
    
    
    $
    21,114
    
    
    $
    23,565
    
    
    $
    25,863Net income (loss)
    
    $
    655
    
    
    $
    948
    
    
    $
    2,490
    
    
    $
    17,448Basic net income (loss) per share
    
    $
    0.04
    
    
    $
    0.05
    
    
    $
    0.13
    
    
    $
    0.88Diluted net income (loss) per share
    
    $
    0.03
    
    
    $
    0.05
    
    
    $
    0.12
    
    
    $
    0.83
   81




---



##### 



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
  ITEM 9A. CONTROLS AND PROCEDURES
    ITEM 9B. OTHER INFORMATION
  82




---



##### 



PART III
 ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
    ITEM 11. EXECUTIVE COMPENSATION
  ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
  ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
  ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
  83




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##### 



PART IV
 ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
 
    
    Consolidated Financial Statements of Digene Corporation:Report of Independent Registered Public Accounting FirmConsolidated Balance Sheets as of June 30, 2005 and 2004Consolidated Statements of Operations for the fiscal years ended June 30,
2003, 2004 and 2005Consolidated Statements of Stockholders Equity for the fiscal years
ended June 30, 2003, 2004 and 2005Consolidated Statements of Cash Flows for the fiscal years ended June 30,
2003, 2004 and 2005Notes to Consolidated Financial Statements
    
    Financial Statement Schedules:Schedule II  Valuation and Qualifying Accounts and ReservesAll other schedules for which provision is made in the applicable
accounting regulation of the Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
    
    Exhibits:3.1
    
    Amended and Restated Certificate of Incorporation of Digene (Incorporated
by reference to Exhibit 3.1 of the Registrants Registration Statement on Form S-1
(File No. 333-2968) dated March 29, 1996).3.2
    
    Amended and Restated Bylaws of Digene (Incorporated by reference to Exhibit
3.2 of the Registrants Annual Report on Form 10-K for the fiscal year ended June 30,
1999).4.1
    
    Specimen Common Stock Certificate (Incorporated by reference to Exhibit 4.1
of the Registrants Registration Statement on Form S-1 (File No. 333-2968) dated
March 29, 1996).10.1
    
    Cross-License Agreement dated April 1, 1990 among Life Technologies, Inc. and
Institut Pasteur (Incorporated by reference to Exhibit 10.15 of the Registrants
Registration Statement on Form S-1 (File No. 333-2968) dated March 29, 1996).10.2
    
    License Agreement dated December 19, 1990 between Digene and Life
Technologies, Inc. (Incorporated by reference to Exhibit 10.18 of the Registrants
Registration Statement on Form S-1 (File No. 333-2968) dated March 29, 1996).10.3
    
    License Agreement dated September 1, 1995 between Digene and Institut Pasteur
(Incorporated by reference to Exhibit 10.14 of the Registrants Registration Statement
on Form S-1 (File No. 333-2968) dated March 29, 1996).10.4
    
    License Agreement dated September 27, 1995 between Digene and Kanebo, Ltd.
(Incorporated by reference to Exhibit 10.28 of the Registrants
 84




---



##### 



Registration Statement on Form S-1 (File No. 333-2968) dated March 29, 1996).10.5 +
    
    License Agreement dated April 5, 2000 between Digene and Institut
Pasteur (Incorporated by reference to Exhibit 10.39 of Digenes
Annual Report on Form 10-K for the fiscal year ended June 30, 2000).10.6
    
    Amended and Restated Reseller Agreement dated December 10, 2003, between
Digene Corporation and Applera Corporation, acting through its Applied Biosystems
Group (Incorporated by reference to Exhibit 10.1 of Digenes Quarterly Report on Form
10-Q for the quarter ended December 31, 2003).10.7 ++
    
    Original Equipment Manufacturer Supply Agreement dated January 23, 2001
between Digene and Qiagen Instruments AG (Incorporated by reference to Exhibit 10.43
of Digenes Annual Report on Form 10-K for the fiscal year ended June 30, 2001).10.8
    
    Registration Rights Agreement dated as of May 24, 1996 between Digene, Armonk
Partners, Murex Diagnostics Corporation and Certain Other Stockholders (Incorporated
by reference to Exhibit 10.26 of the Registrants Registration Statement on Form S-1
(File No. 333-2968) dated March 29, 1996).10.09
    
    Lease dated as of March 2, 1998 by and between Digene and ARE  Metropolitan
Grove I, LLC (Incorporated by reference to Exhibit 10.1 of Digenes Quarterly Report
on Form 10-Q for the quarter ended March 31, 1998).10.10 !
    
    Amended and Restated 1996 Omnibus Plan (Incorporated by reference to
Exhibit 10.3 of Digenes Quarterly Report on Form 10-Q for the quarter ended September
30, 2000).10.11
    
    Amended and Restated 1997 Stock Option Plan (Incorporated by reference to
Exhibit 10.1 of Digenes Quarterly Report on Form 10-Q for the quarter ended September
30, 2000).10.12 !
    
    Amended and Restated Directors Stock Option Plan
(Incorporated by reference to Exhibit 10.30 of Digenes
Annual Report on Form 10-K for the fiscal year ended June
30, 2003).10.13 !
    
    Amended and Restated 1999 Incentive Plan, as amended
(Incorporated by reference to Exhibit 4.1 of Digenes
Registration Statement on Form S-8 (File No. 333-120299)
dated November 8, 2004).10.13(a) !
    
    Amendment to the Amended and Restated 1999 Incentive Plan, Stock Option Awards
to Employees Working in France (Incorporated by reference to Exhibit 10.1 of Digenes
Quarterly Report on Form 10-Q for the quarter ended March 31, 2005).10.14 !
    
    Employment Agreement, dated February 19, 2002, between Digene and Donna Marie Seyfried (Incorporated by
reference to Exhibit 99(e)(10) to Digenes Solicitation/Recommendation Statement on Schedule 14D-9, File
No. 005-46641, dated March 1, 2002).10.15 !
    
    Noncompetition, Nondisclosure and Developments Agreement, dated February 19, 2002, between Digene and
Donna Marie Seyfried (Incorporated by reference to Exhibit 99(e)(11) to Digenes
Solicitation/Recommendation Statement on Schedule 14D-9, File No. 005-46641, dated March 1, 2002).10.16 !
    
    Form of Employment Agreement between Digene and each of Evan Jones and Charles M. Fleischman (Incorporated
by reference to Exhibit 10.2 of Digenes Quarterly Report on Form 10-Q for the quarter ended March 31,
2003).
 85




---



##### 



10.17 !
    
    Form of Employment Agreement
between each of Digene and each of the executive officers listed on
Exhibit 10.17(a).10.17(a) ! *
    
    Schedule of executive officers of
Digene entering into Employment Agreement.10.18 !
    
    Form of Change in Control Employment Agreement between Digene and each of Evan Jones and Charles M.
Fleischman (Incorporated by reference to Exhibit 10.4 of Digenes Quarterly Report on Form 10-Q for the
quarter ended March 31, 2003).10.19 !
    
    Form of Change in Employment
Agreement between Digene and each of the executive officers listed on
Exhibit 10.19(a)
(Incorporated by reference to Exhibit 10.5 of Digenes Quarterly Report on Form 10-Q for the quarter ended
March 31, 2003).10.19(a) ! *
    
    Schedule of executive officers of Digene entering into Change in Control Employment Agreement.10.20 +++
    
    Settlement and License Agreement, executed October 13, 2004, among Digene Corporation and Enzo Biochem,
Inc. and Enzo Life Sciences, Inc. (Incorporated by reference to Exhibit 10.1 of Digenes Quarterly Report
on Form 10-Q for the quarter ended September 30, 2004).10.21 ++++ *
    
    Settlement and License Agreement, effective as of July 1, 2005, between Digene Corporation and Georgetown
University.10.22 !*
    
    Non-Employee Director Compensation Policy.10.23 !*
    
    Schedule of Fiscal 2006 Executive Salaries.21 *
    
    Subsidiaries of the Registrant.23.1 *
    
    Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm.31.1 *
    
    Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Executive Officer.31.2 *
    
    Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Financial Officer.32 *
    
    Certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.
 
 *
    
    Filed herewith.+
    
    Confidential treatment has been granted for certain portions thereof
pursuant to a Commission Order issued December 13, 2000. Such
provisions have been filed separately with the Commission.++
    
    Confidential treatment has been granted for certain provisions
thereof pursuant to a Commission Order issued November 30, 2001.
Such provisions have been filed separately with the Commission.+++
    
    Confidential treatment has been granted for certain provisions
thereof pursuant to a Commission Order issued December 7, 2004. Such
provisions have been filed separately with the Commission.++++
    
    Confidential treatment has been requested for certain portions of
this agreement pursuant to an application for confidential treatment
filed with the Securities and Exchange Commission on September 13,
2005. Such provisions have been filed separately with the
Commission.!
    
    Constitutes a management contract or compensatory plan required to be
filed as an exhibit to this Form 10-K. 86




---



##### 



SIGNATURES
  DIGENE CORPORATIONSeptember 13, 2005
    
    By:
    
    /s/ Evan JonesChairman and Chief Executive Officer
   Signature
    
    Title
    
    Date/s/ Evan Jones
    
    Chairman and Chief Executive
    
    September 13, 2005Evan Jones
    
    Officer (principal executive officer)/s/ Charles M. Fleischman
    
    President, Chief Operating Officer,
    
    September 13, 2005Charles M. Fleischman
    
    Chief Financial Officer andDirector (principal financial officer)/s/ Joseph P. Slattery
    
    Senior Vice President, Finance and
    
    September 13, 2005Joseph P. Slattery
    
    Information Systems(principal accounting officer)/s/ John H. Landon
    
    Director
    
    September 13, 2005John H. Landon/s/ Joseph M. Migliara
    
    Director
    
    September 13, 2005Joseph M. Migliara/s/ Frank J. Ryan
    
    Director
    
    September 13, 2005Frank J. Ryan
 87




---



##### 



Signature
    
    Title
    
    Date/s/ Cynthia L. Sullivan
    
    Director
    
    September 13, 2005Cynthia L. Sullivan/s/ Kenneth Weisshaar
    
    Director
    
    September 13, 2005Kenneth Weisshaar/s/ John J. Whitehead
    
    Director
    
    September 13, 2005John J. Whitehead




---



##### 



Schedule II  Valuation and Qualifying Accounts and Reserves
 (in thousands)
 Balance atBeginning of
    
    
    
    
    
    
    
    
    
    
    Balance atClassification
    
    Period
    
    
    Additions
    
    
    Deductions
    
    
    End of PeriodAllowance for doubtful accounts:Year ended June 30, 2003
    
    
    684
    
    
    
    144
    
    
    
    (396
    )(1)
    
    
    432Year ended June 30, 2004
    
    
    432
    
    
    
    199
    
    
    
    (31
    )
    
    
    600Year ended June 30, 2005
    
    
    600
    
    
    
    95
    
    
    
    (407
    )(2)
    
    
    288Reserve for inventory:Year ended June 30, 2003
    
    
    1,208
    
    
    
    5,346
    
    
    
    (4,137
    )
    
    
    2,417Year ended June 30, 2004
    
    
    2,417
    
    
    
    1,422
    
    
    
    (1,556
    )
    
    
    2,283Year ended June 30, 2005
    
    
    2,283
    
    
    
    1,462
    
    
    
    (1,770
    )
    
    
    1,975
 
 (1) Deductions represent accounts written off during the period less recoveries
of accounts previously written off.(2) During the year ended June 30, 2005, the allowance for doubtful accounts included a
reduction of approximately $334,000 based on changes in reserve assumptions.




---



##### 



EXHIBIT INDEX
 Exhibit No.
    
    Description3.1
    
    Amended and Restated Certificate of
Incorporation of Digene (Incorporated by
reference to Exhibit 3.1 of the Registrants
Registration Statement on Form S-1 (File No.
333-2968) dated March 29, 1996).3.2
    
    Amended and Restated Bylaws of Digene
(Incorporated by reference to Exhibit 3.2 of
the Registrants Annual Report on Form 10-K
for the fiscal year ended June 30, 1999).4.1
    
    Specimen Common Stock Certificate
(Incorporated by reference to Exhibit 4.1 of
the Registrants Registration Statement on
Form S-1 (File No. 333-2968) dated March 29,
1996).10.1
    
    Cross-License Agreement dated April 1, 1990
among Life Technologies, Inc. and Institut
Pasteur (Incorporated by reference to Exhibit
10.15 of the Registrants Registration
Statement on Form S-1 (File No. 333-2968)
dated March 29, 1996).10.2
    
    License Agreement dated December 19, 1990
between Digene and Life Technologies, Inc.
(Incorporated by reference to Exhibit 10.18
of the Registrants Registration Statement on
Form S-1 (File No. 333-2968) dated March 29,
1996).10.3
    
    License Agreement dated September 1, 1995
between Digene and Institut Pasteur
(Incorporated by reference to Exhibit 10.14
of the Registrants Registration Statement on
Form S-1 (File No. 333-2968) dated March 29,
1996).10.4
    
    License Agreement dated September 27, 1995
between Digene and Kanebo, Ltd. (Incorporated
by reference to Exhibit 10.28 of the
Registrants Registration Statement on Form
S-1 (File No. 333-2968) dated March 29,
1996).10.5 +
    
    License Agreement dated April 5, 2000 between
Digene and Institut Pasteur (Incorporated by
reference to Exhibit 10.39 of Digenes Annual
Report on Form 10-K for the fiscal year ended
June 30, 2000).10.6
    
    Amended and Restated Reseller Agreement dated
December 10, 2003, between Digene Corporation
and Applera Corporation, acting through its
Applied Biosystems Group (Incorporated by
reference to Exhibit 10.1 of Digenes
Quarterly Report on Form 10-Q for the quarter
ended December 31, 2003).10.7 ++
    
    Original Equipment Manufacturer Supply
Agreement dated January 23, 2001 between
Digene and Qiagen Instruments AG
(Incorporated by reference to Exhibit 10.43
of Digenes Annual Report on Form 10-K for
the fiscal year ended June 30, 2001).10.8
    
    Registration Rights Agreement dated as of May
24, 1996 between Digene, Armonk Partners,
Murex Diagnostics Corporation and Certain
Other Stockholders (Incorporated by reference
to Exhibit 10.26 of the Registrants
Registration Statement on Form S-1 (File No.
333-2968) dated March 29, 1996).10.9
    
    Lease dated as of March 2, 1998 by and
between Digene and ARE  Metropolitan Grove
I, LLC (Incorporated by reference to Exhibit
10.1 of Digenes Quarterly Report on Form
10-Q for the quarter ended March 31, 1998).




---



##### 



Exhibit No.
    
    Description10.10 !
    
    Amended and Restated 1996 Omnibus Plan
(Incorporated by reference to Exhibit 10.3 of
Digenes Quarterly Report on Form 10-Q for
the quarter ended September 30, 2000).10.11
    
    Amended and Restated 1997 Stock Option Plan
(Incorporated by reference to Exhibit 10.1 of
Digenes Quarterly Report on Form 10-Q for
the quarter ended September 30, 2000).10.12 !
    
    Amended and Restated Directors Stock Option
Plan (Incorporated by reference to Exhibit
10.30 of Digenes Annual Report on Form 10-K
for the fiscal year ended June 30, 2003).10.13 !
    
    Amended and Restated 1999 Incentive Plan, as
amended (Incorporated by reference to Exhibit
4.1 of Digenes Registration Statement on
Form S-8 (File No. 333-120299) dated November
8, 2004).10.13(a) !
    
    Amendment to the Amended and Restated 1999
Incentive Plan, Stock Option Awards to
Employees Working in France (Incorporated by
reference to Exhibit 10.1 of Digenes
Quarterly Report on Form 10-Q for the quarter
ended March 31, 2005).10.14 !
    
    Employment Agreement, dated February 19,
2002, between Digene and Donna Marie Seyfried
(Incorporated by reference to Exhibit
99(e)(10) to Digenes
Solicitation/Recommendation Statement on
Schedule 14D-9, File No. 005-46641, dated
March 1, 2002).10.15 !
    
    Noncompetition, Nondisclosure and
Developments Agreement, dated February 19,
2002, between Digene and Donna Marie Seyfried
(Incorporated by reference to Exhibit
99(e)(11) to Digenes
Solicitation/Recommendation Statement on
Schedule 14D-9, File No. 005-46641, dated
March 1, 2002).10.16 !
    
    Form of Employment Agreement between Digene
and each of Evan Jones and Charles M.
Fleischman (Incorporated by reference to
Exhibit 10.2 of Digenes Quarterly Report on
Form 10-Q for the quarter ended March 31,
2003).10.17 !
    
    Form of Employment Agreement between each of
Digene and each of the executive officers listed on
Exhibit 10.17(a) (Incorporated by reference
to Exhibit 10.3 of Digenes Quarterly Report
on Form 10-Q for the quarter ended March 31,
2003).10.17(a)! *
    
    Schedule of executive officers of Digene entering into
Employment Agreement.10.18 !
    
    Form of Change in Control Employment
Agreement between Digene and each of Evan
Jones and Charles M. Fleischman (Incorporated
by reference to Exhibit 10.4 of Digenes
Quarterly Report on Form 10-Q for the quarter
ended March 31, 2003).10.19 !
    
    Form of Change in Employment Agreement
between Digene and each of the executive officers
listed on Exhibit 10.19(a) (Incorporated by
reference to Exhibit 10.5 of Digenes
Quarterly Report on Form 10-Q for the quarter
ended March 31, 2003).10.19(a)! *
    
    Schedule of executive officers of Digene entering into
Change in Control Employment Agreement.




---



##### 



Exhibit No.
    
    Description10.20 +++
    
    Settlement and License Agreement, executed
October 13, 2004, among Digene Corporation
and Enzo Biochem, Inc. and Enzo Life
Sciences, Inc. (Incorporated by reference to
Exhibit 10.1 of Digenes Quarterly Report on
Form 10-Q for the quarter ended September 30,
2004).10.21 ++++*
    
    Settlement and License Agreement, effective
as of July 1, 2005, between Digene
Corporation and Georgetown University.10.22 !*
    
    Non-Employee Director Compensation Policy.10.23 !*
    
    Schedule of Fiscal 2006 Executive Salaries.21 *
    
    Subsidiaries of the Registrant.23.1 *
    
    Consent of Ernst & Young LLP, Independent
Registered Public Accounting Firm.31.1 *
    
    Rule 13a-14(a)/Rule 15d-14(a) Certification
of Chief Executive Officer.31.2 *
    
    Rule 13a-14(a)/Rule 15d-14(a) Certification
of Chief Financial Officer.32*
    
    Certification pursuant to Section 1350 of
Chapter 63 of Title 18 of the United States
Code.
 
 *
    
    Filed herewith.+
    
    Confidential treatment has been granted for certain portions thereof
pursuant to a Commission Order issued December 13, 2000. Such
provisions have been filed separately with the Commission.++
    
    Confidential treatment has been granted for certain provisions
thereof pursuant to a Commission Order issued November 30, 2001.
Such provisions have been filed separately with the Commission.+++
    
    Confidential treatment has been granted for certain provisions
thereof pursuant to a Commission Order issued December 7, 2004. Such
provisions have been filed separately with the Commission.++++
    
    Confidential treatment has been requested for certain portions of
this agreement pursuant to an application for confidential treatment
filed with the Securities and Exchange Commission on September 13,
2005. Such provisions have been filed separately with the
Commission.!
    
    Constitutes a management contract or compensatory plan required to be
filed as an exhibit to this Form 10-K.