<PAGE>   1

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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


                                  FORM 10-K/A

(Mark One)
[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
       SECURITIES EXCHANGE ACT OF 1934

                    FOR THE FISCAL YEAR ENDED JUNE 30, 1999

                                       OR

[  ]   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
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S>                                            <C>
                   DELAWARE                                      52-1536128
       (STATE OR OTHER JURISDICTION OF                        (I.R.S. EMPLOYER
        INCORPORATION OR ORGANIZATION)                      IDENTIFICATION NO.)

           9000 VIRGINIA MANOR ROAD                                20705
             BELTSVILLE, MARYLAND                                (ZIP CODE)
   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>

      REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:  (301) 470-6500

          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

                                      NONE

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                     COMMON STOCK, PAR VALUE $.01 PER SHARE
                                (TITLE OF CLASS)

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.   Yes  X   No
                                                ---     ---

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K/A or any amendment to this Form 10-K/A. [  ]


     Based upon the last sale price of the registrant's Common Stock on
September 10, 1999, the aggregate market value of the 9,514,504 outstanding
shares of voting stock held by non-affiliates of the registrant was
$132,013,743.

     As of September 10, 1999, 14,585,655 shares of the registrant's Common
Stock were issued and outstanding.

                      DOCUMENTS INCORPORATED BY REFERENCE


     Portions of the following documents are incorporated by reference in this
Report on Form 10-K/A:


        1) The registrant's definitive Proxy Statement for its Annual Meeting of
           Stockholders to be filed not later than 120 days after the close of
           the fiscal year (incorporated into Part III).

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<PAGE>   2

                               TABLE OF CONTENTS


<TABLE>
<S>       <C>                                                           <C>
PART I
Item 1.   Business....................................................    1
Item 2.   Properties..................................................   26
Item 3.   Legal Proceedings...........................................   26
Item 4.   Submission of Matters to a Vote of Our Stockholders.........   27
          Executive Officers of Digene................................   27

PART II
Item 5.   Market For Our Common Equity and Related Stockholder
          Matters.....................................................   28
Item 6.   Selected Consolidated Financial Data........................   29
Item 7.   Management's Discussion and Analysis of Financial Condition
          and Results of Operations...................................   31
Item 7A.  Quantitative and Qualitative Disclosures About Market
          Risk........................................................   35
Item 8.   Financial Statements and Supplementary Data.................   36
Item 9.   Changes in and Disagreements with Accountants on Accounting
          and Financial Disclosure....................................   52

PART III
Item 10.  Directors and Executive Officers............................   52
Item 11.  Executive Compensation......................................   52
Item 12.  Security Ownership of Certain Beneficial Owners and
          Management..................................................   52
Item 13.  Certain Relationships and Related Transactions..............   52

PART IV
Item 14.  Exhibits, Financial Statement Schedules and Reports on Form
          8-K.........................................................   52

Signatures............................................................   55
</TABLE>


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<PAGE>   3

                                     PART I

ITEM 1.  BUSINESS

     We develop, manufacture and market our proprietary DNA and RNA testing
systems for the screening, monitoring and diagnosis of human diseases. We have
developed and are commercializing our patented Hybrid Capture(R) Gene Analysis
System and tests in three areas: women's cancers and infectious diseases, blood
viruses, and pharmaceutical clinical research. Our primary focus is in women's
cancers and infectious diseases where our lead product is the only FDA approved
test for human papillomavirus, or HPV, which is the cause of greater than 99% of
cervical cancer cases. Our product portfolio also includes DNA tests for the
detection of chlamydia, gonorrhea and other sexually transmitted infections. We
believe our Hybrid Capture technology platform represents a significant
improvement over existing technologies because of its accuracy, speed, ease of
use and ability to quantitate DNA and RNA. In the United States, we market our
products through a direct sales force and in other countries through
distributors. Abbott Laboratories, one of the world's leading medical diagnostic
companies, markets and distributes all of our women's cancers and infectious
diseases products and certain of our blood virus products in Europe, Africa and
the Middle East.

     Our commercial objective is to become the world leader in gene-based
testing for women's cancers and infectious diseases. We are working to establish
our HPV test as the standard for cervical cancer screening, the world's largest
cancer screening market. Virtually all cases of cervical cancer are preventable
if detected in the precancerous stage. Currently, the Pap smear is a test used
to screen for cervical cancer. The Pap smear is a subjective, labor intensive
test that has limited sensitivity and diagnostic accuracy leading to equivocal
test results and false negative diagnoses, which result in significant costs to
the healthcare system due to over-treatment or under-diagnosis.

     Our HPV test allows physicians to identify women who are most at risk of
having or developing cervical disease and cervical cancer. We intend to
capitalize on our leadership position in HPV testing to obtain a significant
share of the global cervical cancer screening market, both as a primary
screening test and as a follow-up to the Pap smear. We are targeting this global
opportunity primarily by marketing our disease management strategy for cervical
cancer screening to managed care providers in the United States and
government-funded national screening programs outside the United States. In
addition, we have developed a network of women's health advocates, public health
providers and physician organizations to communicate the diagnostic and
cost-effective benefits of HPV testing to physicians, reimbursement providers,
testing laboratories and the public.

     We have applied our Hybrid Capture technology to provide for the
simultaneous detection of chlamydia, gonorrhea and other sexually transmitted
infections, in addition to HPV, from a single patient sample. We also can use a
liquid-based Pap smear sample for our DNA tests and have FDA approval to use the
specimen provided by Cytyc Corporation's ThinPrep(R) Pap Test(TM) for our HPV
tests. We believe the ability to perform multiple tests from a single patient
specimen provides greater convenience to patients and their physicians and
reduces healthcare costs by decreasing the frequency of patient visits and
testing.

     Our second major focus is in blood viruses where we have developed unique
testing products using our Hybrid Capture System to detect the presence of
hepatitis B virus (HBV) and cytomegalovirus (CMV). These blood viruses are
leading causes of morbidity and death. Our tests detect and measure the amount
of virus in a patient sample, helping physicians determine disease prognosis and
optimize the efficacy of the antiviral therapy. The sensitivity of our blood
virus tests, along with their ability to quantitate viral load, provide a
competitive advantage over other methods. Our CMV test is the only DNA test
cleared for the detection of CMV by the FDA. Abbott, one of the world's leading
providers of HBV tests, is selling our HBV and CMV products in Europe, Africa
and the Middle East where we believe that our HBV test is the leading HBV DNA
test.

     Our Hybrid Capture System utilizes signal amplification and combines the
accuracy of nucleic acid probe diagnostics with the ease of use and mass-market
capabilities of the antibody-based immunodiagnostic systems that are used
routinely by clinical labs today. Our Hybrid Capture technology uses RNA probes
to bind specific DNA sequences to create hybrid DNA:RNA molecules. The captured
hybrids are then reacted
<PAGE>   4

with our proprietary signal amplification system which uses antibodies to detect
DNA:RNA hybrids. The Hybrid Capture System and tests are sensitive, rapid,
accurate, objective, non-invasive and easy to use, and can be performed by
laboratory staff using standardized testing equipment. Recently, we have
developed an automated, microplate-based Hybrid Capture testing system. In the
pharmaceutical clinical research area, we are utilizing the capabilities of our
Hybrid Capture System to identify, develop and validate new gene-based testing
opportunities. As a result of the high throughput capability of the Hybrid
Capture System, PE Biosystems entered into an exclusive technology and marketing
partnership with us to address opportunities in high throughput gene expression
screening for pharmaceutical drug discovery.

     We have established a strong proprietary position in our Hybrid Capture
technology. We have an exclusive license to a patent covering the use of the
monoclonal antibodies, which are central to the Hybrid Capture detection system.
Additionally, in July 1999, the European Patent Office allowed a broad patent
covering the entire Hybrid Capture System. We have exclusive licenses and
co-exclusive cross licenses with the Institut Pasteur to issued and pending
patents covering the use of HPV genetic sequences from six of the thirteen key
cancer causing HPV types. We believe that these patents create a unique
proprietary position for Digene in the HPV testing field.

     We have achieved a number of important regulatory milestones over the last
year. Our next generation Hybrid Capture II HPV Test received premarket (PMA)
approval from the FDA in March 1999. In 1999, our portfolio of women's cancers
and infectious disease tests was cleared for sale in almost every major European
country and in Brazil and Argentina. In the blood virus area, our Hybrid Capture
CMV Test received 510(k) clearance from the FDA in October 1998. In addition, we
received ISO 9001 certification in June 1999.

     We also have achieved a number of important commercial milestones over the
past year. We entered into a partnering arrangement with PE Biosystems in
October 1998 and into a marketing and distribution alliance with Abbott in May
1999. Our Hybrid Capture HPV Test was used in numerous clinical trials, and the
results of such trials were published in peer reviewed publications. We
developed a program to expand reimbursement coverage for our products, resulting
in coverage in the United States for our Hybrid Capture HPV Tests from
significant managed care providers. Our efforts and accomplishments over the
last year have resulted in continued revenue growth from $12.0 million in fiscal
1998 to $17.5 million in fiscal 1999.

WOMEN'S CANCERS AND INFECTIOUS DISEASES

     We have initially focused on two major disease areas, cervical cancer and
sexually transmitted infections. Cervical cancer is the second most common
cancer among women worldwide. Currently, the primary cervical cancer screening
test is the Pap smear. Although the Pap smear has successfully reduced deaths
caused by cervical cancer in the United States, cervical cancer remains
prevalent in the United States. In addition, cervical cancer rates have remained
at high levels outside the United States. If detected in the precancerous stage,
virtually all cases of cervical cancer are preventable. The treatment of
cervical cancer after it reaches the invasive stage may require chemotherapy,
radiation treatment or surgery, including hysterectomy. These treatments are
expensive and often unsuccessful. Recently, it has been established that HPV, a
sexually transmitted virus, is the primary cause of cervical cancer and that 99%
of cervical cancers contain cancer-causing HPV sequences. The Pap smear cannot
detect HPV. Furthermore, the Pap smear is a subjective, labor intensive test
that has limited sensitivity and diagnostic accuracy leading to equivocal test
results and false negative diagnoses. These limitations have contributed to
continuing high rates of cervical cancer.

     Chlamydia is the most common sexually transmitted disease in the United
States and is a major health problem worldwide, with approximately 89 million
new cases reported annually. Genital chlamydia infection, if left untreated, has
serious potential consequences, such as infertility, ectopic pregnancy,
cervicitis and pelvic inflammatory disease. Gonorrhea, which affects 62 million
people worldwide, is the second most common sexually transmitted disease in the
United States and may result in severe genital complications in both women and
men if left untreated. If properly detected, both chlamydia and gonorrhea are
easily treatable with low-cost antibiotic therapy. However, routine and
broad-based screening for chlamydia and gonorrhea has

                                        2
<PAGE>   5

been limited by the insufficient sensitivity of some culture methods, the
invasive and cumbersome specimen collection methods frequently employed, and the
time and cost associated with performing these tests.

     We believe our Hybrid Capture HPV Tests could revolutionize cervical cancer
screening around the world by allowing early detection of HPV. Our Hybrid
Capture tests also represent the first effort to accurately detect HPV and the
other major sexually transmitted infections from a single specimen. This may
reduce the overall cost of patient management and help eliminate these serious
health threats. Our Hybrid Capture tests detect the presence of both chlamydia
and gonorrhea in women from cervical swabs, as well as in men through the
collection of urine samples. Preliminary clinical studies on women have
indicated that our Hybrid Capture II Chlamydia Test is capable of detecting
chlamydia in up to 98% of the cases in which the disease is present, while our
Hybrid Capture II Gonorrhea Test is capable of detecting gonorrhea in up to 92%
of the cases in which it is present.

     To implement our strategy in the area of women's cancers and infectious
diseases, we intend to:

     - create a marketing distribution infrastructure and marketing
       communications program appropriate to each market;

     - establish ourselves as the leader in single-sample testing for women's
       cancers and infectious diseases;

     - validate our products through clinical trials with respected academic
       institutions and healthcare providers;

     - communicate the diagnostic and cost-effective benefits of HPV testing to
       managed care providers, physicians and government-funded national
       screening programs and continue to develop a network of women's health
       advocates, public health providers and physician organizations to help
       communicate our message to physicians, testing laboratories and the
       public; and

     - expand reimbursement for our HPV tests from managed care organizations,
       third party payors and government-funded insurance programs.

     DISTRIBUTION INFRASTRUCTURE

     A key element of our commercialization strategy is to partner our marketing
and sales efforts with established leaders in the field. We have established a
marketing alliance with Abbott for all of our women's cancers and infectious
diseases products and certain of our blood virus testing products. Under this
alliance, Abbott is responsible for sales and marketing of these Hybrid Capture
products in Europe, Africa and the Middle East and our Hybrid Capture II
Chlamydia and Gonorrhea Tests in the United States, when cleared by the FDA. We
are working together with Abbott to promote the use of HPV testing for primary
screening in the European market. In Europe, Abbott is responsible for marketing
activities directed toward obtaining laboratory endorsements and routine use of
HPV testing, and we are responsible for marketing activities directed toward
obtaining governmental endorsement of HPV testing, institutional reimbursement
and maximizing consumer awareness and education of the benefits of HPV testing.

     The initial term of our marketing and distribution agreement with Abbott
extends until December 31, 2003 with respect to our HBV and HPV tests. The
initial term of the agreement with respect to our chlamydia and gonorrhea tests
expires at the end of the fifth full calendar year after the following events
occur: such tests receive 510(k) marketing clearance from the FDA; we are able
to deliver such tests to Abbott for resale in the United States; and such tests
satisfy designated specifications and are validated by us under applicable
protocols.

     The agreement establishes net sales thresholds for each of our HBV, HPV
and chlamydia and gonorrhea tests. If the net sales thresholds are satisfied
for our HBV tests or chlamydia and gonorrhea tests, the term of the agreement
will be extended automatically with respect to such test for successive one
year periods.

     With respect to our HPV tests, even if the applicable net sales thresholds
for our HPV tests have been satisfied, at a designated time we (or in one case,
Abbott) have the right to terminate the agreement or convert Abbott's
distribution rights to non-exclusive for a designated period if the net sales
fall within one of several specified ranges. In each such case, if the
agreement is terminated with respect to our HPV tests, we will be obligated to
make a residual payment to Abbott for a period of five years.


     If Abbott fails to achieve the net sales thresholds at intervals specified
for our HBV tests or chlamydia and gonorrhea tests, then we may, in our sole
discretion, elect to convert Abbott's distribution rights from exclusive to
non-exclusive in the applicable territory with respect to such test for a
designated period of time thereafter. The agreement will terminate with respect
to any test for which Abbott acts as a non-exclusive distributor after the
expiration of the designated period. Abbott will not be required to satisfy any
net sales thresholds for our chlamydia and gonorrhea tests until after the
events described above are satisfied.


     If Abbott does not meet the established net sales thresholds for our HBV
tests for calendar year 2003, or for our HPV tests in calendar years 2000,
2001, 2002 or 2003, we have the option, in our sole discretion, to terminate
the agreement with respect to the tests for which the applicable net sales
thresholds were not achieved.


                                        3
<PAGE>   6

     SINGLE-SAMPLE SYSTEM

     We are the first to develop tests that detect HPV, chlamydia, gonorrhea and
herpes from a single patient specimen. We believe the ability to perform
multiple tests from a single specimen provides greater convenience to patients
and physicians and reduces healthcare costs by decreasing the frequency of
patient visits and testing. Our single-sample system is now available in Europe
and South America for the detection of HPV, chlamydia and gonorrhea, and upon
receipt of 510(k) clearance from the FDA, the system will be available in the
United States. Our tests also are cost efficient in that they can be performed
using commercial liquid-based Pap smear collection devices, such as the Cytyc
Corporation ThinPrep Pap Test.

     CLINICAL TRIAL VALIDATION

     Clinical evidence published in medical journals and presented at important
medical meetings has validated our products and technology platform, the Hybrid
Capture System, and the role of HPV in cervical cancer. These studies include:

     - May 1999: a study involving 46,000 women conducted by Kaiser Permanente
       and published in the Journal of the American Medical Association (JAMA)
       which concluded that our HPV test identified 97% of women with high-grade
       cervical disease compared with just 76% using the Pap smear alone;

     - July 1999: a six-year study published in The Lancet which confirmed that
       persistent HPV infection is the primary cause of cervical cancer and,
       therefore, that new guidelines for cervical cancer screening should
       include testing for HPV;

     - July 1999: a study involving 1,518 European women published in The
       British Journal of Cancer which confirmed the high sensitivity (98%) of
       our HPV test;

     - August 1999: a 22-country study completed by the International Agency for
       Cancer Research confirming that HPV is the cause of cervical cancer in
       99.7% of cases worldwide; and

     - September 1999: a study involving 2,988 women in the United Kingdom
       published in The British Journal of Cancer reported the high sensitivity
       of our test (95%) compared to the Pap smear (79%) in screening women over
       age 35 for cervical disease.

                                        4
<PAGE>   7

     In addition to these studies, we are currently participating in HPV
clinical trials involving more than 100,000 women on four continents. Successful
completion of these clinical trials should help to accelerate further adoption
of our HPV tests. The following is a summary of these trials:

<TABLE>
<CAPTION>
                                                                                  TARGET
   COUNTRY          LEAD INVESTIGATOR          TRIAL DESCRIPTION       SIZE   COMPLETION DATE
--------------  -------------------------  -------------------------  ------  ---------------
<S>             <C>                        <C>                        <C>     <C>
United States   National Cancer Institute  ALTS Borderline Pap Trial  7,000   Completed*
Canada          Newfoundland Department    HPV Primary Screening      3,000   Completed*
                  of Health
Mexico          Johns Hopkins; Mexican     HPV Primary Screening      7,500   December 1999
                  Government
Netherlands     Free University of         HPV Primary Screening      40,000  December 2001
                  Amsterdam
United Kingdom  Imperial Cancer Research   HPV Primary Screening      10,000  December 2000
                  Fund
Germany         University of Tubingen     HPV Primary Screening      8,000   June 2000
Russia          University of Turku,       HPV Primary Screening      12,000  December 2001
                  Finland
Brazil          University of Rio Grande   HPV Primary Screening      2,000   December 2000
                  do Sul
Argentina       Institut Papincolau        HPV Primary Screening      1,000   Completed*
Costa Rica      National Cancer Institute  HPV Primary Screening      10,000  Completed*
China           Cleveland Clinic           HPV Primary Screening      2,500   November 1999
                  Foundation
</TABLE>

---------------
* Trials have been completed and the results are being prepared for publication.

     IMPROVING WOMEN'S HEALTH AWARENESS

     We actively support the efforts of the American Medical Women's Association
and the National Cervical Cancer Public Education Campaign to inform women about
the link between HPV and cervical cancer. The HPV Summit 1999, a conference
dedicated to discussing HPV and related women's health issues and attended by
leading authorities, including physicians, researchers and women's health
advocates, was held in Chamonix, France in February 1999. The contribution of
our HPV test to the early detection of cervical cancer was a major theme of the
summit. As a result of these efforts and growing evidence supporting HPV
testing, an advocacy group of nationally recognized women called "Women for HPV
Testing," the London Express newspaper and Cosmopolitan magazine have all called
on the government of the United Kingdom to adopt HPV testing as part of the
national cervical cancer screening program. In the United States, the first
congressional hearing dedicated to addressing the need to better inform women
about the link between HPV infections and cervical cancer was held in
Washington, D.C. in March 1999, and the Centers for Disease Control (CDC) held
its first hearings about the HPV issue in April 1999.

     INCREASING REIMBURSEMENT COVERAGE

     We are working to expand reimbursement coverage for our HPV tests through
targeted clinical studies and outcome-oriented research. These studies are being
performed in conjunction with managed care organizations, university-based
clinicians and governmental authorities worldwide. Our efforts to increase
reimbursement coverage were boosted recently when an FDA advisory panel
recommended expanded labeling for our Hybrid Capture tests to incorporate the
signal amplification description. We expect this expanded labeling to provide a
distinct competitive advantage in the market, because reimbursement levels for
amplified tests are up to two times the level for non-amplified tests.

     The Health Care Financing Administration (HCFA), administrator for Medicaid
and Medicare, has established reimbursement for our HPV test, and the American
Medical Association has assigned specific CPT codes (necessary for
reimbursement) for HPV testing. Third party payors and managed care entities
that provide health insurance coverage to 50 million people currently authorize
reimbursement for our HPV test.

                                        5
<PAGE>   8

BLOOD VIRUSES

     Blood viruses, such as HBV, CMV and HIV, are leading causes of morbidity
and death and, until recently, were untreatable. Rapid, accurate and ongoing
detection of blood viruses and monitoring of viral load is essential for
effective patient management. Over the last several years, antiviral therapies
have been developed to treat these diseases. To maximize the efficacy of these
expensive and sometimes toxic therapies, physicians rely on viral load
monitoring to measure the level of virus present in the patient's system. By
precisely measuring viral load and identifying patients who are not responding
to therapy early in their treatment, physicians are better able to tailor
antiviral therapies by more precisely monitoring individual responses,
recognizing when a patient develops drug resistance and projecting how quickly
the infection will progress to chronic disease.

     The commercialization strategy for our blood virus business is to develop
tests for the hepatitis, transplant and AIDS testing markets where the
sensitivity and viral load monitoring capabilities of our Hybrid Capture System
provide a competitive advantage over other methods, and where our products can
be marketed to laboratories through an established market participant such as
Abbott in the case of HBV and CMV in Europe or through our own marketing and
sales efforts. Our Hybrid Capture System utilizes signal amplification and can
detect and quantitate as few as 100 molecules of the HIV virus and as many as
one billion copies of the hepatitis B virus.

     We believe our Hybrid Capture HBV Tests are the leading HBV DNA tests in
the European market. These tests are used to monitor viral load to determine
disease prognosis and optimize the efficacy of the antiviral therapy. Currently,
our HBV tests are used by more than 250 laboratories worldwide. We expect that
demand for HBV DNA testing will continue to grow as new hepatitis treatment
guidelines incorporating viral load monitoring are implemented. Our second
important blood virus testing product is our Hybrid Capture CMV Test, which
delivers both qualitative and quantitative viral load information to accurately
differentiate active from latent CMV infection for AIDS, transplant and other
patients with impaired immune systems. We market our CMV test to patients
receiving CMV antiviral therapy, select transplant patients with active CMV
infection needing protective therapy, and AIDS patients at risk of developing
CMV-related organ disease who could benefit from preemptive therapy.

     We are currently developing our Hybrid Capture HIV Test based on our Hybrid
Capture technology for HIV viral load monitoring. Our HIV test has been shown in
independent studies to provide highly sensitive, accurate, reproducible and
reliable measurements of HIV viral load. Our HIV test is the only system which
can detect 92% of the HIV genome.

PHARMACEUTICAL CLINICAL RESEARCH

     We approach the pharmaceutical clinical research market by seeking to enter
into strategic partnerships that enable us to identify, develop and validate new
gene-based testing opportunities. The first such partnership is our exclusive
technology and marketing partnership with PE Biosystems, one of the world
leaders in this field. Our partnership was formed to address opportunities in
high-throughput gene expression screening for pharmaceutical drug discovery. In
addition, we are expanding our leadership position in cervical cancer disease
management through an active in-licensing program for potential new genetic
markers and through collaborations with vaccine and drug development programs of
major pharmaceutical companies. As part of this effort, we are working with
MedImmune, Inc. in the HPV vaccine area. In 1998, we also acquired Viropath
B.V., a leader in the HPV clinical research field, and we have obtained an
exclusive license to the p53arg gene, a potential risk assessment marker for
cervical disease progression.

PRODUCTS

     Our Hybrid Capture System, which is the basis for all of our gene analysis
testing systems, is a rapid, accurate, easy to use, ultra-sensitive technology
that can be used in virtually any laboratory with standard equipment. We believe
that our Hybrid Capture System is a significant improvement over other detection
technologies because of its specificity, rapid processing time, improved
accuracy and ability to quantitate viral load. We have developed two versions of
our Hybrid Capture technology, the Hybrid Capture I and Hybrid
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<PAGE>   9

Capture II Systems. The Hybrid Capture I System, our first generation DNA hybrid
detection system, which is currently being used at more than 600 laboratories
worldwide, tests samples individually in polystyrene tubes and has been approved
by the FDA for the follow-up screening of HPV in women with equivocal Pap
smears. The Hybrid Capture II System, which was approved by the FDA for the
detection of HPV in March 1999, uses a 96-well microtiter plate format that
permits simultaneous screening of multiple samples from a single plate and is
designed to be more efficient, less expensive and easier to use than the Hybrid
Capture I System.

     The following table summarizes the commercial and regulatory status and
potential worldwide market of our Hybrid Capture tests:

<TABLE>
<CAPTION>
                                        HYBRID CAPTURE TESTS(1)
--------------------------------------------------------------------------------------------------------
                                                                                            POTENTIAL
                                                                       OUTSIDE              WORLDWIDE
     DISEASE TARGET                 UNITED STATES                   UNITED STATES             MARKET
------------------------  ----------------------------------  --------------------------  --------------
<S>                       <C>                                 <C>                         <C>
Women's Cancers and
Infectious Diseases
  HPV                     Approved and marketed as an         Marketed as a primary test  150 million(2)
                          adjunct to Pap smears for cervical  for cervical cancer
                          cancer screening.                   screening. Distributed in
                                                              Europe, Africa and the
                                                              Middle East by Abbott.
  Chlamydia and           Under review at FDA.                Marketed. Distributed in    89 million(3)
  Gonorrhea                                                   Europe, Africa and the      (chlamydia)
                                                              Middle East by Abbott.      62 million(3)
                                                                                          (gonorrhea)
  Herpes simplex          Under development.                  Under development; expect   107 million(3)
                                                              to introduce in calendar
                                                              2000.
Blood Viruses
  HBV                     Available for research use only.    Marketed. Distributed in    300 million(4)
                                                              Europe, Africa and the
                                                              Middle East by Abbott.
  CMV                     Cleared and marketed for            Marketed. Distributed in    1 million(5)
                          diagnosing infection in organ       Europe, Africa and the
                          transplant, bone marrow transplant  Middle East by Abbott.
                          and HIV-positive AIDS patients.
  HIV                     Available for research use only.    Marketed.                   41 million(6)
</TABLE>

---------------
(1) As described herein, certain of our products have not received marketing
    approvals or clearance from the FDA or certain foreign authorities. There
    can be no assurance that any such products will receive approvals on a
    timely basis, if at all.

(2) Represents estimate of the total number of Pap smears performed annually.

(3) Represents estimated number of new cases worldwide on an annual basis.

(4) Represents estimated number of cases worldwide of chronic HBV infection.

(5) Represents estimated number of cases worldwide of active CMV infection.

(6) Represents estimated number of cases worldwide.

SALES AND MARKETING

     Our sales and marketing strategy focuses on achieving broad market
acceptance of our Hybrid Capture technology in the areas of women's cancers and
infectious diseases and blood virus testing. We sell our Hybrid

                                        7
<PAGE>   10

Capture products either directly, or through strategic partners or distributors,
to clinical laboratories and healthcare providers worldwide.

     Acceptance of our Hybrid Capture technology requires improving awareness,
both in the United States and in international markets, of the prevalence and
the severity of cervical cancer and sexually transmitted diseases among women,
and, more importantly, identifying our Hybrid Capture tests as a cost-efficient
means of helping to prevent disease. We believe that increased education and
awareness will create a powerful consensus that diseases which are preventable
with the help of a commercially available and cost-effective test should be
targeted by physicians and managed care providers alike. We intend to promote
increased awareness through our active sponsorship of educational programs,
including programs with affiliated "Centers of Excellence," and through links to
the web sites of organizations dedicated to educating the public and physicians
about improvements in healthcare. Additionally, we intend to continue our public
relations campaign, conducted through our expanding network of women's health
advocates, public health providers and physicians organizations, carrying our
message of low cost prevention to physicians, laboratories and the public.

     Currently, we sell our products either directly or through strategic
partners or distributors to more than 1,000 laboratories worldwide.

     NORTH AMERICAN MARKET

     We currently market our products in the United States and Canada to
substantially all clinical reference laboratories through a direct sales force
supported by technical and customer service representatives.

     Adoption of our Hybrid Capture HPV Tests by managed care providers and the
laboratory testing market is essential for rapidly achieving broad based market
acceptance. We have made significant progress in both of these areas. HCFA has
established reimbursement for our HPV test, and the American Medical Association
has assigned specific CPT codes (necessary for reimbursement) for HPV testing.
Third party payors and managed care entities that provide health insurance
coverage to 50 million people currently authorize reimbursement for our HPV
test.

     In addition, substantially all major clinical reference laboratories in the
United States offer our HPV test. We work closely with clinical reference
laboratories, third party payors, healthcare providers and their affiliated
physicians to help accelerate the adoption of our HPV test. As part of this
effort, we collaborated with Kaiser Permanente in the study described under
"Business -- Women's Cancers and Infectious Diseases -- Clinical Trial
Validation" above. We are marketing the data from that study and additional
clinical trial validation data to other managed care providers, physicians and
government-funded national screening programs. As part of this effort, we are
working to establish a "Centers of Excellence" program with a group of the top
academic medical centers in the United States. We are also participating in an
ongoing 7,200 patient National Cancer Institute study designed to establish the
clinical utility and the cost effectiveness of HPV testing of women with
equivocal Pap smear results. We expect that the results from this trial will be
released in our current fiscal year.

     We market our HPV test to physicians through joint marketing programs with
clinical reference laboratories and through co-marketing arrangements with other
strategic partners. For example, we currently market our HPV test together with
Cytyc Corporation's ThinPrep Pap Test, a sample preparation system which allows
for the automated preparation of cervical cell specimens. The collaboration with
Cytyc is designed to provide physicians with a cost-effective and practical
procedure for better management of those patients with equivocal Pap smears. The
combined single-sample approach, approved by the FDA in September 1997, enables
the use of our HPV test with the Cytyc ThinPrep Pap Test to eliminate the need
for a return office visit to collect a second sample for HPV DNA testing.

     INTERNATIONAL MARKETS

     Internationally, we are working to establish HPV testing as the standard of
care for primary cervical cancer screening. We have entered into a marketing and
distribution agreement with Abbott for the

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distribution of certain of our products in Europe, Africa and the Middle East.
Abbott is one of the world's leading diagnostic companies. We are working
together with Abbott to promote the use of HPV testing for primary screening in
the European market.

     In Brazil, our products are sold by Digene do Brazil LTDA, a majority-owned
subsidiary. We use independent distributors in the rest of South America, Asia
and the remaining countries in which we sell our products. In Japan, Mitsubishi
Chemical Company acts as our distributor. Mitsubishi is working to obtain
regulatory approval and reimbursement for our Hybrid Capture HPV, Chlamydia and
Gonorrhea Tests.

TECHNOLOGY

     Our Hybrid Capture System utilizes signal amplification and combines the
accuracy of nucleic acid probe diagnostics with the ease of use and mass-market
capabilities of antibody-based immunodiagnostic systems which are routinely used
by virology and immunology laboratories today. Our Hybrid Capture technology
uses RNA probes to bind specific DNA sequences to create hybrid DNA:RNA
molecules. The captured hybrids are then reacted with our proprietary signal
amplification system which uses antibodies to detect DNA:RNA hybrids. Our Hybrid
Capture technology offers a rapid, accurate and easy-to-use detection system
that can be performed in any laboratory with standard equipment. These
capabilities are particularly important in the commercial markets we have
targeted.

     We have established a strong proprietary position in our Hybrid Capture
technology. We have an exclusive license to a patent covering the use of the
monoclonal antibodies that are central to the Hybrid Capture System.
Additionally, in July 1999, the European Patent Office granted us a broad patent
covering the entire Hybrid Capture System. We have exclusive licenses and
co-exclusive cross licenses with the Institut Pasteur to issued and pending
patents covering the use of HPV genetic sequences from six patented cancer
causing HPV types. We believe that these patents create a unique proprietary
position for us in the HPV testing field.

     Our Hybrid Capture technology has been applied successfully to a number of
testing formats including: individual tubes (Hybrid Capture I); 96-well
microtiter plates (Hybrid Capture II); 384-well test arrays; and DNA gene chips.
Our Hybrid Capture I and II test formats are used in our commercially available
testing products. Using these test systems, it is possible to economically
process between 4 and 360 clinical specimens in a single technician shift. As
part of our partnership efforts, PE Biosystems offers high throughput gene
expression analysis products and services to the pharmaceutical drug discovery,
biotechnology and agricultural markets. The automated Hybrid Capture gene
expression screening service offered by PE Biosystems employs high capacity
automation capable of running 100,000 tests per day.

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<PAGE>   12

     The following diagram illustrates the key elements of the Hybrid Capture
System.

     [Diagram with explanatory notes showing how our Hybrid Capture technology
     platform allows for the detection of specific DNA and RNA sequences and
     therefore has potential applications for a variety of diagnostic and
     monitoring tests.]

RESEARCH AND DEVELOPMENT

     One of our key goals is to expand continually our core technology and
expertise in molecular diagnostics in order to remain at the forefront of DNA
testing for infectious diseases and to capture new high-growth and high-margin
market opportunities. To achieve this goal, we have invested aggressively in
research and development and particularly in clinical trials to validate the
performance of our new products.

     Our research programs are geared to deliver continuing improvements in the
detection of cervical cancer and sexually transmitted infections, including
chlamydia, gonorrhea and herpes, and we seek to increase our technological
leadership position in these areas. Further, we are working to make it possible
for a physician to order all four of these tests and cytology results
simultaneously. Our single-sample system is now available in Europe and South
America for the detection of HPV, chlamydia and gonorrhea. We expect to
introduce our herpes test internationally in calendar year 2000. We have
developed our tests so that they can be performed on samples collected for
routine Pap smears, and we have developed our proprietary single patient sample
system which we expect to introduce internationally in calendar year 2000.

     We intend to continue our investment in the women's cancers and infectious
diseases and blood virus areas and to expand efforts to automate our existing
tests. We expect that the first of these tests, our automated chlamydia and
gonorrhea test, will be introduced in the United States by Abbott during
calendar year 2000, subject to clearance by the FDA.

MANUFACTURING

     Manufacturing our products involves combining more than 200 biological
reagents, inorganic and organic reagents and kit components (such as vials and
packaging material) into finished test kits. Biological reagents include DNA and
RNA probes, antibodies and detection reagents. These biological reagents are
currently manufactured in our facility in Beltsville, Maryland. In December
1999, we expect to relocate our manufacturing operations to a new facility in
Gaithersburg, Maryland. We believe that we currently have sufficient
manufacturing capacity for our existing demand and that the new facility will
allow us to expand our production capability for the foreseeable future.

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<PAGE>   13

     We have established a quality control program, including a set of standard
manufacturing and documentation procedures intended to ensure that, where
required, our products are manufactured in accordance with quality service
regulations (QSR). We received ISO 9001 certification in June 1999.

COMPETITION

     The medical diagnostics and biotechnology industries are subject to intense
competition. Our competitors in the United States and abroad for gene-based
diagnostic probes include Roche Diagnostics, Bayer Corporation, Chiron
Corporation and Gen-Probe Incorporated. We also compete with Abbott, even though
they act as our marketing partner in Europe, Africa and the Middle East.

     We believe the primary competitive factors in the market for gene-based
probe diagnostics and other screening devices are clinical performance and
reliability, ease of use, cost, proprietary position, the competitor's share of
the existing market, regulatory approvals and availability of reimbursement.

     Other companies, including large pharmaceutical and biotechnology
companies, may enter the market for gene-based probe diagnostics. Some of our
products compete against existing screening, monitoring and diagnostic
technologies, including the tissue culture and antigen-based diagnostic
methodologies. In marketing our HPV tests for the follow-up screening of women
with equivocal Pap smears in the United States, we compete with well-established
follow-up procedures, such as Pap smear re-testing, colposcopy and biopsy, which
are widely accepted and have a long history of use. Additionally, in the event
we are able to obtain FDA and applicable foreign approvals to market our HPV
tests for primary cervical cancer screening, either in conjunction with or
separate from the Pap smear, our products will compete against the Pap smear,
which is widely accepted as an inexpensive and, with regular use, adequate
screening test for cervical cancer. Future technological advancements, designed
to improve quality control over sample collection and preservation and to reduce
the Pap smear test's susceptibility to human error, may serve to increase
physician reliance on the Pap smear and solidify its market acceptance. Further,
if marketed as an adjunct to the Pap smear test for primary screening in the
United States, our HPV tests may be seen as adding unnecessary expense to the
accepted cervical cancer screening methodology. Consequently, our HPV tests may
not be able to attain market acceptance as a primary screening test.

     We face competition from a variety of technologies in the blood virus area.
There are several advanced technologies commercially available for the detection
and viral load measurement of HBV and HIV. Additionally, there are several
emerging DNA probe amplification technologies to detect CMV being developed by
competitors. Thus, our tests for HBV, CMV or HIV may not be able to gain market
acceptance.

     Our existing and potential competitors may be in the process of seeking FDA
or foreign regulatory approval for their respective products or may also enjoy
substantial advantages over us in terms of research and development expertise,
experience in conducting clinical trials, experience in regulatory matters,
manufacturing efficiency, name recognition, sales and marketing expertise and
distribution channels. In addition, many of these companies may have established
third-party reimbursement for their products. We may not be able to compete
effectively against existing or future competitors, which may have a material
adverse effect on our business, financial condition and results of operations.

GOVERNMENT REGULATION

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

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<PAGE>   14

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

     Before a new device can be introduced into the market, the manufacturer
generally must obtain marketing clearance through the filing of either a 510(k)
notification or a PMA application. A 510(k) clearance will be granted if the
submitted information establishes that the proposed device is "substantially
equivalent" to a legally marketed class I or II medical device or to a
preamendment class III medical device (i.e., on the market on or before May 28,
1976) for which the FDA has not called for a PMA. It generally takes from four
to twelve months from submission to obtain a 510(k) clearance, but it may take
longer. The FDA may determine that a proposed device is not substantially
equivalent to a legally marketed device or that additional information or data
is needed before a substantial equivalence determination can be made, either of
which could delay market introduction of a new product. A request for additional
data may require that clinical studies of the device's safety and effectiveness
be performed. Additionally, modifications or enhancements that could
significantly affect the safety or effectiveness of the device or that
constitute a major change to the intended use of the device will require new
510(k) submissions.

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

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

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

     Although clinical investigations of most devices are subject to the
investigational device exemption (IDE) requirements, clinical investigations of
in vitro diagnostic (IVD) tests are exempt from the IDE requirements, including
FDA approval of investigations, provided the testing meets certain exemption
criteria. IVD manufacturers must also establish distribution controls to assure
that IVDs distributed for the purpose of conducting clinical investigations are
used only for that purpose and not improperly commercialized. Pursuant to
current FDA policy, manufacturers of IVDs labeled for investigational use only
(IUO) or research use only (RUO) are encouraged by the FDA to establish a
certification program under which investigational IVDs are distributed to or
utilized only by individuals, laboratories, or healthcare facilities that have
provided the manufacturer with a written certification of compliance indicating
that the IUO or RUO product will be restricted in use and will, among other
things, meet institutional review board and informed consent requirements.

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<PAGE>   15

     Export of products subject to the 510(k) notification requirements, but not
yet cleared to market, are permitted provided certain requirements are met.
Unapproved products subject to the PMA requirements must be approved by the FDA
for export under certain circumstances. To obtain FDA export approval, certain
requirements must be met and information must be provided to the FDA, including,
with some exceptions, documentation demonstrating that the product is approved
for import into the country to which it is to be exported and, in some
instances, safety data for the devices. The FDA may not grant export approval
when such approval is necessary, and countries to which the devices are to be
exported may not approve the devices for import. Failure on our part to obtain
export approvals when required could significantly delay and impair our ability
to export our devices and could have a material adverse effect on our business,
financial condition and results of operations.

     In April of 1995, we obtained a PMA approval for our HPV test to detect the
presence of HPV in women with equivocal Pap smears. In August of 1997, we
obtained FDA approval of a PMA supplement for the use of the HPV test using the
Cytyc sample collection system. We received FDA marketing clearance for our
Hybrid Capture II HPV Test in March 1999. We also intend to submit a PMA
supplement with the FDA to obtain market clearance for use of our Hybrid Capture
II HPV Test as a primary cervical cancer screening test either in conjunction
with or separate from Pap smear testing. We anticipate that a substantial amount
of clinical data will be required to support the PMA supplement. The data we
submit may not be adequate to support the use of the Hybrid Capture II HPV Test
as a primary cervical cancer screening test in the United States. Failure to
obtain FDA approval for the use of the Hybrid Capture II HPV Test as a primary
cervical cancer screening test could have a material adverse effect on our
business, financial condition and results of operations.

     We received FDA marketing clearance for our Hybrid Capture I CMV Test in
October 1998. We submitted three 510(k) notifications for each of our tests for
chlamydia and gonorrhea in April 1998. Upon review of the 510(k) notification
for our tests, the FDA determined that additional data would be needed. After
collecting the necessary data, we submitted the information to the FDA. These
three 510(k) notifications remain pending with the FDA. The FDA may not grant
clearance of these 510(k) notifications in a timely manner, if at all, and the
FDA may require the submission of additional data or find the products not
substantially equivalent and require the submission of a PMA application.

     We are developing tests for HBV and HIV which are class III devices that
will necessitate the collection of extensive clinical data and the eventual
submission and approval of a PMA application. We may not be able to collect
adequate data to support a PMA application for either the HBV test or HIV test,
and when a PMA application is submitted, FDA approval may not be granted in a
timely manner, if at all.

     We are exporting our HPV test as a primary cervical cancer screening test
prior to obtaining PMA approval for this use in the United States. We are also
exporting our HBV test and HIV test for clinical use abroad prior to pursuing
PMA approval in the United States. Exportation of the HPV test as a primary
cervical cancer screening test and exports of the HBV test and HIV test can be
undertaken without prior FDA approval of a PMA provided, among other things,
that:

     - 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 QSRs and

     - we have valid marketing authorization for these products from any member
       country of the European Union, Australia, Canada, Israel, Japan, New
       Zealand, Switzerland or South Africa.

     We also must provide the FDA with simple notification indicating the
products to be exported and the countries to which they will be exported. FDA
approval must be obtained for exports of products subject to the PMA
requirements if these export conditions are not met. We may not be able to
obtain and maintain valid marketing authorization for these tests from one of
the listed countries, and the FDA may not grant specific export approval. Our
failure to obtain and maintain valid marketing authorization from one of the
listed countries or otherwise meet the FDA export approval requirements, could
have a material adverse effect on our business, financial condition and results
of operations.
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<PAGE>   16

     We have developed viral and bacterial tests that we distribute in the
United States on a RUO basis. Failure by us or recipients of our RUO devices to
comply with the regulatory limitations on the distribution and use of RUO
devices could result in enforcement action by the FDA that would adversely
affect our ability to distribute the tests prior to obtaining FDA clearance or
approval for them.

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

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

     We and our products are subject to a variety of state laws and regulations
in those states and localities where our products are or will be marketed. Any
applicable state or local regulations may hinder our ability to market our
products in those states or localities. Manufacturers are also subject to
numerous federal, state and local laws relating to such matters as safe working
conditions, manufacturing practices, environmental protection, fire hazard
control and disposal of hazardous or potentially hazardous substances. We may be
required to incur significant costs to comply with such laws and regulations now
or in the future, and such laws or regulations may have a material adverse
effect on our business, financial condition and results of operations.

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

     The approval by the FDA and foreign government authorities is unpredictable
and uncertain, and the necessary approvals or clearances may not be granted on a
timely basis or at all. Delays in receipt of, or a failure to receive, such
approvals or clearances could have a material adverse effect on our business,
financial condition and results of operations.

     Changes in existing requirements or adoption of new requirements or
policies could adversely affect our ability to comply with regulatory
requirements. Failure to comply with regulatory requirements could have a
material adverse effect on our business, financial condition and results of
operations. We may be required to incur significant costs to comply with laws
and regulations in the future, and laws or regulations may have a material
adverse effect upon our business, financial condition and results of operations.

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

     We must comply with similar registration requirements of foreign
governments and with import and export regulations when distributing our
products to foreign nations. Each foreign country's regulatory requirements for
product approval and distribution are unique and may require the expenditure of
substantial
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<PAGE>   17

time, money and effort. The regulation of medical devices in a number of such
jurisdictions, particularly in the European Union, continues to develop and new
laws or regulations may have a material adverse effect on our business,
financial condition and results of operations. Noncompliance with state, local,
federal, or foreign regulatory requirements can result in fines, injunctions,
civil penalties, recall or seizure of products, total or partial suspension of
production, delay or denial or withdrawal of premarket clearance or approval of
devices and criminal prosecution.

     The IVD directive promulgated by the European Union goes into effect in
June 2000 and we must be in full compliance with such directive by 2003. One of
the critical components of such compliance is ISO 9001 certification, which we
received in June 1999.

LICENSES, PATENTS AND PROPRIETARY INFORMATION

     Our success will depend in part on our ability to obtain and maintain
patent protection for our technologies, products and processes, preserve our
trade secrets, and operate without infringing the proprietary rights of other
parties. Because of the substantial length of time and expense associated with
bringing new products through development to the marketplace, the biotechnology
industry places considerable importance on obtaining and maintaining patent and
trade secret protection for new technologies, products and processes. Despite
these precautions, it may be possible for unauthorized third parties to utilize
our technology or to obtain and use information that we regard as proprietary.
The laws of some countries do not protect our proprietary rights in our
technologies, products and processes to the same extent as do the laws of the
United States.

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

     Through a cross license with Institut Pasteur, we have obtained a worldwide
license to U.S. patents and patent applications and corresponding foreign patent
applications relating to HPV types 39 and 42 and foreign patents and
applications relating to HPV type 33. In return, we have granted to Institut
Pasteur a worldwide license to our three U.S. patents and corresponding foreign
patents and applications relating to HPV types 35, 43, and 56. We have granted
Institut Pasteur the right to extend the scope of the cross license to include
the U.S. patent and corresponding patent applications relating to HPV type 44 at
such time as Institut Pasteur shall have discovered and developed an additional
HPV type which is equivalent in value to HPV type 44. In return for such an
extension, we will receive a license to the new HPV type discovered and
developed by Institut Pasteur. The cross license is co-exclusive, except that
Institut Pasteur has sublicensed its rights to Beckman Instruments, Diagnostic
Pasteur, and their affiliates, and we have sublicensed our rights on a non-
exclusive basis to Toray Fuji Bionics, and its affiliates, for use outside North
America and certain countries in Western Europe. A sublicensee may use its
rights under the cross license to develop additional products or services that
compete with our products. We believe that the cross license terminates on the
last to expire of the underlying patent rights. Any prior termination of the
cross license could have a material adverse effect on our business, financial
condition and results of operations.

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

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     Through a license with Kanebo, Ltd., we have obtained exclusive, worldwide
rights (except for Japan where Kanebo, Ltd. retained the right to grant a
non-exclusive sublicense to Toray Industries, Inc.) to a foreign patent
application relating to HPV type 58. Unless terminated earlier, the Kanebo
license expires on the later to occur of January 1, 2010 or the expiration of
any patent relating to HPV type 58.

     We have filed a U.S. patent application relating to certain aspects of our
Hybrid Capture technology. A foreign filing of this patent has been granted in
Australia and was allowed by the European Patent Office in July 1999. We have an
exclusive license with the University of Hawaii for a patent covering monoclonal
antibodies for detection of DNA:RNA hybrid complexes. We have also filed U.S.
patent applications in the areas of direct DNA probe labeling, signal
amplification and biotin-avidin probe chemistry and our continuous amplification
reaction amplification method. The inventions claimed by these applications may
be used in our DNA probes and any patents that issue from such applications may
provide some ancillary protection for certain aspects of our products. Under
current law, patent applications in the United States are maintained in secrecy
until patents are issued and patent applications in foreign countries are
maintained in secrecy for a period of time after filing. A U.S. patent or any
foreign patents relating to our Hybrid Capture technology may not be issued to
us on a timely basis, or at all.

     We have received inquiries regarding possible patent infringements relating
to, among other things, certain aspects of our Hybrid Capture technology. We
believe that the patents of others to which these inquiries relate are either
not infringed by our Hybrid Capture technology or are invalid. However, we may
be subject to further claims that our technology, including our Hybrid Capture
technology, or our products infringe the patents or proprietary rights of third
parties. The defense of any such claims, if made, could be time consuming and
expensive, even if the outcome is favorable. An adverse outcome could subject us
to significant liabilities to third parties, require us to obtain licenses from
third parties, or require us to cease sales of related products. Any licenses
required under any such third party patents or proprietary rights may not be
made available on commercially reasonable terms, if at all.

     The U.S. Patent and Trademark Office or any foreign patent office may not
grant patent protection for the subject matter of any pending patent
applications, and present or future patents may not provide commercially
significant protection to our present or future technologies, products, or
processes. Furthermore, others may develop independently substantially
equivalent proprietary information not covered by patents to which we have
rights or obtain access to our know-how, and others may be issued patents that
may prevent the sale of one or more of our products, or require licensing and
the payment of significant fees or royalties by us to third parties in order to
enable us to conduct our business. Such licenses may not be available or, if
available, may not be on terms acceptable to us or we may not be successful in
any attempt to redesign our products or processes to avoid infringement. Our
failure to obtain these licenses or to redesign our products or processes would
have a material adverse effect on our business, financial condition and results
of operations. Legal standards relating to the scope of claims and the validity
of patents in the biotechnology field are still evolving, and no assurance can
be given as to the degree of protection any patents issued to or licensed by us
will not be infringed by the products of others. Defense and prosecution of
patent claims can be expensive and time consuming, regardless of whether the
outcome is favorable to us, and can result in the diversion of substantial
resources from our other activities. An adverse outcome could subject us to
significant liabilities to third parties, require us to obtain licenses from
third parties, or require us to cease any related research and development
activities or product sales. In addition, the laws of certain countries may not
protect our intellectual property.

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

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THIRD-PARTY REIMBURSEMENT

     Hospitals, physicians, and other healthcare providers rely on third-party
payors, such as government entities, managed care organizations, and private
insurance plans, to reimburse the costs and fees associated with the use of
diagnostic tests. Successful sales of our tests in the United States and other
markets will depend, in part, on the availability of adequate reimbursement from
third-party payors such as government entities, managed care organizations, and
private insurance plans. There is significant uncertainty concerning third-party
reimbursement for the use of any medical test incorporating new technology.
Reimbursement by a third-party payor may depend on a number of factors,
including the payor's determination that the use of our tests are clinically
useful and cost-effective, not experimental or investigational, medically
necessary and appropriate for the specific patient. Since reimbursement approval
is required from each payor individually, seeking such approvals is a time
consuming and costly process which requires us to provide scientific and
clinical support for the use of our tests for their approved indications to each
payor separately. Third-party reimbursement may not be consistently available
for our tests for their approved indications or any of our other products that
may be developed and such third-party reimbursement may not be adequate. Federal
and state governmental agencies are increasingly considering limiting healthcare
expenditures. For example, the United States Congress is currently considering
various proposals to significantly reduce Medicaid and Medicare expenditures.
Such proposals, if enacted, could have a material adverse effect on our
business, financial condition and results of operations.

     Outside the United States, we rely on a network of distributors to
establish reimbursement from third-party payors in their respective territories.
Our distributors have established reimbursement for the HPV test in Germany, the
Czech Republic, and Brazil. Accordingly, the establishment of reimbursement from
third-party payors in such countries is outside our control. Healthcare
reimbursement systems vary from country to country and, accordingly, there can
be no assurance that third-party reimbursement will be made available for our
products under any other reimbursement system. In Europe, Africa and the Middle
East, we are working closely with Abbott on advocacy efforts and to work with
government and/or ministry officials to establish appropriate reimbursement
coverage in the major countries.

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

PRODUCT LIABILITY

     Our business is subject to product liability risks inherent in the testing,
manufacturing and marketing of our tests that are currently being marketed and
sold, as well as our other products in development. There can be no assurance
that product liability claims will not be asserted against us, our collaborators
or licensees. We currently maintain product liability insurance coverage with a
combined single limit of $6,000,000. This coverage may not be adequate to
protect us against future product liability claims, and product liability
insurance may not be available to us in the future on commercially reasonable
terms, if at all. Furthermore, we may not be able to avoid significant product
liability claims and the attendant adverse publicity. Consequently, a product
liability claim or other claim with respect to uninsured or underinsured
liabilities could have a material adverse effect on our business, financial
condition and results of operations.

EMPLOYEES

     At September 27, 1999, we employed 124 persons, including 39 in research
and development, 38 in manufacturing, including quality assurance, 24 in sales
and marketing and 23 in accounting, finance, administration and regulatory
affairs. We are not a party to any collective bargaining agreements, and we
believe our relationships with our employees are good.

                                       17
<PAGE>   20

PRINCIPAL EXECUTIVE OFFICES

     We were incorporated in Delaware in 1987. Our principal executive offices
are located at 9000 Virginia Manor Road, Beltsville, Maryland 20705.

ADDITIONAL CONSIDERATIONS

WE HAVE A HISTORY OF OPERATING LOSSES AND ANTICIPATE WE WILL INCUR CONTINUED
LOSSES FOR THE FORESEEABLE FUTURE.

     We have had substantial operating losses since incorporation in 1987, and
we have never earned a profit. At June 30, 1999, our accumulated deficit was
approximately $48.7 million. These losses have resulted principally from: (1)
expenses associated with our research and development programs; (2) the
expansion of our manufacturing facilities; and (3) the expansion of our sales
and marketing activities in the United States and abroad.

     We expect that these operating losses will continue for the foreseeable
future. Our future profitability depends, in part, on:

     - the success of our product development efforts;

     - obtaining regulatory approvals for our product candidates from the FDA
       and foreign regulatory authorities;

     - our ability to expand our manufacturing capabilities to meet any increase
       in demand for our products; and

     - our sales and marketing activities.

OUR OPERATING RESULTS HAVE, AND MAY CONTINUE TO, FLUCTUATE SIGNIFICANTLY.

     Our quarterly operating results have fluctuated significantly in the past.
We believe that they may continue to fluctuate significantly in the future with
lower product revenues in our first and second fiscal quarters (July 1 through
December 31) as compared with our third and fourth fiscal quarters of each year.
The lower demand for certain women's health-related medical procedures during
the summer months and the December holiday season in the United States and
Europe primarily causes this fluctuation.

     In addition, our quarterly operating results, as well as our annual
results, may fluctuate from period to period due to:

     - the degree of market acceptance of our products;

     - the timing of regulatory approvals and other regulatory announcements;

     - variations in our distribution channels;

     - the timing of new product announcements and introductions of new products
       by us and our competitors; and

     - product obsolescence resulting from new product introductions.

     Due to any one or more of these or other factors, in one or more future
quarters our results of operations may fall below the expectations of securities
analysts and investors.

WE HAVE LIMITED MANUFACTURING EXPERIENCE, AND OUR MANUFACTURING OPERATIONS MAY
BE INTERRUPTED AS A RESULT OF OUR PLANNED MOVE.

     We have limited commercial-scale manufacturing experience and capabilities,
and we anticipate that we will be required to expand our manufacturing
capabilities.

     To address this anticipated expansion, we have entered into a lease for a
new facility in Gaithersburg, Maryland. We intend to relocate our corporate,
research and development and manufacturing operations to
                                       18
<PAGE>   21

this new facility in December 1999. We cannot begin manufacturing activities at
the new facility until our manufacturing process there has been validated by the
FDA. The FDA may not provide such validation in a timely manner which could
delay our ability to meet the demand for our products. To minimize this
potential problem, we will continue manufacturing certain components in our
Beltsville, Maryland facility until our new facility is validated appropriately
and will stockpile product inventory during the second quarter of fiscal 2000.
This stockpiling will cause an increase in our expenses for that period.

     Once the new facility is validated by the FDA, it will still be subject, on
an ongoing basis, to a variety of quality systems regulations, international
quality standards and other regulatory requirements, including requirements for
good manufacturing practices, which are commonly referred to as "cGMP." The
integration of our manufacturing operations into this new facility may result in
problems involving production yield and quality control and assurance. We may
encounter difficulties expanding our manufacturing operations in accordance with
these regulations and standards, which could result in a delay or termination of
manufacturing.

WE MANUFACTURE ALL OF OUR PRODUCTS IN A SINGLE FACILITY.

     We face risks inherent in the operation of a single facility for
manufacture of our products. These risks include unforeseen plant shutdowns due
to personnel, equipment or other factors, and the possible inability of our
facility to produce products in quantities sufficient to meet customer demand.
Any delay in the manufacture of our products could result in delays in product
shipment.

OUR PRODUCTS MAY NOT BE FULLY ACCEPTED BY THE MARKET.

     We cannot predict whether the worldwide medical community will accept our
technology to the extent we believe is appropriate or to the extent which is
required for us to operate profitably. Our success depends, in part, upon the
acceptance by third-party payors, clinical laboratories and healthcare providers
of our Hybrid Capture technology as a clinically useful and cost-effective
detection, screening and monitoring method in the areas of women's cancers and
infectious diseases and blood viruses.

     In addition, our growth and success will depend upon market acceptance by
the medical community of our HPV tests as a primary cervical cancer screening
method and as a follow-up screening method for women with equivocal Pap smears.
This entails acceptance of our HPV tests as a clinically useful and
cost-effective alternative to well-established follow-up procedures, such as Pap
smear re-testing, colposcopy and biopsy. HPV testing, in general, or our HPV
tests, in particular, may not achieve market acceptance on a timely basis and,
in fact, may never achieve market acceptance.

     Furthermore, technological advancements designed to improve quality control
over sample collection and preservation, and to reduce the Pap smear test's
susceptibility to human error, may serve to increase physician reliance on the
Pap smear and solidify its market acceptance. If marketed as an adjunct to the
Pap smear test for primary screening in the United States, our HPV tests may be
seen as adding unnecessary expense to the accepted cervical cancer screening
methodology. Consequently, we can provide no assurance that our HPV tests will
be able to achieve market acceptance as a primary screening test on a timely
basis, or at all.

OUR SALES TO INTERNATIONAL MARKETS ARE SUBJECT TO ADDITIONAL RISKS THAT ARE
BEYOND OUR CONTROL.

     Our international sales and operations may be limited or disrupted by:

     - the imposition of government controls;

     - export license requirements;

     - economic and political instability;

     - price controls;

     - trade restrictions;

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<PAGE>   22

     - changes in tariffs; and

     - difficulties with foreign distributors.

     Generally, the extent and complexity of regulation of medical products are
increasing worldwide, with regulation in some countries already nearly as
exhaustive as that in the United States. We anticipate that this trend will
continue and that the cost and time required to obtain approval to market in any
given country will increase with no assurance that such approval will be
obtained. Additionally, our business, financial condition and results of
operations may be materially and adversely affected by fluctuations in currency
exchange rates as well as increases in duty rates and difficulties in obtaining
required licenses and permits.

     We may not be able to successfully commercialize any of our products in any
foreign market beyond the level of commercialization we have already achieved.
In addition, the laws of some countries do not protect our proprietary rights to
the same extent as those of the United States.

WE HAVE LIMITED SALES AND MARKETING EXPERIENCE.

     We have limited sales and marketing experience and may be unable to
successfully establish and maintain a significant sales and marketing
organization. Due to the relatively limited market awareness of our products, we
believe that the marketing effort may be a lengthy process.

     We intend to continue using a direct sales force as well as a network of
distributors to market and sell our HPV tests, chlamydia and gonorrhea tests and
blood virus tests. Our direct sales force may not succeed in promoting our
products to third-party payors, clinical laboratories, healthcare providers and
government entities. The risks of pursuing this strategy include:

     - we may be unable to recruit and retain skilled sales, marketing, service
       or support personnel;

     - agreements with distributors for U.S. and foreign sales may not be
       available on terms commercially reasonable to us, or at all; and

     - our sales and marketing efforts may be unsuccessful.

OUR SALES ARE HIGHLY DEPENDENT ON A SINGLE INTERNATIONAL DISTRIBUTOR.

     In May 1999 we entered into a marketing and distribution agreement with
Abbott Laboratories. Under this agreement, Abbott is exclusively responsible for
sales and marketing of certain of our Hybrid Capture products in Europe, Africa
and the Middle East and, when cleared by the FDA, our Hybrid Capture II
Chlamydia and Gonorrhea Tests in the United States. We expect that sales to
Abbott will constitute a significant portion of our total revenues for the
foreseeable future. We could be materially adversely affected by:

     - the loss of Abbott's sales and marketing infrastructure;

     - a significant decrease in product shipments to or an inability to collect
       receivables from Abbott; or

     - any other adverse change in our relationship with Abbott.

OUR SALES ARE HIGHLY DEPENDENT ON REIMBURSEMENTS FROM THIRD-PARTY PAYORS.

     Sales of our products in the United States and other markets will depend,
in part, on the availability of adequate reimbursement from third-party payors,
such as government insurance plans, including Medicare and Medicaid in the
United States, managed care organizations and private insurance plans.
Third-party payors often express reluctance to reimburse healthcare providers
for the use of any medical test incorporating new technology, such as ours.
Reimbursement by a third-party payor may depend on a number of factors,
including the payor's determination that our products are clinically useful,
cost-effective, not experimental or investigational, and medically necessary and
appropriate for the specific patient.

     Because each payor individually approves reimbursement, seeking such
approvals is a time consuming and costly process which requires us to provide
scientific and clinical support for the use of each of our
                                       20
<PAGE>   23

products to each payor separately. In addition, third-party payors are
increasingly limiting reimbursement coverage for medical diagnostic products and
in many instances are exerting pressure on medical suppliers to lower their
prices. Thus, third-party reimbursement may not be consistently available for
our products or financially adequate to cover our costs and achieve
profitability.

     Outside the United States, the responsibility for obtaining reimbursement
approval from third-party payors is handled by our distributors and, therefore,
is out of our direct control. Healthcare reimbursement systems vary from country
to country and, accordingly, we cannot guarantee that third-party reimbursement
will be available for our products under any other reimbursement system.

FUTURE LEGISLATION COULD AFFECT OUR ABILITY TO ACHIEVE PROFITABILITY.

     One of our ongoing concerns is that from time to time, Congress has
considered restructuring the delivery and financing of healthcare services in
the United States. We cannot predict what form of legislation, if any, may be
implemented or the effect of this legislation on our business. It is possible
that future legislation will contain provisions which may adversely affect our
business, financial condition and results of operations. It is also possible
that future legislation could result in modifications to the nation's public and
private healthcare insurance systems, which could negatively affect
reimbursement policies or encourage integration or reorganization of the
healthcare industry in a manner that could negatively affect us. We cannot
predict what legislation, if any, relating to our business or to the healthcare
industry may be enacted.

OUR STRATEGY FOR THE DEVELOPMENT AND COMMERCIALIZATION OF OUR PRODUCTS AND
PRODUCT CANDIDATES IS DEPENDENT IN PART ON COLLABORATIONS WITH THIRD PARTIES.

     We have entered into and intend to continue to enter into corporate
collaborations for the development of new products, clinical collaborations with
respect to trials using our products and product candidates and strategic
alliances for the distributions of our Hybrid Capture System and tests. Our
success depends in large part on the efforts of these third parties in
performing their responsibilities. We cannot assure you that we will be able to
enter into arrangements that may be necessary in order to develop and
commercialize our products or that we will realize any of the contemplated
benefits from these arrangements. Furthermore, we cannot assure you that any
revenues or profits will be derived from our collaborative and other
arrangements.

WE FACE INTENSE COMPETITION IN THE BIOTECHNOLOGY INDUSTRY.

     The medical diagnostics and biotechnology industries are subject to intense
competition. We can provide no assurance that we will be able to compete
successfully against existing or future competitors. For certain of our tests,
we also compete against existing detection, screening and monitoring
technologies, including the Pap smear, tissue culture and antigen-based
diagnostic methodologies.

     Our existing and potential competitors may be able to develop technologies
that are as effective as, or more effective or easier to interpret than those
offered by us, which would render our products noncompetitive or obsolete.
Moreover, many of our existing and potential competitors have substantially
greater financial, research and development, marketing, sales, manufacturing,
distribution and technological resources than us.

     In addition, many of these companies may have established third-party
reimbursement for their products. In marketing our HPV tests for primary
cervical cancer screening either in conjunction with or separate from the Pap
smear, our tests will compete against the Pap smear, which is widely accepted as
an inexpensive and, with regular use, adequate screening test for cervical
cancer. Additionally, in marketing our HPV tests for the follow-up screening of
women with equivocal Pap smears in the United States, we compete with well-
established follow-up procedures, such as Pap smear re-testing, colposcopy and
biopsy, which are also widely accepted and have a long history of use.

     We face competition from a variety of technologies in the blood virus area.
There are several advanced technologies commercially available for the detection
and viral load measurement of HIV and hepatitis B virus. Additionally, there are
several emerging DNA probe amplification technologies to detect CMV being
developed by competitors.

                                       21
<PAGE>   24

WE MAY BE UNABLE TO PROTECT OUR PROPRIETARY RIGHTS, PERMITTING COMPETITORS TO
DUPLICATE OUR PRODUCTS AND SERVICES.

     Patent protection for our technologies and products will be a crucial
factor in our ability to develop and commercialize our products. Because of the
substantial length of time and expense associated with bringing new products
through development to the marketplace, the medical diagnostics and
biotechnology industries place considerable importance on obtaining and
maintaining patent and trade secret protection for new technologies, products
and processes. Large pharmaceutical companies consider a strong patent estate
critical when they evaluate whether to enter into a collaborative arrangement to
support the research, development and commercialization of a technology. Without
the prospect of reasonable patent protection, it would be difficult for us or
any corporate partner to justify the time and money that is necessary to
complete the development of a product.

     We have obtained rights to certain patents and patent applications and may,
in the future, obtain, or seek rights from third parties to additional patents
and patent applications. We can provide no assurance that patent applications
relating to our products or technologies will result in patents being issued,
that any issued patents will afford adequate protection to us, or that such
patents will not be challenged, invalidated, infringed or circumvented.
Furthermore, we can provide no assurance that others have not developed, or will
not develop, similar products or technologies that will compete with our
products or technologies without infringing upon our intellectual property
rights.

     Any success in protecting our proprietary rights will depend in large part
on our ability to:

     - obtain, maintain and enforce patent protection for our products and
       technologies both in the United States and internationally;

     - license rights to patents from third parties;

     - maintain trade secret protection;

     - operate without infringing upon the proprietary rights of others; and

     - prevent others from infringing our proprietary rights.

     Any licenses we may be required to secure under any patents or proprietary
rights of third parties may not be made available on terms acceptable to us, if
at all. Moreover, the laws of certain countries may not protect our proprietary
rights to the same extent as United States law.

     In addition to the risk that we could be a party to patent infringement
litigation, the U.S. Patent and Trademark Office, or its foreign counterparts,
could require us to participate in patent interference proceedings that it
declares. These proceedings are often expensive and time-consuming, even if we
were to prevail in such a proceeding. We may also be forced to initiate legal
proceedings to protect our patent position or other proprietary rights. These
proceedings typically are costly, protracted and offer no assurance of success.


     We have received inquiries regarding possible patent infringements relating
to, among other things, certain aspects of our Hybrid Capture technology. We
believe that the patents of others to which these inquiries relate are either
not infringed by our Hybrid Capture technology or are invalid. We currently are
in discussions with a third party regarding a license to a pending United States
patent application which might cover one of the human papillomavirus types
utilized in our Hybrid Capture II HPV Test. If the patent issues and a license
is necessary, our failure to successfully negotiate a license on commercially
reasonable terms, or at all, may require us to redesign our Hybrid Capture II
HPV Test to exclude this human papillomavirus type. Such exclusion could result
in delays in approval of our Hybrid Capture II HPV Test for marketing in the
United States and could have a material adverse effect on our business,
financial condition and results of operations. Nevertheless, we cannot be sure
that our patents and patent applications will adequately protect our Hybrid
Capture technology. We can provide no assurance that we will not be subject to
further claims that our technology, including our Hybrid Capture technology, or
our products, infringe the patents or proprietary rights of third parties.


                                       22
<PAGE>   25

     Our success also is dependent upon the skill, knowledge and experience of
our scientific and technical personnel. To help protect our rights, we require
all employees, consultants, advisors and collaborators to enter into
confidentiality agreements that prohibit the disclosure of confidential
information to anyone outside our company and require disclosure, and in most
cases, assignment to us of their ideas, developments, discoveries and
inventions. We can provide no assurance, however, that these agreements will
provide adequate protection for our trade secrets, know-how or other proprietary
information in the event of any unauthorized use or disclosure.

WE ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATION AND MAY NOT BE ABLE TO OBTAIN
REGULATORY APPROVALS.

     The FDA product clearance process is unpredictable and uncertain. We can
provide no assurance that the necessary approvals or clearances for our product
candidates will be granted on a timely basis, or at all. In particular:

     - we may be unable to collect adequate data to support a premarket approval
       for either our HIV test or hepatitis B virus test or to receive approval
       for those tests in a timely manner;

     - the FDA may determine that our chlamydia and gonorrhea tests are not
       substantially equivalent to legally marketed devices or that additional
       information or data is needed to make such a determination;

     - we may be unable to obtain or keep valid marketing authorization from one
       or more of the countries to which we export our products;

     - we, or recipients of our products that are limited to research use only,
       may fail to comply with the user certification requirements and other
       regulatory limitations placed on the distribution and use of these
       devices, which could result in an enforcement action by the FDA against
       us; or

     - we may lose previously received approvals, particularly the approvals for
       our HPV tests using our Hybrid Capture I and II technologies.

     Further, we must comply with similar requirements of foreign governments
and with import and export regulations when distributing our products to foreign
nations. Each foreign country's regulatory requirements for product approval and
distribution are unique and may require the expenditure of substantial time,
money and effort. The regulation of medical devices in a number of
jurisdictions, particularly in the European Union, continues to develop.

CLINICAL TRIALS FOR OUR PRODUCT CANDIDATES ARE EXPENSIVE AND THEIR OUTCOME IS
UNCERTAIN.

     Conducting clinical trials is a lengthy, time-consuming and expensive
process. Before obtaining regulatory approvals for the commercial sale of any
products, we or our corporate partners must demonstrate through preclinical
testing and clinical trials that our product candidates are safe and effective
for use in humans. We have incurred and will continue to incur substantial
expense for, and devote a significant amount of time to, preclinical testing and
clinical trials.

     Historically, the results from preclinical testing and early clinical
trials have often not predicted results of later clinical trials. A number of
new medical devices have shown promising results in clinical trials, but
subsequently failed to establish sufficient safety and efficacy data to obtain
necessary regulatory approvals. Data obtained from preclinical and clinical
activities is susceptible to varying interpretations, which may delay, limit or
prevent regulatory approval. In addition, regulatory delays or rejections may be
encountered as a result of many factors, including changes in regulatory policy
during the period of product development.

     Clinical trials conducted by us, by our collaborators or by third parties
on our behalf may not demonstrate sufficient safety and efficacy to obtain the
requisite regulatory approvals for our product candidates. Regulatory
authorities may not permit us to undertake any additional clinical trials for
our product candidates.

                                       23
<PAGE>   26

     Completion of clinical trials may take several years or more. The length of
time can vary substantially with the type, complexity, novelty and intended use
of the product candidate. Our commencement and rate of completion of clinical
trials may be delayed by many factors, including:

     - our inability to manufacture sufficient quantities of materials used for
       clinical trials;

     - our inability to recruit patients at the expected rate;

     - the failure of clinical trials to demonstrate a product candidate's
       efficacy;

     - our inability to follow patients adequately after treatment;

     - our inability to predict unforeseen safety issues; and

     - the potential for unforeseen governmental or regulatory delays.

     If a product candidate fails to demonstrate safety and efficacy in clinical
trials, this failure may delay development of other product candidates and
hinder our ability to conduct related preclinical testing and clinical trials.
As a result of these failures, we may also be unable to find additional
collaborators or to obtain additional financing.

CERTAIN KEY COMPONENTS OF OUR PRODUCTS ARE PROVIDED BY A SINGLE SUPPLIER.

     Several key components of our products come from single source suppliers.
These suppliers are subject to many strict regulatory requirements regarding the
supply of these components. We cannot be sure that these suppliers will comply,
or have complied, with applicable regulatory requirements or that they will
otherwise continue to supply us with the key components we require. If suppliers
are unable or refuse to supply us, or will supply us only at a prohibitive cost,
we may not be able to access additional sources at acceptable prices, on a
timely basis, if ever.

     We acquire these components on a purchase-order basis, meaning that the
supplier is not required to supply us with a specified quantity of product
within a given time period or set-aside part of its inventory for our orders. We
have not arranged for alternative supply sources.

     In the event that we cannot obtain sufficient quantities of these
components on commercially reasonable terms, or in a timely manner, we would not
be able to manufacture our products on a timely and cost-competitive basis.

     In addition, if any of the components of our products are no longer
available in the marketplace, we may be forced to further develop our technology
to incorporate alternate components. The incorporation of new components into
our products may require us to seek necessary approvals from the FDA or
appropriate foreign regulatory agencies prior to commercialization. We can
provide no assurance that this development would be successful or that, if
developed by us or licensed from third parties, any alternative components would
receive requisite regulatory approval on a timely basis, or at all.

     The success of our products based on our Hybrid Capture technology will
depend, in part, on our ability to arrange for the distribution to our customers
of luminometers and related software and equipment with the capability to
analyze the results of our tests. Two suppliers currently provide us with all of
our luminometers. We may be unable to locate other suppliers if our current
suppliers fail to produce luminometers for us in accordance with specifications,
in accordance with applicable regulations and on a timely basis. Even if we
could locate an alternate supplier, that supplier may be more expensive than our
current suppliers and may require substantial lead time. Any of these events
could significantly inhibit our ability to market our Hybrid Capture products.

RAPID GROWTH MAY PLACE SIGNIFICANT DEMANDS ON OUR PERSONNEL.

     We currently have limited management and administrative resources. If we
are successful in implementing our business strategy, we may experience a period
of rapid growth and expansion which could place significant additional demands
on our management and administrative resources.

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<PAGE>   27

OUR SYSTEMS MAY NOT BE YEAR 2000 COMPLIANT.

     We have substantially completed an assessment of our manufacturing and
research equipment, computer programs and telephone systems and have identified
the mission-critical equipment, computer programs and systems that were not year
2000 compliant, at least 80% of which have been upgraded and vendor-certified
for year 2000 compliance. We have also tested a majority of such
mission-critical equipment, computer programs and systems for year 2000
compliance. We expect to complete our upgrade and replacement activities by
November 1999 and complete the remainder of our testing activities by December
1999. During the remainder of calendar 1999, we intend to communicate with our
significant raw material and product vendors to determine their respective
states of year 2000 readiness.

     If we, or any third parties upon which we rely, are unable to address the
year 2000 issue in a timely and successful manner, our business could be
materially adversely affected.

WE ARE EXPOSED TO PRODUCT LIABILITY CLAIMS FOR WHICH OUR INSURANCE MAY BE
INADEQUATE.

     We may be exposed to liability claims arising from the use of our products
and the commercial sale of our products as well as from use of our products or
product candidates in clinical trials. These claims may be brought by consumers,
our collaborators or licensees or parties selling our products. We currently
carry product liability insurance coverage but we can provide no assurance that
this coverage will be adequate to protect us against future product liability
claims or that product liability insurance will be available to us in the future
on commercially reasonable terms, if at all. Furthermore, we can provide no
assurance that we will be able to avoid significant product liability claims and
the attendant adverse publicity.

WE ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATION CONCERNING ENVIRONMENTAL
MATTERS.

     We are subject to a variety of local, state and federal government
regulations relating to the storage, discharge, handling, emission, generation,
manufacture and disposal of toxic, infectious or other hazardous substances used
to manufacture our products. We cannot completely eliminate the risk of
accidental contamination or injury from these materials. Moreover, we cannot be
sure that our collaborative partners are currently complying with the governing
standards. We also cannot be sure that we and our collaborative partners will be
in compliance with such standards in the future or that we will not incur
significant costs to comply with environmental laws and regulations in the
future. If we were to fail to comply with any of these regulations, this failure
could subject us to significant liabilities.

WE NEED TO SPEND SUBSTANTIAL FUNDS TO BECOME PROFITABLE.


     We have spent, and expect to continue to spend in the future, substantial
funds to complete our planned product development efforts, expand our sales and
marketing activities and expand our manufacturing operations. We expect that our
existing capital resources will be adequate to fund our operations through
calendar year 2000, but we cannot guarantee that this will be the case.


     Our future capital requirements and the adequacy of available funds will
depend on numerous factors, including:

     - the successful commercialization of our existing products;

     - progress in our product development efforts;

     - progress with regulatory affairs activities;

     - the cost and timing of expansion of manufacturing operations;

     - the expansion of our European, African and Middle Eastern sales
       operations with Abbott;

     - the growth and success of effective sales and marketing activities;

     - successful relocation to our new facility;

                                       25
<PAGE>   28

     - the cost of filing, prosecuting, defending and enforcing patent claims
       and other intellectual property rights; and

     - the development of strategic alliances for the marketing of our products.

     If funds generated from our operations, together with our existing capital
resources, are insufficient to meet current or planned operating requirements,
we will have to obtain additional funds through equity or debt financing,
strategic alliances with corporate partners and others, or through other
sources. We do not have any committed sources of additional financing, and we
cannot provide assurance that additional funding, if necessary, will be
available on acceptable terms, if at all. If adequate funds are not available,
we may have to delay, scale-back or eliminate certain aspects of our operations
or attempt to obtain funds through arrangements with collaborative partners or
others. This may result in the relinquishment of our rights to certain of our
technologies, product candidates, products or potential markets. Therefore, the
inability to obtain adequate funds could have a material adverse impact on our
business, financial condition and results of operations.

CONTROL BY MANAGEMENT

     As of September 10, 1999, our Chairman and Chief Executive Officer and our
President, Chief Operating Officer and Chief Financial Officer beneficially own
an aggregate of approximately 37.7% of our outstanding shares of Common Stock.
As a result, these officers, acting together, effectively control the election
of directors and matters requiring approval by our stockholders.

ANTITAKEOVER CONSIDERATIONS

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

ITEM 2.  PROPERTIES

     Due to our recent and expected future growth, on March 2, 1998, we entered
into a lease for two buildings, under construction, in Gaithersburg, Maryland,
comprising a total of approximately 90,000 square-feet. We intend to relocate
our operation to this new facility in December 1999. The lease for the new
facility has a term of ten years, and we have two options to extend the term for
a five-year period each.

     Our current executive office and manufacturing facility is located in
Beltsville, Maryland. The lease on this 19,780 square-foot facility expires upon
completion of the new facility. In addition, we currently lease a 9,286
square-foot research and development facility in Silver Spring, Maryland on a
month-to-month basis. We will move operations from both of these facilities to
the Gaithersburg, Maryland facility.

ITEM 3.  LEGAL PROCEEDINGS

     We are not a party to any material legal proceedings and are not aware of
any threatened litigation that could have a material adverse effect on our
business, financial condition and results of operations.

                                       26
<PAGE>   29

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF OUR STOCKHOLDERS

     Not applicable.

                          EXECUTIVE OFFICERS OF DIGENE

<TABLE>
<CAPTION>
             NAME                AGE                  POSITIONS WITH THE COMPANY
             ----                ---                  --------------------------
<S>                              <C>   <C>
Evan Jones(1)..................  42    Chief Executive Officer and Chairman of the Board
Charles M. Fleischman(2).......  41    President, Chief Operating Officer and Chief Financial
                                       Officer
Robert McG. Lilley(3)..........  54    Senior Vice President, Global Sales and Marketing
Jeanmarie Curley(4)............  39    Vice President, Manufacturing
Attila T. Lorincz, Ph.D.(5)....  44    Vice President, Research and Development and Scientific
William J. Payne, Jr.,                 Director
  Ph.D.(6).....................  49    Vice President, Development
Donna Marie Seyfried(7)........  41    Vice President, Business Development
Joseph P. Slattery(8)..........  34    Vice President, Finance and Controller
</TABLE>

---------------
(1) Mr. Jones has served as our Chief Executive Officer since Armonk Partners
    acquired a controlling interest in Digene in July 1990 and as Chairman of
    the Board since September 1995. He previously served as our President from
    July 1990 until June 1999.

(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 previously served as our Executive Vice President from
    July 1990, when Armonk Partners acquired a controlling interest in Digene,
    to June 1999.

(3) Mr. Lilley has served as our Senior Vice President, Global Sales and
    Marketing since June 1999, and before that as Vice President, Sales &
    Marketing at Digene 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) Ms. Curley has served as our Vice President, Manufacturing since April 1998,
    and from December 1990 until April 1998, she was our Director of
    Manufacturing.

(5) Dr. Lorincz has served as our Vice President, Research and Development and
    Scientific Director since December 1990. His research career includes
    postdoctoral fellowships at the University of California. He also serves on
    a number of advisory committees and is an Adjunct Associate Professor in the
    Georgetown University Medical School Department of Pathology.

(6) Dr. Payne has served as our Vice President, Development since July 1997.
    From August 1995 to July 1997, he was Vice President, Research and
    Development in the IVD Medical Diagnostic division of Sigma Diagnostics and
    from July 1993 to July 1995, he was Director of Research and Development in
    the IVD Diagnostic Medical division of Sanofi Diagnostic Pasteur.

(7) 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.

(8) Mr. Slattery has served as our Vice President, Finance and Controller since
    April 1998 and as Controller from February 1996 to April 1998. From March
    1995 to February 1996, Mr. Slattery was Director, Business Management, for
    I-NET, Inc., a computer services company, and from April 1994 to March 1995,
    he was the Managing Principal of Payne, Slattery and Company, a management
    consulting firm.

                                       27
<PAGE>   30

                                    PART II

ITEM 5.  MARKET FOR OUR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     Since our initial public offering of common stock on May 22, 1996, our
common stock has been traded on the Nasdaq National Market under the symbol
"DIGE." The following table sets forth, for the fiscal quarters indicated, the
high and low bid prices for our common stock, as reported by the Nasdaq National
Market.

<TABLE>
<CAPTION>
1999                                                          HIGH       LOW
----                                                          ----       ---
<S>                                                           <C>        <C>
Fourth quarter..............................................  $15 1/8    $ 6 1/4
Third quarter...............................................  $ 9 1/8    $ 5 1/4
Second quarter..............................................  $ 7 1/8    $ 5 5/8
First quarter...............................................  $11        $ 6 1/2
1998
----
Fourth quarter..............................................  $11 3/16   $ 7 3/8
Third quarter...............................................  $11 3/8    $ 6 5/8
Second quarter..............................................  $13 3/8    $ 8 1/4
First quarter...............................................  $15 1/4    $12
</TABLE>

     On September 10, 1999, the closing sale price for the Common Stock, as
reported by the Nasdaq National Market was $13 7/8. As of September 10, 1999,
our Common Stock was held by 169 holders of record.

     We have never paid dividends on our Common Stock and do not anticipate
paying any cash dividends on our Common Stock in the foreseeable future.

     (a) Recent Sales of Unregistered Securities.

     Since July 1, 1998, in transactions which were exempt from registration
pursuant to Section 4(2) of the Securities Act and Rule 701 promulgated under
the Securities Act, Digene issued options to certain employees, directors,
consultants and others to purchase an aggregate of 933,250 shares of our Common
Stock at prices per share ranging from $6.19 to $11.19. Between July 1, 1998 and
September 10, 1999, 32 of such employees, consultants and others exercised
options to purchase an aggregate of 286,463 shares at an aggregate price of
$406,043.

     On July 1, 1998, we issued 181,884 shares of our Common Stock as
consideration for our purchase of all the outstanding capital stock of Viropath
B.V. We acquired these shares from three Dutch individuals and one Dutch
foundation. In addition, we granted options to purchase an aggregate of 50,000
shares of our Common Stock to the three Viropath individual shareholders in
connection with their execution of consulting agreements with us. One-fifth of
these options became exercisable on June 30, 1999 and the remaining options will
become exercisable in equal installments on each of June 30, 2000, 2001, 2002
and 2003. All of these options are exercisable at a price of $9.75 per share.
The options expire on June 29, 2008.

     (b) Use of proceeds from Registered Securities.

     Not applicable.

                                       28
<PAGE>   31

ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA


     The selected consolidated financial data set forth below with respect to
Digene's Consolidated Statements of Operations for the fiscal years ended June
30, 1997, 1998 and 1999 and with respect to Digene's Consolidated Balance Sheets
at June 30, 1998 and 1999 are derived from the audited Consolidated Financial
Statements of Digene which are included elsewhere in this Form 10-K/A.
Consolidated Statements of Operations data for the fiscal years ended June 30,
1995 and 1996 and Consolidated Balance Sheet data at June 30, 1995, 1996 and
1997 are derived from Consolidated Financial Statements of Digene not included
herein. The selected consolidated financial data set forth below is qualified in
its entirety by, and should be read in conjunction with, the Consolidated
Financial Statements, the related Notes thereto and Management's Discussion and
Analysis of Financial Condition and Results of Operations included elsewhere in
this Form 10-K/A.


<TABLE>
<CAPTION>
                                                                    FISCAL YEAR ENDED JUNE 30,
                                                              ---------------------------------------
                                                                 1995          1996          1997
                                                              -----------   -----------   -----------
                                                               (IN THOUSANDS, EXCEPT PER SHARE LOSS)
<S>                                                           <C>           <C>           <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
     Product sales..........................................   $  5,413      $  6,359      $  9,434
     Research and development contracts.....................        749           381           626
                                                               --------      --------      --------
          Total revenues....................................      6,162         6,740        10,060
Costs and expenses:
     Cost of product sales..................................      2,652         2,895         3,441
     Research and development...............................      1,856         2,430         4,131
     Selling and marketing..................................      1,375         2,095         5,236
     General and administrative.............................      1,245         1,792         4,412
     Amortization of intangible assets......................        330           248           241
                                                               --------      --------      --------
Loss from operations........................................     (1,296)       (2,720)       (7,401)
Other income (expense)......................................         14            40           (36)
Interest expense............................................       (277)         (207)          (84)
Interest income.............................................         45           252         1,527
                                                               --------      --------      --------
Loss from operations before income taxes....................     (1,514)       (2,635)       (5,994)
Provision for income taxes..................................         --            --            --
                                                               --------      --------      --------
Net loss before cumulative effect of a change in accounting
  principle.................................................     (1,514)       (2,635)       (5,994)
Cumulative effect of a change in accounting principle.......         --            --            --
                                                               --------      --------      --------
Net loss....................................................   $ (1,514)     $ (2,635)     $ (5,994)
                                                               ========      ========      ========
Basic and diluted net loss per share(1).....................   $  (4.11)     $  (1.71)     $  (0.53)
                                                               ========      ========      ========
Weighted average shares outstanding(1)......................        368         1,545        11,394
</TABLE>

<TABLE>
<CAPTION>
                                                                       AT JUNE 30,
                                                              ------------------------------
                                                                1995       1996       1997
                                                              --------   --------   --------
                                                                      (IN THOUSANDS)
<S>                                                           <C>        <C>        <C>
CONSOLIDATED BALANCE SHEET DATA:
     Working capital........................................  $  2,107   $ 29,616   $ 21,299
     Total assets...........................................     4,485     33,174     30,207
     Long-term debt, less current maturities................     2,812        152        553
     Redeemable Convertible Preferred Stock.................    13,115         --         --
     Accumulated deficit....................................   (16,698)   (19,333)   (25,327)
     Total stockholders' equity (deficit)...................   (13,004)    30,119     24,266
</TABLE>

                                       29
<PAGE>   32

<TABLE>
<CAPTION>
                                                              FISCAL YEAR ENDED JUNE 30,
                                                              --------------------------
                                                                1998              1999
                                                              ---------         --------
                                                              (IN THOUSANDS, EXCEPT PER
                                                                     SHARE LOSS)
<S>                                                           <C>               <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
     Product sales..........................................  $ 11,980          $17,014
     Research and development contracts.....................        29              453
                                                              --------          -------
          Total revenues....................................    12,009           17,467
Costs and expenses:
     Cost of product sales..................................     3,848            6,112
     Research and development...............................     5,285            4,643
     Selling and marketing..................................    10,057           10,531
     General and administrative.............................     5,690            5,957
     Amortization of intangible assets......................       386              150
                                                              --------          -------
Loss from operations........................................   (13,257)          (9,926)
Other income (expense)......................................       (83)            (184)
Interest expense............................................      (164)             (30)
Interest income.............................................     1,378              985
                                                              --------          -------
Loss from operations before income taxes....................   (12,126)          (9,155)
Provision for income taxes..................................        48              149
                                                              --------          -------
Net loss before cumulative effect of a change in accounting
  principle.................................................   (12,174)          (9,304)
Cumulative effect of a change in accounting principle.......    (1,915)              --
                                                              --------          -------
Net loss....................................................  $(14,089)         $(9,304)
                                                              ========          =======
Basic and diluted net loss per share(1).....................  $  (1.06)         $ (0.65)
                                                              ========          =======
Weighted average shares outstanding(1)......................    13,236           14,354
</TABLE>

<TABLE>
<CAPTION>
                                                                    AT JUNE 30,
                                                              ------------------------
                                                                1998            1999
                                                              --------        --------
                                                                   (IN THOUSANDS)
<S>                                                           <C>             <C>
CONSOLIDATED BALANCE SHEET DATA:
     Working capital........................................  $ 28,428        $ 20,499
     Total assets...........................................    35,440          28,108
     Long-term debt, less current maturities................        --              --
     Redeemable Convertible Preferred Stock.................        --              --
     Accumulated deficit....................................   (39,416)        (48,720)
     Total stockholders' equity (deficit)...................    31,099          23,687
</TABLE>

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

                                       30
<PAGE>   33

ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS


     The following discussion of our financial condition and results of
operations should be read in conjunction with our Consolidated Financial
Statements and the related Notes to such Consolidated Financial Statements also
included in this Form 10-K/A. Some of the information that follows are not
statements of historical fact, and reflect our intent, belief or expectations
regarding the anticipated effect of events, circumstances and trends. Such
statements should be considered as forward looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. Although we believe
that our expectations are based on reasonable assumptions within the bounds of
our knowledge of our business and operations, there can be no assurance that
actual results will not differ materially from our expectations. Factors that
might cause or contribute to such differences include: uncertainty of future
profitability and cash generation from operations; manufacturing delays while
awaiting regulatory approval for our new manufacturing facility; uncertainty of
clinical trial results for our products under development; uncertainty of market
acceptance of our products by the worldwide medical community; risks inherent in
international transactions, including those relating to our expansion in Europe,
Brazil and elsewhere; our limited sales and marketing experience; the extent of
future expenditures for sales and marketing programs; dependence on third-party
reimbursement from government entities, managed care organizations, and private
insurance plans; dependence on Abbott Laboratories as our principal European
distributor; delay in or failure to obtain regulatory approvals for our products
in development; uncertainty regarding patents and proprietary rights in
connection with our products; our ability to obtain requisite additional
financing to fund our operations beyond calendar 2000; and other factors as set
forth under the caption "Additional Considerations" beginning on page 18.


OVERVIEW

     We develop, manufacture and market our patented Hybrid Capture(R) Gene
Analysis System and tests, and we are commercializing these Hybrid Capture
products in three areas: women's health testing, blood virus testing, and
pharmaceutical clinical research. Our primary focus is in women's health where
our lead product is the only FDA approved DNA test for human papillomavirus, or
HPV, which is associated with more than 99% of cervical cancers. We are the
world's leading supplier of HPV tests. Our Hybrid Capture II HPV Test received
PMA marketing approval from the FDA in March 1999. Internationally, our
portfolio of women's health tests is now cleared for sale in almost every major
European country and in Brazil and Argentina. Our objective in the women's
health area is to become the world leader in gene-based testing for women's
cancers and infectious diseases. We have also developed a family of unique blood
virus testing products based on our Hybrid Capture System including tests for
cytomegalovirus (CMV) and hepatitis B. Our CMV Test is the only CMV DNA test
cleared by the FDA; we received 510(k) clearance in October 1998.

     Internationally, we are working to establish our HPV Test as the standard
for cervical cancer screening. Pursuant to a Marketing and Distribution
Agreement that became effective in May 1999, our women's health and blood virus
tests are marketed in Europe by Abbott Laboratories and, once FDA clearance is
received, our chlamydia and gonorrhea tests will be marketed by Abbott
Laboratories in the United States. We currently market our Hybrid Capture
products in the United States through a direct sales force supported by
technical and customer service representatives. In the United States, we are
currently marketing our HPV Test for the follow-up screening of women with
equivocal Pap smears. In the pharmaceutical clinical research market we are
using the unique capabilities of our Hybrid Capture System to provide us access
to complimentary early-stage technologies and to link our tests with novel
therapeutics and vaccines.

     We have incurred substantial operating losses since inception, resulting
principally from expenses associated with our research and development programs,
including preclinical studies, clinical trials and regulatory submissions for
our products and the expansion of our manufacturing facilities and our global
sales and marketing activities. We expect such operating losses to continue at
least through fiscal 2000 as we continue our product development efforts, seek
FDA and foreign regulatory approvals of our products, expand our manufacturing
capabilities and expand our sales and marketing activities. In March 1998, we
entered into a lease agreement for a new facility where we will consolidate our
research and development facility, our corporate office and our manufacturing
facility into one location in Gaithersburg, Maryland, to which we expect to
relocate in December 1999. This new facility will result in increased operating
expenses.
                                       31
<PAGE>   34

     Our quarterly operating results have fluctuated significantly in the past
and we believe that they may continue to fluctuate significantly in the future
with lower product revenues in the first and second fiscal quarters as compared
with the third and fourth fiscal quarters, primarily attributable to the lower
demand for certain women's health-related medical procedures during the summer
months in the United States and Europe, and during the December holiday season.
In addition, our quarterly operating results, as well as annual results, may
fluctuate from period to period due to

     - the degree of market acceptance of our products,

     - competition, the timing of regulatory approvals and other regulatory
       announcements,

     - the volume and timing of orders from and shipments to distributors,

     - variations in our distribution channels,

     - the timing of new product announcements and introductions by us and our
       competitors,

     - product obsolescence resulting from new product introductions

and other factors, many of which are outside our control. Due to one or more of
these factors, in one or more future quarters our results of operations may fall
below the expectations of securities analysts and investors. In that event, the
market price of our common stock could be materially and adversely affected.

RESULTS OF OPERATIONS

COMPARISON OF FISCAL YEAR ENDED JUNE 30, 1999 TO FISCAL YEAR ENDED JUNE 30, 1998

     Product sales increased to $17,014,000 in fiscal 1999 from $11,980,000 in
fiscal 1998. The increase was due primarily to increased sales of our Hybrid
Capture tests, primarily HPV tests and related equipment, partially offset by
lower sales of our non-core products. We anticipate that sales of our HPV tests
will account for a substantial portion of our product sales for at least the
next two fiscal years.

     Research and development contract revenues increased to $453,000 in fiscal
1999 from $29,000 in fiscal 1998 due primarily to our performance during the
entire fiscal year under a major research contract with the National Institutes
of Health for the development of tests for herpes simplex virus. We anticipate
that fiscal 2000 research and development contract revenues will remain
approximately the same as they were in fiscal 1999.

     Cost of product sales increased to $6,112,000 in fiscal 1999 from
$3,848,000 in fiscal 1998 due primarily to increased sales volume. Gross margin
on product sales decreased to 64.1% in fiscal 1999 from 67.9% in fiscal 1998.
This decrease was due primarily to increased sales of lower-margin equipment and
increased write-offs for inventory obsolescence, partially offset by improved
manufacturing efficiencies and product pricing. We expect gross margins to
fluctuate moderately based on product mix in the coming years.

     Research and development expenses decreased to $4,643,000 in fiscal 1999
from $5,285,000 in fiscal 1998 due primarily to reductions in expenditures for
clinical trials and laboratory supplies, partially offset by higher personnel
costs. We expect research and development expenses to increase moderately for
the next few fiscal years.

     Selling and marketing expenses increased to $10,531,000 in fiscal 1999 from
$10,057,000 in fiscal 1998 due to increases in European sales and marketing
programs, partially offset by decreases in expenditures in the United States
associated with lower personnel costs. We expect selling and marketing expenses
to decrease over the next fiscal year as a result of the marketing and
distribution activities performed in Europe, the Middle East and Africa by
Abbott under our Marketing and Distribution Agreement rather than through the
expansion of a Digene sales and marketing force in those areas. Thereafter, we
expect selling and marketing expenses to increase moderately for the following
few fiscal years.

     General and administrative expenses increased to $5,957,000 in fiscal 1999
from $5,690,000 in fiscal 1998, due primarily to costs associated with the
planned December 1999 move to our new facility in Gaithersburg, Maryland, as
well as increases in professional services expense, partially offset by a
reduction in

                                       32
<PAGE>   35

bad debt expense. We expect general and administrative expenses to increase
moderately for the following few fiscal years.

     Amortization of intangible assets decreased to $150,000 in fiscal 1999 from
$386,000 in fiscal 1998, due primarily to the write-off of certain intangible
assets in fiscal 1998, partially offset by amortization expense attributable to
goodwill associated with our acquisition of Viropath, B.V. on July 1, 1998. We
expect amortization of intangible assets to remain constant in the next fiscal
year.

     Interest expense decreased to $30,000 in fiscal 1999 from $164,000 in
fiscal 1998 due primarily to the repayment in December 1998 of debt incurred in
February 1997.

     Interest income decreased to $985,000 in fiscal 1999 from $1,378,000 in
fiscal 1998 due primarily to lower average cash and cash equivalents balances
primarily as a result of negative cash flows from operations.

COMPARISON OF FISCAL YEAR ENDED JUNE 30, 1998 TO FISCAL YEAR ENDED JUNE 30, 1997

     Product sales increased to $11,980,000 in fiscal 1998 from $9,434,000 in
fiscal 1997. The increase was due primarily to increased sales of our Hybrid
Capture tests, primarily HPV, partially offset by lower sales of equipment and
non-core products.

     Research and development contract revenues decreased to $29,000 in fiscal
1998 from $626,000 in fiscal 1997 due primarily to substantial completion of
contract activities during fiscal 1998.

     Cost of product sales increased to $3,848,000 in fiscal 1998 from
$3,441,000 in fiscal 1997 due to increased sales volume. Gross margin on product
sales increased to 67.9% in fiscal 1998 from 63.5% in fiscal 1997. This increase
was due primarily to sales of higher margin Hybrid Capture tests and increases
in overhead absorption and unit pricing.

     Research and development expenses increased to $5,285,000 in fiscal 1998
from $4,131,000 in fiscal 1997 due to the hiring of additional research and
development personnel and increases in clinical trial activity related to the
development of our blood virus and sexually transmitted disease tests and to the
further development of our Hybrid Capture technology.

     Selling and marketing expenses increased to $10,057,000 in fiscal 1998 from
$5,236,000 in fiscal 1997 due to substantial increases in sales and marketing
programs, the hiring of additional selling and marketing personnel, and other
selling costs incurred under our international distribution agreements.

     General and administrative expenses increased to $5,690,000 in fiscal 1998
from $4,412,000 in fiscal 1997, due to the hiring of additional administrative
personnel, and costs associated with our expansion into the European and
Brazilian markets.

     Amortization of intangible assets increased to $386,000 in fiscal 1998 from
$241,000 in fiscal 1997.

     Interest expense increased to $164,000 in fiscal 1998 from $84,000 in
fiscal 1997 due primarily to debt incurred in February 1997 as a result of our
expansion into the European market.

     Interest income decreased to $1,378,000 in fiscal 1998 from $1,527,000 in
fiscal 1997 due primarily to lower average cash and cash equivalents balances as
a result of negative cash flows from operations, partially offset by the
interest income generated by the investment of the net proceeds from the public
offering of our common stock in October 1997.

     The $1,915,000 cumulative effect of change in accounting principle is a
result of the early adoption of Statement of Position 98-5, "Reporting on the
Costs of Start-Up Activities". The write-off of the unamortized balance of
capitalized costs was incurred in connection with our acquisition of HPV
customer lists under our 1997 agreements with International Murex Technologies
Corporation to establish a Digene-direct European sales operation for our
women's health products.

                                       33
<PAGE>   36

LIQUIDITY AND CAPITAL RESOURCES

     Since inception, our expenses have significantly exceeded our revenues,
resulting in an accumulated deficit of approximately $48.7 million at June 30,
1999. We have funded our operations primarily through the sale of equity
securities. At June 30, 1999, we had cash, cash equivalents and short-term
investments aggregating approximately $18,281,000. Net cash used in our
operating activities was $6,073,000 for the fiscal year ended June 30, 1999.

     Capital expenditures decreased to $934,000 in fiscal 1999 from $2,481,000
in fiscal 1998, due primarily to changes in our distribution agreements
requiring a smaller investment in equipment. In March 1998, we entered into a
lease agreement for a new facility in Gaithersburg, Maryland, to which we expect
to relocate in December 1999. The integration of our operations into this new
facility may result initially in inefficiencies and delays. Specifically, we may
encounter difficulties in expanding and/or moving our manufacturing operations.

     We do not have any bank financing arrangements.

     We anticipate that working capital requirements will increase moderately
for the foreseeable future due to increasing accounts receivable as a result of
expected revenue growth. We have incurred negative cash flows from operations
since our inception, and have expended, and expect to continue to expend in the
future, substantial funds to complete our planned product development efforts,
expand our sales and marketing activities and expand our manufacturing
capabilities. We expect that our existing capital resources will be adequate to
fund our operations through calendar 2000. We cannot give assurances that we
will not need to consume a significant amount of our available resources more
rapidly than we presently anticipate. Our future capital requirements and the
adequacy of available funds will depend on numerous factors, including the
successful commercialization of our products, progress in our product
development efforts and the magnitude and scope of such efforts, progress with
preclinical studies and clinical trials, progress in our regulatory affairs
activities, the cost and timing of expansion of our manufacturing capabilities,
the development and maintenance of effective sales and marketing activities, the
cost of filing, prosecuting, defending and enforcing patent claims and other
intellectual property rights, competing technological and market developments,
and the development of strategic alliances for the marketing of our products. To
the extent that our existing capital resources and funds generated from
operations are insufficient to meet current or planned operating requirements,
we will be required to obtain additional funds through equity or debt financing,
strategic alliances with corporate partners and others, or through other
sources. Although we expect to seek additional equity financing, we do not have
any committed sources of additional financing, and there can be no assurance
that additional funding, if necessary, will be available on acceptable terms, if
at all. If adequate funds are not available, we may be required to delay, scale
back or eliminate certain aspects of our operations or attempt to obtain funds
through arrangements with collaborative partners or others that may require us
to relinquish rights to certain of our technologies, product candidates,
products or potential markets. If adequate funds are not available, our
business, financial condition and results of operations will be materially and
adversely affected.

     On July 1, 1998, we purchased all of the outstanding capital stock of
Viropath B.V., a company with limited liability registered in Amsterdam, The
Netherlands, for total consideration of 181,884 shares of our common stock. In
addition, we are obligated to pay royalties, not to exceed $1,000,000, on future
sales of Viropath's licensed HPV products in the field of cervical cancer
testing. We also granted options to purchase an aggregate of 50,000 shares of
our common stock to the three Viropath individual shareholders in connection
with their execution of consulting agreements with us. The options were
compensatory options and were valued on July 1, 1998 at approximately $316,500.
This amount will be expensed ratably over five fiscal years.

YEAR 2000 READINESS DISCLOSURE

     We are working to resolve the potential impact of the year 2000 on the
ability of our computerized information programs and systems and certain
manufacturing and other equipment to accurately process information that may be
date-sensitive. Any of our technology that recognizes a date using "00" as the
year 1900 rather than the year 2000 could result in errors or system failures.

                                       34
<PAGE>   37

     We have substantially completed an assessment of our manufacturing and
research equipment, computer programs and telephone systems and have identified
the mission-critical equipment, computer programs and systems that were not year
2000 compliant, at least 80% of which have been upgraded and vendor-certified
for year 2000 compliance. We have also tested a majority of such
mission-critical equipment, computer programs and systems for year 2000
compliance. We expect to complete our upgrade and replacement activities by
November 1999 and complete the remainder of our testing activities by December
1999. During the remainder of calendar 1999, we intend to communicate with our
significant raw material and product vendors to determine their respective
states of year 2000 readiness.

     In connection with our planned move to the new facility in Gaithersburg,
Maryland in December 1999, we have upgraded or replaced the mission-critical
computer programs, systems and manufacturing and other equipment with new
computer programs, systems and equipment which the suppliers have certified or
will certify to be year 2000 compliant. In anticipation of the possibility that
our relocation will not occur in 1999, which we do not expect, we have also made
the necessary year 2000-related changes to the few systems, such as our existing
telephone system, that we do not intend to relocate to the new facility and have
developed contingency plans. We do not expect that continuing our operations in
our existing space, if necessary, would be materially impacted by the advent of
the year 2000.

     We are in the process of testing our upgraded or replaced computer
programs, systems and equipment and will continue the testing throughout the
remainder of calendar 1999. Based on information developed to date as a result
of our assessment and testing efforts, we do not anticipate that the total cost
of upgrading or replacing our computer programs, systems and equipment will be
material. In anticipation of possible year 2000-related failures and possible
delays in our manufacturing processes in connection with our planned relocation,
we are also formulating contingency plans, including the stockpiling of product
inventory during the second quarter of fiscal 2000. If we, or any third parties
upon which we rely, are unable to address the year 2000 issue in a timely and
successful manner, our business could be materially adversely affected.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     Digene is subject to market risk associated with changes in foreign
currency exchange rates and interest rates. Our exchange rate risk is limited to
our operations in Europe and South America. We do not believe that the impact
from foreign currency exchange rate fluctuations will have a material impact on
our financial statements. The net impact of foreign exchange activities on
earnings was immaterial for the years ended June 30, 1997, 1998 and 1999.
Interest rate exposure is primarily limited to the $4.3 million of short-term
investments owned by us. Such securities are debt instruments which generate
interest income for Digene on excess cash balances. We do not actively manage
the risk of interest rate fluctuations; however, such risk is mitigated by the
relatively short term, less than 12 months, nature of these investments. We do
not consider the present rate of inflation to have a significant impact on its
business.

                                       35
<PAGE>   38

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Digene Corporation

     We have audited the accompanying consolidated balance sheets of Digene
Corporation as of June 30, 1998 and 1999, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended June 30, 1999. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Digene Corporation at June 30, 1998 and 1999, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended June 30, 1999, in conformity with generally accepted accounting
principles.

     As discussed in Note 2 of Notes to Consolidated Financial Statements, in
1998 the Company changed its method of accounting for costs related to start-up
activities.

                                          /s/ ERNST & YOUNG LLP

Washington, DC
August 20, 1999

                                       36
<PAGE>   39

                               DIGENE CORPORATION

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                      JUNE 30,
                                                              -------------------------
                                                                 1998          1999
                                                              -----------   -----------
<S>                                                           <C>           <C>
ASSETS
CURRENT ASSETS:
  Cash and cash equivalents.................................  $18,330,803   $13,934,415
  Short-term investments....................................    7,181,572     4,347,084
  Accounts receivable, less allowance of approximately
     $209,000 and $170,000 at June 30, 1998 and 1999,
     respectively...........................................    3,072,224     2,356,537
  Inventories (Note 6)......................................    3,557,289     2,894,210
  Prepaid expenses and other current assets.................      560,706     1,388,224
                                                              -----------   -----------
TOTAL CURRENT ASSETS........................................   32,702,594    24,920,470
Property and equipment, net (Note 7)........................    2,627,244     1,737,078
Intangible assets, net (Note 5).............................           --     1,350,774
Deposits....................................................      109,700       100,157
                                                              -----------   -----------
TOTAL ASSETS................................................  $35,439,538   $28,108,479
                                                              ===========   ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable..........................................  $ 2,424,245   $ 2,503,387
  Accrued expenses..........................................      542,064       809,811
  Accrued payroll...........................................      755,490     1,108,236
  Current maturities of long-term debt (Note 9).............      552,717            --
                                                              -----------   -----------
TOTAL CURRENT LIABILITIES...................................    4,274,516     4,421,434
Accrued rent................................................       54,340            --
Deferred rent...............................................       11,980            --
Commitments (Notes 10, 11 and 16)
STOCKHOLDERS' EQUITY:
  Preferred stock, $0.01 per value, 1,000,000 shares
     authorized, no shares issued and outstanding common
     stock, $0.01 par value, 50,000,000 shares authorized,
     14,117,308 and 14,565,937 shares issued and outstanding
     at June 30, 1998 and 1999, respectively................      141,173       145,659
  Additional paid-in capital................................   70,373,310    72,514,583
  Deferred stock compensation...............................           --      (253,200)
  Accumulated deficit.......................................  (39,415,781)  (48,719,997)
                                                              -----------   -----------
TOTAL STOCKHOLDERS' EQUITY..................................   31,098,702    23,687,045
                                                              -----------   -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY..................  $35,439,538   $28,108,479
                                                              ===========   ===========
</TABLE>

                            See accompanying notes.
                                       37
<PAGE>   40

                               DIGENE CORPORATION
                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                 YEAR ENDED JUNE 30,
                                                    ----------------------------------------------
                                                       1997              1998             1999
                                                    -----------      ------------      -----------
<S>                                                 <C>              <C>               <C>
Revenues:
     Product sales................................  $ 9,434,183      $ 11,980,445      $17,013,735
     Research and development contracts...........      626,096            28,500          453,364
                                                    -----------      ------------      -----------
Total revenues....................................   10,060,279        12,008,945       17,467,099
Costs and expenses:
     Cost of product sales........................    3,440,963         3,847,725        6,111,774
     Research and development.....................    4,131,090         5,284,761        4,643,458
     Selling and marketing........................    5,236,246        10,057,596       10,531,187
     General and administrative...................    4,411,899         5,689,783        5,956,911
     Amortization of intangible assets............      240,902           385,679          150,086
                                                    -----------      ------------      -----------
Loss from operations..............................   (7,400,821)      (13,256,599)      (9,926,317)
Other income (expense):
     Other expense................................      (36,825)          (83,047)        (183,394)
     Interest expense.............................      (83,777)         (163,625)         (30,144)
     Interest income..............................    1,526,967         1,377,665          984,708
                                                    -----------      ------------      -----------
Loss from operations before income taxes..........   (5,994,456)      (12,125,606)      (9,155,147)
Provision for income taxes........................           --            48,463          149,069
                                                    -----------      ------------      -----------
Net loss before cumulative effect of a change in
  accounting principle............................   (5,994,456)      (12,174,069)      (9,304,216)
Cumulative effect of a change in accounting
  principle.......................................           --        (1,914,499)              --
                                                    -----------      ------------      -----------
Net loss..........................................  $(5,994,456)     $(14,088,568)     $(9,304,216)
                                                    ===========      ============      ===========
Basic and diluted net loss per share..............  $     (0.53)     $      (1.06)     $     (0.65)
                                                    ===========      ============      ===========
Weighted average shares outstanding...............   11,393,978        13,235,901       14,353,720
                                                    ===========      ============      ===========
</TABLE>

                            See accompanying notes.
                                       38
<PAGE>   41

                               DIGENE CORPORATION
                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                 COMMON STOCK        ADDITIONAL      DEFERRED                        TOTAL
                             ---------------------     PAID-IN        STOCK       ACCUMULATED    STOCKHOLDERS'
                               SHARES      AMOUNT      CAPITAL     COMPENSATION     DEFICIT         EQUITY
                             ----------   --------   -----------   ------------   ------------   -------------
<S>                          <C>          <C>        <C>           <C>            <C>            <C>
BALANCE AT JUNE 30, 1996...  11,303,705   $113,037   $49,339,001    $      --     $(19,332,757)  $ 30,119,281
Exercise of Common Stock
  options..................     275,825      2,758       138,620           --               --        141,378
Net loss...................          --         --            --           --       (5,994,456)    (5,994,456)
                             ----------   --------   -----------    ---------     ------------   ------------
BALANCE AT JUNE 30, 1997...  11,579,530    115,795    49,477,621           --      (25,327,213)    24,266,203
Issuance of Common Stock,
  net of offering costs of
  $1,845,585...............   2,250,000     22,500    20,631,915           --               --     20,654,415
Exercise of Common Stock
  options..................     287,778      2,878       263,774           --               --        266,652
Net loss...................          --         --            --           --      (14,088,568)   (14,088,568)
                             ----------   --------   -----------    ---------     ------------   ------------
BALANCE AT JUNE 30, 1998...  14,117,308    141,173    70,373,310           --      (39,415,781)    31,098,702
Exercise of Common Stock
  options..................     266,745      2,667       326,595           --               --        329,262
Issuance of Common Stock in
  connection with the
  acquisition of
  Viropath.................     181,884      1,819     1,498,178           --               --      1,499,997
Grant of Common Stock
  options to
  non-employees............          --         --       316,500     (316,500)              --             --
Compensatory stock options
  earned by nonemployees...          --         --            --       63,300               --         63,300
Net loss...................          --         --            --           --       (9,304,216)    (9,304,216)
                             ----------   --------   -----------    ---------     ------------   ------------
BALANCE AT JUNE 30, 1999...  14,565,937   $145,659   $72,514,583    $(253,200)    $(48,719,997)  $ 23,687,045
                             ==========   ========   ===========    =========     ============   ============
</TABLE>

                            See accompanying notes.
                                       39
<PAGE>   42

                               DIGENE CORPORATION
                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                 YEAR ENDED JUNE 30,
                                                      -----------------------------------------
                                                          1997           1998          1999
                                                      ------------   ------------   -----------
<S>                                                   <C>            <C>            <C>
OPERATING ACTIVITIES
     Net loss.......................................  $ (5,994,456)  $(14,088,568)  $(9,304,216)
     Adjustments to reconcile net loss to net cash
       used in operating activities:
          Depreciation and amortization of property
            and equipment...........................       461,603      1,068,211       951,364
          Amortization of intangible assets.........       240,902        385,679       150,086
          Compensation expense related to stock
            options.................................            --             --        63,300
          Cumulative effect of a change in
            accounting principle....................            --      1,914,499            --
               Start-up expenses....................       833,179             --            --
          Changes in operating assets and
            liabilities:
               Accounts receivable..................    (2,094,096)       647,918       715,687
               Inventories..........................      (618,834)    (1,132,122)    1,547,736
               Prepaid expenses and other current
                 assets.............................      (146,933)      (114,338)     (827,518)
               Deposits.............................       (22,102)        37,648        (3,241)
               Accounts payable.....................       241,476        330,352        79,142
               Accrued expenses.....................       250,179       (229,973)      267,747
               Accrued payroll......................       395,794        152,935       352,746
               Accrued rent.........................       (49,289)       (46,278)      (54,340)
               Deferred rent........................       (24,696)       (25,338)      (11,980)
                                                      ------------   ------------   -----------
          Net cash used in operating activities.....    (6,527,273)   (11,099,375)   (6,073,487)
INVESTING ACTIVITIES
     Purchases of short-term investments............   (15,045,827)   (14,634,204)   (8,183,962)
     Sales of short-term investments................     8,452,522     18,513,915    11,018,450
     Capital expenditures...........................      (971,111)    (2,480,907)     (933,934)
     Acquisition of customer lists..................    (1,000,000)            --            --
     Additions to goodwill and intangible assets....        (3,363)        (4,321)           --
                                                      ------------   ------------   -----------
          Net cash (used in) provided by investing
            activities..............................    (8,567,779)     1,394,483     1,900,554
FINANCING ACTIVITIES
     Net proceeds from issuance of common stock.....            --     20,654,415            --
     Exercise of common stock options...............       141,378        266,652       329,262
     Principal repayments on debt...................      (700,787)    (1,338,236)     (552,717)
                                                      ------------   ------------   -----------
          Net cash (used in) provided by financing
            activities..............................      (559,409)    19,582,831      (223,455)
                                                      ------------   ------------   -----------
Net (decrease) increase in cash and cash
  equivalents.......................................   (15,654,461)     9,877,939    (4,396,388)
Cash and cash equivalents at beginning of year......    24,107,325      8,452,864    18,330,803
                                                      ------------   ------------   -----------
Cash and cash equivalents at end of year............  $  8,452,864   $ 18,330,803   $13,934,415
                                                      ============   ============   ===========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid.......................................  $     17,000   $    206,000   $    30,000
                                                      ============   ============   ===========
</TABLE>

                            See accompanying notes.
                                       40
<PAGE>   43

                               DIGENE CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.  ORGANIZATION AND NATURE OF OPERATIONS

     Digene Corporation (the "Company" or "Digene") was incorporated in the
state of Delaware in 1987. The Company develops, manufactures and markets its
proprietary Hybrid Capture(R) Gene Analysis System and tests for the detection,
screening and monitoring of human diseases. The Company's products are designed
to help improve clinical outcomes and reduce the overall cost of disease
management. The Company's lead product, the Hybrid Capture II HPV DNA Test, is
the only FDA-approved test for the detection of human papillomavirus ("HPV"),
the cause of essentially all cervical cancer. In addition, Digene has developed
and launched tests internationally for the detection and viral load monitoring
of major blood viruses, including cytomegalovirus and hepatitis B virus, and
tests for the detection of two of the most common sexually transmitted
infections, chlamydia and gonorrhea.

     On June 28, 1996, Digene Corporation entered into a joint venture agreement
with a Brazilian national to establish Digene do Brasil LTDA, a majority-owned
subsidiary of Digene Corporation. On October 29, 1997, the Company established a
wholly-owned subsidiary, Digene B.V., for the distribution of the Company's
products in Europe. On March 3, 1998, the Company established a wholly-owned
subsidiary, Digene Europe, for the marketing of the Company's products in
Europe. On July 1, 1998, the Company completed the acquisition of Viropath B.V.,
a company with limited liability, registered in Amsterdam, The Netherlands (See
Note 5).

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Management Estimates

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

Principles of Consolidation

     The accompanying financial statements include the accounts of Digene and
its subsidiaries. All significant intercompany transactions have been eliminated
in consolidation.

Cash and Cash Equivalents

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

Short-Term Investments

     The Company classifies its short-term investments as available-for-sale.
Investments in securities that are classified as available-for-sale and have
readily determinable fair values are measured at fair market value in the
consolidated balance sheets. As of June 30, 1998 and 1999, short-term
investments are stated at cost, which approximates market.

Concentration of Credit Risk

     The Company performs ongoing credit evaluations of its customers' financial
condition and generally does not require collateral. The Company maintains
reserves for credit losses, and such losses have been within management's
expectations.

                                       41
<PAGE>   44
                               DIGENE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Impairment of Long-Lived Assets

     In the event that facts and circumstances indicate that long-lived assets
or other assets may be impaired, an evaluation of recoverability would be
performed. If an evaluation is required, the estimated future undiscounted cash
flows associated with the asset would be compared to the asset's carrying amount
to determine if a write-down is required. If a write-down is required, the
Company would prepare a discounted cash flow analysis to determine the amount of
the write-down.

Revenue Recognition

     Revenue from product sales is recognized upon shipment of goods. Revenue
from research and development contracts is recognized as research and
development activities are performed.

Significant Customers

     For the years ended June 30, 1997, 1998 and 1999, the Company generated
42%, 42%, and 50%, respectively, of total revenues from a single customer.

Comprehensive Income

     Effective July 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130").
SFAS No. 130 establishes new rules for the reporting and display of
comprehensive income and its components. Comprehensive income includes all
changes in equity during a period except those resulting from the issuance of
shares of stock and distributions to stockholders. For the years ended June 30,
1997, 1998 and 1999 the Company's comprehensive loss approximates its net loss
and as such no disclosure is presented in the consolidated financial statements.

Foreign Currency Valuation

     The local currency is the functional currency for the Company's
international subsidiaries and, as such, assets and liabilities are translated
into U.S. dollars at year-end exchange rates. Income and expense items are
translated at average exchange rates during the year. Translation adjustments
resulting from changes in exchange rates are not considered material and have
been recognized in the Consolidated Statements of Operations.

Research and Development

     The Company expenses its research and development costs as incurred.

Advertising Costs

     The Company expenses advertising costs as incurred. Advertising costs
amounted to approximately $188,000, $215,000 and $309,000 during fiscal 1997,
1998 and 1999, respectively.

Income Taxes

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

                                       42
<PAGE>   45
                               DIGENE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Net Loss Per Share

     In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS No. 128").
SFAS No. 128 replaced the calculation of primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities, except as required by Staff Accounting
Bulletin No. 98 ("SAB 98"). The definition of diluted earnings per share is very
similar to the previous definition of fully diluted earnings per share. All net
loss per share amounts for all periods have been presented, and, where
appropriate, restated to conform to the SFAS No. 128 requirements.

Stock-Based Compensation

     The Company accounts for its stock-based compensation in accordance with
the provisions of APB No. 25 and has provided the pro forma disclosures of net
loss and net loss per share in accordance with Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123") in
Note 13 of these Notes to Consolidated Financial Statements.

Change in Accounting Principle

     In April 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position 98-5,
"Reporting the Costs of Start-up Activities" ("SOP 98-5"), which requires that
costs related to start-up activities be expensed as incurred. Prior to 1998, the
Company capitalized $2,497,172 for the acquisition of Murex's HPV customer lists
related to the Customer Transfer Agreement (See Note 4). Effective April 1,
1998, the Company elected early adoption of SOP 98-5. The effect of adoption of
SOP 98-5 was to increase net loss by $1,914,499 to expense costs that had been
capitalized prior to 1998.

Reclassification

     Certain 1997 and 1998 balances have been reclassified to conform with the
1999 presentation.

3.  MARKETING AND DISTRIBUTION AGREEMENT

     On April 17, 1998, Abbott Laboratories ("Abbott") and International Murex
Technologies Corporation (together with its affiliates, "Murex") entered into an
agreement pursuant to which Abbott acquired all of the outstanding shares of
Murex's common stock. Effective May 7, 1999, the Company entered into a
Marketing and Distribution Agreement ("Abbott Agreement") with Abbott, and
thereby created an exclusive marketing alliance for Digene's Women's Health and
Blood Virus testing products in certain geographic areas. The Abbott Agreement
calls for Abbott to assume sales and marketing responsibility for all of
Digene's Hybrid Capture products in Europe, the Middle East and Africa and for
Digene's Hybrid Capture II chlamydia and gonorrhea tests in the United States.
The Abbott Agreement replaces all previous agreements between the Company and
Murex. In connection with these previous agreements, Murex owned an equity
interest in the Company. This equity interest was sold by Murex during fiscal
1998. Abbott will act as the sole distributor for Digene's HBV and HPV products
in Europe, the Middle East and Africa through December 31, 2003. In addition,
Abbott will act as the sole distributor in the United States for Digene's Hybrid
Capture chlamydia and gonorrhea tests.

4.  CUSTOMER TRANSFER AGREEMENT

     Effective February 1, 1997, the Company acquired Murex's HPV customer lists
for approximately $2,500,000 in exchange for promissory notes in the aggregate
amount of $1,702,750 and cash of $1,000,000. In accordance with an agency
agreement, which was superseded by the Abbott Agreement, the Company agreed

                                       43
<PAGE>   46
                               DIGENE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

to pay to Murex costs of approximately $853,000 over eleven months, which costs
had been expensed during the year ended June 30, 1997. The intangible asset
recorded to account for the Murex customer lists was written off during 1998
(See Note 2 -- "Change in Accounting Principle").

5.  ACQUISITION OF VIROPATH B.V.

     On July 1, 1998, the Company issued 181,884 shares of its Common Stock, par
value $0.01 per share, as consideration for its purchase of all of the
outstanding capital stock (the "Shares") of Viropath B.V., a company with
limited liability, registered at Amsterdam, The Netherlands ("Viropath"). The
181,884 shares of the Company's Common Stock were recorded at $8.247 per share,
in accordance with the Stock Purchase Agreement, and resulted in total
consideration of approximately $1.5 million. In accordance with the Stock
Purchase Agreement, seventy percent of these shares were held in escrow until
July 1, 1999. The remaining thirty percent of these shares will be held in
escrow by the Company until January 1, 2000. In addition, the Company is
obligated to pay royalties on future sales of Viropath's licensed products, not
to exceed $1 million. Through June 30, 1999, the Company has not been required
to pay any such royalties. The acquisition was accounted for using the purchase
method and resulted in an excess of purchase price over the fair value of net
assets acquired of approximately $1.5 million, which the Company recorded as
goodwill and is amortizing over ten years using the straight-line method. As of
June 30, 1999, goodwill and the related accumulated amortization was $1,500,860
and $150,086, respectively. The results of operations of Viropath have been
consolidated with those of the Company since the date of acquisition. The
operating results of Viropath are not considered material to the consolidated
financial statements of the Company, and accordingly, pro forma financial
information has not been presented for this acquisition.

     In addition, the Company granted options to purchase an aggregate of 50,000
shares of its Common Stock to the three Viropath individual shareholders in
connection with their execution of consulting agreements with the Company. The
options are exercisable in equal installments on each of June 30, 1999, 2000,
2001, 2002 and 2003 at an exercise price of $9.75 per share. The options expire
on June 29, 2008. The options were compensatory options and were valued on July
1, 1998 at approximately $316,500. This amount will be expensed ratably over the
vesting period of the options. During fiscal 1999, the Company recognized
$63,300 of compensation expense related to these options.

6.  INVENTORIES

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

     Inventories consist of the following:

<TABLE>
<CAPTION>
                                                              JUNE 30,
                                                       -----------------------
                                                          1998         1999
                                                       ----------   ----------
<S>                                                    <C>          <C>
Finished goods.......................................  $1,341,391   $1,100,661
Work in process......................................   1,773,977    1,636,552
Raw materials........................................     780,421      894,537
                                                       ----------   ----------
                                                        3,895,789    3,631,750
Obsolescence reserve.................................    (338,500)    (737,540)
                                                       ----------   ----------
                                                       $3,557,289   $2,894,210
                                                       ==========   ==========
</TABLE>

7.  PROPERTY AND EQUIPMENT

     Property and equipment, including leasehold improvements, are stated at
cost and depreciated or amortized using the straight-line method over the
estimated useful lives of three to five years. Leasehold improvements are
amortized over the lesser of the related lease term or the useful life.
                                       44
<PAGE>   47
                               DIGENE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Property and equipment consist of the following:

<TABLE>
<CAPTION>
                                                             JUNE 30,
                                                     -------------------------
                                                        1998          1999
                                                     -----------   -----------
<S>                                                  <C>           <C>
Furniture, fixtures and office equipment...........  $ 1,324,978   $ 1,413,735
Machinery and equipment............................    3,911,642     3,287,618
Leasehold improvements.............................      930,764       925,415
                                                     -----------   -----------
                                                       6,167,384     5,626,768
Accumulated depreciation and amortization..........   (3,540,140)   (3,889,690)
                                                     -----------   -----------
                                                     $ 2,627,244   $ 1,737,078
                                                     ===========   ===========
</TABLE>

8.  INCOME TAXES

     Significant components of the provision for income taxes on operations
consist of the following:

<TABLE>
<CAPTION>
                                                     YEAR ENDED JUNE 30,
                                                ------------------------------
                                                  1997       1998       1999
                                                --------   --------   --------
<S>                                             <C>        <C>        <C>
Current:
     Federal..................................  $     --   $     --   $     --
     State....................................        --         --         --
     Foreign..................................        --     48,463    149,069
                                                --------   --------   --------
Total current.................................        --     48,463    149,069
Deferred:
     Federal..................................        --         --         --
     State....................................        --         --         --
     Foreign..................................        --         --         --
                                                --------   --------   --------
Total deferred................................        --         --         --
                                                --------   --------   --------
Total provision for income taxes..............  $     --   $ 48,463   $149,069
                                                ========   ========   ========
</TABLE>

     There is no net tax benefit recorded for the change in accounting principle
because such benefit creates a deferred tax asset which the Company has fully
reserved.

     The components of loss from operations before income taxes are as follows:

<TABLE>
<CAPTION>
                                                YEAR ENDED JUNE 30,
                                     ------------------------------------------
                                         1997           1998           1999
                                     ------------   ------------   ------------
<S>                                  <C>            <C>            <C>
United States......................  $ (5,923,876)  $ (9,971,255)  $ (9,018,900)
Foreign............................       (70,580)    (2,154,351)      (136,247)
                                     ------------   ------------   ------------
                                     $ (5,994,456)  $(12,125,606)  $ (9,155,147)
                                     ============   ============   ============
</TABLE>

                                       45
<PAGE>   48
                               DIGENE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     The following is a summary of the items which caused recorded income taxes
attributable to continuing operations to differ from taxes computed using the
statutory federal income tax rate for the years ended June 30, 1997, 1998, and
1999:

<TABLE>
<CAPTION>
                                                       JUNE 30,
                                        ---------------------------------------
                                           1997          1998          1999
                                        -----------   -----------   -----------
<S>                                     <C>           <C>           <C>
Tax benefit at statutory rate.........  $(2,098,000)  $(4,244,000)  $(3,204,000)
Effect of:
     State income tax, net............     (300,000)     (606,000)     (458,000)
     Foreign tax......................           --        48,463       149,069
     Stock options....................   (1,142,000)   (1,005,000)     (863,000)
     Other............................      (49,000)      114,000        55,000
     Foreign losses not used..........           --       861,000        37,000
     Valuation allowance..............    3,589,000     4,880,000     4,433,000
                                        -----------   -----------   -----------
Provision for income taxes............  $        --   $    48,463   $   149,069
                                        ===========   ===========   ===========
</TABLE>

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

<TABLE>
<CAPTION>
                                                            JUNE 30,
                                                   ---------------------------
                                                       1998           1999
                                                   ------------   ------------
<S>                                                <C>            <C>
Net operating loss carryforwards.................  $ 12,636,000   $ 16,840,000
Research and development credits.................       828,000      1,083,000
Patent costs, net................................       577,000        491,000
Research and developmental deferral, net.........     1,346,000      1,125,000
Murex customer lists.............................       899,000        857,000
Other............................................       812,000      1,568,000
                                                   ------------   ------------
Deferred tax assets..............................    17,098,000     21,964,000
Valuation allowance..............................   (17,098,000)   (21,964,000)
                                                   ------------   ------------
Net deferred tax assets..........................  $         --   $         --
                                                   ============   ============
</TABLE>

     Due to the Company's net operating loss carryforwards, the Company did not
recognize a tax provision for the year ended June 30, 1997. The Company
recognized a tax provision of $48,463 and $149,070 for the years ended June 30,
1998 and 1999, respectively, which related to the Company's foreign operations.
At June 30, 1999, the Company had tax net operating loss carryforwards for
income tax purposes of approximately $42 million. Approximately $7.7 million of
the net operating loss carryforwards is attributable to exercised stock options,
the benefit of which, when realized, will directly increase additional paid-in
capital. At June 30, 1999, the Company also had research and development credit
carryforwards of approximately $1,083,000. In 1990, the Company experienced a
change in ownership pursuant to Section 382 of the Internal Revenue Code, which
will cause the utilization of pre-change losses and credits to be limited.
Subject to this limitation, the Company's net operating loss carryforwards and
tax credits expire, if unused, at various dates from 2003 through 2019.
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, the Company has provided a valuation allowance for the full amount of
its deferred tax assets.

                                       46
<PAGE>   49
                               DIGENE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9.  LONG-TERM DEBT

     Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                              JUNE 30,
                                                        ---------------------
                                                          1998        1999
                                                        ---------   ---------
<S>                                                     <C>         <C>
Net Notes payable to Murex (See Note 4), net of
unamortized discount..................................  $ 537,424   $      --
Note payable to lessor................................     15,293          --
                                                        ---------   ---------
                                                          552,717          --
Current maturities of long-term debt..................   (552,717)         --
                                                        ---------   ---------
Long-term debt, less current maturities...............  $      --   $      --
                                                        =========   =========
</TABLE>

     The unsecured notes payable to Murex arose in conjunction with the
Company's acquisition of Murex's HPV customer list (See Note 4), are
noninterest-bearing and have been discounted at 10%. The Company made payments
totaling $1,577,864, $1,420,000 and $557,750 and incurred interest expense of
$76,107, $128,830 and $20,326 for the years ended June 30, 1997, 1998 and 1999,
respectively.

     The note payable to lessor represented the financing of a portion of
leasehold improvements made by the lessor under terms of the lease agreement for
the Company's research and development facility. The note, in the original
principal amount of $200,000, was paid during fiscal 1999. A $75,000 certificate
of deposit, which was assigned to the lessor as collateral for the lease
obligation, will be returned to the Company.

10.  LEASE COMMITMENTS

     On March 2, 1998, the Company entered into a lease for two buildings, under
construction, in Gaithersburg, Maryland, comprising a total of approximately
90,000 square feet. The Company intends to relocate its operation to this new
facility in December 1999. The lease for the new facility has a ten-year term
and the Company has two consecutive rights to extend the term of the lease for
five years each.

     The Company's executive office and manufacturing facility is located in
Beltsville, Maryland. The Company's research and development facility is located
in Silver Spring, Maryland. These leases expire upon the completion of the new
facility.

     Future minimum rental commitments under these and other operating lease
agreements, including the agreements mentioned above, are as follows as of June
30, 1999:

<TABLE>
<S>                                                           <C>
2000........................................................  $ 1,140,881
2001........................................................    1,441,308
2002........................................................    1,462,821
2003........................................................    1,483,469
2004........................................................    1,520,556
Thereafter..................................................    8,769,331
                                                              -----------
                                                              $15,818,366
                                                              ===========
</TABLE>

     Rent expense was $449,449, $763,126, and $678,394 for the years ended June
30, 1997, 1998 and 1999, respectively.

                                       47
<PAGE>   50
                               DIGENE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11.  EMPLOYMENT AGREEMENTS

     The Company has executed employment agreements with certain key executives
under which the Company is required to pay the following base salaries over the
next three years:

<TABLE>
<S>                                                           <C>
2000........................................................  $  739,375
2001........................................................     427,500
2002........................................................     124,493
                                                              ----------
                                                              $1,291,368
                                                              ==========
</TABLE>

12.  COMMON STOCK

     On October 20, 1997, the Company issued 2,250,000 shares of Common Stock in
a public offering, which generated net proceeds of approximately $20,654,000.

13.  COMMON STOCK OPTIONS

     In March 1996, the Company adopted the Digene Corporation Omnibus Plan (the
"Omnibus Plan"). Pursuant to the Omnibus Plan, officers or other employees of
the Company may receive options to purchase Common Stock. The Omnibus Plan is
administered by the Compensation Committee. 2,000,000 shares have been reserved
for issuance under the Omnibus Plan.

     In October 1996, the Company adopted the Digene Corporation Directors'
Stock Option Plan (the "Directors' Plan"). Pursuant to the Directors' Plan,
directors of the Company may receive options to purchase Common Stock. The
Directors' Plan is administered by the Board of Directors. 500,000 shares have
been reserved for issuance under the Directors' Plan.

     In September 1997, the Company adopted the Digene Corporation 1997 Stock
Option Plan (the "1997 Stock Option Plan"). Pursuant to the 1997 Stock Option
Plan, consultants and other non-employees of the Company may receive options to
purchase Common Stock. The 1997 Stock Option Plan is administered by the Board
of Directors. 500,000 shares have been reserved for issuance under the 1997
Stock Option Plan.

     Prior to March 1996, the Company had adopted Stock Option Plans (the
"Option Plans") under which 2,622,821 shares of Common Stock were reserved for
issuance upon exercise of options. The Option Plans provide for grants of stock
options to employees (including officers and employee directors), directors and
consultants of the Company. The Option Plans were previously administered by the
Board of Directors and presently are being administered by the Compensation
Committee, which determines recipients and types of awards to be granted,
including the exercise price, number of shares subject to the award and the
exercisability thereof. The Company does not intend to grant further options
under these Option Plans.

     The terms of all stock options granted may not exceed ten years. The
exercise price of options granted, as determined by the Compensation Committee,
approximates fair value.

                                       48
<PAGE>   51
                               DIGENE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

     Common stock options activity is as follows:

<TABLE>
<CAPTION>
                                                           YEAR ENDED JUNE 30,
                                  ---------------------------------------------------------------------
                                          1997                    1998                    1999
                                  ---------------------   ---------------------   ---------------------
                                              WEIGHTED-               WEIGHTED-               WEIGHTED-
                                               AVERAGE                 AVERAGE                 AVERAGE
                                              EXERCISE                EXERCISE                EXERCISE
                                   SHARES       PRICE      SHARES       PRICE      SHARES       PRICE
                                  ---------   ---------   ---------   ---------   ---------   ---------
<S>                               <C>         <C>         <C>         <C>         <C>         <C>
Outstanding at beginning of
year............................  2,660,582    $ 4.14     2,812,333    $ 5.43     2,712,162    $ 6.42
Options granted.................    460,000     10.14       486,500     11.69       933,250      8.77
Options exercised...............   (275,825)      .52      (287,778)      .93      (266,745)     1.23
Options canceled or expired.....    (32,424)     8.66      (298,893)    11.15      (201,138)    10.17
                                  ---------               ---------               ---------
Outstanding at end of year......  2,812,333      5.43     2,712,162      6.42     3,177,529      7.31
                                  =========               =========               =========
Options exercisable at
  year-end......................  1,288,218      2.53     1,131,492      1.81     1,434,192      4.72
                                  =========               =========               =========
</TABLE>

     The following table summarizes information about fixed-price stock options
outstanding at June 30, 1999:

<TABLE>
<CAPTION>
                                  OPTIONS OUTSTANDING                 OPTIONS EXERCISABLE
                       -----------------------------------------   --------------------------
                                          AVERAGE      WEIGHTED-                    WEIGHTED-
                           NUMBER        REMAINING      AVERAGE        NUMBER        AVERAGE
      RANGE OF         OUTSTANDING AT   CONTRACTUAL    EXERCISE    EXERCISABLE AT   EXERCISE
   EXERCISE PRICES     JUNE 30, 1999    LIFE (YEARS)     PRICE     JUNE 30, 1999      PRICE
   ---------------     --------------   ------------   ---------   --------------   ---------
<S>                    <C>              <C>            <C>         <C>              <C>
$ 0.01 - $ 2.00......      533,967          1.5         $ 1.15         533,967        $1.15
$ 2.01 - $ 5.00......      319,522          1.5           2.30         295,099         2.25
$ 5.01 - $ 8.00......      353,399          8.7           6.49          62,638         5.94
$ 8.01 - $11.00......    1,751,641          7.8           9.55         542,488         9.43
$11.01 - $13.25......      219,000          8.1          12.89              --           --
                         ---------                                   ---------
                         3,177,529          6.2           7.31       1,434,192         4.72
                         =========                                   =========
</TABLE>

     If the compensation cost for the Company's stock option plans had been
determined based upon the fair value at the grant date for options under the
plans consistent with the methodology prescribed under SFAS No. 123, the
Company's net loss in fiscal 1997, 1998 and 1999 would have been approximately
$7,594,000 and $16,574,000, and $12,842,000 or $0.67, $1.25, and $0.89 per
share, respectively. The effect of applying SFAS No. 123 on 1997, 1998 and 1999
pro forma net loss as stated above is not necessarily representative of the
effects on reported net loss for future years due to, among other things, (1)
the vesting period of the stock options and (2) the fair value of additional
stock options in future years.

     The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing fair value model with the following
weighted-average assumptions used for grants:

<TABLE>
<CAPTION>
                                                         YEAR ENDED JUNE 30,
                                                         --------------------
                                                         1997    1998    1999
                                                         ----    ----    ----
<S>                                                      <C>     <C>     <C>
Dividend yield.........................................  0.00%   0.00%   0.00%
Expected volatility....................................    73%     73%     77%
Risk-free interest rate................................   6.5%    6.5%    6.0%
Expected life of the option term (in years)............   6.6     5.5     6.1
</TABLE>

     The weighted average fair values of the options granted during the years
ended June 30, 1997, 1998 and 1999 were $8.03, $7.99, and $6.26, respectively.

                                       49
<PAGE>   52
                               DIGENE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14.  NET LOSS PER SHARE

     The following table sets forth the computation of basic and diluted net
loss per share:

<TABLE>
<CAPTION>
                                                 YEAR ENDED JUNE 30,
                                       ----------------------------------------
                                          1997           1998          1999
                                       -----------   ------------   -----------
<S>                                    <C>           <C>            <C>
Numerator:
     Net loss........................  $(5,994,456)  $(14,088,568)  $(9,304,216)
                                       ===========   ============   ===========
Denominator:
     Denominator for basic and
       diluted earnings per
       share -- weighted-average
       shares........................   11,393,978     13,235,901    14,353,720
                                       ===========   ============   ===========
Basic and diluted net loss per
  share..............................  $     (0.53)  $      (1.06)  $     (0.65)
                                       ===========   ============   ===========
</TABLE>

     The following table sets forth the computation of basic and diluted net
loss per share to reflect the cumulative effect of a change in accounting
principle:

<TABLE>
<CAPTION>
                                                        YEAR ENDED JUNE 30,
                                                      ------------------------
                                                       1997     1998     1999
                                                      ------   ------   ------
<S>                                                   <C>      <C>      <C>
Basic and diluted loss per common share
     Net loss before cumulative effect of a change
       in accounting principle......................  $(0.53)  $(0.92)  $(0.65)
     Cumulative effect of a change in accounting
       principle....................................   (0.00)   (0.14)   (0.00)
                                                      ------   ------   ------
Net loss............................................  $(0.53)  $(1.06)  $(0.65)
                                                      ======   ======   ======
</TABLE>

15.  RETIREMENT PLAN

     The Company sponsors a 401(k) Profit Sharing Plan (the "Plan"), which
covers all employees who have completed ninety days of service. The Plan
stipulates that employees may elect an amount between 1% and 15% of their total
compensation to contribute to the Plan. Employee contributions are subject to
Internal Revenue Service limitations. All employees who have completed 1,000
hours of service during the plan year and are employed by the Company on the
last day of the plan year are eligible to share in discretionary Company
contributions. Employees vest in employer contributions over five years. No
contributions were made by the Company during the years ended June 30, 1997,
1998 and 1999.

16.  OTHER COMMITMENTS AND CONTINGENCIES

     The Company's access to various probes, diagnostic techniques and a key
product component were acquired under agreements requiring the Company to pay
future royalties up to 4.0% of applicable future net sales on certain products.
During fiscal 1997, 1998 and 1999, total royalties amounted to $396,665,
$769,930, and $655,062, respectively.

     During fiscal 1999, the Company executed a purchase commitment with a
vendor to acquire $1,125,000 of equipment. As of June 30, 1999, the Company has
recorded a prepaid expense of $281,250 related to this obligation.

17.  SEGMENT REPORTING

     Effective July 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and
Related Information" ("SFAS No. 131"). SFAS No. 131

                                       50
<PAGE>   53
                               DIGENE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

changes the way public companies report segment information in annual financial
statements and also requires those companies to report selected segment
information in interim financial reports to stockholders. It also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. The Company operates one business segment which develops,
manufactures and markets proprietary DNA and RNA tests for the detection,
screening and monitoring of human diseases. Worldwide operations are summarized
by geographic region in the following table:

<TABLE>
<CAPTION>
                                             YEAR ENDED JUNE 30,
                            -----------------------------------------------------
                                      1997                        1998
                            -------------------------   -------------------------
                              ASSETS       REVENUES       ASSETS       REVENUES
                            -----------   -----------   -----------   -----------
<S>                         <C>           <C>           <C>           <C>
North America.............  $29,450,973   $ 4,244,576   $34,396,189   $ 4,776,036
Europe....................           --     4,342,175       445,434     4,938,758
South America.............      312,604       881,048       597,915     1,619,334
Pacific Rim...............           --       592,480            --       674,817
                            -----------   -----------   -----------   -----------
                            $29,763,577   $10,060,279   $35,439,538   $12,008,945
                            ===========   ===========   ===========   ===========
</TABLE>

<TABLE>
<CAPTION>
                                                        YEAR ENDED JUNE 30,
                                                               1999
                                                     -------------------------
                                                       ASSETS       REVENUES
                                                     -----------   -----------
<S>                                                  <C>           <C>
North America......................................  $27,575,447   $ 5,930,026
Europe.............................................      165,583     9,055,571
South America......................................      367,449     1,860,242
Pacific Rim........................................           --       621,260
                                                     -----------   -----------
                                                     $28,108,479   $17,467,099
                                                     ===========   ===========
</TABLE>

                                       51
<PAGE>   54

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
         AND FINANCIAL DISCLOSURE

     No change of accountants and/or disagreements on any matter of accounting
principles or financial statement disclosures have occurred within the last two
years.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     - Directors. The information with respect to directors required by this
       item is incorporated herein by reference to Digene's definitive Proxy
       Statement for its Annual Meeting of Stockholders, scheduled to be held on
       October 28, 1999, which shall be filed with the Securities and Exchange
       Commission within 120 days from the end of the Digene's fiscal year (the
       "1999 Proxy Statement").

     - Executive Officers. The information with respect to executive officers
       required by this item is set forth in Part I of this report.

ITEM 11.  EXECUTIVE COMPENSATION

     The information required under this item is incorporated herein by
reference to the 1999 Proxy Statement.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The information required under this item is incorporated herein by
reference to the 1999 Proxy Statement.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this item is incorporated herein by reference
to the 1999 Proxy Statement.

                                    PART IV

ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) - Consolidated Financial Statements of Digene Corporation:

       Report of Independent Auditors

       Consolidated Balance Sheets as of June 30, 1998 and 1999

       Consolidated Statements of Operations for the fiscal years ended June 30,
       1997, 1998, and 1999

       Consolidated Statements of Stockholders' Equity for the fiscal years
       ended June 30, 1997, 1998, and 1999

       Consolidated Statements of Cash Flows for the fiscal years ended June 30,
       1997, 1998 and 1999

       Notes to Consolidated Financial Statements

    - Financial Statement Schedules:

       Schedule II -- Valuation and Qualifying Accounts and Reserves

       All 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.

                                       52
<PAGE>   55


    - Exhibits:



<TABLE>
      <C>                     <S>
                    3.1       Amended and Restated Certificate of Incorporation of
                              Digene.**
                    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 and
                              filed with the SEC on September 28, 1999.)
                    4.1       Specimen Common Stock Certificate.**
                   10.2       1989 Special Employee Stock Option Plan.**
                   10.3       1990 Stock Option Plan.**
                   10.4       1991-A Stock Option Plan.**
                   10.5       1991-B Stock Option Plan.**
                   10.6       1996 Omnibus Plan.**
                   10.7!      Employment Agreement dated as of May 1, 1996 between Digene
                              and Evan Jones, as amended.**
                   10.8!      Employment Agreement dated as of May 1, 1996 between Digene
                              and Charles M. Fleischman, as amended.**
                   10.11      Lease Agreement dated January 13, 1988 between Digene and
                              West Farm Associates Limited Partnership.**
                   10.12      Lease Agreement dated June 20, 1991 between Digene and
                              Murkirk Manor Associates Limited Partnership.**
                   10.14      License Agreement dated September 1, 1995 between Digene and
                              Institut Pasteur.**
                   10.15      Cross-License Agreement dated April 1, 1990 among Life
                              Technologies, Inc. and Institut Pasteur.**
                   10.16      License Agreement dated December 1, 1983 between Bethesda
                              Research Laboratories, a division of Life Technologies, Inc.
                              and Georgetown University.**
                   10.18      License Agreement dated December 19, 1990 between Digene and
                              Life Technologies, Inc.**
                   10.26      Registration Rights Agreement dated as of May 24, 1996
                              between Digene, Armonk Partners, Murex Diagnostics
                              Corporation and Certain Other Stockholders.**
                   10.28      License Agreement dated September 27, 1995 between Digene
                              and Kanebo, Ltd.**
                   10.30***   Agency and Sales Representation Agreement between Digene and
                              Murex dated as of February 1, 1997. (Incorporated by
                              reference to Exhibit 10.1 of the Registrant's Quarterly
                              Report on Form 10-Q for the quarter ended March 31, 1997.)
                   10.31***   Customer Transfer Agreement between Digene and Murex dated
                              as of February 1, 1997. (Incorporated by reference to
                              Exhibit 10.2 of the Registrant's Quarterly Report on Form
                              10-Q for the quarter ended March 31, 1997.)
                   10.32      First Amendment to the Distribution Agreement between Digene
                              and Murex dated as of February 1, 1997. (Incorporated by
                              reference to Exhibit 10.3 of the Registrant's Quarterly
                              Report on Form 10-Q for the quarter ended March 31, 1997.)
                   10.33!     Employment Agreement dated as of September 3, 1996 between
                              Digene and Donna Marie Seyfried. (Incorporated by reference
                              to Exhibit 10 of the Registrant's Quarterly Report on Form
                              10-Q for the quarter ended September 30, 1996.)
                   10.34      Director's Stock Option Plan. (Incorporated by reference to
                              Exhibit A of Digene's Proxy Statement filed pursuant to
                              Section 14(a) of the Securities Exchange Act, dated
                              September 20, 1996.)
                   10.35!     Employment Agreement dated as of July 11, 1997 between
                              Digene and William J. Payne. (Incorporated by reference to
                              Exhibit 10.1 to Digene's Registration Statement on Form S-3,
                              File No. 333-35463, dated November 12, 1997.)
                   10.36      1997 Stock Option Plan. (Incorporated by reference to
                              Exhibit 99 of Digene's Registration Statement on Form S-8,
                              dated November 24, 1997.)
</TABLE>


                                       53
<PAGE>   56

<TABLE>
      <C>                     <S>
                   10.37      Stock Purchase Agreement dated as of June 30, 1998 by and
                              among Digene and Stichting Researchfonds Pathologie, Ewald
                              C.R.M. Keijser, Christophorus J.L.M. Meijer and Jan M. M.
                              Walboomers. (Incorporated by reference to Exhibit 10.37 of
                              Digene's Annual Report on Form 10-K for the fiscal year
                              ended June 30, 1998.)
                   10.38      Lease dated as of March 2, 1998 by and between Digene and
                              ARE -Metropoliton 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.)
                   10.39!     Employment Agreement dated as of December 22, 1998 between
                              Digene and Joseph P. Slattery. (Incorporated by reference to
                              Exhibit 10.2 of Digene's Quarterly Report on Form 10-Q for
                              the quarter ended December 31, 1998.)
                   10.40!     Employment Agreement dated as of December 22, 1998 between
                              Digene and Jeanmarie P. Curley. (Incorporated by reference
                              to Exhibit 10.1 of Digene's Quarterly Report on Form 10-Q
                              for the quarter ended December 31, 1998.)
                   10.41*     Marketing and Distribution Agreement between Digene and
                        ****  Abbott Laboratories, dated May 7, 1999.
                   21         Subsidiaries of the Registrant. (Incorporated by reference
                              to Exhibit 21 of the Registrant's Annual Report on Form 10-K
                              for the fiscal year ended June 30, 1999 and filed with the
                              SEC on September 28, 1999.)
                   23.1*      Consent of Ernst & Young LLP, Independent Auditors.
                   27*        Financial Data Schedule.
</TABLE>


---------------
*     Filed herewith.

**   Incorporated by reference to the like-numbered exhibits to Digene's
     Registration Statement on Form S-1, File No. 333-2968, dated March 29,
     1996.

***  Confidential status has been granted for certain portions thereof pursuant
     to a Commission Order granted June 3, 1997. Such provisions have been filed
     separately with the Commission.


**** Confidential treatment has been requested for certain portions thereof
     pursuant to a Confidential Treatment Request filed December 21, 1999. 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/A.


(b) Reports on Form 8-K.

     NONE.

                                       54
<PAGE>   57

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                          DIGENE CORPORATION


December 21, 1999                         By: /s/ EVAN JONES

                                            ------------------------------------
                                            Chairman and Chief Executive Officer


     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:



<TABLE>
<CAPTION>
             SIGNATURE                              TITLE                       DATE
             ---------                              -----                       ----
<S>                                  <C>                                  <C>
/s/ EVAN JONES                       Chairman and Chief Executive         December 21, 1999
-----------------------------------    Officer (Principal Executive
Evan Jones                             Officer)

/s/ CHARLES M. FLEISCHMAN            President, Chief Operating Officer,  December 21, 1999
-----------------------------------    Chief Financial Officer and
Charles M. Fleischman                  Director (Principal Financial
                                       Officer)

*                                    Vice President, Finance and          December 21, 1999
-----------------------------------    Controller (Principal Accounting
Joseph P. Slattery                     Officer)

*                                    Director                             December 21, 1999
-----------------------------------
Wayne T. Hockmeyer

*                                    Director                             December 21, 1999
-----------------------------------
John H. Landon

*                                    Director                             December 21, 1999
-----------------------------------
Joseph M. Migliara

*                                    Director                             December 21, 1999
-----------------------------------
John J. Whitehead

*By: /s/ EVAN JONES
     ------------------------------
     Evan Jones, as
     attorney-in-fact
     for the persons indicated
</TABLE>


                                       55
<PAGE>   58

                                 EXHIBIT INDEX


<TABLE>
<CAPTION>
EXHIBIT NO.                           DESCRIPTION
-----------                           -----------
<C>           <S>
  3.1         Amended and Restated Certificate of Incorporation of
              Digene.**
  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 and
              filed with the SEC on September 28, 1999.)
  4.1         Specimen Common Stock Certificate.**
 10.2         1989 Special Employee Stock Option Plan.**
 10.3         1990 Stock Option Plan.**
 10.4         1991-A Stock Option Plan.**
 10.5         1991-B Stock Option Plan.**
 10.6         1996 Omnibus Plan.**
 10.7!        Employment Agreement dated as of May 1, 1996 between Digene
              and Evan Jones, as amended.**
 10.8!        Employment Agreement dated as of May 1, 1996 between Digene
              and Charles M. Fleischman, as amended.**
 10.11        Lease Agreement dated January 13, 1988 between Digene and
              West Farm Associates Limited Partnership.**
 10.12        Lease Agreement dated June 20, 1991 between Digene and
              Murkirk Manor Associates Limited Partnership.**
 10.14        License Agreement dated September 1, 1995 between Digene and
              Institut Pasteur.**
 10.15        Cross-License Agreement dated April 1, 1990 among Life
              Technologies, Inc. and Institut Pasteur.**
 10.16        License Agreement dated December 1, 1983 between Bethesda
              Research Laboratories, a division of Life Technologies, Inc.
              and Georgetown University.**
 10.18        License Agreement dated December 19, 1990 between Digene and
              Life Technologies, Inc.**
 10.26        Registration Rights Agreement dated as of May 24, 1996
              between Digene, Armonk Partners, Murex Diagnostics
              Corporation and Certain Other Stockholders.**
 10.28        License Agreement dated September 27, 1995 between Digene
              and Kanebo, Ltd.**
 10.30***     Agency and Sales Representation Agreement between Digene and
              Murex dated as of February 1, 1997. (Incorporated by
              reference to Exhibit 10.1 of the Registrant's Quarterly
              Report on Form 10-Q for the quarter ended March 31, 1997.)
 10.31***     Customer Transfer Agreement between Digene and Murex dated
              as of February 1, 1997. (Incorporated by reference to
              Exhibit 10.2 of the Registrant's Quarterly Report on Form
              10-Q for the quarter ended March 31, 1997.)
 10.32        First Amendment to the Distribution Agreement between Digene
              and Murex dated as of February 1, 1997. (Incorporated by
              reference to Exhibit 10.3 of the Registrant's Quarterly
              Report on Form 10-Q for the quarter ended March 31, 1997.)
 10.33!       Employment Agreement dated as of September 3, 1996 between
              Digene and Donna Marie Seyfried. (Incorporated by reference
              to Exhibit 10 of the Registrant's Quarterly Report on Form
              10-Q for the quarter ended September 30, 1996.)
 10.34        Director's Stock Option Plan. (Incorporated by reference to
              Exhibit A of Digene's Proxy Statement filed pursuant to
              Section 14(a) of the Securities Exchange Act, dated
              September 20, 1996.)
 10.35!       Employment Agreement dated as of July 11, 1997 between
              Digene and William J. Payne.
              (Incorporated by reference to Exhibit 10.1 to Digene's
              Registration Statement on Form S-3, File No. 333-35463,
              dated November 12, 1997.)
 10.36        1997 Stock Option Plan. (Incorporated by reference to
              Exhibit 99 of Digene's
              Registration Statement on Form S-8, dated November 24,
              1997.)
</TABLE>


                                       56
<PAGE>   59


<TABLE>
<CAPTION>
EXHIBIT NO.                           DESCRIPTION
-----------                           -----------
<C>           <S>
 10.37        Stock Purchase Agreement dated as of June 30, 1998 by and
              among Digene and Stichting Researchfonds Pathologie, Ewald
              C.R.M. Keijser, Christophorus J.L.M. Meijer and Jan M. M.
              Walboomers. (Incorporated by reference to Exhibit 10.37 of
              the Registrant's Annual Report on Form 10-K for the fiscal
              year ended June 30, 1998.)
 10.38        Lease dated as of March 2, 1998 by and between Digene and
              ARE -- Metropoliton 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.)
 10.39!       Employment Agreement dated as of December 22, 1998 between
              Digene and Joseph P. Slattery. (Incorporated by reference to
              Exhibit 10.2 of Digene's Quarterly Report on Form 10-Q for
              the quarter ended December 31, 1998.)
 10.40!       Employment Agreement dated as of December 22, 1998 between
              Digene and Jeanmarie P. Curley. (Incorporated by reference
              to Exhibit 10.1 of Digene's Quarterly Report on Form 10-Q
              for the quarter ended December 31, 1998.)
 10.41*       Marketing and Distribution Agreement between Digene and
      ****    Abbott Laboratories, dated May 7, 1999.
 21           Subsidiaries of the Registrant. (Incorporated by reference
              to Exhibit 21 of the Registrant's Annual Report on Form 10-K
              for the fiscal year ended June 30, 1999 and filed with the
              SEC on September 28, 1999.)
 23.1*        Consent of Ernst & Young LLP, Independent Auditors.
 27*          Financial Data Schedule.
</TABLE>


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

*    Filed herewith.

**   Incorporated by reference to the like-numbered exhibit to Digene's
     Registration Statement on Form S-1, File No. 333-2968, dated March 29,
     1996.

***  Confidential status has been granted for certain portions thereof pursuant
     to a Commission Order granted June 3, 1997. Such provisions have been filed
     separately with the Commission.


**** Confidential treatment has been requested for certain portions thereof
     pursuant to a Confidential Treatment Request filed December 21, 1999. 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/A.


                                       57
<PAGE>   60

               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Digene Corporation

     We have audited the consolidated financial statements of Digene Corporation
as of June 30, 1998 and 1999 and for each of the three years in the period ended
June 30, 1999 and have issued our report thereon dated August 20, 1999 (included
elsewhere in this report). Our audits also included the financial statement
schedule listed in Item 14(a) of this report. The schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion based
on our audits.

     In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.

                                          /s/ ERNST & YOUNG LLP

Washington, DC
August 20, 1999

                                       58
<PAGE>   61

                               DIGENE CORPORATION

         SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                       BALANCE AT                                BALANCE
                                                      BEGINNING OF                               AT END
                   CLASSIFICATION                        PERIOD      ADDITIONS   DEDUCTIONS      PERIOD
                   --------------                     ------------   ---------   ----------      -------
<S>                                                   <C>            <C>         <C>             <C>
Allowance for doubtful accts:
     Year ended June 30, 1997.......................      $ 61           --          --           $ 61
     Year ended June 30, 1998.......................        61          150          (2)(1)        209
     Year ended June 30, 1999.......................       209           --         (39)(1)        170
Reserve for inventory obsolescence:
     Year ended June 30, 1997.......................      $250           89          --           $339
     Year ended June 30, 1998.......................       339           --          --            339
     Year ended June 30, 1999.......................       339          399          --            738
</TABLE>

---------------
(1) "Deductions" represent accounts written off during the period less
    recoveries of accounts previously written off.

                                       59