##### 



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
 FORM 10-Q (Mark One) x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES
EXCHANGE ACT OF 1934For the quarterly period ended September 30, 2004 OR  o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from to Commission file number 0-28194 DIGENE CORPORATION 
  Delaware
    
    52-1536128(State or other jurisdiction of
incorporation or organization)
    
    (I.R.S. Employer Identification No.)1201 Clopper Road
Gaithersburg, Maryland
    
    20878(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code (301) 944-7000 (Former name, former address and former fiscal year, if changed since last report) 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 o Indicate by check mark whether Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes x No o Indicate the number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date. Class
    
    Shares outstanding as of 
November 2, 2004(Common Stock, par value $.01 per share)
    
    19,943,923




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DIGENE CORPORATION INDEX TO FORM 10-Q PagePart I. Consolidated Financial Information:Item 1. Consolidated Financial StatementsConsolidated Balance
 Sheets- September 30, 2004 and June 30, 2004
    
    
    3Consolidated Statements
 of Operations- Three months ended September 30, 2004 and 2003
    
    
    4Consolidated Statements
 of Cash Flows- Three months ended September 30, 2004 and 2003
    
    
    5Notes to Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    11Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    18Item 4. Controls and Procedures
    
    
    18Part II. Other Information:Item 1. Legal Proceedings
    
    
    19Item 4. Submission of Matters to a Vote of Security Holders
    
    
    21Item 6. Exhibits and Reports on Form 8-K
    
    
    22SignaturesExhibit Index
  2




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##### 



PART I. Consolidated Financial Information 
 Item 1. Consolidated Financial Statements
 DIGENE CORPORATION 
 CONSOLIDATED BALANCE SHEETS
 September 30,
    
    June 30,2004
    
    2004(Unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    4,446,618
    
    
    $
    4,079,519Short-term investments
    
    
    44,906,258
    
    
    
    44,653,599Accounts receivable, less allowance of approximately $648,000 and $600,000
at September 30, 2004 and June 30, 2004, respectively
    
    
    18,769,825
    
    
    
    17,545,133Inventories
    
    
    8,084,913
    
    
    
    8,109,987Prepaid expenses and other current assets
    
    
    2,162,807
    
    
    
    2,392,048Deferred tax asset, current
    
    
    2,628,394
    
    
    
    1,047,766Total current assets
    
    
    80,998,815
    
    
    
    77,828,052Property and equipment, net
    
    
    9,676,337
    
    
    
    9,561,794Intangible assets, net
    
    
    900,515
    
    
    
    900,515Deposits and other assets
    
    
    1,290,072
    
    
    
    1,249,971Deferred tax asset, net
    
    
    16,071,099
    
    
    
    13,729,916Total assets
    
    $
    108,936,838
    
    
    $
    103,270,248LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    4,405,132
    
    
    $
    5,423,628Accrued expenses
    
    
    17,802,420
    
    
    
    3,771,141Accrued payroll
    
    
    4,957,616
    
    
    
    5,387,129Current portion of long-term debt
    
    
    115,547
    
    
    
    1,459,890Total current liabilities
    
    
    27,280,715
    
    
    
    16,041,788Deferred rent
    
    
    485,355
    
    
    
    479,078Long-term debt, less current portion
    
    
    656,938
    
    
    
    685,940Minority interest
    
    
    175,263
    
    
    
    Stockholders equity:Preferred stock, $0.10 par value, 1,000,000 shares authorized, no shares
issued and outstanding
    
    
    
    
    
    
    Common stock, $0.01 par value, 50,000,000 shares authorized, 19,894,909
and 19,883,918 shares issued and outstanding at September 30, 2004
and June 30, 2004, respectively
    
    
    198,949
    
    
    
    198,839Additional paid-in capital
    
    
    139,526,259
    
    
    
    139,637,245Deferred stock compensation
    
    
    (56,281
    )
    
    
    (164,031
    )Accumulated other comprehensive income
    
    
    1,030,218
    
    
    
    537,688Accumulated deficit
    
    
    (60,360,578
    )
    
    
    (54,146,299
    )Total stockholders equity
    
    
    80,338,567
    
    
    
    86,063,442Total liabilities and stockholders equity
    
    $
    108,936,838
    
    
    $
    103,270,248
 See accompanying notes. 3




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DIGENE CORPORATION 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months EndedSeptember 30,2004
    
    2003(Unaudited)Revenues:Product sales
    
    $
    25,746,937
    
    
    $
    19,492,042Other
    
    
    464,168
    
    
    
    125,789Total revenues
    
    
    26,211,105
    
    
    
    19,617,831Costs and expenses:Cost of product sales
    
    
    4,524,561
    
    
    
    3,385,930Royalty and technology
    
    
    1,407,532
    
    
    
    518,775Research and development
    
    
    2,673,496
    
    
    
    2,854,586Selling and marketing
    
    
    9,296,044
    
    
    
    7,893,733General and administrative
    
    
    4,561,163
    
    
    
    4,168,712Patent litigation settlement
    
    
    14,000,000
    
    
    
    Income (loss) from operations
    
    
    (10,251,691
    )
    
    
    796,095Other income (expense):Interest income
    
    
    188,737
    
    

    
    89,823Interest expense
    
    
    (21,613
    )
    
    
    (60,521
    )Other income (expense)
    
    
    (37,837
    )
    
    
    (17,812
    )Income (loss) before minority interest and income taxes
    
    
    (10,122,404
    )
    
    
    807,585Minority interest
    
    
    (175,263
    )
    
    
    Income (loss) before income taxes
    
    
    (10,297,667
    )
    
    
    807,585Provision for (benefit from) income taxes
    
    
    (4,024,293
    )
    
    
    152,183Net income (loss)
    
    $
    (6,273,374
    )
    
    $
    655,402Basic net income (loss) per share
    
    $
    (0.32
    )
    
    $
    0.04Diluted net income (loss) per share
    
    $
    (0.32
    )
    
    $
    0.03Weighted average shares outstandingBasic
    
    
    19,887,914
    
    
    
    18,448,249Diluted
    
    
    19,887,914
    
    
    
    20,262,654
 See accompanying notes. 4




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##### 



DIGENE CORPORATION 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Three Months EndedSeptember 30,2004
    
    2003(Unaudited)Operating activitiesNet income (loss)
    
    $
    (6,273,374
    )
    
    $
    655,402Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:Depreciation and amortization of property and equipment
    
    
    1,104,007
    
    
    
    858,570Loss on disposal of fixed assets
    
    
    76,697
    
    
    
    Compensation expense related to stock options
    
    
    (149,500
    )
    
    
    225,067Deferred tax benefit
    
    
    (3,699,109
    )
    
    
    Minority interest
    
    
    175,263
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    (1,224,692
    )
    
    
    (1,938,499
    )Inventories
    
    
    25,074
    
    
    
    (151,846
    )Prepaid expenses and other current assets
    
    
    229,241
    
    
    
    239,801Deposits and other assets
    
    
    (40,101
    )
    
    
    (13,940
    )Accounts payable
    
    
    (1,018,496
    )
    
    
    (1,292,643
    )Accrued expenses
    
    
    31,279
    
    
    
    (46,810
    )Accrued patent litigation settlement
    
    
    14,000,000
    
    
    
    Accrued payroll
    
    
    (429,513
    )
    
    
    (84,764
    )Deferred rent
    
    
    6,277
    
    
    
    15,808Net cash provided by (used in) operating activities
    
    
    2,813,053
    
    
    
    (1,533,854
    )Investing activitiesPurchases of short-term investments
    
    
    (6,400,933
    )
    
    
    (8,429,743
    )Sales and maturities of short-term investments
    
    
    6,191,025
    
    
    
    13,229,433Capital expenditures
    
    
    (1,295,247
    )
    
    
    (734,746
    )Net cash provided by (used in) investing activities
    
    
    (1,505,155
    )
    
    
    4,064,944Financing activitiesExercise of common stock options
    
    
    146,374
    
    
    
    6,053,767Principal payments of long-term debt
    
    
    (1,373,345
    )
    
    
    (348,601
    )Net cash provided by (used in) financing activities
    
    
    (1,226,971
    )
    
    
    5,705,166Effect of currency translations
    
    
    286,172
    
    
    
    66,011Net increase in cash and cash equivalents
    
    
    80,927
    
    
    
    8,302,267Cash and cash equivalents at beginning of period
    
    
    4,079,519
    
    
    
    7,883,129Cash and cash equivalents at end of period
    
    $
    4,446,618
    
    
    $
    16,185,396
 See accompanying notes. 5




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##### 



DIGENE CORPORATION 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. Basis of Presentation The consolidated financial statements of Digene Corporation (the Company or
Digene) for the three-month periods ended September 30, 2004 and 2003 are
unaudited and include all adjustments which, in the opinion of management, are
necessary to present fairly the financial position and results of operations
for the periods then ended. All such adjustments are of a normal recurring
nature, except for the patent litigation settlement accrual (see Note 7).
These consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in our Annual
Report on Form 10-K for the year ended June 30, 2004 filed with the Securities
and Exchange Commission. The results of operations for any interim period are not necessarily indicative
of the results of operations for any other interim period or for a full fiscal
year. Certain prior year amounts have been reclassified to conform to current year
presentation. 2. Other Balance Sheet Information Inventories Inventories are stated at the lower of cost or market. Inventories consist of
the following: September 30,
    
    June 30,2004
    
    2004(unaudited)Finished goods
    
    $
    5,154,727
    
    
    $
    5,516,411Work in process
    
    
    3,536,360
    
    
    
    3,668,683Raw materials
    
    
    1,388,388
    
    
    
    1,207,41510,079,475
    
    
    
    10,392,509Reserve
    
    
    (1,994,562
    )
    
    
    (2,282,522
    )$
    8,084,913
    
    
    $
    8,109,987
 Debt On September 29, 2004, the Company paid the remaining principal and interest of
$1,026,028 to satisfy its obligation under its note to Abbott Laboratories. 6




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3. Income Taxes During the fourth quarter of
fiscal 2004 we revised our estimate of
the valuation allowance previously established for our deferred tax
asset. The realization of the total deferred tax asset is contingent upon the
generation of future taxable income. Due to the uncertainty of realization of
these tax benefits, we did not reverse the portion of the valuation
allowance for the net operating loss carryforwards that are related to the
exercise of stock options, and the amount of net operating loss carryforwards
and research and development credits expected to expire unused. The benefit
from income taxes recorded in the three months ended September 30, 2004 is
based on our estimated annual effective tax rate. Items which caused
recorded income taxes to differ from taxes computed using the statutory federal
income tax rate include state income taxes and foreign losses not benefited and
certain nondeductible expenses. 4. Stockholders Equity Common Stock and Per Share Calculation For the three-month periods ended September 30, 2004 and 2003, in conjunction
with stock option exercises, the Company issued 10,991 and 386,204 shares of
common stock, respectively. The Company received cash proceeds from the
exercise of these stock options of approximately $146,000 and $6,054,000 for
the three-month periods ended September 30, 2004 and 2003, respectively. The following table presents the calculation of basic and diluted net income
(loss) per share: Three Months EndedSeptember 30,2004
    
    2003Numerator:Net income (loss)
    
    $
    (6,273,374
    )
    
    $
    655,402Denominator:Weighted average shares outstanding  basic
    
    
    19,887,914
    
    
    
    18,448,249Dilutive securities  stock options
    
    
    
    
    
    
    1,814,405Weighted average shares outstanding  diluted
    
    
    19,887,914
    
    
    
    20,262,654Basic net income (loss) per share
    
    $
    (0.32
    )
    
    $
    0.04Diluted net income (loss) per share
    
    $
    (0.32
    )
    
    $
    0.03
 For the three-month period ended September 30, 2003, outstanding stock options
to purchase approximately 120,000 shares of common stock were not included in
the computation of diluted net income per share because their effect would have
been antidilutive since the exercise prices of such stock options were greater
than the average share price of the Companys stock for the applicable period.
None of the stock options outstanding in the three-month period ended September
30, 2004 were included in the computation of diluted net loss per share because
the effect on net loss would have been antidilutive. 7




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Stock-Based Compensation The Company recognizes expense for stock-based compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related Interpretations.
Accordingly, compensation cost is recognized for the excess of the estimated
fair value of the stock at the grant date over the exercise price, if any. The
Company accounts for equity instruments issued to non-employees in accordance
with EITF 96-18, Accounting for Equity Instruments that are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling, Goods, or
Services. For the three-months ended September 30, 2004 and 2003,
compensation (income) expense of $(149,500) and $225,067 was recognized for the
change in fair value of the equity award to non-employees. In accordance with Statement of Financial Accounting Standards No. 148,
Accounting for Stock-Based Compensation-Transition and Disclosure, the effect
on net income (loss) and net income (loss) per share if the Company had applied
the fair value recognition provisions of Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation, to stock-based
employee compensation is as follows: Three Months Ended September 30,2004
    
    2003Net income (loss), as reported
    
    $
    (6,273,374
    )
    
    $
    655,402Add: Stock-based non-employee
compensation (income) expense included in
reported net income (loss), net of taxes
    
    
    (78,532
    )
    
    
    225,067Deduct: Stock-based employee compensation
expense if SFAS No. 123 had been applied
to all grants, net of taxes
    
    
    (2,068,589
    )
    
    
    (3,626,533
    )Pro forma net loss
    
    $
    (8,420,495
    )
    
    $
    (2,746,064
    )Net income (loss) per share:Basic  as reported
    
    $
    (0.32
    )
    
    $
    0.04Basic  pro forma
    
    $
    (0.42
    )
    
    $
    (0.15
    )Diluted  as reported
    
    $
    (0.32
    )
    
    $
    0.03Diluted  pro forma
    
    $
    (0.42
    )
    
    $
    (0.15
    )
 These pro forma amounts stated above are not likely to be representative of the
effect on reporting net (loss) for future years due to, among other things, the
vesting period of the stock options and the fair value of additional options to
be granted in future years. Comprehensive Income Comprehensive income for the three-months ended September 30, 2004 and 2003 was
as follows: Three Months Ended September 30,2004
    
    2003Net income (loss), as reported
    
    $
    (6,273,374
    )
    
    $
    655,402Other comprehensive income:Unrealized gain on available-for-sale
securities, net of income tax expense of
$10,372
    
    
    32,379
    
    
    
    Foreign currency translation gain
    
    
    460,151
    
    
    
    422,426Comprehensive income (loss)
    
    $
    (5,780,844
    )
    
    $
    1,077,828
 8




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5. Royalty and Technology The Company has in-licensed patents to a number of cancer-causing human
papillomavirus types, biological materials and other intellectual property on
which it pays royalties, patent maintenance and other technology access costs. During the quarter ending September 30, 2004, the Company accrued additional
royalty and technology expense of $750,000 relating to terms agreed to on
October 14, 2004 with Institut Pasteur with respect to a non-exclusive license
to Institut Pasteurs patent concerning the Hepatitis B virus genome. See Note
7 Contingencies. 6. Warranties The Company reserves 2% of product sales for future standard warranty costs.
The reserve is amortized ratably over the one-year standard warranty. In
fiscal 2003 the Company began to offer its customers extended warranties on its
equipment. The revenue from these extended warranties is deferred and is
recognized evenly over the life of the extended warranty. Changes in the
Companys standard and deferred extended warranty revenue during the period are
as follows: Three Months EndedSeptember 30,2004
    
    2003Balance, beginning of period
    
    $
    1,076,652
    
    
    $
    691,450Warranties issued during the period
    
    
    173,297
    
    
    
    76,684Settlements made during the period
    
    
    
    
    
    
    Changes in liability for pre-existing warranties during the
period, including expirations
    
    
    (89,524
    )
    
    
    (10,992
    )Balance, end of period
    
    $
    1,160,425
    
    
    $
    757,142
 7. Contingencies The Company is involved in various claims and legal proceedings of a nature
considered normal to its business including protection of its owned and
licensed intellectual property. The Company records accruals for such
contingencies when it is probable that a liability has been incurred and the
amount can be reasonably estimated. These accruals are adjusted periodically
as assessments change or additional information becomes available. On October 13, 2004, the Company executed a Settlement and License Agreement
with Enzo Biochem, Inc. and its subsidiary Enzo Life Sciences, Inc. (formerly
known as Enzo Diagnostics, Inc.) (collectively, Enzo), to settle patent
litigation claims then pending in the United States District Court for the
District of Delaware. 9




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##### 



Under the Settlement and License Agreement (the Agreement), Digene received
an irrevocable, non-exclusive, royalty-bearing worldwide license under
identified Enzo patents. Digene made an initial payment to Enzo of $16.0
million, of which $2.0 million can be used to offset future royalty payments
under the terms of the Agreement, resulting in $14.0 million in patent
litigation settlement expense, which is included in accrued expenses at
September 30, 2004. Digene will also pay Enzo royalties on future net sales of
products covered by the license grant, which royalties will be at least $2.5
million for the first annual period, beginning October 1, 2004 and ending
September 30, 2005, and at least $3.5 million for each of the next four annual
periods under the Agreement. Digene is obligated to make such guaranteed
minimum payments in such first five annual periods. Digenes obligation to
make royalty payments will end on April 24, 2018, unless earlier terminated in
accordance with the terms of the Agreement. In July 2001, Institut Pasteur notified the Company that Institut Pasteur was
granted a new U.S. patent concerning the Hepatitis B virus genome and requested
information from Digene regarding products that may use the technology
described in such new patent. The Company and Institut Pasteur exchanged
information regarding this request during the remainder of 2001 and early 2002.
In July 2004, Institut Pasteur contacted the Company to renew license
discussions with respect to such patent. On October 14, 2004, the Company and
Institut Pasteur agreed to the principal terms of a non-exclusive license under
such patent, which include a payment of $750,000 and a royalty on future sales
of licensed products. As of September 30, 2004, the $750,000 was accrued and
included in royalty and technology fees in the statement of operations. The
Company and Institut Pasteur are currently negotiating a license agreement to
reflect such principal terms. Through a license agreement with Georgetown University, the Company obtained
exclusive, worldwide rights to United States Patent No. 5,643,715 and
corresponding foreign patents and patent applications relating to human
papillomavirus (HPV) type 52, and to United States Patent No. 5,057,411 and
corresponding foreign patents relating to the use of the L1 gene sequence to
detect specific human papillomavirus types. Unless
terminated earlier, the license agreement will terminate upon the last to
expire of the licensed patent rights. The Company is obligated to make royalty
payments to Georgetown University based on the percentage of net sales (as
defined in the license agreement) of products incorporating the licensed patent
rights. The Company continues to accrue and pay royalties to Georgetown
University under the license agreement. The Company has been involved in
discussions with Georgetown University related to a disagreement between the
parties over the calculation of such royalties. To date, such discussions have
not resolved the matter. On October 26, 2004, the Company received a copy of a
complaint filed by Georgetown University in the United States District Court
for the District of Columbia, but not yet served, containing allegations
related to the royalties dispute and the Companys use of the licensed patent
rights under the license agreement. The Company is currently evaluating the
complaint. The Company believes that Georgetown Universitys interpretation of
the license agreement provisions related to the calculation of royalties is not
correct, and that the royalties, when properly calculated under the provisions
of the license agreement, are far less than the amounts demanded by Georgetown
University. The Company believes it has strong defenses against each of the
allegations made in the complaint and intends to vigorously defend against such
action if a resolution of this matter cannot be reached. 10




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Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations Forward-Looking Statements 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 thereto included elsewhere in this report and in our Annual
Report on Form 10-K for the year ended June 30, 2004. Some of the information
that follows are not statements of historical fact, but merely 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. We believe that our expectations are based on
reasonable assumptions within the bounds of our knowledge of our business and
operations. Factors that might cause or contribute to differences between our
expectations and actual results include: uncertainty of market acceptance of
our products by the worldwide medical community; our need to obtain third-party
reimbursement approval from more government entities, managed care
organizations, and private insurance plans; risk that other companies may
develop and market HPV tests competitive with our own; uncertainty regarding
patents and proprietary rights in connection with our products and products in
development; our ability to scale up our manufacturing to the extent demand for
our products increases; our limited sales and marketing experience; the extent
of future expenditures for sales and marketing programs; delay in or failure to
obtain regulatory approvals for our products in development; uncertainty of
clinical trial results for our products in development; uncertainty of future
profitability and cash generation from operations; our ability, if necessary,
to obtain requisite additional financing to fund our operations beyond calendar
year 2005; risks inherent in international transactions, including those
relating to our expansion in Europe and elsewhere; and other factors as set
forth under the caption Risk Factors in our Annual Report on Form 10-K for
the year ended June 30, 2004. Overview Since our incorporation in 1987, we have devoted substantially all of our
resources to developing, manufacturing and marketing our proprietary gene-based
testing systems using our patented Hybrid Capture® technology for the
screening, monitoring and diagnosis of human diseases. Since our inception, we
have incurred substantial operating losses, resulting principally from expenses
associated with our research and development programs, including preclinical
studies, clinical trials and regulatory submissions for our products, the
expansion of our manufacturing facilities and our global sales and marketing
activities. Our revenues to a significant extent have been derived from the sales of our
diagnostic tests for the presence of human papillomavirus (HPV), which, for
fiscal 2004, accounted for 83% of total revenues and, for the three months
ended September 30, 2004, accounted for 86% of total revenues. We expect that
the growing acceptance of HPV testing in cervical cancer screening programs,
both in the United States and internationally, will continue to drive the
growth in revenues from our HPV test products in the future. In fiscal 2004, our gross margin (81% for the full fiscal year) improved over
fiscal 2003 gross margin of 79%. In fiscal 2005, we believe that we will be
able to sustain gross margin consistent with fiscal 2004. We calculate gross
margin as the difference between product sales and the cost of product sales,
which exclude royalty and technology fees, as a percentage of product sales for
the period. We have in-licensed patents to a number of cancer-causing human papillomavirus
types, biological materials and other intellectual property on which we pay
royalties, patent maintenance and other technology access costs. Our total
royalty and technology fees are expected to be approximately 5-6% of product
sales in fiscal 2005. 11




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##### 



We believe that we need to emphasize the investments we make in our sales and
marketing activities, which is essential to allow us to capitalize more fully
on the potential of our HPV test products. During fiscal 2004 one significant
area of investment was in our European infrastructure and distribution
operations, and we expect to continue such investment for the remainder of
fiscal 2005. We are also expanding our sales organization in the United States
and increasing our investment in physician detailing and direct-to-consumer
promotion activities. We expect to increase modestly the size of our
investment in research and development for the next several quarters and
emphasize our research and development expenditures in the development of our
next-generation Hybrid Capture platforms and other research and development
programs related to HPV testing. Our sales and marketing expenditures have been and will continue to be focused
on accelerating the adoption of HPV testing worldwide. We intend to capitalize
on the expanded indications for use of our HPV test products and the growing
acceptance of our HPV test products in the United States and internationally by
physicians, laboratories and health insurance providers by materially
increasing expenditures for sales and marketing programs over the next several
quarters. This increase in expenditures will be primarily directed at our
markets in the United States and Europe. We expect our general and administrative expenses will increase to provide
adequate infrastructure to support greater sales and marketing activities and
more focused research and development activities and to support the overall
growth of our business. On October 13, 2004 we executed a Settlement and License Agreement to settle
the then pending patent litigation with Enzo Biochem, Inc. and its subsidiary
Enzo Life Sciences, Inc. (formerly known as Enzo Diagnostics, Inc.
(collectively, Enzo). As a result, we have recorded a pre-tax charge of $14
million in patent litigation settlement expense in the quarter ended September
30, 2004. Additionally, we will pay Enzo royalties on future net sales of
products covered by the license grant. Please see Liquidity and Capital
Resources below for a description of the Enzo settlement. Although we anticipate increasing our expenditures as described above, we
expect to generate operating profit for the remainder of fiscal 2005,
although we do not expect that it will
exceed the first quarter operating loss. There can be no assurance that we
will meet this goal. 12




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##### 



Results of Operations Three Months Ended
    
    Three Months EndedSeptember 30, 2004
    
    September 30, 2003
    
    % change($ in thousands)Product sales
    
    $
    25,747
    
    
    $
    19,462
    
    
    
    32
    %HPV test product revenue
    
    
    22,449
    
    
    
    16,483
    
    
    
    36
    %Cost of product sales
    
    
    4,525
    
    
    
    3,386
    
    
    
    34
    %Gross margin (1)
    
    
    83
    %
    
    
    83
    %Royalty and technology expense
    
    $
    1,408
    
    
    $
    519
    
    
    
    171
    %
 (1) We calculate gross margin as the difference between product
sales and the cost of product sales, which exclude royalty and
technology fees, as a percentage of product sales for the period. Product sales increased 32% to approximately $25,747,000 for the three-month
period ended September 30, 2004 from approximately $19,462,000 for the
corresponding period in fiscal 2004. The increase was due primarily to a 36%
growth in sales of our HPV test products over such sales in the corresponding
period in fiscal 2004. The majority of the growth in our HPV test product
revenue was in the United States, which increased 38% to approximately
$18,083,000, and in Europe, which increased 36% to approximately $3,323,000. Other revenues include research and development contract revenues, equipment
rental revenues and licensing revenues. Other revenues increased 269% to
approximately $464,000 for the three-month period ended September 30, 2004 from
approximately $126,000 for the corresponding period in fiscal 2004. The
increase was due primarily to research and development contract revenue of
approximately $183,000 in the current period. Cost of product sales increased by 34% to approximately $4,525,000 for the
three-month period ended September 30, 2004 from approximately $3,386,000 for
the corresponding period in 2004 primarily due to increased product sales
volume. Gross margin percentage on product sales remained at 83% for the
three-month period ended September 30, 2004 from 83% for the corresponding
period in fiscal 2004. Royalty and technology expense increased 171% to approximately $1,408,000 for
the three-month period ended September 30, 2004 from approximately $519,000 for
the corresponding period in 2004 primarily due to a charge of $750,000 accrued
during the quarter ended September 30, 2004 relating to terms agreed to on
October 14, 2004 with Institut Pasteur with respect to a non-exclusive license
to Institut Pasteurs patent concerning the Hepatitis B virus genome. Research and development expenses decreased 6% to approximately $2,673,000 for
the three-month period ended September 30, 2004 from approximately $2,855,000
for the corresponding period in fiscal 2004. The decrease was primarily
attributed to an 81% decrease in professional services expenses to
approximately $142,000, largely due to the conclusion of expenditures for the
preparation for compliance with the European Union In Vitro Diagnostic
Directive (or IVDD) regulations, which was successfully accomplished for our
HPV, chlamydia and gonorrhea test kits in the second quarter of fiscal 2004,
and for which we spent heavily in the first quarter of fiscal 2004. This
decrease was partially offset by an increase in personnel related costs, which
increased by 32% to approximately $1,566,000 compared to the corresponding
period in fiscal 2004. Because our research and development expenditures tend
to benefit multiple product offerings, we do not account for research and
development expenses on a per-product or per-disease target basis. 13




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During the three-month period ended September 30, 2004, our research and
development activities focused on our platform technology, including
adaptations of such technology, and improvements to our diagnostic test and
equipment products. We focused our research and development activities in four
areas: (1) core research efforts for next-generation technologies; (2) new
product development activities; (3) completion of activities necessary to
support regulatory submissions to seek approvals to market our existing
products for additional uses and indications in the U.S. and abroad; and (4)
modification and improvements of the design or capabilities of our existing
product and equipment offerings. Our core research efforts for next-generation technologies include research
programs with the goal of developing improved molecular diagnostic assay
systems for the detection of HPV and other targets of interest in the area of
womens cancers and infectious diseases, and research on our next generation of
Hybrid Capture technology. We continued our collaborative product development
and commercialization agreement with PATH (Program for Appropriate Technology
in Health) to develop a rapid batch HPV test for developing countries and are
about to complete the first year of that program. Digene and PATH will jointly
fund the efforts subject to certain maximum funding obligations and Digene will
perform the product development and commercialization activities. With respect to our new product development activities and product modification
activities, we are currently focused on the discovery of innovative methods to
improve specimen processing procedures and throughput. This includes
procedures for the improved processing of specimens collected into ThinPrep®
Pap Test TM PreservCyt® Solution (Cytyc Corporation) and upgrades of our
equipment offerings for high throughput HPV, chlamydia and gonorrhea testing.
We have initiated the development of a clinical sample preparation workstation,
which will provide automated capabilities to preparing clinical specimens for
Hybrid Capture testing. In addition, we continue our research and development
efforts to develop assays that will allow for the identification of HPV
genotypes. We are also working to expand HPV testing capabilities to allow
testing from additional liquid cytology media, including our proprietary
Universal Collection Medium (UCMTM), and the SurePathTM (TriPath Imaging)
medium. With respect to the SurePath medium, we submitted a PMAS-Changes
Being Effected to the U.S. Food and Drug Administration (FDA) in August
2004, simultaneously with the submission by TriPath Imaging of a pre-market
approval (PMA) supplement to FDA supporting this indication for our HC2
High-Risk HPV DNA Test. With respect to our regulatory submissions, we continue to work with the FDA
regarding the 510(k) pre-market notifications submitted to FDA in fiscal 2004
for our Chlamydia trachomatis(CT) and Neisseria gonorrhoeae(GC) test
products, which support CT and GC testing of cervical specimens collected into
Cytyc Corporations ThinPrep PreservCyt Solution. To date, we have agreed to
the content and extent of supplemental clinical information that will be
generated over the next several months and be submitted to the FDA to
facilitate completion of its review of these 510(k) applications. We are also
actively working toward incorporating a CE Mark on our Rapid Capture SystemTM
and associated instrumentation. Our Rapid Capture System is an automated
pipetting and microplate handling platform developed to accommodate for high
volume diagnostic testing using our Hybrid Capture technology. Selling and marketing expenses increased 18% to approximately $9,296,000 for
the three-month period ended September 30, 2004 from approximately $7,894,000
for the corresponding period in fiscal 2004. The increase was due to personnel
costs, which increased 37% to approximately $3,772,000 and agency fees, which
increased 17% to approximately $1,255,000. These increases were partially
offset be a decrease in professional fees, which decreased 23% to approximately
$566,000, and marketing programs, which decreased 5% to approximately
$1,527,000. The decrease in professional fees is largely due to a reduction in
non-cash stock compensation expense, from expenses of $225,067 to income of
$149,500, related to a consultant. 14




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##### 



General and administrative expenses increased 9% to approximately $4,561,000
for the three-month period ended September 30, 2004 from approximately
$4,169,000 for the corresponding period in fiscal 2004. The increase was
primarily attributed to a 12% increase in personnel costs, which increased to
approximately $2,015,000. This increase was partially offset by a 7% decrease
in professional services to approximately $1,454,000, largely related to a
decrease in legal fees. Patent litigation settlement charges of $14,000,000 relate to the October 2004
settlement with Enzo. Please see Liquidity and Capital Resources below for a
description of the Enzo settlement. Interest income increased to approximately $189,000 for the three-month period
ending September 30, 2004 from approximately $90,000 for the corresponding
period in 2003. The increase was due to an increase in the market yield and an
increase in the average balance of cash, cash equivalents and short-term
investments, for the quarter ended September 30, 2004 compared to the
corresponding period in fiscal 2004. Other income (expense) consists primarily of foreign exchange gains and losses. During the fourth quarter of
fiscal 2004 we revised our estimate of
the valuation allowance previously established for our deferred tax
asset. The realization of the total deferred tax asset is contingent upon the
generation of future taxable income. Due to the uncertainty of realization of
these tax benefits, we did not reverse the portion of the valuation
allowance for the net operating loss carryforwards that are related to the
exercise of stock options, and the amount of net operating loss carryforwards
and research and development credits expected to expire unused. The benefit
from income taxes recorded in the three months ended September 30, 2004 is
based on our estimated annual effective tax rate. Items which caused
recorded income taxes to differ from taxes computed using the statutory federal
income tax rate include state income taxes and foreign losses not benefited and
certain nondeductible expenses. Minority interest of approximately $175,000 for the three-month period ended
September 30, 2004 represents third party interest in the earnings of Digene do
Brasil LTDA (DDB), a majority-owned subsidiary of the Company. Historically
DDB has had cumulative losses and accordingly minority interest had not been
recorded. Significant intercompany accounts and transactions have been
eliminated. Liquidity and Capital Resources Since inception, our expenses have significantly exceeded our revenues,
resulting in an accumulated deficit of approximately $60,361,000 at September
30, 2004. We have funded our operations primarily through the sale of equity
securities and revenues from product sales and research and development
contracts. At September 30, 2004, we had cash, cash equivalents and short-term
investments aggregating approximately $49,353,000. We had positive cash flows
from operations of approximately $2,813,000 for the three-months ended
September 30, 2004 compared to cash used in operations of approximately
$1,534,000 for the comparable period in fiscal 2004. 15




---



##### 



Net cash used in investing activities for the three-months ended September 30,
2004, of approximately $1,505,000, included approximately $1,295,000 of capital
expenditures. In fiscal 2005, we expect equipment placed at customer sites and
leasehold improvements at our headquarters facility in Gaithersburg, Maryland,
to be significant uses of working capital. We will further expand our
warehouse capacity at our Gaithersburg facility, for which we may obtain
alternative financing. The placed equipment, specifically Rapid Capture
Systems, allows our customers to run diagnostic tests using our reagent test
kit products. On October 13, 2004 we entered into a Settlement and License Agreement (the
Agreement) to settle our patent litigation with Enzo Biochem, Inc. and its
subsidiary Enzo Life Sciences, Inc. (formerly known as Enzo Diagnostics, Inc.)
(collectively, Enzo). Under the Agreement, we received an irrevocable,
non-exclusive, royalty-bearing worldwide license under identified Enzo patents.
We made an initial payment to Enzo of $16,000,000, of which $2,000,000 can be
used to offset future royalty payments under the terms of the Agreement,
resulting in a one-time pre-tax charge of $14,000,000 in patent settlement
expense. We will also pay Enzo royalties on future net sales of products
covered by the license grant, which royalties will be at least $2,500,000 for
the first annual period (October 1, 2004 to September 30, 2005) and at least
$3,500,000 for each of the next four annual periods. We are obligated to make
such guaranteed minimum payments in such first five annual periods under the
Agreement. Our obligation to make royalty payments will end on April 24, 2018,
unless earlier terminated in accordance with the terms of the Agreement. In August 2004, we established a leasing facility with ePlus Group, Inc. with a
total commitment of $1,000,000. We intend to use such facility to fund the
lease of computer hardware and associated software. As of September 30, 2004,
we have used approximately $304,000 of such commitment. We anticipate that working capital requirements will increase moderately for
the foreseeable future due to the investment necessary to support our European
infrastructure and direct distribution operations, as well as increasing
accounts receivable as a result of expected revenue growth. Prior to fiscal
2004 we had incurred negative cash flows from operations since our inception.
We 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 year 2005. Our future capital requirements and the adequacy of
available funds may change, however, based on numerous factors, including our
degree of success in commercializing our products; our progress in product
development efforts and the magnitude and scope of such efforts; our success in
increasing and maintaining customer relationships; our ability to receive
additional regulatory approvals for our product offerings; the cost and timing
of expansion of our manufacturing capabilities; the effectiveness of our sales
and marketing activities; the cost of filing, prosecuting, defending and
enforcing patent claims and other intellectual property rights; and competitive
market developments. 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. Other than our equipment leasing facility
with ePlus Group, Inc., 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.
Under such conditions, our business, financial condition and results of
operations will be materially adversely affected. 16




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##### 



We have summarized below our material contractual obligations as of September
30, 2004 (in thousands): Less Than
    
    One to
    
    Four to
    
    After FiveContractual Obligations
    
    Total
    
    One Year
    
    Three Years
    
    Five Years
    
    YearsLong-term debt
    
    $
    772,485
    
    
    $
    115,547
    
    
    $
    353,735
    
    
    $
    303,203
    
    
    $
    Physician detailing
agreement
    
    
    5,447,816
    
    
    
    5,105,570
    
    
    
    342,246
    
    
    
    
    
    
    
    Operating leases
    
    
    17,887,808
    
    
    
    3,637,432
    
    
    
    10,077,214
    
    
    
    4,044,811
    
    
    
    128,351Patent settlement
accrual (1)
    
    
    14,000,000
    
    
    
    14,000,000
    
    
    
    
    
    
    
    
    
    
    
    Minimum royalty
payments (1)
    
    
    16,500,000
    
    
    
    2,500,000
    
    
    
    10,500,000
    
    
    
    3,500,000
    
    
    
    Total contractual cash
obligations
    
    $
    54,608,109
    
    
    $
    25,358,549
    
    
    $
    21,273,195
    
    
    $
    7,848,014
    
    
    $
    128,351
 (1) We paid Enzo $16 million on October 14, 2004, $14 million of which is
included in accrued expenses at September 30, 2004. Of the $16 million
payment, $2 million will be used to offset future minimum royalty payments. 17




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##### 



Item 3. Quantitative and Qualitative Disclosures about Market Risk We are subject to market risk associated with changes in foreign currency
exchange rates and interest rates. Our exchange rate risk comes from our
operations in Europe and South America. In the quarter ended September 30,
2004, foreign currency exchange rate fluctuations had an impact on revenues
from our operations outside the United States and impacted the amount of
expenditures recorded for international operations. The net impact of foreign
exchange activities on earnings was immaterial for the three-month periods
ended September, 2004. Interest rate exposure is primarily limited to the
approximately $49,353,000 of cash, cash equivalents and short-term investments
owned by us. Such investments are money market debt securities that generate
interest income for us on cash balances. We do not actively manage the risk of
interest rate fluctuations; however, such risk is mitigated by the relatively
short-term nature of our investments. We do not consider the present rate of
inflation to have a significant impact on our business. 
 Item 4. Controls and Procedures Our management, under the supervision and with the participation of the
principal executive officer and principal financial officer, have evaluated the
effectiveness of our controls and procedures related to our reporting and
disclosure obligations as of September 30, 2004, which is the end of the period
covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the
principal executive officer and principal financial officer have concluded that
these disclosure controls and procedures are sufficient to provide that (a)
material information relating to us, including our consolidated subsidiaries,
is made known to these officers by other employees of us and our consolidated
subsidiaries, particularly material information related to the period for which
this periodic report is being prepared; and (b) this information is recorded,
processed, summarized, evaluated and reported, as applicable, within the time
periods specified in the rules and forms promulgated and adopted by the
Securities and Exchange Commission. There were no changes that occurred during the fiscal quarter covered by this
Quarterly Report on Form 10-Q that have materially affected, or are reasonable
likely to materially affect, our internal controls over financial reporting. 18




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PART II. Other Information 
 Item 1. Legal Proceedings Digene Corporation v. Ventana Medical Systems, Inc. and Beckman Coulter, Inc. On November 19, 2001, we filed an action for patent infringement against
Ventana Medical Systems, Inc. The action was filed in the United States
District Court for the District of Delaware. In the action, we allege that
Ventana Medical Systems, Inc. has made, used, sold and/or offered for sale
products embodying our patented inventions thereby infringing our United States
Patent No. 4,849,332 entitled Human Papilloma Virus 35 Nucleic Acid
Hybridization Probes and Methods for Employing the Same and our United States
Patent No. 4,849,331 entitled Human Papilloma Virus 44 Nucleic Acid
Hybridization Probes and Methods for Employing the Same. We are seeking a
permanent injunction and monetary damages for past infringement. On September
25, 2002, Ventana Medical Systems, Inc. publicly announced that it had acquired
Beckman Coulter, Inc.s human papillomavirus business and corresponding assets,
including the assignment of the human papillomavirus intellectual property
portfolio acquired by Beckman Coulter, Inc. from Institut Pasteur through a
1991 sublicense agreement. On October 18, 2002, we filed a motion to amend our
complaint to add Beckman Coulter, Inc. as a co-defendant, as well as additional
claims against Ventana. On December 10, 2002, the Court granted our motion to
amend. On January 28, 2003, we filed a motion to file a second amended
complaint. On March 9, 2003 the Court granted our motion to amend. In the course of this litigation, Ventana and Beckman Coulter filed motions
seeking to compel arbitration of Digenes claims against them. After a bench
trial, the Court issued an order that Beckman Coulter has a right to arbitrate
Digenes claims against it, but that Ventana does not. The arbitration process
has not yet been initiated. The Court, as a matter of judicial economy, has
stayed the proceedings against Ventana pending the outcome of any arbitration
between Digene and Beckman Coulter. Enzo Life Sciences v. Digene Corporation As we have previously disclosed in prior filings with the Securities and
Exchange Commission, on March 15, 2002, we filed an action for declaratory
judgment against Enzo Biochem, Inc. The action was filed in the United States
District Court for the District of Delaware. We filed this action after having
received direct threats from Enzo Biochem, Inc. of infringement of U.S. Patent
No. 6,221,581 entitled Processes for Detecting Polynucleotides, Determining
Genetic Mutations or Defects in Genetic Material, Separating or Isolating
Nucleic Acid of Interest from Samples, and Useful Compositions of Matter and
Multihybrid Complex Compositions. We sought a judgment that the patent is
invalid and has not been infringed by us. On March 20, 2002, in response to
our complaint, Enzo Biochem, Inc. filed a motion to dismiss our complaint for
lack of subject matter jurisdiction, based on assertions that Enzo Life
Sciences, Inc. (formerly Enzo Diagnostics, Inc. and a wholly owned subsidiary
of Enzo Biochem, Inc.), not Enzo Biochem, Inc., was the holder of the patent in
question. On the same day, Enzo Life Sciences, Inc. also filed a complaint for
patent infringement against us in the Delaware District Court. Enzo Life
Sciences, Inc. asserted in its complaint that we infringed U.S. Patent No.
6,221,581 through the manufacture, sale and offer for sale of our Hybrid
Capture products. The two cases were consolidated. On October 13, 2004, we settled our pending litigation with Enzo Biochem, Inc.
and Enzo Life Sciences, Inc. (collectively Enzo). Under the Settlement and
License Agreement (the Agreement), we were granted an irrevocable,
non-exclusive, royalty-bearing license under Enzos U.S. Patent No. 6,221,581
and any and all other U.S. patents of Enzo that claim priority to any patent
application to which such patent claims the benefit of priority, and any
non-U.S. counterparts. The parties have provided mutual releases for all past
claims in the Agreement. We also received releases and covenants not to sue
from Enzo under 19




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##### 



Enzos existing patent portfolio for all of our products covered by the license
grant, and covenants not to sue from Enzo for future licensed products covered
by the claims that also cover the existing licensed products. Under the Agreement, we paid Enzo $16 million on October 14, 2004, of which
$2.0 million can be used to offset future royalty payments under the terms of
the Agreement, resulting in $14.0 million in settlement expense, which was
recorded in the first fiscal quarter of 2005. We will also pay Enzo royalties
on future net sales of products covered by the license grant, which royalties
will be at least $2.5 million for the first annual period and at least $3.5
million for each of the next four annual periods under the Agreement. We are
obligated to make such guaranteed minimum payments in such first five annual
periods. Our obligation to make royalty payments will end on April 24, 2018,
unless earlier terminated in accordance with the terms of the Agreement. On October 15, 2004, the parties filed a Joint Stipulation and Order of
Dismissal with Prejudice with the U.S. District Court for the District of
Delaware to dismiss with prejudice the litigation between Digene and Enzo,
including all claims arising out of the pleadings in this action, and all
actions that could have been raised, known or unknown, with respect to the
accused products. We have filed the Agreement as an exhibit to this Quarterly Report on Form 10-Q
and are seeking confidential treatment for the material confidential terms of
the Agreement. Georgetown University v. Digene Corporation Through a license agreement with Georgetown University, we obtained exclusive,
worldwide rights to United States Patent No. 5,643,715 and corresponding
foreign patents and patent applications relating to human papillomavirus (HPV)
type 52, and to United States Patent No. 5,057,411 and corresponding foreign
patents relating to the use of the L1 gene sequence to detect specific human
papillomavirus types. Unless terminated earlier, the license
agreement will terminate upon the last to expire of the licensed patent rights.
We are obligated to make royalty payments to Georgetown University based on
the percentage of net sales (as defined in the license agreement) of products
incorporating the licensed patent rights. We continue to accrue and pay
royalties to Georgetown University under the license agreement. We have been
involved in discussions with Georgetown University related to a disagreement
between the parties over the calculation of such royalties. To date, such
discussions have not resolved the matter. On October 26, 2004, we received a
copy of a complaint filed by Georgetown University in the United States
District Court for the District of Columbia, but not yet served, containing
allegations related to the royalties dispute and our use of the licensed patent
rights under the license agreement. We are currently evaluating the complaint.
We believe that Georgetown Universitys interpretation of the license
agreement provisions related to the calculation of royalties is not correct,
and that the royalties, when properly calculated under the provisions of the
license agreement, are far less than the amounts demanded by Georgetown
University. We believe we have strong defenses against each of the allegations
made in the complaint and intend to vigorously defend against such action if a
resolution of this matter cannot be reached. 20




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##### 



Item 4. Submission of Matters to a Vote of Security Holders The following is a summary of the final voting results from the October 27,
2004 annual meeting of stockholders of Digene. The number of shares present in
person or by proxy at the annual meeting were 18,506,446, or 93%, of the
outstanding shares of common stock. 1. Election of Directors. Two of Digenes seven directors stood for re-election at the annual
meeting for three year terms expiring in 2007. These two directors, who are
listed below, received the most votes cast for the election of directors, Name
    
    For
    
    Withheld AuthorityCharles M. Fleischman
    
    
    17,463,803
    
    
    
    1,042,643Joseph M. Migliara
    
    
    17,350,689
    
    
    
    1,155,757
 The following directors terms continued after the meeting: Evan Jones,
John H. Landon, Cynthia L. Sullivan, Kenneth R. Weisshaar and John J.
Whitehead. 2. Amendment to the Amended and Restated 1999 Incentive Plan, as amended to
increase the number of shares of common stock available for grants and
awards Digene proposed an amendment to its Amended and Restated 1999 Incentive
Plan, as amended, to increase the number of shares of common stock issuable
under the Plan by 700,000 from 4,900,000 to 5,600,000 shares. The proposal was
not approved by the stockholders, in that it did not receive the affirmative
vote of a majority of the votes present and entitled to be cast on the matter. For:
    
    
    5,667,040Against:
    
    
    9,002,338Abstain:
    
    
    20,677Broker Non-Votes:
    
    
    3,816,391
 3. Amendment to the Amended and Restated 1999 Incentive Plan, as amended to
increase the number of shares of common stock available for grants and
awards Digene proposed an amendment to its Amended and Restated 1999 Incentive
Plan, as amended, to add performance share awards to the types of awards which
can be made pursuant to the Plan. The proposal was approved by the
stockholders, in that it received the affirmative vote of a majority of the
votes present and entitled to be cast on the matter. For:
    
    
    13,377,262Against:
    
    
    1,294,112Abstain:
    
    
    18,681Broker Non-Votes:
    
    
    3,816,391
 21




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##### 



Item 6. Exhibits Exhibit No.
    
    Description3.1
    
    Amended and Restated Certificate of Incorporation (Incorporated by reference to Exhibit 3.1 to
Digenes Registration Statement on Form S-1 (File No. 333-02968)).3.2
    
    Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.2 to Digenes Annual Report
on Form 10-K for the year ended June 30, 1999).4.1
    
    Form of Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to Digenes
Registration Statement on Form S-1 (File No. 333-02968)).10.1 +
    
    Settlement and License Agreement, executed October 13, 2004, between Digene Corporation and Enzo
Biochem, Inc. and Enzo Life Sciences, Inc.31.1
    
    Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Executive Officer31.2
    
    Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Financial Officer32
    
    Certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.
 +    Confidential treatment has been requested for certain portions of this
agreement pursuant to an application for confidential treatment filed with the
Securities and Exchange Commission on November 8, 2004. Such provisions have
been filed separately with the Securities and Exchange Commission. 22




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##### 



SIGNATURES Pursuant to the requirements 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 CORPORATIONDate:  November 8, 2004
    By:
    /s/ Charles M. FleischmanCharles M. FleischmanPresident, Chief Operating Officer and
Chief Financial Officer
(Principal Financial Officer) Date: November 8, 2004
    By:
    /s/ Joseph P. SlatteryJoseph P. SlatterySenior Vice President, Finance and
Information Systems
(Principal Accounting Officer)




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##### 



EXHIBIT INDEX Exhibit No.
    
    Description3.1
    
    Amended and Restated Certificate of Incorporation (Incorporated by reference to Exhibit 3.1 to Digenes
Registration Statement on Form S-1 (File No. 333-02968)).3.2
    
    Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.2 to Digenes Annual Report on Form
10-K for the year ended June 30, 1999).4.1
    
    Form of Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to Digenes Registration
Statement on Form S-1 (File No. 333-02968)).10.1 +
    
    Settlement and License Agreement, executed October 13, 2004,
between Digene Corporation and Enzo Biochem, Inc. and Enzo Life
Sciences, Inc.31.1
    
    Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Executive Officer.31.2
    
    Rule 13a-14(a)/Rule 15d-14(a) Certification of Chief Financial Officer.32
    
    Certification pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.
 +  Confidential treatment has been requested for certain portions of this
agreement pursuant to an application for confidential treatment filed with the
Securities and Exchange Commission on November 8, 2004. Such provisions have
been filed separately with the Securities and Exchange Commission.