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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 1934
|   
|   
|   
|   
|    |  | For the quarterly period ended September 30, 2001                                      

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

|                                |  |                                     
|------------------------------- |  | ------------------------------------
|Delaware                        |  | 52-1536128                          
|                                |  |                                     
|(State or other jurisdiction of |  | (I.R.S. Employer Identification No.)
|incorporation or organization)  |  |                                     

|                                         |  |           
|---------------------------------------- |  | ----------
|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

Indicate the number of shares outstanding of each of the issuers classes
of common stock, as of the latest practicable date.

|                                       |  |                         
|-------------------------------------- |  | ------------------------
|                                       |  | Shares outstanding as of
|Class                                  |  | November 12, 2001       
|                                       |  |                         
|Common Stock, par value $.01 per share |  | 17,019,727              



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DIGENE CORPORATION

INDEX TO FORM 10-Q

|                                            |                                                                                    |                                                                                        |    |      |   | 
|------------------------------------------- | ---------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------- | -- | ---- | - | 
|                                            |                                                                                    |                                                                                        |    | Page
|                                            |                                                                                    |                                                                                        |    |     
|Part I. Consolidated Financial Information: |                                                                                    |                                                                                        |    |     
|                                            | Item 1. Consolidated Financial Statements -                                        |                                                                                        |    |      |  
|                                            |                                                                                    | Consolidated Balance Sheets 
September 30, 2001 and June 30, 2001                     |    |      | 1 | 
|                                            |                                                                                    | Consolidated Statements of Operations 
Three months ended September 30, 2001 and 2000 |    |      | 2 | 
|                                            |                                                                                    | Consolidated Statements of Cash Flows 
Three months ended September 30, 2001 and 2000 |    |      | 3 | 
|                                            |                                                                                    | Notes to Consolidated Financial Statements                                             |    |      | 4 | 
|                                            | Item 2. Managements Discussion and Analysis of Financial Condition and
Results of |                                                                                        |    | 6    |  
|                                            | Operations                                                                         |                                                                                        |    |      |  
|                                            | Item 3. Quantitative and Qualitative Disclosures about Market Risk                 |                                                                                        |    | 10   |  
|Part II. Other Information:                 |                                                                                    |                                                                                        |    |     
|                                            | Item 4. Submission of Matters to a Vote of Security Holders                        |                                                                                        |    | 11   |  
|                                            | Item 6. Exhibits and Reports on Form 8-K                                           |                                                                                        |    | 12   |  
|Signatures                                  |                                                                                    |                                                                                        | 13 |     
|Exhibit Index                               |                                                                                    |                                                                                        | 14 |     





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PART I. Consolidated Financial Information

Item 1. Consolidated Financial Statements

DIGENE CORPORATION
CONSOLIDATED BALANCE SHEETS

|                                           |                                                                                                                                                                            |                                      |            |             |               |   |            |             |   |  | 
|------------------------------------------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------ | ---------- | ----------- | ------------- | - | ---------- | ----------- | - |  | 
|                                           |                                                                                                                                                                            |                                      |            |             | September 30, |   | June 30,  
|                                           |                                                                                                                                                                            |                                      |            |             | 2001          |   | 2001      
|                                           |                                                                                                                                                                            |                                      |            |             |               |   |           
|                                           |                                                                                                                                                                            |                                      |            |             | (Unaudited)   |   |            |             |  
|                                           |                                                                                                                                                                            |                                      | ASSETS     |             |               |   |            |             |   |  | 
|Current assets:                            |                                                                                                                                                                            |                                      |            |             |               |   |            |            
|                                           | Cash and cash equivalents                                                                                                                                                  |                                      | $          | 22,718,022  |               |   | $          | 20,626,252  |  
|                                           | Short-term investments                                                                                                                                                     |                                      |            | 8,922,965   |               |   |            | 8,977,412   |  
|                                           | Accounts receivable, less allowance of approximately $313,000 and
$281,000 at September 30, 2001 and June 30, 2001, respectively                                           |                                      |            | 5,174,690   |               |   |            | 5,694,648   |  
|                                           | Inventories                                                                                                                                                                |                                      |            | 5,606,766   |               |   |            | 5,548,415   |  
|                                           | Prepaid expenses and other current assets                                                                                                                                  |                                      |            | 1,330,235   |               |   |            | 1,685,767   |  
|                                           |                                                                                                                                                                            |                                      |            |             |               |   |            |            
|Total current assets                       |                                                                                                                                                                            |                                      | 43,752,678 |             |               |   | 42,532,494 |            
|Note receivable                            |                                                                                                                                                                            |                                      | 406,500    |             |               |   | 406,500    |            
|Property and equipment, net                |                                                                                                                                                                            |                                      | 3,445,236  |             |               |   | 3,490,490  |            
|Intangible assets, net                     |                                                                                                                                                                            |                                      | 1,013,080  |             |               |   | 1,050,601  |            
|Deposits                                   |                                                                                                                                                                            |                                      | 738,043    |             |               |   | 715,242    |            
|                                           |                                                                                                                                                                            |                                      |            |             |               |   |            |            
|Total assets                               |                                                                                                                                                                            | $                                    | 49,355,537 |             |               | $ | 48,195,327 |            
|                                           |                                                                                                                                                                            |                                      |            |             |               |   |            |            
|                                           |                                                                                                                                                                            | LIABILITIES AND STOCKHOLDERS EQUITY |            |             |               |   |            |             |   | 
|Current liabilities:                       |                                                                                                                                                                            |                                      |            |             |               |   |            |            
|                                           | Accounts payable                                                                                                                                                           |                                      | $          | 2,888,254   |               |   | $          | 3,260,186   |  
|                                           | Accrued expenses                                                                                                                                                           |                                      |            | 3,284,386   |               |   |            | 2,709,490   |  
|                                           | Accrued payroll                                                                                                                                                            |                                      |            | 2,281,210   |               |   |            | 1,865,777   |  
|                                           | Deferred revenues                                                                                                                                                          |                                      |            | 8,071,000   |               |   |            | 7,792,000   |  
|                                           |                                                                                                                                                                            |                                      |            |             |               |   |            |            
|Total current liabilities                  |                                                                                                                                                                            |                                      | 16,524,850 |             |               |   | 15,627,453 |            
|Deferred rent                              |                                                                                                                                                                            |                                      | 267,758    |             |               |   | 233,584    |            
|Long-term debt                             |                                                                                                                                                                            |                                      | 1,000,000  |             |               |   | 1,000,000  |            
|Deferred liability                         |                                                                                                                                                                            |                                      | 5,000,000  |             |               |   | 5,000,000  |            
|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, 16,838,996
and 16,755,339 shares issued and outstanding at September 30, 2001
and June 30, 2001, respectively |                                      |            | 168,390     |               |   |            | 167,553     |  
|                                           | Additional paid-in capital                                                                                                                                                 |                                      |            | 88,953,984  |               |   |            | 88,199,211  |  
|                                           | Deferred stock compensation                                                                                                                                                |                                      |            | (56,240     | )             |   |            | (64,274     | )
|                                           | Accumulated deficit                                                                                                                                                        |                                      |            | (62,503,205 | )             |   |            | (61,968,200 | )
|                                           |                                                                                                                                                                            |                                      |            |             |               |   |            |            
|Total stockholders equity                 |                                                                                                                                                                            |                                      | 26,562,929 |             |               |   | 26,334,290 |            
|                                           |                                                                                                                                                                            |                                      |            |             |               |   |            |            
|Total liabilities and stockholders equity |                                                                                                                                                                            | $                                    | 49,355,537 |             |               | $ | 48,195,327 |            
|                                           |                                                                                                                                                                            |                                      |            |             |               |   |            |            

See accompanying notes.

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DIGENE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS

|                                         |                                    |   |                    |            |      |   |            |           |  
|---------------------------------------- | ---------------------------------- | - | ------------------ | ---------- | ---- | - | ---------- | --------- | -
|                                         |                                    |   | Three Months Ended
|                                         |                                    |   | September 30,     
|                                         |                                    |   |                   
|                                         |                                    |   | 2001               |            | 2000
|                                         |                                    |   |                    |            |     
|                                         |                                    |   | (Unaudited)       
|Revenues:                                |                                    |   |                    |            |      |   |            |          
|                                         | Product sales                      |   | $                  | 10,298,983 |      |   | $          | 6,667,869 |  
|                                         | Research and development contracts |   |                    | 83,257     |      |   |            | 504,147   |  
|                                         |                                    |   |                    |            |      |   |            |          
|Total revenues                           |                                    |   | 10,382,240         |            |      |   | 7,172,016  |          
|Costs and expenses:                      |                                    |   |                    |            |      |   |            |          
|                                         | Cost of product sales              |   |                    | 2,908,998  |      |   |            | 2,911,863 |  
|                                         | Research and development           |   |                    | 2,073,784  |      |   |            | 2,105,651 |  
|                                         | Selling and marketing              |   |                    | 3,924,299  |      |   |            | 2,442,036 |  
|                                         | General and administrative         |   |                    | 2,062,601  |      |   |            | 1,779,819 |  
|                                         | Amortization of intangible assets  |   |                    | 37,521     |      |   |            | 37,521    |  
|                                         |                                    |   |                    |            |      |   |            |          
|Loss from operations                     |                                    |   | (624,963           | )          |      |   | (2,104,874 | )        
|Other income (expense):                  |                                    |   |                    |            |      |   |            |          
|                                         | Other income (expense)             |   |                    | (66,274    | )    |   |            | (32,076   | )
|                                         | Interest income                    |   |                    | 206,670    |      |   |            | 312,679   |  
|                                         | Interest expense                   |   |                    | (2,555     | )    |   |            | (840      | )
|                                         |                                    |   |                    |            |      |   |            |          
|Loss from operations before income taxes |                                    |   | (487,122           | )          |      |   | (1,825,111 | )        
|Provision for income taxes               |                                    |   | 47,883             |            |      |   | 90,401     |          
|                                         |                                    |   |                    |            |      |   |            |          
|Net loss                                 |                                    | $ | (535,005           | )          |      | $ | (1,915,512 | )        
|                                         |                                    |   |                    |            |      |   |            |          
|Basic and diluted net loss per share     |                                    | $ | (0.03              | )          |      | $ | (0.12      | )        
|                                         |                                    |   |                    |            |      |   |            |          
|Weighted average shares outstanding      |                                    |   | 16,791,577         |            |      |   | 16,252,351 |          
|                                         |                                    |   |                    |            |      |   |            |          

See accompanying notes.

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DIGENE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                     |                                                                                           |                                                         |                                           |            |                    |          |            |            |         |            |  
|---------------------------------------------------- | ----------------------------------------------------------------------------------------- | ------------------------------------------------------- | ----------------------------------------- | ---------- | ------------------ | -------- | ---------- | ---------- | ------- | ---------- | -
|                                                     |                                                                                           |                                                         |                                           |            | Three Months Ended
|                                                     |                                                                                           |                                                         |                                           |            | September 30,     
|                                                     |                                                                                           |                                                         |                                           |            |                   
|                                                     |                                                                                           |                                                         |                                           |            | 2001               |          | 2000      
|                                                     |                                                                                           |                                                         |                                           |            |                    |          |           
|                                                     |                                                                                           |                                                         |                                           |            | (Unaudited)       
|Operating activities                                 |                                                                                           |                                                         |                                           |            |                    |          |            |           
|                                                     | Net loss                                                                                  |                                                         | $                                         | (535,005   | )                  |          | $          | (1,915,512 | )      
|                                                     | Adjustments to reconcile net loss to net cash provided by
(used in) operating activities: |                                                         |                                           |            |                    |          |            |            |        
|                                                     |                                                                                           | Depreciation and amortization of property and equipment |                                           |            | 370,050            |          |            |            | 335,176 |           
|                                                     |                                                                                           | Amortization of intangible assets                       |                                           |            | 37,521             |          |            |            | 37,521  |           
|                                                     |                                                                                           | Compensation expense related to stock options           |                                           |            | 8,034              |          |            |            | 8,034   |           
|                                                     |                                                                                           | Changes in operating assets and liabilities:            |                                           |            |                    |          |            |            |         |           
|                                                     |                                                                                           |                                                         | Accounts receivable                       |            |                    | 519,958  |            |            |         | 1,121,448  |  
|                                                     |                                                                                           |                                                         | Inventories                               |            |                    | (58,351  | )          |            |         | (556,272   | )
|                                                     |                                                                                           |                                                         | Prepaid expenses and other current assets |            |                    | 355,532  |            |            |         | 506,357    |  
|                                                     |                                                                                           |                                                         | Deposits and other assets                 |            |                    | (22,801  | )          |            |         | (13,710    | )
|                                                     |                                                                                           |                                                         | Accounts payable                          |            |                    | (371,932 | )          |            |         | (1,349,242 | )
|                                                     |                                                                                           |                                                         | Accrued expenses                          |            |                    | 574,896  |            |            |         | 34,259     |  
|                                                     |                                                                                           |                                                         | Accrued payroll                           |            |                    | 415,433  |            |            |         | 132,946    |  
|                                                     |                                                                                           |                                                         | Deferred revenues                         |            |                    | 279,000  |            |            |         |           |  
|                                                     |                                                                                           |                                                         | Deferred rent                             |            |                    | 34,174   |            |            |         | 43,240     |  
|                                                     |                                                                                           |                                                         |                                           |            |                    |          |            |           
|Net cash provided by (used in) operating activities  |                                                                                           |                                                         | 1,606,509                                 |            |                    |          | (1,615,755 | )         
|Investing activities                                 |                                                                                           |                                                         |                                           |            |                    |          |            |           
|                                                     | Purchases of short-term investments                                                       |                                                         |                                           | (4,590,546 | )                  |          |            | (1,784,027 | )      
|                                                     | Maturities of short-term investments                                                      |                                                         |                                           | 4,644,993  |                    |          |            | 3,347,072  |        
|                                                     | Capital expenditures                                                                      |                                                         |                                           | (324,796   | )                  |          |            | (333,129   | )      
|                                                     |                                                                                           |                                                         |                                           |            |                    |          |            |           
|Net cash provided by (used in) investing activities  |                                                                                           |                                                         | (270,349                                  | )          |                    |          | 1,229,916  |           
|Financing activities                                 |                                                                                           |                                                         |                                           |            |                    |          |            |           
|                                                     | Exercise of common stock options                                                          |                                                         |                                           | 755,610    |                    |          |            | 1,322,168  |        
|                                                     | Proceeds from note receivable                                                             |                                                         |                                           |           |                    |          |            | 40,000     |        
|                                                     | Proceeds from note payable                                                                |                                                         |                                           |           |                    |          |            | 1,000,000  |        
|                                                     |                                                                                           |                                                         |                                           |            |                    |          |            |           
|Net cash provided by financing activities            |                                                                                           |                                                         | 755,610                                   |            |                    |          | 2,362,168  |           
|                                                     |                                                                                           |                                                         |                                           |            |                    |          |            |           
|Net increase (decrease) in cash and cash equivalents |                                                                                           |                                                         | 2,091,770                                 |            |                    |          | 1,976,329  |           
|Cash and cash equivalents at beginning of period     |                                                                                           |                                                         | 20,626,252                                |            |                    |          | 7,534,998  |           
|                                                     |                                                                                           |                                                         |                                           |            |                    |          |            |           
|Cash and cash equivalents at end of period           |                                                                                           | $                                                       | 22,718,022                                |            |                    | $        | 9,511,327  |           
|                                                     |                                                                                           |                                                         |                                           |            |                    |          |            |           

See accompanying notes.

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DIGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The consolidated financial statements of Digene Corporation (Digene) for the
three-month periods ended September 30, 2001 and 2000 are unaudited and include
all adjustments which, in the opinion of management, are necessary to present
fairly the results of operations for the periods then ended. All such
adjustments are of a normal recurring nature. 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, 2001 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.

2. Inventories

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

Inventories consist of the following:

|                     |  |               |            |          |  |   |            |  
|-------------------- |  | ------------- | ---------- | -------- |  | - | ---------- | -
|                     |  | September 30, |            | June 30,
|                     |  | 2001          |            | 2001    
|                     |  |               |            |         
|                     |  | (Unaudited)   |            |          |  |  
|Finished goods       |  | $             | 3,233,645  |          |  | $ | 3,087,651  |  
|Work in process      |  |               | 2,914,606  |          |  |   | 3,369,419  |  
|Raw materials        |  |               | 1,214,371  |          |  |   | 1,256,358  |  
|                     |  |               |            |          |  |   |            |  
|                     |  |               | 7,362,622  |          |  |   | 7,713,428  |  
|Obsolescence reserve |  |               | (1,755,856 | )        |  |   | (2,165,013 | )
|                     |  |               |            |          |  |   |            |  
|                     |  | $             | 5,606,766  |          |  | $ | 5,548,415  |  
|                     |  |               |            |          |  |   |            |  

3. Marketing and Distribution Agreements

On April 30, 2001, Digene terminated the Marketing and Distribution Agreement
between Digene and Abbott Laboratories (the Abbott Agreement) as it applies
to the distribution of Digenes human papillomavirus DNA products, and
converted the distribution rights under the Abbott Agreement for the Digene
Hepatitis B DNA products to non-exclusive for the remainder of the term of the
Abbott Agreement. Prior to such action, Abbott was the exclusive distributor
of Digenes human papillomavirus (HPV) and Hepatitis B DNA products in Europe,
Africa and the Middle East. The Abbott Agreement provides for a non-exclusive,
twelve-month wind-down distribution period for the HPV products.

On April 29, 2001, Digene entered into an agreement (the Roche Letter
Agreement) with Roche Molecular Systems, Inc. (Roche). Under the Roche
Letter Agreement, Roche will act as

4



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a co-exclusive distributor for Digenes HPV products in Europe, the Middle East
and Africa from May 1, 2001 through June 30, 2002, and the parties will
evaluate opportunities for a broader relationship. Roche has guaranteed
minimum purchases over the term of the Roche Letter Agreement. During the
three-month period ended September 30, 2001, Digene received prepayments of
approximately $3.4 million for certain of these minimum purchases. Roche did
not meet its minimum purchase obligation for the quarter ended September 30,
2001, and, accordingly, Digene recognized approximately $326,000 of the
prepayments as product sales for such quarter. As of September 30, 2001, Digene
is obligated to return approximately $1.4 million of the prepayments to Roche
due to offsetting revenue received by Digene from Abbott under the Abbott
Agreement. This obligation is recorded in accrued expenses on the Consolidated
Balance Sheet as of September 30, 2001.

Under the Roche Letter Agreement, Roche made a non-refundable payment of
$5.0 million to Digene, which is recorded as a deferred liability on the
Consolidated Balance Sheet as of September 30, 2001. Under certain
circumstances, this payment will be converted into shares of Digenes common
stock at a conversion price of $35 per share.

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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, 2001. 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; uncertainty of future
profitability and cash generation from operations; dependence on Roche
Molecular Systems, Inc. and Abbott Laboratories as our principal European
distributors and dependence on Abbott Laboratories as our distributor for our
chlamydia and gonorrhea products in the United States; dependence on
third-party reimbursement from government entities, managed care organizations,
and private insurance plans; risks inherent in international transactions,
including those relating to our expansion in Europe and elsewhere; our ability
to scale up our manufacturing to the extent product sales increase; uncertainty
regarding patents and proprietary rights in connection with our products and
products in development; our limited sales and marketing experience; the extent
of future expenditures for sales and marketing programs; uncertainty of
clinical trial results for our products in development; delay in or failure to
obtain regulatory approvals for our products in development; our ability to
obtain requisite additional financing to fund our operations beyond calendar
2002; and other factors as set forth under the caption Additional
Considerations in our Annual Report on Form 10-K for the year ended June 30,
2001.

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
HPV Test, which, for fiscal year 2001, accounted for 57% of total revenues and,
for the three months ended September 30, 2001, accounted for 68% of total
revenues. We expect that the growing acceptance of our HPV Test in both the
United States and abroad will continue to drive the growth in revenues from our
HPV Test in the future.

6



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Results of Operations

Product sales increased to approximately $10,299,000 for the three-month period
ended September 30, 2001 from approximately $6,668,000 for the corresponding
period in 2000. The increase was due primarily to growth in sales of our HPV
tests and testing services (representing an increase of 107% over sales of HPV
tests and testing services in the corresponding period in 2000) and growth in
sales of our equipment products (representing an increase of 14% over sales of
equipment products in the corresponding period in 2000), partially offset by
decreases in sales of non-core products. The majority of the growth in HPV
products sales was due to increased sales in the United States (134% over sales
in the corresponding period in 2000), as well as increased sales in Europe
(129% over sales in the corresponding period in 2000).

Research and development contract revenues decreased to approximately $83,000
for the three-month period ended September 30, 2001 from approximately $504,000
for the corresponding period in 2000. The decrease was due primarily to a
reduction in revenue under an exclusive contract, which was converted to
non-exclusive during fiscal year 2001.

Cost of product sales remained stable at approximately $2,909,000 for the
three-month period ended September 30, 2001 compared to approximately
$2,912,000 for the corresponding period in 2000. Gross margin on product sales
increased to 72% for the three-month period ended September 30, 2001 from 56%
for the corresponding period in 2000. The increase in gross margin percentage
was due primarily to increased sales of our test products, particularly HPV,
principally in the United States where we sell such products directly, as well
as the elimination by the first quarter of fiscal year 2002 of certain
operating expenses associated with the relocation to our new manufacturing
facility in April 2000, which negatively impacted our gross margins during
fiscal year 2001.

During the three-month period ended September 30, 2001, we focused our research
and development activities principally on: the development of our Rapid
Capture System for automated processing of our Hybrid Capture tests, initially
related to chlamydia and gonorrhea; activities related to the preparation of a
PMA supplement that we submitted to the Food and Drug Administration, or FDA,
in October 2001 to obtain market approval for the use of our Hybrid Capture 2
HPV Test as a primary cervical cancer screening test to be performed in
conjunction with the Pap smear for women ages 30 and older; the development of
our universal collection medium (UCM) that is expected to allow the
simultaneous testing of HPV, chlamydia, gonorrhea and other genetic and
cellular material from a single patient sample; activities utilizing our Hybrid
Capture technology for microarray-based genomics analysis in the areas of gene
expression profiling, genotyping and molecular disease management; and the
creation of our next generation of Hybrid Capture technology. Research and
development expenses remained relatively unchanged at approximately $2,074,000
for the three-month period ended September 30, 2001, compared to approximately
$2,106,000 for the corresponding period in 2000. The slight decrease in
expenses for the three-month period was due primarily to a 39% reduction in
outside professional services and clinical trial expenses, partially offset by
a 14% increase in personnel costs.

Selling and marketing expenses increased to approximately $3,924,000 for the
three-month period ended September 30, 2001, from approximately $2,442,000 for
the corresponding period in 2000.

7



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The increase was due primarily to a 157% increase in various marketing programs
and associated professional expenses, a 102% increase in royalty costs and a
13% increase in personnel costs.

General and administrative expenses increased to approximately $2,063,000 for
the three-month period ended September 30, 2001, from approximately $1,780,000
for the corresponding period in 2000. The increase was due primarily to a 25%
increase in personnel costs and a 105% increase in insurance expense, principally related
to directors and officers insurance coverage.

Interest income decreased to approximately $207,000 for the three-month period
ended September 30, 2001, from approximately $313,000 for the corresponding
period in 2000. The decrease was due to lower average cash and cash
equivalents balances primarily as a result of negative cash flows from
operations in the first nine months of fiscal year 2001 and lower interest
rates in the first quarter of fiscal year 2002 compared to the corresponding
period in fiscal year 2001. The cash received from Roche Molecular Systems,
Inc. associated with advance minimum sales payments is held in an account which
does not provide interest income to Digene.

Liquidity and Capital Resources

Since inception, our expenses have significantly exceeded our revenues,
resulting in an accumulated deficit of approximately $62,503,000 at September
30, 2001. We have funded our operations primarily through the sale of equity
securities and revenues from product sales and research and development
contracts. We have positive cash flows from operations of approximately
$1,607,000 for the three months ending September 30, 2001, partially as a
result of advance minimum sales payments from Roche under the Roche Letter
Agreement compared to negative cash flows from operations of approximately
$1,616,000 for the three months ended September 30, 2000.

Capital expenditures decreased to approximately $325,000 for the three months
ended September 30, 2001 from approximately $333,000 for the corresponding
period in 2000.

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. Since our inception, exclusive of cash received from
Roche Molecular Systems, Inc. for advance minimum sales payments under the
Roche Letter Agreement, we have incurred negative cash flows from operations,
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 year 2002. Our future capital requirements and the adequacy of
available funds may change, however, based 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 and maturation of strategic alliances

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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. 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.

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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. The net impact of foreign exchange
activities on earnings was immaterial for the three month periods ended
September 30, 2001 and 2000, respectively. Interest rate exposure is primarily
limited to the approximately $23,900,000 of cash, cash equivalents and
short-term investments owned by us. Such securities are debt instruments 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, less than twelve months, nature of certain investments.
We do not consider the present rate of inflation to have a significant impact
on our business.

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PART II. Other Information

Item 4. Submission of Matters to a Vote of Security Holders

The following is a summary of the final voting results from the October
25, 2001 annual meeting of stockholders of Digene. The number of shares
present in person or by proxy at the annual meeting were 14,864,405, or 88% of
the outstanding shares of common stock.



| |                          
| | -------------------------
| | 1. Election of Directors.

Two of Digenes six directors had terms that expired and stood for
re-election at the annual meeting. These two directors, who are listed below,
received the most votes cast for the election of directors.

|                      |  |     |            |                    |  |  |           | 
|--------------------- |  | --- | ---------- | ------------------ |  |  | --------- | 
|Name                  |  | For |            | Withheld Authority
|                      |  |     |            |                   
|Charles M. Fleischman |  |     | 13,846,643 |                    |  |  | 1,017,762 | 
|Joseph M. Migliara    |  |     | 14,419,651 |                    |  |  | 444,754   | 

The following directors terms continued after the meeting: Wayne T. Hockmeyer,
Ph.D., Evan Jones, John H. Landon and John J.Whitehead.



| |                                                                             
| | ----------------------------------------------------------------------------
| | 2. Approval of an Amendment to the Amended and Restated 1999 Incentive Plan.

Digene proposed an amendment to its Amended and Restated 1999 Incentive
Plan to increase the number of shares of common stock issuable under the plan
from 2,000,000 to 3,000,000 shares. The proposal received a majority of the
votes present and entitled to be cast on the matter.

|                                         |  |  |                                      | 
|---------------------------------------- |  |  | ------------------------------------ | 
|For:
Against:
Abstain:
Broker Non-Votes: |  |  | 7,618,488
3,202,291
54,107
3,989,519 | 

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Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

|      |  |                                                                                                                                                                 
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1   |  | Amended and Restated Certificate of Incorporation (Incorporated by
reference to Exhibit 3.1 to Digenes Registration Statement on Form S-1
(File No. 333-2968)).
|     
|     
|     
|     
|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. 333-2968)).                 
|     
|     
|     
|     
|10.1* |  | Amendment No. 2 to Letter Agreement between Digene and Roche Molecular
Systems, Inc., dated October 24, 2001.                                                   
|     
|     
|     
|     
|10.2  |  | Digene Corporation Amended and Restated 1999 Incentive Plan, as amended.                                                                                        
|     
|     
|     
|     
|     
|     
|     
|     
|*     |  | Confidential treatment has been requested for certain provisions thereof
pursuant to a Confidential Treatment                                                   
|      |  | Request filed November 14, 2001. Such provisions have
been filed separately with the Commission.                                                                

(b) Reports on Form 8-K

Digene did not file any reports on Form 8-K during the quarter ended September
30, 2001.

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SIGNATURES

Pursuant to the requirements of the Securities and 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            
|                       
|                       
|                       
|                       
|                       
|                       
|                       
|                       
|Date: November 14, 2001 |  | By: /s/ Charles M. Fleischman 
|                        |  | Charles M. Fleischman         
|                        |  | President,                    
|                        |  | Chief Operating Officer and   
|                        |  | Chief Financial Officer       
|                        |  | (Principal Financial Officer) 
|                       
|                       
|                       
|                       
|                       
|                       
|                       
|                       
|                       
|                       
|                       
|                       
|                       
|                       
|                       
|                       
|Date: November 14, 2001 |  | By: /s/ Joseph P. Slattery    
|                        |  | Joseph P. Slattery            
|                        |  | Vice President, Finance       
|                        |  | (Principal Accounting Officer)

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EXHIBIT INDEX

|            |  |                                                                                                                                                                 
|----------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description                                                                                                                                                     
|3.1         |  | Amended and Restated Certificate of Incorporation
(Incorporated by reference to Exhibit 3.1 to Digenes
Registration Statement on Form S-1 (File No. 333-2968)).
|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. 333-2968).                  
|10.1*       |  | Amendment No. 2 to Letter Agreement between Digene and Roche
Molecular Systems, Inc., dated October 24, 2001.                                                   
|10.2        |  | Digene Corporation Amended and Restated 1999 Incentive Plan, as
amended.                                                                                        
|           
|*           |  | Confidential treatment has been requested for certain provisions
thereof pursuant to a Confidential Treatment                                                   
|            |  | Request filed November 14,
2001. Such provisions have been filed separately with the Commission.                                                                

14