##### Table of Contents



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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 March 31, 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
(Exact name of registrant as specified in its charter)

|                                         |  |                                     
|---------------------------------------- |  | ------------------------------------
|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                                  |  | May 11, 2001            
|                                       |  |                         
|Common Stock, par value $.01 per share |  |                          | 16,731,150 | 



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TABLE OF CONTENTS



|                                             |                                                                                                |                                                                                                                                 |  |  |  |  |  | 
|-------------------------------------------- | ---------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------- |  |  |  |  |  | 
|Part I.  Consolidated Financial Information:
|                                             | Item 1.  Consolidated Financial Statements -                                                  
|                                             |                                                                                                | Consolidated Balance Sheets March 31, 2001 and June 30, 2000                                                                   
|                                             |                                                                                                | Consolidated Statements of Operations Three months ended March 31, 2001 and 2000; Nine     months ended March 31, 2001 and 2000
|                                             |                                                                                                | Consolidated Statements of Cash Flows Nine months ended March 31, 2001 and 2000                                                
|                                             |                                                                                                | Notes to Consolidated Financial Statements                                                                                     
|                                             | Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations
|                                             | Item 3.  Quantitative and Qualitative Disclosures about Market Risk                           
|Part II.  Other Information:                
|                                             | Item 5.  Other Information                                                                    
|                                             | Item 6.  Exhibits and Reports on Form 8-K                                                     
|Signatures                                  
|Exhibit Index                               
|Co-Promotion Agreement                      
|Reseller Agreement                          
|First Amendment to Reseller Agreement       
|Second Amendment to Reseller Agreement      



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##### Table of Contents



DIGENE CORPORATION

INDEX TO FORM 10-Q

|                                            |                                                                         |                                            |    |                                             |   |      |   | 
|------------------------------------------- | ----------------------------------------------------------------------- | ------------------------------------------ | -- | ------------------------------------------- | - | ---- | - | 
|                                            |                                                                         |                                            |    |                                             |   | Page
|                                            |                                                                         |                                            |    |                                             |   |     
|Part I. Consolidated Financial Information:
|                                           
|                                            | Item 1. Consolidated Financial Statements -                            
|                                           
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                         | Consolidated Balance Sheets              
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                         |                                            |    | March 31, 2001 and June 30, 2000            |   |      | 1 | 
|                                           
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                         | Consolidated Statements of Operations    
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                         |                                            |    | Three months ended March 31, 2001 and 2000;
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                         |                                            |    | Nine months ended March 31, 2001 and 2000   |   |      | 2 | 
|                                           
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                         | Consolidated Statements of Cash Flows    
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                         |                                            |    | Nine months ended March 31, 2001 and 2000   |   |      | 3 | 
|                                           
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                         | Notes to Consolidated Financial Statements |    |                                             | 4 |     
|                                           
|                                           
|                                           
|                                           
|                                           
|                                            | Item 2. Managements Discussion and Analysis of Financial Condition and
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                         | Results of Operations                      |    |                                             | 6 |     
|                                           
|                                           
|                                           
|                                           
|                                           
|                                            | Item 3. Quantitative and Qualitative Disclosures about Market Risk      |                                            |    | 10                                          |  
|                                           
|                                           
|                                           
|                                           
|                                           
|Part II. Other Information:                
|                                           
|                                           
|                                           
|                                           
|                                           
|                                            | Item 5. Other Information                                               |                                            |    | 11                                          |  
|                                           
|                                           
|                                           
|                                           
|                                           
|                                            | Item 6. Exhibits and Reports on Form 8-K                                |                                            |    | 11                                          |  
|                                           
|                                           
|                                           
|                                           
|                                           
|Signatures                                  |                                                                         |                                            | 12 |                                            
|                                           
|                                           
|                                           
|                                           
|                                           
|Exhibit Index                               |                                                                         |                                            | 13 |                                            





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##### Table of Contents






PART I. Consolidated Financial Information




Item 1. Consolidated Financial Statements




DIGENE CORPORATION
CONSOLIDATED BALANCE SHEETS



|                                           |                                                                          |                                                                |                                      |             |           |             |            |             |           |  |  | 
|------------------------------------------ | ------------------------------------------------------------------------ | -------------------------------------------------------------- | ------------------------------------ | ----------- | --------- | ----------- | ---------- | ----------- | --------- |  |  | 
|                                           |                                                                          |                                                                |                                      |             |           | March 31,   |            | June 30,   
|                                           |                                                                          |                                                                |                                      |             |           | 2001        |            | 2000       
|                                           |                                                                          |                                                                |                                      |             |           |             |            |            
|                                           |                                                                          |                                                                |                                      |             |           | (Unaudited)
|                                           |                                                                          |                                                                |                                      | ASSETS     
|                                          
|                                          
|                                          
|                                          
|Current assets:                           
|                                          
|                                          
|                                          
|                                          
|                                           | Cash and cash equivalents                                                |                                                                | $                                    | 9,776,709   |           |             | $          | 7,534,998   |          
|                                          
|                                          
|                                          
|                                          
|                                           | Short-term investments                                                   |                                                                |                                      | 7,331,085   |           |             |            | 12,678,819  |          
|                                          
|                                          
|                                          
|                                          
|                                           | Accounts receivable, less allowance of approximately $251,000 and       
|                                          
|                                          
|                                          
|                                          
|                                           |                                                                          | $263,000 at March 31, 2001 and June 30, 2000, respectively     |                                      |             | 4,772,987 |             |            |             | 4,787,278 | 
|                                          
|                                          
|                                          
|                                          
|                                           | Note receivable, short-term                                              |                                                                |                                      |            |           |             |            | 240,000     |          
|                                          
|                                          
|                                          
|                                          
|                                           | Inventories                                                              |                                                                |                                      | 6,076,080   |           |             |            | 4,400,297   |          
|                                          
|                                          
|                                          
|                                          
|                                           | Prepaid expenses and other current assets                                |                                                                |                                      | 824,120     |           |             |            | 907,877     |          
|                                           |                                                                          |                                                                |                                      |             |           |             |            |            
|Total current assets                       |                                                                          |                                                                | 28,780,981                           |             |           |             | 30,549,269 |            
|                                          
|                                          
|                                          
|                                          
|Note receivable, net of current portion    |                                                                          |                                                                | 406,500                              |             |           |             | 160,000    |            
|                                          
|                                          
|                                          
|                                          
|Property and equipment, net                |                                                                          |                                                                | 3,273,077                            |             |           |             | 3,032,088  |            
|                                          
|                                          
|                                          
|                                          
|Intangible assets, net                     |                                                                          |                                                                | 1,088,123                            |             |           |             | 1,200,687  |            
|                                          
|                                          
|                                          
|                                          
|Deposits                                   |                                                                          |                                                                | 959,298                              |             |           |             | 842,922    |            
|                                           |                                                                          |                                                                |                                      |             |           |             |            |            
|Total assets                               |                                                                          | $                                                              | 34,507,979                           |             |           | $           | 35,784,966 |            
|                                           |                                                                          |                                                                |                                      |             |           |             |            |             |          
|                                           |                                                                          |                                                                | LIABILITIES AND STOCKHOLDERS EQUITY
|                                          
|                                          
|                                          
|                                          
|Current liabilities:                      
|                                          
|                                          
|                                          
|                                          
|                                           | Accounts payable                                                         |                                                                | $                                    | 3,623,264   |           |             | $          | 3,828,138   |          
|                                          
|                                          
|                                          
|                                          
|                                           | Accrued expenses                                                         |                                                                |                                      | 1,053,992   |           |             |            | 1,026,600   |          
|                                          
|                                          
|                                          
|                                          
|                                           | Accrued payroll                                                          |                                                                |                                      | 1,269,614   |           |             |            | 1,426,604   |          
|                                           |                                                                          |                                                                |                                      |             |           |             |            |            
|Total current liabilities                  |                                                                          |                                                                | 5,946,870                            |             |           |             | 6,281,342  |            
|                                          
|                                          
|                                          
|                                          
|Long-term debt                             |                                                                          |                                                                | 1,000,000                            |             |           |             |           |            
|                                          
|                                          
|                                          
|                                          
|Deferred rent                              |                                                                          |                                                                | 199,410                              |             |           |             | 78,756     |            
|                                          
|                                          
|                                          
|                                          
|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, 16,727,000 
|                                          
|                                          
|                                          
|                                          
|                                           |                                                                          | and 16,173,538 shares issued and outstanding at March 31, 2001
|                                          
|                                          
|                                          
|                                          
|                                           |                                                                          | and June 30, 2000, respectively                                |                                      |             | 167,270   |             |            |             | 161,735   | 
|                                          
|                                          
|                                          
|                                          
|                                           | Additional paid-in capital                                               |                                                                |                                      | 87,892,802  |           |             |            | 84,846,747  |          
|                                          
|                                          
|                                          
|                                          
|                                           | Deferred stock compensation                                              |                                                                |                                      | (72,309     | )         |             |            | (96,411     | )        
|                                          
|                                          
|                                          
|                                          
|                                           | Accumulated deficit                                                      |                                                                |                                      | (60,626,064 | )         |             |            | (55,487,203 | )        
|                                           |                                                                          |                                                                |                                      |             |           |             |            |            
|Total stockholders equity                 |                                                                          |                                                                | 27,361,699                           |             |           |             | 29,424,868 |            
|                                           |                                                                          |                                                                |                                      |             |           |             |            |            
|Total liabilities and stockholders equity |                                                                          | $                                                              | 34,507,979                           |             |           | $           | 35,784,966 |            
|                                           |                                                                          |                                                                |                                      |             |           |             |            |             |          

See accompanying notes.

1



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##### Table of Contents






DIGENE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS



|                                         |                                    |   |                    |           |                   |   |            |           |      |   |            |            |   |   |            |            |  
|---------------------------------------- | ---------------------------------- | - | ------------------ | --------- | ----------------- | - | ---------- | --------- | ---- | - | ---------- | ---------- | - | - | ---------- | ---------- | -
|                                         |                                    |   | Three Months Ended |           | Nine Months Ended
|                                         |                                    |   | March 31,          |           | March 31,        
|                                         |                                    |   |                    |           |                  
|                                         |                                    |   | 2001               |           | 2000              |   | 2001       |           | 2000
|                                         |                                    |   |                    |           |                   |   |            |           |     
|                                         |                                    |   | (Unaudited)        |           | (Unaudited)      
|Revenues:                               
|                                        
|                                        
|                                        
|                                        
|                                         | Product sales                      |   | $                  | 9,003,659 |                   |   | $          | 5,964,711 |      |   | $          | 23,395,694 |   |   | $          | 16,144,490 |  
|                                        
|                                        
|                                        
|                                        
|                                         | Research and development contracts |   |                    | 5,943     |                   |   |            | 158,515   |      |   |            | 541,180    |   |   |            | 448,160    |  
|                                         |                                    |   |                    |           |                   |   |            |           |      |   |            |            |   |   |            |           
|Total revenues                           |                                    |   | 9,009,602          |           |                   |   | 6,123,226  |           |      |   | 23,936,874 |            |   |   | 16,592,650 |           
|                                        
|                                        
|                                        
|                                        
|Costs and expenses:                     
|                                        
|                                        
|                                        
|                                        
|                                         | Cost of product sales              |   |                    | 2,891,419 |                   |   |            | 2,192,569 |      |   |            | 8,916,091  |   |   |            | 5,502,536  |  
|                                        
|                                        
|                                        
|                                        
|                                         | Research and development           |   |                    | 1,986,729 |                   |   |            | 1,791,766 |      |   |            | 5,933,980  |   |   |            | 4,169,466  |  
|                                        
|                                        
|                                        
|                                        
|                                         | Selling and marketing              |   |                    | 3,442,318 |                   |   |            | 2,796,040 |      |   |            | 8,725,233  |   |   |            | 7,546,192  |  
|                                        
|                                        
|                                        
|                                        
|                                         | General and administrative         |   |                    | 2,603,525 |                   |   |            | 1,707,336 |      |   |            | 6,211,271  |   |   |            | 4,635,657  |  
|                                        
|                                        
|                                        
|                                        
|                                         | Amortization of intangible assets  |   |                    | 37,522    |                   |   |            | 37,522    |      |   |            | 112,565    |   |   |            | 112,565    |  
|                                         |                                    |   |                    |           |                   |   |            |           |      |   |            |            |   |   |            |           
|Loss from operations                     |                                    |   | (1,951,911         | )         |                   |   | (2,402,007 | )         |      |   | (5,962,266 | )          |   |   | (5,373,766 | )         
|                                        
|                                        
|                                        
|                                        
|Other income (expense):                 
|                                        
|                                        
|                                        
|                                        
|                                         | Other income (expense)             |   |                    | 3,542     |                   |   |            | 526,212   |      |   |            | 601        |   |   |            | 486,862    |  
|                                        
|                                        
|                                        
|                                        
|                                         | Interest income                    |   |                    | 345,175   |                   |   |            | 294,970   |      |   |            | 923,868    |   |   |            | 720,500    |  
|                                        
|                                        
|                                        
|                                        
|                                         | Interest expense                   |   |                    | (6,384    | )                 |   |            | (442      | )    |   |            | (7,287     | ) |   |            | (540       | )
|                                         |                                    |   |                    |           |                   |   |            |           |      |   |            |            |   |   |            |           
|Loss from operations before income taxes |                                    |   | (1,609,578         | )         |                   |   | (1,581,267 | )         |      |   | (5,045,084 | )          |   |   | (4,166,944 | )         
|                                        
|                                        
|                                        
|                                        
|Provision for income taxes               |                                    |   | 35,960             |           |                   |   | 51,426     |           |      |   | 93,777     |            |   |   | 170,040    |           
|                                         |                                    |   |                    |           |                   |   |            |           |      |   |            |            |   |   |            |           
|Net loss                                 |                                    | $ | (1,645,538         | )         |                   | $ | (1,632,693 | )         |      | $ | (5,138,861 | )          |   | $ | (4,336,984 | )         
|                                         |                                    |   |                    |           |                   |   |            |           |      |   |            |            |   |   |            |            |  
|Basic and diluted net loss per share     |                                    | $ | (0.10              | )         |                   | $ | (0.10      | )         |      | $ | (0.31      | )          |   | $ | (0.29      | )         
|                                         |                                    |   |                    |           |                   |   |            |           |      |   |            |            |   |   |            |            |  
|Weighted average shares outstanding      |                                    |   | 16,686,772         |           |                   |   | 15,873,924 |           |      |   | 16,497,923 |            |   |   | 15,053,100 |           
|                                         |                                    |   |                    |           |                   |   |            |           |      |   |            |            |   |   |            |            |  

See accompanying notes.

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##### Table of Contents






DIGENE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                     |                                                       |                                                         |                                           |             |                   |            |             |             |         |            |  
|---------------------------------------------------- | ----------------------------------------------------- | ------------------------------------------------------- | ----------------------------------------- | ----------- | ----------------- | ---------- | ----------- | ----------- | ------- | ---------- | -
|                                                     |                                                       |                                                         |                                           |             | Nine Months Ended
|                                                     |                                                       |                                                         |                                           |             | March 31,        
|                                                     |                                                       |                                                         |                                           |             |                  
|                                                     |                                                       |                                                         |                                           |             | 2001              |            | 2000       
|                                                     |                                                       |                                                         |                                           |             |                   |            |            
|                                                     |                                                       |                                                         |                                           |             | (Unaudited)      
|Operating activities                                
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net loss                                              |                                                         | $                                         | (5,138,861  | )                 |            | $           | (4,336,984  | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Adjustments to reconcile net loss to net cash used in
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                       | operating activities:                                  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                       | Depreciation and amortization of property and equipment |                                           |             | 1,026,969         |            |             |             | 750,485 |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                       | Amortization of intangible assets                       |                                           |             | 112,565           |            |             |             | 112,565 |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                       | Compensation expense related to stock options           |                                           |             | 24,102            |            |             |             | 47,475  |           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                       | Changes in operating assets and liabilities:           
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                       |                                                         | Accounts receivable                       |             |                   | 7,790      |             |             |         | (2,819,718 | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                       |                                                         | Inventories                               |             |                   | (1,675,783 | )           |             |         | (500,406   | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                       |                                                         | Prepaid expenses and other current assets |             |                   | 83,757     |             |             |         | 12,120     |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                       |                                                         | Deposits                                  |             |                   | (116,376   | )           |             |         | (753,309   | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                       |                                                         | Accounts payable                          |             |                   | (204,874   | )           |             |         | 1,171,433  |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                       |                                                         | Accrued expenses                          |             |                   | 27,392     |             |             |         | 273,447    |  
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                       |                                                         | Accrued payroll                           |             |                   | (156,990   | )           |             |         | (59,118    | )
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     |                                                       |                                                         | Deferred rent                             |             |                   | 120,654    |             |             |         |           |  
|                                                     |                                                       |                                                         |                                           |             |                   |            |             |            
|Net cash used in operating activities                |                                                       |                                                         | (5,889,655                                | )           |                   |            | (6,102,010  | )          
|                                                    
|                                                    
|                                                    
|                                                    
|Investing activities                                
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Purchases of short-term investments                   |                                                         |                                           | (10,810,494 | )                 |            |             | (19,216,523 | )      
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Maturities of short-term investments                  |                                                         |                                           | 16,158,228  |                   |            |             | 7,922,687   |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Capital expenditures                                  |                                                         |                                           | (1,267,958  | )                 |            |             | (1,331,858  | )      
|                                                     |                                                       |                                                         |                                           |             |                   |            |             |            
|Net cash provided by (used in) investing activities  |                                                       |                                                         | 4,079,776                                 |             |                   |            | (12,625,694 | )          
|                                                    
|                                                    
|                                                    
|                                                    
|Financing activities                                
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Net proceeds from issuance of Common Stock            |                                                         |                                           |            |                   |            |             | 10,403,904  |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Exercise of common stock options                      |                                                         |                                           | 3,051,590   |                   |            |             | 1,259,521   |        
|                                                    
|                                                    
|                                                    
|                                                    
|                                                     | Proceeds from note payable                            |                                                         |                                           | 1,000,000   |                   |            |             |            |        
|                                                     |                                                       |                                                         |                                           |             |                   |            |             |            
|Net cash provided by financing activities            |                                                       |                                                         | 4,051,590                                 |             |                   |            | 11,663,425  |            
|                                                     |                                                       |                                                         |                                           |             |                   |            |             |            
|Net increase (decrease) in cash and cash equivalents |                                                       |                                                         | 2,241,711                                 |             |                   |            | (7,064,279  | )          
|                                                    
|                                                    
|                                                    
|                                                    
|Cash and cash equivalents at beginning of period     |                                                       |                                                         | 7,534,998                                 |             |                   |            | 13,934,415  |            
|                                                     |                                                       |                                                         |                                           |             |                   |            |             |            
|Cash and cash equivalents at end of period           |                                                       | $                                                       | 9,776,709                                 |             |                   | $          | 6,870,136   |            
|                                                     |                                                       |                                                         |                                           |             |                   |            |             |             |        

See accompanying notes.

3



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##### Table of Contents






DIGENE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

The consolidated financial statements of Digene Corporation (Digene) for the
three- and nine-month periods ended March 31, 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, 2000 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:

|                     |  |           |            |          |  |   |            |  
|-------------------- |  | --------- | ---------- | -------- |  | - | ---------- | -
|                     |  | March 31, |            | June 30,
|                     |  | 2001      |            | 2000    
|                     |  |          
|Finished goods       |  | $         | 2,537,321  |          |  | $ | 1,737,163  |  
|                    
|                    
|                    
|                    
|Work in process      |  |           | 3,911,978  |          |  |   | 2,622,741  |  
|                    
|                    
|                    
|                    
|Raw materials        |  |           | 1,602,642  |          |  |   | 1,295,015  |  
|                     |  |          
|                     |  |           | 8,051,941  |          |  |   | 5,654,919  |  
|                    
|                    
|                    
|                    
|Obsolescence reserve |  |           | (1,975,861 | )        |  |   | (1,254,622 | )
|                     |  |          
|                     |  | $         | 6,076,080  |          |  | $ | 4,400,297  |  
|                     |  |          

3. Marketing and Distribution Agreement

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

4



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##### Table of Contents



4. Subsequent Event

On April 30, 2001, Digene entered into a co-exclusive distribution
agreement with Roche Molecular Systems, Inc. (Roche) for Digenes human papillomavirus DNA tests in Europe,
the Middle East and Africa. Roche has made an up front payment convertible
into Digene equity under
certain circumstances and minimum purchase commitments for Digenes HPV
products through June 30, 2002.

5. Sale of Product Line  KD Medical Promissory Note

On March 24, 2000, Digene completed the sale of its Molecular Biology Reagents
(MBR) product line and related assets to KD Medical, Inc. (KD
Medical). This transaction involved the sale of its MBR product line and the associated manufacturing
equipment, as well as the raw material and finished goods inventory for the
product line. As consideration for this sale, Digene received $200,000 in cash
and a promissory note in the amount of $400,000 payable in monthly installments
of $20,000 plus 8% accrued interest from July 1, 2000 through February 1, 2002.
A gain of approximately $515,000 was recorded on the sale of this product line,
which is included as Other income (expense) in the Consolidated Statements of
Operations for the period ended March 31, 2000. In October 2000, KD Medical
notified Digene of its expected inability to make payments in accordance
with the terms of the promissory note. On February 1, 2001, Digene
re-negotiated the note to consolidate the current outstanding principal balance
and accrued interest due thereon as of February 1, 2001. The amended
promissory note in the amount of $406,500 is payable in monthly installments of
$2,700, commencing on March 10, 2001 and on the tenth day of each month
thereafter, with the payment credited first against interest on the unpaid
principal amount at a rate of 8% per annum, and the balance of each payment
being applied to the unpaid principal balance. In addition to the monthly
$2,700 payment, commencing on April 10, 2001 and on the tenth day of the first
month in each quarter thereafter, KD Medical will pay an amount calculated as a
percentage (ranging from 2% to 15%) of its gross sales over a base amount. The
unpaid principal balance, together with accrued interest, is payable in full on
January 31, 2003.

5



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##### Table of Contents






Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations

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 and 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 tests, which, for fiscal year 2000, accounted for 43% of total revenues and,
for the nine months ended March 31, 2001, accounted for 50% of total revenues.
We expect that the growing acceptance of our HPV tests in both the United States
and abroad will accelerate the growth in revenues from our HPV tests
in the future.

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, 2000. Some of the information
that follows are not statements of historical fact, and reflect our intent,
belief or expectations regarding the anticipated effect of events,
circumstances and trends. Such statements should be considered as
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. 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
Diagnostics 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 as product sales increase; uncertainty regarding patents and
proprietary rights in connection with our products; our limited sales and
marketing experience; the extent of future expenditures for sales and marketing
programs; uncertainty of clinical trial results for our products under
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 fiscal year 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, 2000.

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Results of Operations

Product sales increased to approximately $9,004,000 for the three-month period
ended March 31, 2001 from approximately $5,965,000 for the corresponding period
in 2000. The increase was due primarily to growth in sales of our human
papillomavirus (HPV) products (representing 74% of the increase
in total product sales and an 81% increase in sales of HPV products for the three months ending March 31, 2001
over the corresponding period in 2000) and growth in sales of our equipment products
(representing 21% of the increase in total product sales and a 58%
increase in sales of equipment for the three months ending March 31, 2001 over
the corresponding period in 2000).
The majority of the growth in HPV products sales was due to increased sales in
the United States (167% increase over HPV product sales in the corresponding period in 2000), with
marginal increased sales in international markets (5% increase over HPV product sales in the corresponding period in 2000).

Product sales increased to approximately $23,396,000 for the nine-month period
ended March 31, 2001 from approximately $16,144,000 for the corresponding
period in 2000. The increase was due primarily to the growth in sales of our
HPV products (representing 71% of the increase in total product sales
and a 76% increase in sales of HPV products for the nine months ending March 31, 2001
over the corresponding period in 2000) and growth in sales of our equipment products (representing 25% of the increase in
total product sales and a 65% increase in sales of equipment for the nine months ending March 31, 2001 over
the corresponding period in 2000).
The majority of the growth in HPV products sales was due to increased sales in
the United States (155% increase over HPV product sales in the corresponding period in 2000), with
marginal increased sales in international markets (10% increase over HPV product sales in the corresponding period in 2000).

Research and development contract revenues decreased to approximately $6,000
for the three-month period ended March 31, 2001 from approximately $159,000 for
the corresponding period in 2000 and increased to approximately $541,000 for
the nine-month period ended March 31, 2001 from approximately $448,000 for the
corresponding period in 2000. The decrease in the three-month period was due
primarily to a reduction in revenue under certain contracts, one of which
provides for the payment of royalties. The increase in the nine-month period
was due primarily to recognition of royalty revenue under one contract,
partially offset by a reduction in research and development revenue under
another contract.

Cost of product sales increased to approximately $2,891,000 and $8,916,000 for
the three- and nine-month periods ended March 31, 2001, respectively, from
approximately $2,193,000 and $5,503,000 for the corresponding periods in 2000.
Gross margin on product sales increased to 68% for the three-month period ended
March 31, 2001 from 63% for the corresponding period in 2000 and decreased to
62% for the nine-month period ended March 31, 2000 from 66% for the
corresponding periods in 2000. The increase in gross margin percentage for the
three-month period was due primarily to increased sales of HPV products in the
United States at higher average unit prices than international sales, and the shift
from equipment sales to higher-margin reagent sales in Europe. The decrease in
gross margin percentage for the nine-month period was due primarily to the
negative impact on product yield and quality during the six months ended
December 31, 2000 associated with the relocation to our new facility, product
mix, the impact of foreign exchange rates on our average unit prices and
increases in inventory reserves, mitigated somewhat by improved sales of
higher-margin HPV products in the United States during the three-month period
ended March 31, 2001.

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During the three- and nine-month periods ended March 31, 2001, respectively, we
focused our research and development activities principally on: the development
of our Rapid Capture System for automated processing or our Hybrid
Capture® tests, initially related to chlamydia and gonorrhea;
activities related to the preparation of FDA filings that we intend to submit
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 aged 30 and older; the development of a single-sample
system 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 increased to
approximately $1,987,000 and $5,934,000 for the three- and nine-month periods
ended March 31, 2001, respectively, from approximately $1,792,000 and
$4,169,000 for the corresponding periods in 2000. The increase in expenses was
due primarily to increased purchases of laboratory supplies, which increased
115% and 98% for the three- and nine-month periods, respectively, personnel
costs, which increased 27% and 25% for the three- and nine-month periods,
respectively and facilities costs, which increased 26% and 142% for the three-
and nine-month periods, respectively, partially offset by decreases in outside
professional services and clinical trial expenses, which decreased 68% and 16%
for the three- and nine-month periods, respectively.

Selling and marketing expenses increased to approximately $3,442,000 and
$8,725,000 for the three- and nine-month periods ended March 31, 2001,
respectively, from approximately $2,796,000 and $7,546,000 for the
corresponding periods in 2000. The increase was due primarily to personnel
costs, which increased 70% and 38% for the three- and nine-month periods,
respectively, facilities costs, which increased 27% and 63% for the three- and
nine-month periods, respectively and royalty costs, which increased 40% and 9%
for the three- and nine-month periods, respectively, partially offset by
decreases in costs of marketing programs of 20% and 14% for the three- and
nine-month periods, respectively.

General and administrative expenses increased to approximately $2,604,000 and
$6,211,000 for the three- and nine-month periods ended March 31, 2001,
respectively, from approximately $1,707,000 and $4,636,000 for the
corresponding periods in 2000. The increase was due primarily to professional
fees, which increased 157% and 68% for the three- and nine-month periods,
respectively, mainly as a result of recording expenses of approximately
$500,000 related to the planned follow-on public offering of our common stock,
which was withdrawn in March 2001. Additional increases included facilities
costs attributable to increased rent and related expenses associated with our
new facility to which we moved during the third quarter of fiscal 2000, which
increased 37% and 54% for the three- and nine-month periods, respectively, and
personnel costs, which increased 17% and 27% for the three- and nine-month
periods, respectively.

Interest income increased to approximately $345,000 and $924,000 for the three-
and nine-month periods ended March 31, 2001, respectively, from approximately
$295,000 and $721,000 for the corresponding periods in 2000. The increase was
due to higher average cash and cash equivalents balances, primarily as a result
of the investment of the proceeds of our private placement completed in
December 1999, partially offset by negative cash flows from operations.

8



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Liquidity and Capital Resources

Since inception, our expenses have significantly exceeded our revenues,
resulting in an accumulated deficit of approximately $60,626,000 at March 31,
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 experienced negative cash flows from operations of
approximately $5,890,000 and $6,102,000 for the nine months ended March 31,
2001 and 2000, respectively.

Capital expenditures decreased to approximately $1,268,000 for the nine months
ended March 31, 2001 from approximately $1,332,000 for the corresponding period
in 2000.

In February 2000, we received an equipment loan facility of $1,000,000 from the
State of Maryland. Approximately $503,000 worth of fixed asset additions,
previously financed with cash, was converted to this facility during July 2000.
The remaining $497,000 in funding available was converted to this facility
during September 2000.

We refer you to Note 4 to our Consolidated Financial Statements for a
discussion of amounts owed to us from KD Medical under a $406,500 promissory
note.

We anticipate that working capital requirements will increase moderately for
the foreseeable future due to increasing accounts receivable as a result of
expected revenue growth. We have incurred negative cash flows from operations
since our inception, and have expended, and expect to continue to expend in the
future, substantial funds to complete our planned product development efforts,
expand our sales and marketing activities and expand our manufacturing
capabilities. We expect that our existing capital resources will be adequate
to fund our operations through fiscal 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 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 and nine-month periods
ended March 31, 2001 and 2000, respectively. Interest rate exposure is
primarily limited to the approximately $17,100,000 of 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, typically less than twelve-month, 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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##### Table of Contents






PART II. Other Information




Item 5. Other Information

Recent Developments

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

Also on April 30, 2001, Digene entered into a co-exclusive distribution
agreement with Roche Molecular Systems, Inc. (Roche) for Digenes human papillomavirus
DNA tests in Europe, the Middle East and Africa. Roche has made an up front
payment convertible into Digene equity under certain circumstances and minimum
purchase commitments for Digenes HPV products through June 30, 2002.




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*    |  | Co-Promotion Agreement between Digene and Cytyc Corporation, dated
January 17, 2001.                                                                            
|        
|        
|        
|        
|10.2*    |  | Reseller Agreement between Digene and Tropix, Inc., dated July 22, 1996.                                                                                        
|        
|        
|        
|        
|10.2(a)* |  | First Amendment to Reseller Agreement between Digene and Tropix, Inc.,
dated July 24, 1997.                                                                     
|        
|        
|        
|        
|10.2(b)* |  | Second Amendment to Reseller Agreement between Digene and Tropix,
Inc., dated May 14, 1998.                                                                     

*       Confidential treatment has been requested for certain provisions thereof
pursuant to a
Confidential Treatment Request filed May 15, 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 March 31,
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:May 15, 2001 |  | By:/s/ Charles M. Fleischman  
|                  |  | Charles M. Fleischman         
|                 
|                 
|                 
|                 
|                  |  | President,                    
|                 
|                 
|                 
|                 
|                  |  | Chief Operating Officer and   
|                 
|                 
|                 
|                 
|                  |  | Chief Financial Officer       
|                 
|                 
|                 
|                 
|                  |  | (Principal Financial Officer) 
|                 
|Date:May 15, 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*       |  | Co-Promotion Agreement between Digene and Cytyc Corporation,
dated January 17, 2001.                                                                            
|           
|           
|           
|           
|10.2*       |  | Reseller Agreement between Digene and Tropix, Inc., dated
July 22, 1996.                                                                                        
|           
|           
|           
|           
|10.2(a)*    |  | First Amendment to Reseller Agreement between Digene and
Tropix, Inc., dated July 24, 1997.                                                                     
|           
|           
|           
|           
|10.2(b)*    |  | Second Amendment to Reseller Agreement between Digene and
Tropix, Inc., dated May 14, 1998.                                                                     

*       Confidential treatment has been requested for certain provisions
thereof pursuant to a Confidential Treatment Request filed May 15, 2001.
Such provisions have been filed separately with the Commission.

13